The DC Council returns from recess this week, just in time to catch up on DCFPI’s three-part series on the District’s fund balance ‘ an important ‘ but often misunderstood’ fiscal tool for cities and states. Last week, the District’s Dime spent some time walking through what the fund balance is ‘ essentially DC’s savings account ‘ and how DC officials used the very large surplus built up during boom times on important items like school modernization and preventing deep cuts to critical services during the Great Recession.
Now, we turn to the key questions of how and when the District should begin to build back up its savings account. Like nearly every other city and state across the US, DC’s fund balance has gotten to a point where we can no longer use it to help balance our budget. Indeed, Dr. Gandhi and other DC officials have highlighted the need to replenish the fund balance.
But from recent debate, you probably wouldn’t have known that there are not one, but two processes recently put in place to do just that.
- Each year, 100% of any end-of-year surplus are required to be sent to DC’s savings account. The plan, adopted in 2010 and introduced by then-Council Chairman Gray, requires monies to be deposited in two special funds–one that provides money solely for working capital and another that is essentially another rainy day fund– in the fund balance until they total more than $620 million.
- The second plan, passed in 2011 and introduced by current Chairman Brown, requires that half of any increase in revenues, beyond the level assumed in the adopted FY 2012 budget, must be deposited into the fund balance. (This plan only applies to FY 2012 and not future fiscal years.) That plan already has resulted in a $26 million deposit into the fund balance, with the potential to add even more when the next revenue forecasts are announced. [Chairman Brown did attempt to amend his plan, but as of now, the original plan is in effect.]
There have been some calls lately to go beyond this, but it’s important that rebuilding the fund balance be, well, balanced against the other critical needs of the city at the same time. Just as having a healthy fund balance is important, so is maintaining schools, libraries, homeless shelters and other critical city services. The FY 2012 budget includes a number of cuts to services ‘ for example, to areas like child care, assistance for people with disabilities, libraries and housing. If revenues continue to grow, some of that revenue should be devoted to these services as well.
The current plans to build back the fund balance require the District to save substantial amounts but also give the city flexibility to respond to ongoing budget needs now and in the future. That’s good fiscal policy and good for the city.
As DC finances stabilize and recover from the recession, it is important that the District settle on fiscal choices ‘ like how to rebuild the fund balance ‘ that it can live with. Once rules about how much to save are set in place, they can’t be undone without looking fiscally irresponsible and risking an unfavorable view from Wall Street.
The steps the District has taken in recent years have established a balance between building up savings and maintaining flexibility to respond to pressing budget needs. They are sound rules that not only can the city live with but that set a path for a strong city in the future. They should be left alone.
