Yesterday, DC Chief Financial Officer Natwar Gandhi announced the revenue forecast that our elected officials and many other budget-watchers have been eagerly anticipating. Dr. Gandhi said the District will collect an additional $107 million in the current year, FY 2011, as well as see an increase of $77 million in revenue for next year, FY 2012. The revenue boost comes from better-than-expected collections of property, income, and deed recordation and transfer taxes.
The June forecast was the subject of much speculation over recent weeks, and the source of some spirited debate among Council members during last week’s final FY 2012 budget vote. As District Dime readers know, two out of every three dollars cut in Mayor Gray’s budget came from critical human services programs, and though the Council made some key restorations, many important programs and services ‘ in areas like public safety, affordable housing, and libraries ‘ did not get funding restored. As an alternative, council members decided not to wait for actual revenue numbers and included in the final Budget Support Act a lengthy list of priority restorations for any additional revenue Dr. Gandhi determined in his quarterly forecast.
Yet as the list is currently structured, not many critical programs will benefit from the additional revenue boost. For the current year, FY 2011, the $107 million in additional revenue will likely all be gobbled up by spending pressures in various agencies. In May, it was reported that there were at least $70 million in spending pressures in areas like health care and settlements and claims, and it has been discussed that there are likely more spending pressures that will result by the end of the fiscal year.
For next year, FY 2012, the $77 million in additional revenue isn’t enough to fund all of the priorities on the Council’s restoration list. In fact, it would only fully fund the first priority and partially fund the second. Here’s why: Based on the final Budget Support Act vote taken last week, the first $22 million in additional revenue would be used to move employees from the capital to the operating budget. Of the remaining $56 million in additional revenue, half would be put into DC’s fund balance, or savings account. The remaining $28 million would be used to fund programs on the Council’s priority restoration list.
However, the $28 million is only enough to get to two programs on the list’ funding for a commercial revitalization program ($2 million) and funding for additional costs in the managed care system ($26 million) ‘ and it would leave the funding needed for the managed care contracts about $6 million short. It also would not be enough to fund other priorities such as police officers, affordable housing, and assistance for people with disabilities.
So, what happens next? Right now, it’s unclear. It’s likely that the Mayor and Council will meet later this week ( hopefully in a televised discussion) to talk about how to best use the increased revenue.
Mayor Gray and the Council should consider several options moving forward. Overall, our elected leaders should prioritize using the additional revenue to fund programs and services that help residents as we try to keep positive momentum out of the difficult economy of these past few years.
One option to consider is slowing down the shift of capital expenditures to the operating budget and completing it in FY 2013. Doing this shift incrementally over two years will allow District leaders to allocate $22 million to critical priorities next year, in FY 2012.
A quick explanation: Mayor Gray and his budget team determined about $47 million of expenditures in next year’s capital budget, which finances our big infrastructure projects, should actually be in our yearly operating budget. The District pays interest on the capital budget, so it is good budgeting practice for all yearly, recurring expenses like salaries not directly related to a specific project to be paid for in the operating budget. Yet the shift does not need to happen all at once. Dr. Gandhi told the city’s elected leadership that about $21 million in these expenses need to be moved immediately. That has already been done. The other half should be moved soon, but it does not need to happen all next year. Delaying the shift to FY 2013 can devote $22 million to police, affordable housing, and other critical needs.
Our elected leaders could also prioritize critical program needs by changing the percentage of additional revenue we put toward the city’s fund balance. The council approved 50 percent, yet several Council members supported an amendment putting one-third of the additional revenue into the reserves. It is certainly important for the city to have a healthy reserve fund, which it does. Going with one-third rather than one-half would help put critical dollars immediately into use to help District families.
As well, Mayor Gray and the Council should remain steadfast in putting dollars into services and not restoring tax breaks with these additional funds. The Council has voted twice to remove the tax break on interest earned on out-of-state municipal bonds and make it permanent. That is the right decision, and the Council should keep it in place.
Stay tuned to the District Dime for more updates!
