Washington Post politics blogger Mike DeBonis earns a triple A rating from DCFPI for his thoughtful post on the District’s fund balance. DeBonis asks: “Why do we keep these reserves if not to spend them in times of need? And is this not a time of need?”
The post attracted a response from David Umansky, a spokesman for DC Chief Financial Officer Natwar Gandhi.
Like Umansky, we’d like to start with points of agreement. We all agree that the District needs to maintain a healthy savings account, and we need to be judicious about using these funds. So far, we have a great track record in this regard: Research shows that despite the use of DC’s fund balance during the recession, at the end of next year our fund balance is estimated to be higher than in 43 other states.
We part ways with Umansky on his statement that the fund balance will soon be depleted and his warnings of an imminent downgrading of DC’s bond rating and financial peril. As DeBonis points out, use of fund balance ‘ particularly in one of the worst recessions on record ‘ by itself isn’t likely to cause a downgrade. If that were the case, nearly every city and state would have been downgraded already.
In addition, unlike in most states, DC has hardly tapped into our rainy day fund. In the chart Umansky included in his response, it clearly shows that DC has over $284 million still left in that account for emergencies, including revenue drops caused by a recession. So we are not, as it’s been said, left with nothing.
Instead, DC spent down a savings account that had risen, at its peak, to $1.6 billion, or 37 percent of our budget, when the norm for most states was 8 percent. DC’s leaders used that money to pay for a backlog of infrastructure improvements without borrowing, paying for DC government retiree health benefits, and most recently using funds to fill huge budget holes left by the recession. As DeBonis points out, economists such as Paul Krugman believe that this is the responsible approach during a severe downturn.
The alternative is keeping money in the bank while we lay off workers and cut programs, which hurts residents and makes recovery even more difficult.
