Testimony at the Performance Oversight Hearing for the Office of Chief Financial Officer

Chairperson McDuffie and members of the Committee, thank you for the opportunity to submit written testimony. My name is Tazra Mitchell, and I am the policy director at the DC Fiscal Policy Institute (DCFPI). DCFPI is a nonprofit organization that promotes budget choices to address DC’s racial and economic inequities through independent research and policy recommendations.

The District’s Office of Chief Financial Officer (OCFO) is one of the most important institutions in DC, with responsibility for keeping our financial house in order and undergirding all that the DC government does. The OCFO deserves credit for sound management of DC’s finances, with balanced budgets every year, generally clean audits, healthy reserves, and a AAA bond rating. We all benefit tremendously from this.

Beyond sound management, however, it also is critically important that the OCFO improve their accuracy with revenue forecasting, which would better enable the Mayor and DC Council to use DC’s resources fully and effectively to help residents and businesses. This is especially important since the OCFO is an independent office that has a great deal of influence, and because economic distress in DC remains high, particularly for Black and brown residents. We could also soon face an eviction crisis and small businesses are struggling to survive.

DCFPI’s review finds several ways that OCFO operations limit DC’s ability to use its resources, and we recommend several changes to financial operations to improve the ability to invest in the community:

• Build flexibility into the approved budget to better avoid large year-end surpluses;
• Ensure OCFO stays on mission; and,
• Require greater transparency and encourage greater engagement with advocates.

And, as this Committee explores options to leverage DC’s growing revenues, DC has an opportunity to move away from the practice of raising revenue through punitive fees and fines that disproportionately harm Black and brown residents and those with low incomes.

Built-In Budget Flexibility Can Help the District Avoid Large Year-End Surpluses

First, the CFO’s economic assumptions often lead to substantial year-end budget surpluses. For the third year in a row, DC has recorded a budget surplus of more than half a billion dollars that was not factored into recurring revenue available in the budget and is now one-time money that will be distributed by default, regardless of the city’s current needs, without action from lawmakers. Adopting a budget each year that looks balanced but then ends up with a large surplus suggests that the OCFO’s forecasting is overly cautious, leaving a lot of money in the bank that could be used to invest in residents struggling to make ends meet and build towards a just recovery.

The OCFO’s repeated underestimation of the city’s revenues reflects a conservative approach and an overly pessimistic outlook on the state of our economy. Another example of this practice came to light this week when the OCFO updated its projected revenue and expenses for the DC Paid Family Leave Program, showing there is indeed sufficient funding to enact the maximum level of benefits authorized by current law and to lower the employer contribution rate, without affecting solvency of the program.^[1] This is in deep contrast to the office’s original predictions that the cost of the proposed program would likely exceed the taxes collected due to the “high level of benefits” in 2016.^[2]

DCFPI recommends that the CFO explore options to improve its forecasting assumptions and ways to avoid large year-end surpluses. For example, on the latter, the approved budget could include the option of a small upward adjustment to planned expenditures—such as 1 or 2 percent—that the CFO’s estimates would trigger into effect in the last quarter of the fiscal year if a projected budget surplus materializes. This would allow the District the flexibility to increase a current year budget somewhat and use DC tax dollars more fully, and as intended, on recurring programs and priorities.

Encourage the OCFO to Stay on Mission

There are times when the OCFO goes beyond the role of seeing to the fiscal and financial stability of DC government, and wades into policy decisions. For example, the OCFO tried to stop the Council from tapping the large and growing surplus at Events DC, which the Council wanted to redirect to support public housing repairs. There was no question that the money was there and unlikely to be needed by Events DC.^[3] If the Council had followed the OCFO position, there would be a lot of money sitting in Events DC reserves while public housing remained in a worse state of disrepair. In another example, the OCFO asserted several years ago the only practical way to finance the region’s increased investment in Metro was a sales tax increase in each jurisdiction, which would have fallen hardest on residents with low incomes. In the end, this assessment proved wrong, with jurisdictions choosing a variety of ways to finance their Metro obligation. Again, DCFPI believes the OCFO should do more to present underlying data and information, and in some cases policy options available, to policymakers rather than asserting its own positions on policy choices at hand.

Require Greater Transparency and Encourage Stronger Engagement with Advocates

Finally, DCFPI recommends changes to improve transparency around DC’s finances and to improve the OCFO’s engagement with the community. Policymakers and residents would benefit from the inclusion of more historical budget and analytical tables in the annual budget, monthly reports on reserve fund levels and uses, and public release of all memos shared with the Council when the Mayor uses reserves or federal pandemic relief funds.

We also recommend that the OCFO engage more with advocates. The hearing on the fiscal year 2020 Comprehensive Annual Financial Report made it clear that the office regularly meets with business leaders, but that’s not the case with advocates working on behalf of residents struggling to get by. Engaging with advocates would help the OCFO better understand the challenges facing DC residents. It would help advocates better educate the public on DC’s finances and financial management. And it would inform the OCFO in important ways, such as providing information on proposed legislation as the OCFO develops fiscal impact statements.

Steps Towards a Racially Just Recovery

These recommendations would support continued sound management of DC’s finances, while also improving DC’s ability to put its strong finances to use, helping DC residents, and supporting the District’s vitality.

And, as this Committee explores options to leverage DC’s growing revenues, DC has an opportunity to move away from the practice of raising revenue through punitive fees and fines that disproportionately harm Black and brown residents and those with low incomes. We would like to thank Councilmember McDuffie for his leadership on efforts to reform the so-called “Clean Hands Law” (which the OCFO administers) and remove the prohibition of license issuances and renewals to drivers with over $100 in debt, which disproportionately harms Black residents for a host of reasons.^[4] This committee should consider moving forward with one of the two introduced and pending bills to end this punitive policy. One is Chair McDuffie’s “Clean Hands Certification Equity Amendment Act of 2021,” 2021 Bill 24-237, which would exempt driver’s licenses from the reach of the Clean Hands Law and raise the debt threshold for denying other kinds of licenses and permits to $5,000. The other is 2021 Bill 24-230, or the “DC Driving to Opportunity Amendment Act of 2021,” which would remove driver’s licenses from the list of permits covered by the Clean Hands Law.

Thank you for the opportunity to testify.