Late last month, as fiscal year 2012 drew to a close, DC found out it had $140 million more in the city’s coffers than we had expected. This was not left over or unspent monies at the end of the year, but an uptick in our revenue that we hadn’t anticipated getting.
Where did this surplus come from? Can we spend it?
A few answers:
Where did this money come from? About $75 million comes from higher income and sales taxes. DC’s unemployment rate is declining, which means more residents are earning wages, and those wages are also rising. Another $23 million comes from higher automatic traffic enforcement collections. The final chunk is about $50 million from DC’s estate tax, which is money that comes from the settling of at least one very wealthy person’s assets after their death.
Can the $140 million be spent? The short answer is yes’but there are a few asterisks.
The new revenues were collected in fiscal year 2012, and we are now in fiscal year 2013. But the books for 2012 have not been shut yet, so funding could be added to certain line items that are not closed out at the end of the fiscal year’so-called “non-lapsing funds.”
A second option would be to spend some of the $140 million surplus once it is officially certified in January. That’s when we know exactly how much year-end surplus we have, because it will combine the unexpected $140 million with dollars that were budgeted for 2012 and simply not spent. So there’s a good chance the certified surplus will be greater than $140 million, because it’s very hard to spend money down to the very last penny.
Here’s where some other asterisks come in. Under current law, half of any fiscal year-end surplus must be set aside in a budget reserve, and the other half must be placed in a “working capital fund” to help build DC’s cash-on-hand. A few things to keep in mind: In 2011, DC ended up with a surplus of $240 million that followed these rules. So if the District ends up with another large surplus, let’s say more than $200 million, there are legitimate questions about whether 100 percent of those funds should be saved rather than using some to meet pressing needs, like providing funds to house families who right now have no place to sleep.
That’s why groups such as the Fair Budget Coalition are urging the Mayor and DC Council to use some of these additional revenues to address gaps in funding for homeless services, housing, and TANF cash assistance and job training. DCFPI agrees. These are services that were put on the Fiscal Year 2013 budget wish list, because there was not enough funding when the budget was set. The Fair Budget Coalition argues that these should be funded now that revenues are growing, even though the added revenues came in 2012.
Shouldn’t these revenue increases spill over into the forecast for fiscal year 2013? A bump in the estate tax is unpredictable. Yet the increases in sales, income and traffic enforcement revenues are likely to continue in 2013. But the Chief Financial Officer’s recent revenue forecast did not make any adjustments for 2013.
Why not?
Because of tremendous uncertainty over the federal budget and “sequestration,” the budget cuts that may’or may not’go into effect next year. The CFO declined to make any predictions until the federal budget picture becomes clearer. If a federal “fiscal cliff” is avoided, as most observers assume will happen regardless of who wins the presidential election, we can expect a substantial increase in revenue projections for 2013 and beyond.
With combined surplus over the last two years expected to top $400 million, this is a reasonable point that should be considered.