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Government and People
TO: The Honorable Anthony A. Williams, Mayor of the District of
FROM: Natwar M. Gandhi, Chief Financial Officer
DATE: July 2, 2002
RE: Options for Closing $75 Million Budget Gap
In my June 27, 2002, memorandum I described a new $75 million revenue shortfall, over 80 percent of which would have to be met with savings from District-wide adherence to a very strict expenditure budget for the remainder of this fiscal year. At this time, I must advise you that no reserves are available to meet any of the new revenue shortfall.
The following options are available for closing the entire $75 million budget gap:
Conversion of "O"-Type Revenues
The Office of the Chief Financial Officer (OCFO) is targeting $35 million in additional local fund revenues from the conversion of FY 2002 collections of "O"-type revenues to local funds. The Council must approve legislation on July 2 to accomplish this. In addition, "O"-type spending must be restricted to only critical needs for the rest of FY 2002, and hiring and NPS spending must be frozen immediately pending consultations among the city administrator, deputy mayors, and agency heads to arrive at the final plan. The OCFO will continue to monitor the accounts and collections closely to determine if more can be realized, but the initial target is $35 million, which is as follows:
"O"-type accounts classified as "federal" are not considered available, because spending such funds is tied to federal restrictions. The restrictions exist according to a current grant or a former grant that produced income and restricts how that income may be spent.
The conversion of this level of "O"-type revenues to local funds is critical to the success of this plan to close the $75 million budget gap. OCFO will closely monitor all the estimates contained in this plan, and we will promptly apprise you of any changes.
Department of Corrections/U.S. Marshals Service Reimbursement
In addition to the above $35 million in "O"-type revenue, $10 million is available from net reimbursements to the District from the U.S. Marshals Service to cover the DOC’s cost for housing federal prisoners. The transfer of felons sentenced pursuant to the D.C. code from the custody of the District to the federal Bureau of Prisons following the closing of Lorton Correction Complex is a provision of the National Capital Revitalization and Self-Improvement Act of 1997.
Freezes on Personal Services (PS) and Non Personal Services (NPS) Spending
The remaining $30 million in savings to offset the revenue shortfall can be realized from freezes on new PS and NPS spending. Police, Fire, and Corrections would be exempted, but they must not spend more than planned. Existing savings from vacancies will not be available for spending.
OCFO will set target savings for each agency. The targets will be composed of the projected balances, after considering estimated total PS expenditures for the year and existing NPS commitments for the year. The agencies will make the final decisions on how to accomplish the savings.
I recommend an immediate suspension of all hiring actions, pending consultations among the city administrator, deputy mayors, and agency heads to arrive at final details of a hiring freeze.
Agencies must be prevented from making unbreakable hiring commitments between now and the completion of plans for the freeze.
Final decisions on the details of the freezes should be made by July 8, in order to accomplish the required savings. In the event that an agency finds it cannot adhere to the final details of the PS and NPS freezes, there will be a special panel composed of members of the OCFO and the Office of the City Administrator to review the agency’s need and decide whether additional spending must occur.
As I stated in my June 27 memorandum, these will be difficult budget measures, but we expect the gap can be handled without harsher measures such as furlough days and reductions-in-force. Agency directors must adhere strictly to the plan to ensure the District’s overall financial viability. We will monitor progress weekly and will recommend additional measures as deemed necessary. As I said above, the key here is our ability to convert "O"-type revenues to local funds. If this does not happen, an alternative plan must be considered.
In closing, I must stress the seriousness of the need to control spending and generate savings. It is imperative that we achieve a balanced budget and ensure the continued financial viability of the District. We need to remain concerned not only about balance on a budgetary basis, but about preventing a generally accepted accounting principles (GAAP) deficit and a cash deficit, as well.
cc: Members of Council
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