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|OFFICE OF COMMUNICATIONS
|FOR IMMEDIATE RELEASE:
Monday, March 18, 2002
|CONTACT: Tony Bullock
Mayor Anthony A. Williams Releases Proposed FY 2003 Budget
Plan Calls for Balanced Budget With Modest Increase in
(Washington, DC) Mayor Anthony A. Williams unveiled his Proposed FY 2003 Budget this morning at a press briefing in One Judiciary Square. Joined by Council Chairman Linda W. Cropp and other members of the DC Council, Williams outlined the major highlights of the $5.629 billion plan. The budget provides for a 3.3% increase in local revenues and a 4.7% increase in spending over the District’s FY 2002 budget.
“The good news for the District of Columbia is that we ended our 2001 fiscal year with a surplus of $76.6 million and a fund balance of $562 million. We will fully fund our congressionally mandated cash reserves by the end of this fiscal year, and because of mid-year corrective measures already underway, we will end the current fiscal year without a deficit,” said Williams.
“Nevertheless,” Williams said, “I have communicated to the public that for next year, we face a budget gap of roughly $200 million. The budget I propose today closes that gap in a responsible and sensible way that will allow us to continue making progress in the areas that are most important to me and to our citizens.”
The key components of the mayor’s proposed budget include spending reductions of slightly over $90 million. It also includes $32 million in tax relief with provisions to reduce the corporate franchise tax and to protect homeowners who have received notices of property assessment increases to a maximum single year adjustment of 25%. The mayor’s plan will defer further reductions in the District income tax rates. “I do not believe that further reductions in the income tax as provided for in the Tax Parity Act of 1999 can be realized in the coming fiscal year. While everyone recognizes the merit of this program the simple truth is we cannot afford to fund these reductions at this time,” Williams added.
“The past year has been a difficult one in so many ways. At the end of 2000, the federal budget looked as though it would contain surpluses for decades to come. Now it is clear that the federal budget could be in a deficit posture as early as Fiscal Year 2003. Almost all states have revenue shortfalls and many face potential deficits. Just last month, the National Governors’ Association identified runaway Medicaid costs as the primary budget problem facing their states.
“No one could have foreseen the tragic events of September 11, the anthrax crisis we endured here in the Washington area, or the full impact of the lingering national recession. No one predicted the loss of use of Reagan National Airport and the devastation it brought to our tourist-dependent businesses. But nonetheless, these things happened, and we must deal with the realities now before us,” the mayor said.
There will be some new spending in the budget, specifically in education and wages for employees. The budget will include more than $80 million in strategic enhancements such as $30 million for public schools, more than $22 million in priorities identified by the council, and several million for neighborhood priorities identified by residents through the Strategic Neighborhood Action Plans (SNAPS).
“As we approach the challenges facing us at the advent of this budget process, let’s not forget how much we have already achieved. We have reduced the full-time workforce of this city by roughly 12,000 employees in the past 10 years. We have revitalized our revenue and tax collection systems that were largely dysfunctional just a few years ago. We have made enormous improvements in agencies such as DMV, Parks and Recreation, and Transportation (to name just a few). We have transformed the health care system for the District, replacing a poorly managed independent corporation with a full service health care program that is cost efficient and responsive.
“We have taken agency after agency out of receivership and brought them back under our control with competent management and dramatic service improvements. We have set in place performance-based management programs and improved service delivery to our citizens with a level of success no one thought could be achieved just a few short years ago. And we have done all this with five successive balanced budgets.
“While we will clearly face some challenges in the months ahead, we need to recognize that the budget problems we face today are entirely manageable. I am confident that a majority of the council will agree with the fundamental decisions that we propose here today because we all recognize that our future lies in sustained economic development, improved schools, and vibrant communities,” Mayor Williams concluded.
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March 18, 2002
- Earlier this month at Dunbar Senior High School, I laid out a vision
for the future of our City. I spoke then about some of the
accomplishments we have made as a city over the past three years to
improve the operations of our government. I made specific mention of
the challenges we face going forward..:. particularly in the areas of
special education, Medicaid, and schools.
- The past year has been a difficult one in so many ways. At the end
of 2000, the federal budget looked as though it would contain
surpluses for decades to come. Now it is clear that the federal budget
could be in a deficit posture as early as Fiscal Year 2003. Almost all
states have revenue shortfalls and many face potential deficits. Just
last month, the National Governors' Association identified runaway
Medicaid costs as the primary budget problem facing their states.
- No one could have foreseen the tragic events of September 11th, the
anthrax crisis we endured here in the Washington area, or the full
impact of the lingering national recession. No one predicted the loss
of use of Reagan National Airport and the devastation it brought to
our tourist-dependent businesses. But nonetheless, these things
happened and we must deal with the realities now before us.
- The good news for the District of Columbia is that we ended our 2001
fiscal year with a surplus of 77 million dollars and a fund balance of
562 million dollars. We will fully fund our mandated 250 million
dollar cash reserve by the end of this fiscal year. And - because of
mid-year corrective measures I'm proposing to the Council - we will
end the current fiscal year without a deficit. Compared to many of our
neighboring jurisdictions, we are in an enviable position.
- I have communicated to the public that for next year, we face a
budget gap of roughly $200 million. The budget I propose today closes
that gap in a responsible and sensible way that will allow us to
continue making progress in the areas that are most important to me
and to our citizens.
- As we approach the challenges facing us at the advent of this budget
process let's not forget how much we have already achieved. We have
reduced the full-time workforce of this city by roughly 12,000
employees in the past 10 years. We have revitalized our revenue and
tax collection systems that were largely dysfunctional just a few
years ago. We have made enormous improvements in agencies such as DMV,
Parks and Recreation, OCTO, and Transportation (to name a few). We
have transformed the health care system for the District replacing a
poorly managed independent corporation with a full service health care
program that is cost efficient and responsive.
- We have taken agency after agency out of receivership and brought
them back under our control with competent management and dramatic
service improvements. We have set in place performance-based
management programs and improved service delivery to our citizens with
a level of success no one thought could be achieved just a few short
years ago. And we have done all this with five successive balanced
- I do not believe that further reductions in the income tax as
provided for in the Tax Parity Act of 1999 can be realized in the
coming fiscal year. While everyone recognizes the merit of this
program the simple truth is we cannot afford to fund these reductions
at this time. We _ will need to devote the revenues derived from the
tobacco settlements to general fund revenues for the near future.
- While we will clearly face some challenges in the months ahead, we
need to recognize that the budget problems we face today are entirely
manageable. I am confident that a majority of the Council will agree
with the fundamental decisions that we propose here today because we
all recognize that our future lies in sustained economic development,
improved schools, and vibrant communities. As always, I welcome their
input in this process and I pledge the full cooperation of those in
the mayor's office to help them in their review of this year's budget.
We can and will work together to deliver a responsible and balanced
budget to the Congress.
- At this time I want to outline some of the details and highlights of
the proposed FY '03 budget:
- To start, we need to discuss how my budget closes the gap between
revenues and expenditures. It does so by finding the right balance in
three critical areas:
- Controlling government spending.
- Investing in neighborhoods and key city services.
- Postponing some new tax cuts until we can afford them, while
providing strategic relief in a few critical areas.
- I'll now go into a little detail for each of these areas
Controlling Government Spending
- For FY03, I am proposing a budget of $5.6 billion. Of this amount,
$3.7 billion is our local funds portion, which comes from local
revenues. This is the portion over which we have the most control. But
it's important to note that even of that $3.7 billion, the CFO
estimates only $1.2 billion is truly discretionary. The rest is
already committed by statute or formula.
- From the FY02 approved budget, local revenues have increased by 3.3%
and expenditures have risen by 4.7%. In looking at this growth, there
a two important lessons that require our immediate attention:
- We're still feeling the impact of the recession and September
- A few key cost drivers continue to drive our expenditure growth
in a way that must be, and will be controlled.
- This is an important point, because some have raised the concern
that there is runaway spending across the District government under my
administration. As I've discussed before, actual spending over recent
years has grown around 10% each year, but it's important to note that
this growth is largely driven by four agencies:
- Charter Schools
- PBC (and the transition costs)
- Mental Health
- And these four agencies grew around 29% each year. Meanwhile the
rest of the government's spending grew on average of 2.8% annually.
Chart 1 shows this comparison.
Historical Expenditure Growth
FY 2000 and FY 2001
- That's the spending picture. When you look at the size of the
government workforce, there is also an important lesson. Some will
tell you that I as CFO was good at reducing the size of the workforce,
but as Mayor I am all about fattening it up.
- As you'll see in CHART 2, the size of the government decreased
dramatically over the past 10 years. The decrease began during the
financial crisis of the early 1990s, and continued decreasing during
my time as CFO. During my years as Mayor, the reduction of the
executive branch has continued decreasing, except for the additional
investment we have made in the schools.
Historical Increase and Decrease in Size of DC
- So as we go ahead, the big concern is not so much focused on runaway
spending across the government. The real focus is on the major drivers
of our cost increases, which are special education and Medicaid. The
question now is how are we going to tackle them? Let's start with
- The District is wrestling with Medicaid for the same reasons as
other states: rising health care costs, increased enrollment, and the
challenges of cost containment. In addition, we are dealing with the
legacy of years and years of operational neglect. What does that mean?
We have systems in agencies that can't track patients' eligibility and
treatment, so when it comes time to bill the federal government we
can't properly document our claims. We also have a whole host of
services we deliver that are eligible for Medicaid reimbursement, that
we're not even attempting to submit.
- To address this issue, we are going to focus our resources in the
same way we focused on solving the problems with receiverships. I am
going to appoint a Director of Medicaid Reform to coordinate the very
complex functions in agency programs that are needed to bring this
issue under control. As a result, we expect to see at least $23
million in savings by the beginning of FY05.
- Until those savings are achieved, my budget proposes to use the
Tobacco securitization funds to cover these health-related cost
increases. Initially, we wanted to use these tobacco funds for new
health programs and investments, but given that these Medicaid cost
increases are in part due to expansion of health services, I think it
is reasonable to use them for a limited time.
- I am submitting legislation to the Council, however, that requires
the agencies running Medicaid programs to submit a plan this year for
how they will create $25 million in savings by FY 2005 so that this
funding may be returned to the Tobacco Trust Fund for its original
- Now, how are we going to control the other major cost driver,
- We all know the issue with special education. DCPS has allowed its
operations to decline to the extent that it has very limited capacity
to provide services locally, so the courts make them send kids to
expensive out-of-town schools, and provide transportation, which ends
up sending costs through the roof.
- How will we address it? In the same way that we've tackled the
receiverships and other crises, we will focus the highest level of
this administrations resources on fixing this problem, in partnership,
of course, with DCPS and with the Council. Similar to Medicaid, we
expect to see another $27 million in annual savings by the beginning
of FY05, and DCPS must submit a cost containment plan by the end of
- There is consensus that a task force is needed to muster all the
energy and cooperation needed to achieve these savings and to monitor
implementation of this savings plan. Does this need for a task force
mean there is a lack of confidence in the Board of Education or the
Superintendent? Absolutely not. Does it mean that responsibility for
special education will become scattered among government entities?
- It does mean, however, that the notion of one government has never
been more important than now, and DCPS, the Mayor, the Council, and
the CFO must work together to solve the problems associated with
- So our discussion has covered the two largest cost drivers, what
about cost containment in the rest of the budget?
- Last week McKinsey and Company issued a report on the District's
structural imbalance. In that report they looked at reasons why some
may claim the structural imbalance is not real, and one such reason
was that there are more efficiencies to be gained. Ultimately, they
conclude that even though there are inefficiencies, solving them will
not make the structural balance go away.
- I absolutely agree that the District is not yet a lean organization.
Like any government there are still operations to be fixed, and
efficiencies to be gained.
- That is why I produced over $30 million in spending reductions two
years ago, reducing hundreds of positions from the payroll.
- And going forward, my budget proposal includes strategic spending
reductions across the government in order to balance the FY 2003
budget and make resources available for critical neighborhood
- When the CFO established the baseline budget for FY 2003, I
challenged my deputy mayors to review that baseline and identify
opportunities to reduce costs. These reductions could come through
scaling back lower priority programs, by finding other revenue sources
such as federal grants, or by deferring spending that we can not
afford at this time. At the end of the day, this effort yielded $90
million in operating cost reductions and $250 million in capital
project reductions across the government.
- Here's a few highlights of these cost reductions:
- $7.4 million in cost reductions in health care and Medicaid
- $11.4 million of the $23 million that we were going to transfer
to the Housing Production Trust Fund. This leaves only the
original $11 million transfer that we committed to in the Housing
Bill when it was passed by the Council in January.
- $1.4 million for Department of Corrections halfway house
services that we will no longer find.
- $4.2 million in street light costs that should be moved to the
Local Street Maintenance find, which means we'll pave fewer
streets than hoped.
- $6 million in lower priority personnel costs from agencies
across the government
- $34 million in lower priority non-personnel services costs from
agencies across the government
- $12 million in debt service savings resulting from canceling or
postponing capital projects. This saving results from cutting out
previously approved costs for major projects , including our plans
for a Unified Communications Center and our Forensic Lab. It's not
that the need for these critical facilities has gone down. It's
that we can't afford to borrow the money to build them. We hope
the Federal government will help us with this problem.
- In addition, you should note that this $90 million in cost
reductions does not include the $35 million in operational savings
at DCPS in FY 2002 which are to be carried over into FY 2003.
- Now all of these savings combined will not reach the $150
million target identified by McKinsey as a goal over five years,
but it certainly moves us well down that road. To get the rest of
the way, I will review their report and continue identifying every
opportunity to reduce costs in this government while still
protecting critical investments in neighborhoods and city
- So having discussed cost reduction, let's move on to the
investments made in my proposed budget.
Investing in Neighborhood Improvements and Key City Services.
- At the same time that I am controlling spending this government must
continue to invest in critical services. The advantage of controlling
costs is that those measures help balance your budget, and they free
up resources to invest in other priorities.
- These investments in this budget were not arbitrarily invented. They
are the priorities articulated by thousands of citizens in the Citizen
Summits we've held. They also support the top priorities of the
Strategic Neighborhood Action Plans developed by each of the 39
neighborhood clusters across the city.
- Here are some highlights of service enhancements funded in this
- A $122 million increase for DCPS. Now, most this amount goes to
offset the special education spending problems that we've talked
about. The good news is, however, that the remainder will support
increased funds for the mainstream classroom, including funding
for my commitment to a 20% pay increase for District teachers over
the next 3 years.
- A $3.2 million increase for UDC to enhance post-secondary
education at our only public university.
- A $1.5 million increase for college financial aid as a down
payment on my vision for someday guaranteeing a college education
for all District children.
- And this budget also includes the $17 million federal
contribution for our Tuition Assistance Program, for which we have
already elicited a commitment from the President in his proposed
- Safety Net
- $5 million for the Children and Youth Investment Trust, which
provides a wide array child care and other support services for
- A $21 million increase for Child and Family Services, which
reflects our commitment to bringing up to standard the services
for our most vulnerable children. This also reflects our
commitment to demonstrating that this city does not need the
courts, to manage our services, that we can provide the necessary
resources and manage them well ourselves.
- And I want to add a few contextual points here. First, here is
an example of how a spreadsheet can tell an exciting story. For
the first time in many years, the "Receiverships"
portion of our budget table shows nothing but zeroes, because we
have now returned the last of them to District control.
- A second point is that in terms of the safety net, we have
actually budgeted an additional reserve of $10 million to protect
the District in case our Medicaid reform efforts fail to yield all
of the revenues that we are counting on. When the economy was
booming we could count on lots of extra revenues to compensate
where Medicaid collections fell short. This year we expect much
tighter margins, so we are reserving to ensure that there we can
cover shortfalls and balance our budget. And this reserve comes
after our squeezing out of agency budgets predicted revenues from
Medicaid that have not been achieved in the past.
- A final point is this, you sometimes get credit for enhancing
budgets, and sometimes for reducing them, but rarely for
maintaining them. Well in a year when sacrifices have been made
across the government, I want to note that we have protected the
budgets for our Seniors, for our Latino and Asian communities, and
for our Veterans Affairs office, and for other priority areas that
need our continued support.
- Neighborhood Quality of Life
- This is perhaps the most exciting part of my proposed budget.
Over the past year we have citizens in the District's 39
neighborhood clusters come together and define specific priorities
for their communities. Based on their lists, my cabinet worked
very hard to reorient the thinking of their agencies from that of
a bureaucracy to that of a client-focused operation. It was very
challenging, but the results are great.
- In your packet you will see a packet of Citizen Budget
Worksheets, which reflect for each of these neighborhood clusters
the top priority commitments that are funded in my budget
proposal. I think these worksheets brings the District to a level
of civic engagement and government accountability that rivals any
city in the nation, and I am very proud of this work.
- Many of these commitments you see were made by reallocating funds
within agency budgets. Additional resources are also added in the
- A $7.2 m increase for Public Works to enhance fleet maintenance,
and to support better parking enforcement (particularly in
neighborhoods where residents can't park near their homes or leave
their driveways), and other enhancements.
- A $1.5 m increase for Police civilianization, to get more
officers patrolling the streets.
- A $2 m increase for Parks and Recreation to increase summer jobs
funding and provide operating costs for new recreation centers.
- A $9 m increase for WMATA to enhance Metro services
- Making Government Work
- Agency by agency we are continuing to implement
performance-based budgeting, as you can see in your budget book.
This will help us better tie dollars to programs so that the
public can understand where changes are happening.
- We are improving customer service and responsiveness by better
coordinating the CityWide Call Center, the Testers Program, and
the our Correspondence functions.
- We are establishing agency-based risk-mitigation programs.
- And we are modernizing the entire administrative services system
to integrate our personnel, procurement, facility management, and
other administrative processes.
- Anacostia Waterfront
- We are beefing up the environmental crimes unit at MPD.
- We are adding two inspectors to enhance our ability to assess
environmental impacts of proposed projects across the city.
- In addition, we are working with the Congress on fund two major
- The first is a $50 million Combined Sewer Overflow project that
will put an end to the flow of raw sewage into the river during
heavy rainstorms. The Water and Sewer Authority has already
guaranteed matching funds of $50 million for this project, which
makes us even more hopeful about a contribution from Congress.
- The second is also something we're working with Congress to
fund. It is $15 million to construct the Kenilworth Parkside
- Through these investments, we will be able to deliver on the most
critical priorities of citizens. Having highlighted these investments,
I will now discuss of how tax cuts are dealt with in this budget.
- As leaders across the nation are finding, economic booms often breed
tax cuts that states later find they cannot afford. Nonetheless, I
agree with the Council that we should do what we can to reduce the tax
burden for citizens and businesses.
- This must be done, however, within the parameters of neighborhood
investment needs, our structural imbalance, and current economic
- My proposed budget takes a balanced approach to tax relief. This
budget suspends new personal income tax cuts until the District can
accommodate them in a responsible manner.
- To ensure that the unimplemented reductions in the Tax Parity Act
can resume when they become affordable, I am proposing a prospective
trigger mechanism that will allow suspended tax cuts to resume when
economic conditions become more favorable.
- This budget also provides funding to support the planned reduction
in the franchise tax. This reduction should proceed because it
benefits small businesses and other companies that are the engine of
our economic recovery, and who have had no tax cuts thus far under the
Tax Parity program.
- In addition, this budget supports the property tax cap that limits
to 25% increases in property taxes. This funding will ensure that
residents will not be discouraged from living in the District by
escalating property taxes. As a side note on this issue, however, I
should also note that the full cuts in tax rates for property have
already gone into effect bringing our rates more in line with those of
the metropolitan area.
- As a final note on taxes, my proposed budget includes a measure
through which the District will join several other states by
suspending the federally-initiated phase-out our local estate tax.
This measure will allow the District to continue collecting an estate
tax while the federal government phases out it's portion of this tax.
Almost all estates will continue to pay less because of the federal
phase-out of this tax, but my proposal will allow the District to
continue to maintain this revenue until we reassess the our tax
structure relative to our structural imbalance and other priorities.
- By suspending these tax cuts, and through the cost reductions
detailed above, the revenues and expenditures of the District are in
balance - and not just for FY03, but for years to come, as you'll see
in CHART 3.
Balance of Revenues and Expenditures in
Mayors Proposed Budget and Financial Plan
- Let's not forget, though, that this balance comes at a great cost.
We have limited service improvements, neighborhood enhancements, and
capital investments. We have put off critical tax relief for our
citizens. And we've had to use tobacco settlement funds to cover
existing health care needs, rather than investing them in tackling
other health care problems.
- Citizens of the District have to bear the brunt of all of these
sacrifices, and why? The major reason why we have to sacrifice so much
to balance our revenues and expenditures is because the Congress
places restrictions on our revenue collection that no other state must
- The issue is simple. The District has a structural imbalance between
its revenues and expenditures, and this imbalance is largely caused by
the federal government's restriction on our ability to tax income
- Every state in the Union has the ability to tax income earned there,
and that is an important part of what makes up a state's budget. Now
this doesn't mean that we do not have major inefficiencies that we
need to correct. Of course we do. What it does mean, however, is that
until we receive some resolution with the federal government on this
issue, we cannot provide the full service delivery and tax relief that
our citizens deserve.
- We've been fighting for this cause for years now, but I honestly
believe that this year holds real promise to see results. We have a
major allies in Senators Landrieu, Senator Durbin, Congresswoman
Morella and Congressman Knollenberg. The GAO and Congressional
Research Service are studying our structural imbalance as we speak,
and are preparing to issue their reports in the spring. A
Congressional delegation just toured other major capital cities to
assess their relationships with the national government. This is a
time of real significant movement, and it's coming to pass because we
have demonstrated that we can govern effectively.
- Congresswoman Eleanor Holmes Norton has introduced legislation to
provide this compensation. The best thing that local leadership can do
to support passage of this bill is to demonstrate to Congress our
ability to make the sacrifices needed in order to maintain fiscal
balance - as demonstrated in my proposed budget. Therefore, I'm really
looking forward to a constructive and professional review process with
the Council as we work to submit this budget to Congress.
- I do want to note that I appreciate all of the input and feedback
that I have received from Chairman Cropp and the Council as I have
developed this budget proposal. I have learned that consultation and
collaboration up front always yields a better product in the end, and
I have worked hard to make all the consultations possible as I've
crafted this budget, so I want to say thank you to Mrs. Cropp and the
other members present for all of your input and good counsel.
- And with that, I'll open this up for questions.