Mark David Richards
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What Is DCWatch?
FINANCIAL PLANNING AND
BUDGET IN THE DISTRICT OF COLUMBIA
The time has come to concentrate on the planning component of the
financial planning and budget procedure. We must prepare and present to the
Congressby June 15, 1998a budget for FY 1999. We will work hard to agree on a
consensus budget, and we will meet the deadline.
As required by law, we integrate the 1999 budget into a long range plan
covering an additional 3 years. The plan should include projections of both revenues and
expenditures in considerable detail. Moreover, the key assumptions on which the
projections are based must be thoroughly documented and made explicit. Finally, a number
of critical issues regarding programs and spending priorities must be resolved. Of course,
as we confront these issues, we may have our individual points of departure as to
preferences. Today, I am prepared to sketch my own priorities and preferences. Other
Authority members will have their own goals and objectives. At the same time, I am
confident thatduring our Working Sessions and deliberationswe will reach a
genuine consensus which would be submitted to the Councilby the Mayor, and would be
forwarded by the Authority. Therefore, I expect that we will submit a single consensus
budget to Congress by June 15, 1998.
Outlook for Revenue, Expenditures, and Budget Surplus
The estimate of budget revenues for FY 1998 is currently being revised
by the Chief Financial Officer. However, the most recent preliminary estimate projected
total revenue at $4.34 billionabout $232 million below the $4,576 million recorded
in FY 1997. Looking ahead, the revenue stream over the next four fiscal years may have the
following profile (million dollars): FY 1999, $4.243; FY 2000, $4.322; FY 2001, $4.403,
and FY 2002, $4.506. For the same years and assuming no changes in policies and programs,
total expenditures may be as follows: FY 1999, $4.051; FY 2000, $4.143; FY 2001, $4.222,
and FY 2002, $4.321. If these flows materialize, the City would generate a budget surplus
as follows (millions of dollars): FY 1999, $192.0; FY 2000, $179.0; FY 2001, $181, and FY
Policy Issues In Budget Planning
The budget results projected above raise a number of policy issues
which must be resolved during the planning process. The following are among the most
1. How should the budget surpluses be used?
(a) Accelerate the pay down of the accumulated deficit.
If all of the surplus expected in FY 1998 ($348.16M) were dedicated to this purpose, the
accumulated deficit would be reduced to only $10.7 million at the end of FY 1998. A
positive fund balance would build over each of the succeeding four fiscal years (millions
of dollars): 1999, $208.2; 2000, $387.9; 2001, $600.6, and 2002, $755.2.
My own preference would be to use some of the surplus to accelerate the
pay down of the accumulated deficit. However, I would also try to satisfy some of the
other pressing needs which are exerting a great deal of pressure against the revenues
available in the Districts budget.
(b) Use some of the surplus to expand existing programs or to add
I would not support these objectives to the exclusion of other claims. Instead, any
increase in expenditures for existing or new programs would have to be justified on a
(c) Use some of the surplus to provide pay increases for non-union
employees on the Citys payroll.
Currently, the city has about 34.7 thousand full time equivalent positions (FTEs).
About 7.8 thousand of these are non-union employees. Thus, the latter group makes up
between 1/5 to ¼ of the total. These non-union employees last received a wage increase
(5.0%) in 1994. In 1995, they absorbed a 4.0% reduction. In the three years 1996-98, they
received no pay increases. As a result, the cumulative change in wage adjustment for them
amounted to only 1.0% over the period 1994-98. In contrast, among union members on the
Citys payroll, the gains were as follows (%): Police: 1994, 6.0; 1995, 5.0; 1996,
0.0; 1997, 10.0; 1998, 0.0. Cumulative increase, 21.0. Fire services: 1994, 6.0; 1995,
5.0; 1996, 0.0; 1997, 0.0; 1998, 9.5. Cumulative increase, 20.5%.
In comparison, the rise in wages received by federal government
employees during the period 1994-98 amounted to 11.5%. Among the surrounding local
jurisdictions the increases during the same period were (%): Alexandria City, 11.0;
Arlington County, 6.6; Fairfax County, 10.0; Montgomery County, 12.7; Prince George
Given the above record of pay adjustment for DC
employeesparticularly for the non-union memberstheres clearly a pressing
need to increase the wage level for the average DC government employee.
Therefore, one of the primary policy goals of the budget for FY 1999
should be an increase and realignment of the compensation of District government
(d) Increase capital expenditures for infrastructure and maintenance
The District has allowed its endowment of capital and physical facilities to
deteriorate to an alarming degree. Local streets and bridges, lightening and operating
equipment, have all been allowed to run down and wear out. Moreover, the City has spent
very little on maintenance over the years. While the pace has varied from year-to-year,
the actual amount spent on maintenance has fallen far below the average of 30% of total
capital expenditures achieved by many other jurisdictions. To reduce this deficit
significantly will require the outlay of close to $300-400 million per year over most of
the coming decade. This amount is more than double the $150 million per year of borrowing
for capital expenditures the City is now carrying out.
(e) Borrowing to reduce the accumulated deficit.
The City now has Congressional authority to borrow up to $300 million for this
purpose. When the FY 1998 budget was submitted and approved by Congress, it was assumed
that $110 million of such borrowing would occur during the current fiscal year. However,
as the estimates of revenue have increased to the point where a much larger surplus is
expected, one view has emerged which holds that no deficit borrowing should occur during
the current fiscal year. On the other hand, if no such borrowing is undertaken a number of
high priority projects will have to compete more vigorously for the still limited amount
of revenue that will be available.
I have not reached a definitive conclusion on this issue. However, I am
"leaning" toward borrowing the $110 million that was included in the budget.
Pursuit of this course would permit a more balanced allocation among the spectrum of uses
(f) Provide tax relief for citizens and businesses.
The tax burden carried by District residents and firms doing business here is
substantially above that in the surrounding jurisdictions. This is true with respect to
commercial real estate property, business and individual incomes, general sales, and
utilities and telecommunications.
Therefore, one goal should be a significant reduction in the tax burden
being borne by the people who live in and run businesses in the District. Moreover, a
start on the provision of this relief should be made in the FY 1999 budget. The size of
this tax reductionand the way it should be distributed between business and
individualsmust be decided during serious discussions among the Mayor, City Council
and the Authority.
(g) Management Reform
There will be a clear need to finance the continuing implementation of Management
Reform. In addition, there will be a major requirement to finance the improvement of
training and skills in the District workforce.
(h) Education and Public Schools
The Public Schools will require additional expenditures to improve the quality of
education. Raising test scores, as well as the improvement to physical facilities, is a