With Money in the Bank, District Decides to Spend It

The District ended the 2005 fiscal year with a $370 million surplus, but all of it -- and more -- has already been allocated, city financial officials said yesterday.

City leaders voted last year to spend the surplus, plus $236 million in reserves, on capital projects such as recreation centers and road improvements and on retiree health benefits.

That spending will cause the city's total reserve funds to dip for the first time in 11 years, Chief Financial Officer Natwar M. Gandhi said. But the District will have more than $1 billion in the bank, compared with its $518 million deficit in 1996, when Congress appointed a control board to oversee the city's finances.

Gandhi, who released the annual audit of the city's finances at the mayor's weekly news briefing yesterday, pointed to the city's ninth consecutive balanced budget and the continued growth in tax revenues as examples of the city's continuing financial health.

"D.C. is on an economic roll," he said, describing the city's residential property market as one of the hottest in the country and its commercial market as one of the hottest in the world.

He said income tax revenues continue to be strong.

The audit, conducted by BDO Seidman LLP of Bethesda, said that federal increases in homeland security spending boosted demand for city commercial properties and that lengthening commuting times in the region made the city a more attractive place to live.

Mayor Anthony A. Williams (D), who once was the city's chief financial officer, echoed Gandhi's optimism.

"It's as good as it gets," Williams said. "But we want to work to protect our long-term future."

Gandhi cautioned that rising interest rates, a slowing real estate market or a terrorist attack could quickly darken the picture.

He portrayed the reduction in reserve funds as a sign of the city's overall financial strength and of the confidence that Congress and Wall Street have shown in the city since the days of the control board. Congress recently reduced the amount of reserves it required the city to set aside, and bond rating agencies have elevated the city's bond ratings to the highest ever.

That has given Gandhi the confidence to loosen the purse strings -- somewhat.

"Government is not in the business of holding cash," Gandhi said. "It is in the business of providing services."

At the same time, he warned elected leaders not to dip further into the city's reserve funds to pay for additional government programs or school modernization.

Gandhi said other financial concerns still cloud the city's future. For example, the city's largest employer, the federal government, is exempt from paying city taxes, and 42 percent of the city's land area is tax-exempt. Also, the District has the highest debt per capita in the nation, $8,000 per person, compared with $800 in Baltimore, Gandhi said. Although the District is a city, when it comes to borrowing it has the same responsibilities as a county and state.

And because the city is forbidden by Congress to levy a commuter tax, Gandhi said, it in effect subsidizes its suburbs, which include some of the richest cities and counties in the country.

Council member Jack Evans (D-Ward 2), chairman of the finance and revenue committee, said he, too, worries about the rising cost of government. He said the good times might not last forever.

Evans said the council probably will dip further into its reserves, particularly into a pot of $175.5 million that Gandhi listed as undesignated but hopes to keep in the bank as an additional cushion.

"That will be a council decision,'' Evans said. "But given that this is an election year and my colleagues are predisposed to spending, I will be surprised if we don't spend it.''