Reserves, Deed Tax May Plug D.C. Gap

The District's chief financial officer yesterday estimated that revenue will be $45.3 million more than initially projected for the next budget year.

But D.C. Council members were hoping that revenue growth alone would be enough to replace the $100 million in sales tax revenue they plan to commit to rebuilding schools in fiscal 2007, the first year of a council measure calling for the District to spend $1 billion in the next decade to modernize schools.

In response to estimates released yesterday by Chief Financial Officer Natwar M. Gandhi, council leaders said they would amend their legislation -- scheduled for a second, and final, vote March 7 -- to tap District reserves for the first year and to increase the deed recordation tax in later years if necessary. The council gave the bill preliminary approval this month.

"The good news is there is more new revenue," said council member Kathy Patterson (D-Ward 3), chairman of the education committee. "The bad news is it isn't a bigger number."

Patterson and Jack Evans (D-Ward 2), chairman of the finance committee, say they still expect revenue to jump significantly. They noted that Gandhi will issue two more estimates before the new fiscal year begins in October. The mayor and council will be crafting the 2007 budget over the next few months.

In an interview, Evans said he doesn't expect amendments to the legislation to cost votes. To school funding advocates, he has been stressing that the disappointing revenue numbers will not affect modernization money, which will come from the first $100 million of sales tax revenue every year. He said that education proponents should view the pledge of increasing the deed recordation tax as proof of the council's commitment to rebuilding the District's crumbling schools.

"Once that is in the budget, school modernization will be funded even if the economy tanks," Evans said. "It's not smoke and mirrors."

While less than expected, the $45.3 million in new revenue certified by Gandhi takes the council nearly halfway toward the $100 million needed for the first year of the schools plan.

Gandhi said the District has $175.5 million in undesignated reserves left over from prior surpluses, but he has said that he would prefer that council members not tap those reserves. He said he wants the District to have an amount of working capital equal to a month's spending available for the unexpected.

Still, in his presentation of the District's annual financial report, Gandhi identified the reserve fund as being available for "Mayor and Council Policy Decisions."

Evans said he was puzzled by Gandhi's latest estimates, since the District is still on an economic roll.

"There's every indication that it should be much higher," Evans said. "It's the lowest increase in revenue estimates that we've gotten in the last several years, so I would expect the next estimate would be considerably larger, given all the economic activity."

Council members and Gandhi have clashed often over revenue estimates. Gandhi has been accused of chronically underestimating revenue, which council members say hampers their ability to plan and pay for programs and policies.

Gandhi says he is being prudent.

"I do not rely on rose-colored glasses. I rely on Julia Friedman," Gandhi said two weeks ago, referring to the District's chief economist, who prepares the revenue estimates.

"Fortunately, the news here is all good,'' mayoral spokesman Vince Morris said. "The city's economy is still humming along strongly and above the projections from last year. The mayor said he wants to provide extra money for the schools, and he intends to do just that, through whatever means necessary."

Combined with the pledge this month by the District's Board of Education to close 3 million square feet of underused school space, school proponents said the pieces are in place for the biggest transformation of the District's long-troubled school system since Washington won home rule in the 1970s.