District Faces $300 Million Budget Shortfall

By David Nakamura
Washington Post Staff Writer
Tuesday, November 28, 2006

The District government faces up to $300 million in unanticipated expenditures over the next two years, presenting an early test for Mayor-elect Adrian M. Fenty and his pledge to improve service delivery without raising taxes.

Fenty (D), who is reviewing the city's $9.6 billion budget in anticipation of taking office Jan. 2, has said his strategy for beefing up services will rely on eliminating waste and identifying savings in some city agencies so the money can be reallocated to other areas of need.

But last week Fenty received a memo from D.C. Chief Financial Officer Natwar M. Gandhi stating that the District is already $87 million over budget for fiscal 2007, which began Oct. 1. Projections for fiscal 2008 show the city is facing up to $215 million in higher-than-anticipated costs.

The reasons, according to the memo, are largely twofold: More people than expected are enrolled in city health-care programs, and two health-care agencies -- the Department of Mental Health and the Mental Retardation and Developmental Disabilities Administration -- routinely fail to submit the proper paperwork to receive federal reimbursement for Medicaid and Medicare services.

The financial pressures have clear ramifications as Fenty's team begins developing the fiscal 2008 budget request, which is due to the council in March. Gandhi's office recently asked most of the city's 40 agencies to develop budgets that are 8 percent below the amount of spending that would be required to maintain the current level of services.

Fenty aides said the memo illustrates long-standing problems with the District's health-care network that must be fixed. The city has been faulted by watchdogs for years, for example, for failing to take full advantage of Medicaid funding for services for the mentally retarded.

Gandhi's memo "reads like a blueprint" for departments that need reform, said Fenty aide William Singer, who is reviewing the budget with Fenty and designated city administrator Dan Tangherlini.

"The Department of Mental Health has to get competent in its billing for services," Singer said. "They've done a horrendous job of getting federal reimbursements."

Gandhi's office played down the potential spending gaps, saying there is no cause for alarm and describing the memo as a guide for Fenty as he works on the budget.

The District could still make up some of the 2007 gap by filing the proper paperwork for federal reimbursements, said Bert Molina, Gandhi's deputy for budget and planning. If not, the city could pay the difference with its operating reserves or by finding savings in other areas, he added.

Molina described the unanticipated expenditures for fiscal 2008 as within the 4 percent margin the District faces each year. Of the city's $9.6 billion budget, about $5.5 billion is raised locally through taxes and other revenue.

"With a budget as large as ours, you routinely have these outlying costs," Molina said. "Over the last eight fiscal years, we've averaged 4 percent additional budget pressures, which is about $200 million per year."

D.C. Council member Jack Evans (D-Ward 2), chairman of the Finance and Revenue Committee, said that budget overruns in the city's health agencies are a long-standing problem that the city has tried to fix for years with little success.

"They're always the ones that overrun the budget," Evans said. "We've got to do a better job getting our money from the federal government. Gandhi is raising red flags that, unless we get better at it, there could be a problem down the road."

During his campaign for mayor, Fenty, the Ward 4 D.C. Council member, said repeatedly that the city did not necessarily need more money but must use its resources more judiciously.

Tangherlini and Singer have met with most city agency directors in the past two weeks and will continue working with them in the months ahead to develop the budget request.

Singer said the goal is to find ways to eliminate redundancies by asking agencies to share functions, to reduce fixed costs by examining building leases and to improve the billing for federal reimbursements.

"There's a lot of opportunities to make the District government more efficient," Singer said. "We need to focus dollars on programs and services as opposed to overhead."

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