Budget Shortfall Grows As U.S. Economy Slows

By David Nakamura and Nikita Stewart
Washington Post Staff Writers
Wednesday, May 7, 2008

The District government's projected revenue has fallen by an additional $35 million just a week before city leaders are set to finalize next year's budget, a decline that will require further cuts in spending or increases in taxes, city officials said yesterday.

Chief Financial Officer Natwar M. Gandhi delivered the bad news to Mayor Adrian M. Fenty (D) and D.C. Council Chairman Vincent C. Gray (D), citing the continued flattening of sales and income taxes in the face of a national economic slowdown. Property taxes, particularly on the commercial side, are increasing but are not enough to make up the difference, Gandhi has said.

The financial strain could affect a key fight between Fenty and Gray over $18 million for schools in the fiscal 2009 budget. Fenty wants the money to go toward expanded art and music programs being planned by school Chancellor Michelle A. Rhee. But last week, Gray proposed transferring the sum into the school modernization fund to help repair buildings.

Fenty administration officials have said that, in the face of further revenue declines, it is critical to keep the money in the schools' budget for new programs. But Gray said he is not inclined to change his position.

"That doesn't have any impact at all" on the $18 million, Gray said of Gandhi's announcement. He has said that Fenty did not include enough money for modernization in the first place. Still, Gray acknowledged that the council will have to "find cuts . . . between now and Tuesday," when it will vote on the budget.

The latest revenue forecast came just three months after Gandhi said that the city was facing a $96 million budget deficit. In developing his $5.66 billion spending request in local dollars -- an increase of 0.7 percent over this year's budget of $5.62 billion -- Fenty made up the gap largely through two measures.

He announced he would not fill about 550 vacant government jobs. And he proposed scaling back a property tax cut for small businesses that the council approved in January -- from $96 million in relief to $15 million.

Ed Lazere, executive director of the D.C. Fiscal Policy Institute, a liberal think tank that studies city budget issues, said the city might not be able to afford any tax cuts this year.

"In a budget already lean in terms of new initiatives, a $35 million shortfall could produce cuts in real services. There is not a ton of fat in the budget to begin with," said Lazere, who will join other advocates today at the John A. Wilson Building to lobby council members for more money for affordable housing. "In this time of budget shortfall, we need every penny just to maintain basic services," he said.

Over the past few weeks, council members have cut some of Fenty's initiatives but have used the money to fund proposals of their own. Now even those might be in jeopardy.

Fenty pledged during his mayoral campaign that he would not raise taxes, but he has raised a series of fees, including those assessed for 911 emergency calls and for business licenses.

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