More Cuts on Horizon as D.C. Faces New Budget Gap of $127 Million

D.C. officials will announce today that they are facing a new budget shortfall of $127 million that could require another round of cuts to a budget that has already been trimmed in affordable housing, health care and transportation, according to city government sources.

Chief Financial Officer Natwar M. Gandhi briefed Mayor Adrian M. Fenty (D) and D.C. Council Chairman Vincent C. Gray (D) last night on the new revenue projections, a month after the city closed a $131 million budget gap.

The latest shortfall represents 2.5 percent of the city's $5 billion budget of local funds for fiscal year 2009, which started Oct. 1. Gandhi has said that such a gap is manageable.

Gandhi has scheduled a news conference for noon today at the John A. Wilson Building to announce the projections. He declined to comment last night.

According to government sources familiar with the briefing, Gandhi said the adjusted numbers take into account the brunt of the stock market crash on Wall Street.

Among the primary causes of the new shortfall is a falling-off of capital gains taxes paid by residents whose investments in the stock market have plummeted. But the city is also experiencing a significant slowdown in the residential and commercial property markets after staving off the kinds of declines experienced in the suburbs, the sources said.

The District now faces budget pressures similar to those in neighboring Maryland and Virginia, where state officials are wrestling with steep shortfalls. In Maryland, the $2 billion gap represents more than 10 percent of the budget, and the $3 billion shortfall in Virginia equals about 4 percent.

In Virginia, Gov. Timothy M. Kaine (D) this week proposed raising the tax on cigarettes and laying off 1,100 employees. In Maryland, Gov. Martin O'Malley (D) said 67,000 workers will take unpaid leave to save money.

Fenty eliminated hundreds of unfilled jobs across nearly all government agencies, except public schools, to close the previous budget gap of $131 million announced in September. He also took money that had been banked by various agencies that earn revenue by selling products, such as business licenses.

The council, anticipating that the shortfall could grow, created a $40 million reserve by eliminating a plan that would have offered low-cost health insurance to the poor, and it froze new spending on creating permanent housing for the homeless. The city also delayed some road and bridge repairs.

That reserve could be eaten up by the latest shortfall, although Gandhi told Fenty and Gray that the city might have tens of millions of dollars left from the fiscal 2008 budget that could help close the gap, according to the sources. That will not be known for certain until the spring, after an annual financial review is completed by independent auditors.

Last week, the council doubled the rates on downtown parking meters from $1 to $2 an hour to raise more revenue.

"It looks like another situation where we'll have to close the gap, and there's already been pretty substantial cutbacks in a lot of program areas," said Ed Lazere, executive director of the D.C. Fiscal Policy Institute, which studies city budget issues and advocates for social programs. "We are looking forward to working with the mayor and council to minimize the impact on services as much as possible."

Sources familiar with Gandhi's briefing said unemployment in the city is projected to rise this year and next year. The District's unemployment rate is expected to jump from 6.2 percent to 8.5 percent by the end of this fiscal year, then to 9.8 percent by the end of next year, Gandhi told Fenty and Gray, the sources said.

The city's budget picture for next fiscal year also appears to have worsened, the sources said.

Some council members criticized Gandhi in September for not anticipating a larger shortfall.

David A. Catania (I-At Large) said Gandhi had failed to take into account the troubles on Wall Street; Catania then cut $20 million from the budget of the Health Department, which he oversees as the chairman of the council's Committee on Health.

Catania put that money aside for reserve spending, but that could be already gone in light of the latest budget woes.