Unemployment Levels in Area Highest Since the Mid-1990s, Economists Say

D.C. Mayor Adrian M. Fenty (D) declined to address Gandhi's unemployment projections. Of the budget gap, the mayor said: "Our budget will be balanced. . . . Relative to other jurisdictions, the District of Columbia's fiscal standpoint is still very strong."

Maryland officials are wrestling with a $1.9 billion shortfall out of a $14 billion budget, and Virginia's gap has grown to $3 billion in its two-year, $77 billion budget.

The District's budget problems come a month after city leaders closed a $131 million budget gap. But Gandhi called the problem "manageable." The D.C. Council created a $47 million reserve last month, freezing spending on affordable housing, health care and transportation.

Gandhi said he thinks the rest of the shortfall could be made up through a budget surplus from fiscal 2008, which ended Sept. 30. The surplus resulted from government agencies not spending all of their budget. The exact amount of the surplus will not be known until Feb. 1, after an annual financial review by outside auditors is completed, he said.

The revenue problems are projected to worsen in 2010. Gandhi said the city will collect $455 million less in 2010 than he had expected in May. Fenty and his aides are developing the 2010 budget.

Robert Pohlman, executive director of the Coalition for Nonprofit Housing and Economic Development, said he is concerned that the shortfall will lead to cuts in programs that help the poor.

"We hope that there's an adequate public process that allows D.C. residents to express their concerns" before cuts are made, Pohlman said.

The District's commercial property market has been one of the strongest in the country, but the good times ended when credit dried up in the wake of the Wall Street meltdown, Gandhi said. The city will collect $61 million less in business taxes than expected and $44 million less in deed taxes because properties are not changing hands as quickly as projected, he said.

D.C. Council member Jack Evans (D-Ward 2) said city leaders will have to make tough choices as they put together the 2010 budget and must rein in spending for social services, public safety and even schools, which have drawn Fenty's strongest focus as mayor.

"Schools cannot be the sacred cow they've been in the past," Evans said. "They had huge increases even in the last two years. I'm a big supporter of them. But having gone through this in the 1990s, where we discontinued services like trimming trees and trash collection, that's the wrong way to go."

Staff writer Darryl Fears contributed to this report.