D.C.'s fiscal health should be prime issue in elections

By Colbert I. King
Saturday, July 31, 2010

Michelle Rhee is not the issue in the 2010 District elections. I made this point three weeks ago, and several parents wrote to voice their strong disagreement. The D.C. schools chancellor, they said, is the difference between the status quo, which governed the old school system, and the forward-looking, results-oriented academic program they say Rhee is putting together. Whether their children remain in D.C. schools or leave, some parents said, depends on whether Rhee stays or goes. She is just that important to them.

I agree that Michelle Rhee is a consequential figure in D.C. public education, which, of course, is critical to the District's future. It's tempting to treat her as this year's major issue. But she's not.

The city's financial health, as I've said before and now say again, is issue No. 1. That's a hard sell, I know.

Municipal finance comes without a face. There's nothing sexy about abstract numbers and statistics. Balance sheets don't preen when they are admired or respond to threats or cringe when yelled at. Annual financial audits don't frown, pout, talk back, cry or quit to spend more time with their families.

But hard truths can be found in numbers. The pluses and minuses, lines pointing up or down, graphs and ratios help tell the fiscal tale. Within the District's numbers is a story that must not be ignored this election year. Simply put, the city's fiscal health is not all it should be. That should concern everyone. D.C. finances will have a strong bearing on the capacity of elected officials to deal with everything, including the public schools.

How candidates running for mayor and the D.C. Council propose to tackle that issue ought to be paramount in the minds of voters.

The city's chief financial officer, Natwar Gandhi, gave Mayor Adrian Fenty and D.C. Council Chairman Vincent Gray a taste of the problems this week, after his recent visit to Wall Street. While there, Gandhi got an earful from the three rating agencies. Two specific actions by city leaders have raised eyebrows and concerns among Wall Street analysts and potential investors in District bonds.

Gandhi told Fenty and Gray that the rating agencies expressed serious concerns about the city's decision to get back into the hospital operations business through the acquisition of United Medical Center, the successor to the failed Greater Southeast Community Hospital.

They cited the city's poor record of running hospitals -- to wit, D.C. General -- and the series of expensive government miscalls with Greater Southeast. Moreover, they want to know where the city will get the money to subsidize United Medical Center and to cover its liabilities. As the rating agencies told Gandhi, governments have amply demonstrated that they don't run hospitals very well. The District of Columbia is Exhibit A.

Wall Street, Gandhi said, is also worried about another development induced by the mayor and council and discussed in this column several weeks ago: the city's declining general fund balance.

The politicians have been drawing down the general fund balance to pay for deals and programs that ought to be supported by operating revenue. But funding programs through the operating budget would require cutting other programs or raising taxes to cover the new schemes. Instead, the mayor and council have resorted to the easy way out: tapping the city's reserves. The politicians have taken a fund balance that was a healthy $1.5 billion in fiscal 2007 down to $920 million by the end of fiscal 2009, "a reduction of nearly 40 percent over just two years," as Gandhi pointed out in his letter to Fenty and Gray. What's worse, the city's fiscal 2010 revised budget will probably draw the balance down another $80 million.

After being warned by Gandhi weeks ago about the consequences of their raids, Fenty, Gray and company pledged to rebuild the fund balance. Every good wish.

Wall Street knows better and, given all the negative scrutiny it has endured over the past year, will be quick to react to risky government decisions. Potential investors know better, too. So should D.C. voters.

The time between now and Election Day should be used to pin down the candidates on the budget and spending. I know, I know, that's a little like trying to nail Jell-O to the wall.

But it is essential to find out where all the mayoral and council candidates stand on issues such as drawing down the general fund, balancing the budget with cuts (where) or tax increases (on what or whom), and protecting the city's bond rating.

After all, the city's fiscal health, not Michelle Rhee, is the issue.


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