Correction to This Article
An earlier version of the chart accompanying this article incorrectly referred to the amount of money in the District's reserve funds. The chart refers to billions of dollars, not millions. This version has been corrected.
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Mayor Fenty's use of shrinking budget reserves is at issue in the District

Congress requires the city to keep a 6 percent contingency fund, which hovers around $300 million and is included in the fund balance. The Fenty administration dipped into the contingency fund in 2008 when the summer youth jobs program had a $38 million cost overrun. The administration repaid the funds.

Gandhi, who has been signing off on the Fenty administration's policy decisions, became more aggressive about his warnings this year. On July 28, he wrote to the mayor and council that ratings analysts are concerned about the "precipitous drop" in the fund balance.

Rebuilding the balance

He said the analysts were heartened by a plan, sponsored by Gray, to rebuild the fund balance with 100 percent of future surpluses. But Reed said she is worried that Gray's effort could hurt constituents.

"Every dollar that goes into the fund balance is a dollar we can't use for residents who need it," Reed said. "The proposal went too far, too fast. . . . What's really important is that the budget needs to be flexible."

The Fiscal Policy Institute's report recommends that the 100 percent be reduced to 50 percent to free up cash. "Any rule that is set now will be hard to change because loosening the proposal to build up the fund balance may be seen as fiscally responsible," the report says.

In other words, just as Fenty's no-new-taxes pledge contributed to the decision to dip into reserves, Gray's fund balance plan could push the city into other choices, such as raising taxes.

Will Singer, Fenty's former chief of budget execution, was the official behind the mayor's early spending plans. Singer, who said he was not speaking on behalf of the administration, played down the concerns of bond rating agencies and Gandhi.

Gandhi is known for carrying a notecard graph that shows the city's finances going from in the red to well in the black. "It's a point of pride for Gandhi," said Singer, who added that the fund balance is not the only measure of the city's financial health. "He's nervous [about the fund balance]. I don't think it's a well-placed nervousness."

Singer said Gandhi's office recommended borrowing money at the beginning of the year to prevent dipping into the fund balance. "It just didn't make sense," Singer said. He said the city should use its resources to avoid borrowing and paying interest.

And the Fenty administration has kept the mayor's promise not to raise taxes. "Raising taxes would make Wall Street feel really good. . . . People want to see a willingness," Singer said. "That doesn't make it the right thing to do."

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