Financial Crisis Hits Local Government Budgets

David Nakamura and Anita Kumar
Washington Post Staff Writers
Wednesday, September 24, 2008; 2:00 PM

Washington Post staff writers David Nakamura and Anita Kumar were online Wednesday, Sept. 24 at 2 p.m. ET to discuss how the lower home prices, unemployment and the downturn in the economy are causing budget shortfalls for D.C., Virginia and Maryland.

A transcript follows.

"Virginia officials said yesterday that the state budget shortfall may be as wide as $3 billion over two years, triple what they estimated a month ago, while District officials said they are facing a gap of $131 million after years of surpluses." -- From Wednesday's story Local Governments Face Budget Upheaval.


Arlington, Va.: I see Gov. Kaine said he will not propose raising taxes. So, how much can I expect my taxes to go up?

Anita Kumar: Governor Kaine has said many times that he will not propose raising taxes. The General Assembly, particularly the Republican-controlled House, is also adamantly opposed to raising taxes. Instead, you can expect cuts in services and very few new or expanded programs.


Alexandria, Va.: Is it fair to assume we won't be seeing any progress on the Dulles Extension, a Silver Line, expanding I-66 inside the beltway, etc., anytime soon?

Anita Kumar: No, not necessarily. Virginia's budget shortfall, expected to be between $2 billion and $2.9 billion between now and 2010, is a gap in the state's general fund, which pays for state services but not transportation. The state collects transportation money from dozens of sources, but most comes from taxes on gasoline, cars and other products. But in recent years, the downturn in the economy and rising prices for asphalt and steel also have reduced the amount of transportation money available. The state has been forced to spend money on maintenance that was supposed to be for construction. This summer, the General Assembly failed to come up with an agreement on how to pay for millions in road and transit projects across the state during a special session. But many of the projects you mentioned in your question will continue with existing money from the state and federal governments.


Washington, D.C.: How much of this shortfall could DC avoid by rooting out some of the corruption and waste that plague it?

David Nakamura: This is a question that was bound to come up in the wake of the $48 million D.C. Tax Office embezzlement case. The fact is that all governments could improve the bottom line if they rooted out corruption and fraud. That has long been the case in the District, which has a history of abuse and, of course, was taken over by Congress in the late 1990s after almost going bankrupt. However, it's hard and probably unfair to pair up the two issues -- fraud and the recent budget shortfall. Rooting out systemic abuse is an on-going challenge for every government (every company for that matter). But the budget problems are related more to the overall economic swings and the whole country is now in a down cycle, obviously.


Washington, D.C.: Are we likely to see the District and Virginia, either at the state or county level, mandate unpaid leave or furloughs?

David Nakamura: I just got off the phone with a D.C. government official who tells me that Mayor Fenty will be looking, among other things, at eliminating hundreds more unfilled positions across government agencies. In the spring, the mayor proposed a budget that included eliminating 650 unfilled positions, which saved about $40 million. Over the months since then, the mayor's staff, anticipating another shortfall due the economic conditions, set about trying to determine whether it could eliminate even more positions. They've concluded that yes, they can. Not sure how many, but could be hundreds more. The question is: will city residents see a cutback on services if these positions are not filled? We'll see.


Anonymous: I'm a home owner and don't get it. Home prices are up and so are assessments. I know prices have dropped but the most recent assessment have not gone down. Where's the revenue shortfall, foreclosures? Other than the District, Maryland and Virginia added many new houses to their infrastructure. It seems there should be a solid base or equilibrium base to project revenues.

David Nakamura: Good question. Here's the answer, at least in D.C.

CFO Natwar Gandhi said today that, indeed, the property market continues to outperform expectations. In fact, the city adjusted its property tax revenues upwards to the tune of about $77 million. However, the city is getting crushed on income taxes, which have dropped off projections by a lot. That's because 13 percent of the city's income tax revenue is generated by capital gains, which are tied to the stock market. That has taken a huge nosedive ($123 million in the red). Deed taxes and busines income also have suffered. The result is that the city is facing a $131 million shortfall despite the hot property market.


West Falls Church, Va.: Did any of the governments budget conservatively? The housing market, at the very least, has been bad for years now. I never understand why governments don't plan for the worst, then, if they end up with a surplus, it's a pleasant surprise.

Anita Kumar: They base budgets on complicated formulas that include information from economists, businesses and past performance. Officials anticipated some shortfall but as the national economy worsens so does the Virginia economy. In the last year in Virginia, a sluggish housing market, lower-than-expected holiday sales and reduced corporate tax filings, have added to the problems.


Columbia, Md.: My husband is a firefighter in PG County, which is furloughing all of its public safety employees for 56 hours -- 8 hours per pay period until next spring. I've also heard that the county is closing some fire stations for several days or weeks as a money-saving tactic as well. I sure feel for anyone whose house catches fire when the station nearest them is closed. I also feel for those employees who lives paycheck to paycheck or whose spouses (like me) can't pick up the financial slack caused by an 8-hour pay loss every 2 weeks. There has to be a better way.

David Nakamura: The national economic troubles are absolutely affecting the local budgets and ecomomies and you are right to warn of potential problems with service delivery. In D.C., the mayor's office says it will probably keep certain critical agencies -- schools, police, fire -- off-limits from budget cuts. That's little solace to you and others who know someone who loses a job because there's not enough revenue. We in the newspaper industry know all about that.


Anita Kumar: Just to follow up on David's answer to the question about unpaid leave. In Virginia, there has been no talk about that. Instead, officials have laid off employees or not filled vacancies.


Takoma Park, Md.: Is the market instability and clamp down on lending going to affect local businesses?

David Nakamura: Yes, it already has. Take a look, for example, at the ballpark district around the Washington Nationals' stadium in Southeast. I wrote a story last week that showed how all the new developments out there -- offices, condos, retail space -- are having trouble finding tenants. Also, developers who have projects in the pipeline are having trouble finding lenders to give them cash to start building. Monument Realty has land a block north of the stadium and, though it is nearly finished with an office building, has been stalled on a condo/hotel project next door because it can't find a lender.


Anonymous: If the government is willing to subsidize Wall Street to the tune of $700 billion, couldn't they send a few billion to the states?

David Nakamura: Considering Virginia alone is $3 billion in the hole, a few billion to the states might not go far. Of course, the federal government is already subsidizing local budgets. In D.C., the city uses $5.5 billion in local funds, but it's overall budget, including federal money and grants, is more than $9 billion.

The good news is that D.C. financial officials said today that they expect a government infusion of cash on Wall Street to stabilize the markets and that, in turn, would stabilize local revenues, to some degree. It's not guaranteed, but it's what local officials are hoping for.


DC tax revenue shortfalls: A reader asked: "Where's the revenue shortfall, foreclosures?" At least $40 million was stolen - that must hurt.

David Nakamura: Well, yes, as noted before, the $48 million tax scandal looks even worse, if that's possible, in light of the downturning economy. However, keep in mind that the money was stolen over 20 years. That's not an excuse, but just wanted to add perspective. It also didn't help that Mayor Fenty's summer jobs program overspent its budget by $20 million this summer and needed emergency funds to make payroll.


Editor's Note: moderators retain editorial control over Discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions. is not responsible for any content posted by third parties.

© 2008 The Washington Post Company