The District's economic recovery is looking so good that it's hard not to kick back and just enjoy the bubbly.
But Philip M. Dearborn's job, you might say, is to keep an eye on the festivities to make sure the merrymaking doesn't get out of hand.
Dearborn, president of the Greater Washington Research Center, is warning the District not to count on a continuation of the good times that have produced a big windfall for the city in the form of higher tax collections and a sizable budget surplus.
The District's much-improved financial outlook prompted the D.C. Council to approve nearly $300 million in tax cuts over the next five years, including reductions in personal and business income tax rates, commercial property tax rates and levies on small businesses. Congress must still approve the plan.
While the tax cuts planned for 2000 and 2001 look affordable, the last three years of the plan could be endangered if the city's economy doesn't keep expanding, he said.
"I don't want to spoil the party -- and I don't think there's any reason to now," Dearborn said. "But I do get concerned that expectations may be raised too high."
The expected effect of the District's tax cuts is shown in the accompanying chart, which compares the projected growth in revenue before and after the planned reductions.
After the tax cuts, the District's revenue is forecast to grow at less than 2 percent annually in four of the next five years, according to the D.C. Office of Tax and Revenue.
To maintain a balanced budget and sufficient reserves, spending increases would have to be kept below 2 percent annually -- a tight leash that may force the D.C. government to cut current levels of city services, Dearborn said.
That day may never arrive. It may be that the District's economy is just beginning to roll and that economic growth will be stronger than currently forecast. The city's new convention center will raise sales tax revenue. And investment in new business and community development also is underway in D.C. neighborhoods away from the downtown core.
Mark Vitner, a vice president and economist with First Union Corp., calculates that the District's economy grew at a 3.1 percent annual rate during the first quarter of 1999. This year could be the best for the capital's economy since the late 1980s, he said.
Even if the national economy is slowed by higher interest rates, the District's economy could grow at 2.5 percent a year for the next two years as the District continues to attract new residents and companies that find city living appealing, Vitner said.
"There seems to be a urban `pioneering' going on in the District and other older urban areas" as some suburban residents and other newcomers move back into the cities, he said.
But if the District's economy is slowed over the next five years, D.C. lawmakers will probably have to choose between cutting programs or canceling the last stages of tax reduction.
"At that point it will be difficult politically" to face that choice responsibly, Dearborn said.
Congress may complicate the choice too, if it agrees with some House Republicans that the entire tax cut package must be guaranteed now.
The last time city officials confronted the dilemma of cutting taxes or cutting spending, after the 1990-91 recession, they ducked it and left spending unrestrained. The result was a budget crisis.
"I hope there will be enough watchdogs around to prevent that" if the dilemma reappears, Dearborn said.
The Greater Washington Research Center reports are located on the Web at www.gwrc.org. Peter Behr can be contacted at email@example.com
CAPTION: Thin Ice? (This graphic was not available)