The chairman of the D.C. City Council's Finance and Revenue Committee, in his first public opposition to Mayor Marion Barry's optimistic views on the city's financial condition, said yesterday that the District is likely to end the current fiscal year with a significant budget deficit.
Council member John A. Wilson (D-Ward 2) estimated that the deficit could be as high as $20 million to $40 million and possibly twice that amount, but he gave no breakdown of those figures.
In the worst-case situation, he said, such a deficit could force a steep rise in taxes, perhaps as much as $100 million by early next year.
Wilson said his forecast was based on a May report from the D.C. Department of Finance and Revenue which shows that the city collected $16.2 million less than anticipated during that month alone and is $2.6 million short of its projected revenues for the year. The city's operating budget is $1.6 billion.
The report, issued June 16, said that, among other items, deed recordation tax collections were down $2.5 million; real property transfer tax collections down $1.1 million and sales and use tax collections down $5.1 million. Select sales and use taxes (such as the gasoline tax) were $164,000 below estimated income and individual income tax collections were $6.9 million low.
Wilson said that he considers the May report the first hint of a larger cumulative shortfall stemming from continued downturns in both the national and local economy, fewer tax dollars coming into the city treasury and the Barry administration's reluctance to make budget cuts in an election year.
"This is the crunch year, and now we're feeling the crunch," Wilson said. "Right now, this city is barely afloat on a shoestring budget. We have a serious cash flow problem. If it wasn't for the short-term borrowing from the U.S. Treasury we would have already missed a payroll."
City Administrator Elijah B. Rogers said there is no danger of a deficit this year. Tax revenues come into the city treasury in irregular cycles, he said, and the May shortage should be made up by the end of the fiscal year.
"There is no question we will end up the fiscal year with a balanced budget," said Rogers. "All the May report says is that we didn't bring in the money we had projected for May."
"You've got to look at the total picture," Rogers said. "The report didn't show the expenditure side. We can make adjustments in spending for shortfalls. I don't know what we might do . . . .We could not fill some positions, not spend the full appropriated budget."
But Wilson questioned how much cost-cutting could be done before the fiscal year ends Sept. 30.
"Something has to be done now if we want to keep this city running," Wilson said. "The only way we are going to lose Home Rule is to mess up the money. I am dead serious. I believe, from all the information I have before me, that this year will be the Waterloo."
Wilson said that the likelihood of a large deficit has faced the city since the fiscal year began onOct. 1, because four taxes the Barry administration had counted on to fund the budget have not been enacted. They include a 40 percent rise in the city's estate tax and an increase in the tax on the gross receipts of utilities.
The loss of those revenue sources, Wilson said, left the city government more dependent on other sources, particularly property taxes.
Wilson, who attempted a short-lived campaign for mayor earlier this year, said there was no political motive underlying his predictions. "This is no political pot-shot," he said. "I'm not running for anything . . . . I'm telling you this is trouble, right here, right now."
In addition to the current revenue shortages, he said, the city still has an accumulated deficit of $309 million and has borrowed an additional$140 million from the U.S. Treasury that is supposed to be repaid by Sept. 30.
Council member Betty Ann Kane (D-At-Large), also a member of the city finance and revenue committee and also a one-time candidate for mayor, agreed with Wilson that the city is likely to have a deficit this year.
"From what I've seen, yes, we seem to be on our way to a deficit," said Kane. "But I don't think I could put a number on how large it would be."
Deputy D.C. Budget Director Jeff Goldman said the city is conducting a review of its revenue and spending that will allow restraints to be placed on spending before the end of the year if necessary to balance the budget.
Carolyn L. Smith, director of the city's Department of Finance and Revenue, said that she expects the current drop in revenue -- which she estimated to be about $5.9 million by the end of May instead of the $2.6 million listed in the revenue report -- to be outweighed by an increase in taxes paid by public utilites and tax on income for the last quarter of the fiscal year.
"Right now," said Smith, "I'd guess we won't have a deficit, but I can't guarantee it."
The report said that the shortage was the result of "higher than anticipated income tax refunds, sluggish retail sales and weakening corporate profits," but predicted that those trends would soon be reversed -- a prediction that has been challenged by some business and utility representatives.
"Right now, sales are very flat," said Robert Mulligan, vice chairman of Woodward and Lothrop. "We don't see anything that says that is going to change. If anything, it would be the tax reduction on paychecks. But we haven't seen that yet and there's nothing else to say things are going to get better."
Nancy Moses, a spokesman for the Potomac Electric Power Co., said that the city can expect a $22 million tax payment in early August, but she said this is only a slightly more than the utility's tax payments in previous years.
"There is not going to be any major increase in our tax payments," she said.
"We are still in the same financial posture we were in in the Walter Washington administation," Wilson said last week. "Washington rolled over debts and claimed he had left us with a $40 million surplus when we had a deficit. Last year, Barry said we had a surplus but he didn't mention that we hadn't paid bills for St. Elizabeths or for D.C. prisoners being held in the federal prisons."
City Administrator Rogers said part of the$140 million the city has borrowed on a short-term basis was used to pay those bills.
Wilson's predictions appeared to set off what has become an annual occurence in city hall. In early 1980, Barry aides first predicted a $28 million deficit for that fiscal year.
Wilson and others said it would be higher. The number changed virtually from month to month and wound up at $105 million for the year, making the city's outstanding debt $389 million.
In the 1981 fiscal year, after submitting a balanced budget, Barry told the City Council there might be a deficit as high as $60 million, then a surplus of $7 million and finally wound up with a suprising $68 million surplus.
In both 1980 and 1981, Wilson was one of Barry's most consistent critics on the budget.
"I've been on the finance and revenue committee for seven years, almost four years as chair, and I have never made a wrong projection," Wilson said.
"We're going to have a balanced budget," Barry said yesterday. "This time we're going to prove John Wilson wrong."