D.C. Council Chairman John A. Wilson (D) abandoned his budget reduction and tax plan yesterday, saying he had been convinced by Mayor Sharon Pratt Dixon (D) and Del. Eleanor Holmes Norton (D-D.C.) that they could obtain $100 million in emergency federal funds to help close the city's deficit.
The District also disclosed yesterday that it might turn to the U.S. Treasury for a loan if it fails to win congressional approval of the emergency funds to reduce a projected $300 million deficit this year.
At the same time, administration sources said they expect President Bush to recommend a $50 million increase in the federal payment to the District as part of his fiscal 1992 budget proposal, which is to be submitted to Congress next week.
Wilson's turnaround came days after he publicly rebuked Dixon for her handling of the city's fiscal crisis, arguing that she was counting too heavily on Congress to bail out the city and that she lacked an adequate backup plan.
He made the announcement after a two-hour meeting with Dixon and Norton that Norton convened on Capitol Hill.
Dixon told Wilson she was convinced the city would receive the emergency funds from Congress this year, adding that she was prepared to furlough District workers if her efforts failed, sources said.
"I have been assured that they are extremely confident in their ability to have the federal payment increased," Wilson said at a news conference. "They have assured me they have a backup plan."
As a result, Wilson said, he is shelving his deficit-reduction plan for fiscal 1991, which called for furloughs and new taxes, for the time being.
"My priority has been to ensure the financial stability of the District of Columbia," he said. "I am confident in the ability of the Dixon administration to accomplish this goal."
The meeting marked a truce in recent skirmishing over the budget by Wilson and Dixon that officials worried might embarrass the District on Capitol Hill and derail efforts to obtain the additional funds. Wilson also may have decided to adopt a less confrontational posture to avoid being portrayed by Dixon supporters as an obstructionist to her budget plans, according to some political observers.
Underscoring the gravity of the financial crisis, the city government also reported yesterday that it ran a $118 million budget deficit in fiscal 1990, which ended Sept. 30, by far its worst deficit in a decade. That figure, which was close to previous projections by administration officials, did not include a $23 million deficit run by D.C. General Hospital, which is counted separately.
The city reported a $5 million surplus in fiscal 1989 and a $14 million deficit the preceding year.
Finance officials attributed last year's deficit to a $114 million shortfall in tax revenue, owing to the Washington area's recession, as well as overspending by the departments of Human Services and Corrections.
In the official financial audit released yesterday, the city also raised the possibility that it might have to borrow money from the U.S. Treasury to ensure that it has enough cash to meet payroll and pay bills this year.
The District has not borrowed money from the federal government since 1984, when it received congressional authority to issue bonds. A return to borrowing from the Treasury likely would prompt increased federal scrutiny of the District's finances, officials acknowledged, and might represent a tacit acknowledgement that the District was having trouble handling its own finances.
Financial advisers to Dixon described the prospect of federal borrowing as a last resort. They said it was mentioned in the audit in part to draw the distinction between the District and cities such as Philadelphia or New York, which do not have that option.
One adviser, who asked not to be identified, said the only conditions under which the city would go to the Treasury would be if it cannot obtain additional federal funds and other budget-cutting measures fall short. "If we don't get the $100 million and we don't furlough fast enough, we run out of cash," the adviser said.
Dixon administration sources also said that for the first time in five years, the federal Office of Management and Budget is recommending an increase in the city's federal payment, which has remained constant at $435 million. The federal payment, which reimburses the city for services provided to the federal government, represents roughly 13 percent of the city's nearly $4 billion annual operating budget.
Sources said President Bush's proposed budget for fiscal 1992 is expected to include an increase of roughly $50 million in the federal payment. Dixon advisers say they had hoped for much more, but one city source said that increase must be viewed as a start, given the past reluctance of Republican administrations to support the District's finances.
As part of her deficit reduction package for the current year, Dixon has proposed deferring pay raises for city workers and reducing spending by departments and agencies by $130 million. Most of her efforts in the first month of her new administration have been focused on lobbying Congress for the emergency funds.
House Speaker Thomas S. Foley (D-Wash.) and other key House members have said they would support additional funds for the District this year, according to city officials, while Sen. Brock Adams (D-Wash.), chairman of the D.C. Appropriations subcommittee, and other members of the Senate have questioned whether Congress can afford the special appropriation.
Norton called for the meeting in part to ensure that the city was speaking to Congress with a unified voice, sources said. Wilson's plan called for far less reliance on federal funds to close the deficit.
Staff writer Mary Ann French contributed to this report.