The District's financial crisis has eased, but the city still needs to address many of its underlying budget and service delivery problems, the D.C. financial control board said yesterday.

In its annual report to Congress, the board said that "the District's financial recovery, though promising, is precarious and still lacks some of the underpinnings necessary to a full and lasting recovery."

The five-member board, headed by Alice M. Rivlin, was set up by Congress during the depths of the city's fiscal crisis four years ago. It returned day-to-day control of the D.C. government--except the schools--to first-year Mayor Anthony A. Williams (D) in January. Board members still retain oversight of decisions by the mayor and D.C. Council, but the control board could be disbanded in two years if the city's budget stays balanced. The report covered the budget year that ended Oct. 1.

Capitol Hill lawmakers have been pleased with Williams and the general direction the city has been going.

"The city is working to improve itself," Rep. Thomas M. Davis III (R-Va.) said yesterday. "We need a healthy city to have a healthy Washington region."

The control board's report noted many positives. The city's bills are being paid and the taxes collected. The budget has a $150 million surplus, the economy is strong and the city has access again to credit markets at favorable rates. A convention center being built at Mount Vernon Square--which city officials say is key to their economic development efforts--is off to a good start. The city's financial systems--accounting, tax collection and payroll--have improved.

However, the report said, the city's delivery of basic services "does not always meet citizen expectations or compare favorably with the delivery of services in other major cities," referring to schools, public safety and public works. The city's population decline of the past several years cannot be reversed until those areas are improved, the report said.

Though the budget has been balanced for four straight years, future budget outcomes are more uncertain, the report said. Pressure is increasing for higher expenditures such as backlogged repairs, the board said. It's unclear how much the economic development efforts actually will broaden the tax base. And plans to expand economic development are somewhat uncertain, the report said.

This year's capital improvement plan is $2.7 billion, but the city's infrastructure needs are higher. The schools alone estimate they need $2 billion to restore their facilities. The board added that special education and charter school programs need constant planning and budgeting by school officials because of projected increases.

The report noted that four city agencies--corrections, public housing, mental health, and Child and Family Services--continue to operate under court-ordered receivership because of massive problems in the past. Only public housing and medical services for inmates have improved under receivership, the report said.

The fact that so many government services are under receivership "indicates that service delivery has not improved sufficiently across the board, thereby jeopardizing the District's long-term financial recovery," the report said.

Despite an aggressive schedule to repair problems in the city's computers associated with the year 2000, the board said, "failures might still occur," especially in telecommunications or electricity.

The board encouraged the city to develop a long-term debt management strategy. The city has been ending each budget year with surpluses as high as $13 million in its debt-service fund, which the board said is too high at a time when many agencies are critically short of the money they need to deliver basic services.

The report said the board would concentrate on returning full power, operations and oversight to its elected officials.

"Now that the District has reached a turning point," the report said, "the authority must turn its attention to preparing the city for a return to normal governance."