Washington area governments in the 1980s face an almost certain downturn in their financial fortunes -- one that has come already in the District of Columbia. In contrast to the early 1970s, when government revenues and expenditures soared at annual growth rates of 14 percent, the 1980s seem likely to find them growing at little more than half that rate.
If the area's governments are to maintain their good financial health, both cuts in spending growth and increases in taxes will have to occur.
The difficulty of restraining the growth of spending at the local level is illustrated by a District of Columbia analysis of its future financing needs. iWithout introducing any new or improved programs, the city projects that its "budget requirements would be one-third higher in 1985 than in 1981, growing on the average of 8 percent each year." Four reasons are cited for this growth, and these generally apply to all area governments. They are: personnel cost increases due to pay raises, step increments and promotions; inflationary increases in the cost of goods and services; increases in statutory and entitlement programs for welfare, debt services, employee pensions and other items that are difficult to control; and operating cost increases for capital improvements already committed, such as the Blue Plains treatment facility and Metro.
Because there will be a need for new and improved services to meet the growth in population of outlying parts of the area, and because there are existing commitments to finish Metro and other planned improvements, expenditure growth appears certain to exceed the 8 percent low growth rate.
If federal aid does not increase in the future, area governments will have to carry a greater share of the burden of any increases in total spending than they did in the 1970s. The prospects for growth in federal aid in the Washington area are dim, and the possibility of a decline is more likely.
Anti-government and anti-tax sentiment, both nationally and locally, make it doubtful that the increase in property-tax revenues in the '80s will even match the average 10 percent annual growth rate of the '70s. Prince George's County, with almost 20 percent of area property-tax collections, is facing a zero growth limit because of its TRIM Charter Amendment. Other local governments hope to maintain a policy of annual reductions in property-tax rates to offset the inflationary growth in property values.
Growth in other revenue sources should come close to matching the 1970s performance, but it is unlikely to make up for the decline or retarded growth in federal aid and property taxes.
A major exception to the restraint on revenues may occur in the case of the completion of Metro. Substantial further federal aid is now conditionally committed for this purpose in the 1980s, additional matching local debt may be incurred and some form of state/local tax increase is likely to be enacted to pay for increased operating costs and debt service. As a practical matter, this exception may merely accentuate the leanness of revenues available for non-Metro purposes in the 1980s.
Changes in the growth rates of various revenue sources will not affect all area governments in the same way because they have varied patterns of revenue reliance. The District of Columbia will be an especially big loser from reduced growth in federal aid. Alexandria, the other "central city" in the area, will also be heavily affected by any change in federal aid. Suburban communities, however, especially in Virginia, will be much more severely affected by a sluggish property-tax growth. Growth in state aid, a significant revenue source for both Maryland and Virginia governments, is doubtful. If these state governments experience the general national pressure for restraint in spending, as seems likely, growth in local revenues from state aid could be sharply curtailed.
Citizen demands for new or expanded services seldom stop, even in times of austerity. Few school programs for handicapped children are ever as good as parents think they should be. Police and fire forces always seem understaffed whenever a particularly grisly crime or fire occurs. Chuckholes are never repaired soon enough, nor is snow plowed fast enough after a big storm.
Nevertheles, if the money is not available, as it may not be, the size of government must be reduced. In the Washington area, this reduction may occur in several ways. First, the quantity or quality of services may be reduced. The most likely candidates for such reductions are those solely or heavily financed by federal aid, such as CETA or Community Development. In such cases, when the federal grants are cut, the program is cut. In other instances, a program may have weak political or citizen support -- libraries in the District, for example -- and thus be especially susceptible to cuts. Reductions in school spending as a result of falling school enrollments have proved difficult to achieve, but continued pressures to do so can be expected. In all these cases, however, and especially in the school systems, political and employee pressures will make downward program adjustments extremely difficult.
Closely associated with efforts to reduce services are likely to be efforts to increase government productivity. In theory, improved productivity will enable government to cut spending without damaging services. As a practical matter, however, evidence of local government success in cutting spending through productivity improvements has been hard to find. This is true because the claimed benefits of improved productivity are used to expand or improve services rather than to reduce actual spending.
A more promising type of productivity improvement may occur, on a relatively unplanned basis, through forced reductions in employment levels. This happened in New York City in some instances when employee reductions resulted in little change in the quantity or quality of services.
Another possibility for reducing government spending may be to transfer responsibility for some services from government to private citizens or organizations. Private responsibility for government-type services is not a new phenomenon.
The outcome for area governments in the early 1980s will hinge on the hard political dilemma that always underlies government budgeting in times of austerity -- either increase revenues or decrease spending. Out of this process will come decisions based on political compromises. They will include tax increases, accompanied by a significant slowdown in the growth of local government activities.