THE LOCAL government of the capital city is staring at a full-fledged financial emergency -- even worse than previously projected. Without action by the District, Congress and the White House, it's a matter of only five or six months before the city runs out of cash. That's the report rendered to Mayor-elect Sharon Pratt Dixon by her top financial adviser, Franklin D. Raines, an expert on city finances and no alarmist. "In my 11 years of working with governments in financial difficulty," he told Mrs. Dixon last week, "I do not believe I have ever encountered a situation as potentially disastrous as this one."
The administration of Marion Barry and the commission on D.C. finances headed by Alice M. Rivlin had each projected a deficit of about $200 million. Mr. Raines, a partner in the investment banking firm Lazard Freres, estimates that the deficit will be $275 million to $300 million, the difference coming from unbudgeted spending and a deterioration of tax revenues due to the recession. Despite the lessons of earlier crises in New York and elsewhere, he says, "all the major actors in Washington have avoided their responsibilities for many years."
You can begin with Mayor Barry, whose once great attention to balanced budgets waned. But, says Mr. Raines, the D.C. Council "modified budgets in unrealistic fashion, virtually building in deficits at the outset" and "failed to enact revenue measures promised in the budget." Blame goes as well to the federal government for saddling the District with pre-home rule financial liabilities that have severely restricted the District's revenue-raising capacity. Meanwhile, the annual federal payment to the city has been kept at a grossly inadequate level for years.
Mr. Barry hasn't helped a bit, refusing to submit a supplemental budget to balance this year's budget -- or to do any work on the next budget, which the council requires the new mayor to submit within a month of taking office. For Mayor-elect Dixon, that's two budgets to prepare in just 36 days. While she must show Congress quickly that she is serious about cutting the deficit, the council may need to consider an extension of at least three weeks for submission of a fiscal '92 budget.
If the Dixon administration can work to eliminate the major share of the estimated deficit, Congress and the White House should be able to eliminate the rest. The governments of this region have an obligation to help elicit a federal response if they intend to continue banning a work-related payroll tax. The region's local government officials and members of Congress have been meeting since the elections to work on mutual problems. They should draw in leaders of the House and Senate and designated representatives of the Bush administration. Why wait for bankruptcy? The sooner all parties get started, the better.