The District government has serious budget problems. They have a variety of causes, but most are not directly the city's fault. City officials are moving to take sound corrective actions. Their success in doing so will require citizen understanding and support.
Unfortunately, the dimensions of the city's problems cannot be precisely determined. The new financial management system that went into operation last Oct. 1 is not yet providing good current information. In addition, detailed information is not yet available about the final 1979 revenues and expenditures.
We do know, however, that, in the aggregate, 1979 spending exceeded revenues by about $41 million. We also know that the 1980 budget has a basic imbalance because of higher-than-budgeted pay increases, pension requirements and energy cost, together with expected revenue shortfalls, including loss of the unincorporated business tax. The circumstantial evidence suggests that spending this year will exceed city income by at least $105 million.
This situation, following on the heels of a bad 1979 imbalance, is causing a potential cash crunch. On Jan. 31, 1980, the city had only $29 million in cash (to put this in perspective, the city's payrolls are about $75 million per month). The city hopes to be able to find sufficient cash to meet its obligations between now and March and April, when it receives second-half property-tax and income-tax payments.
However, the real problem is the imbalance between spending and income. Unless this is addressed immediately, the cash crisis will recur in late August or early Septemebe, and at that time it may not be manageable. In recognition of this problem, the mayor is considering spending cuts of up to $29 million.
In addition to city actions to reduce spending, Congress should provide an additional federal payment of about $35 million to cover two unbudgeted expenses caused by federal action. One of these expenses is the 7 percent pay raise granted last Oct. 1 instead of the city's budgeted 5 percent raise. The other is the new plan for funding the city-administered pension program.
If both the budget cuts and the supplemental appropriation occur, they would offset about $64 million of the imbalance and relieve the immediate cash problems. However, they would still leave city revenues $41 million less than spending needs (not including any professional tax refund that may be required this year). The mayor has not proposed any tax increases, but it will almost certainly be necessary for him to so soon to close the remaining gap.
While the city's financial problems are receiving considerable attention by the mayor and his staff, the actual corrective actions have not yet started. When they do, the pressure will be on everybody to work together, to avoid turmoil, angry accusations and possible disruption of some city services. For example, to remove $29 million from the budget may require employee reductions in police and fire departments, schools and otehr sensitive services. Both the citizens and the employee unions affected, to say nothing of Congress, can be expected to oppose such reductions vigorously. Yet if the solvency of the city is to be maintained, such reductions seem inescapable.
Procedural delays are likely to be a major obstacle to resolving the problem. The city's budget for this fiscal year will be half spent by the end of March. This means that to save $29 million over the half-year that remains, cuts totaling $58 million on an annual basis will be needed. Similarly, tax increases can be put into effect for no more than a half-year, even if emergency legislation is used. Delay not only will make the size of the necessary cuts and tax increases even greater, but also will increase the risk that the city will not have the cash needed to meet its obligations.
If the council reviews the changes in spending levels and revenue increases, that will take at least six weeks. Congressional review could add another month or more. Because of the magnitude and urgency of the present problem, both the council and Congress will need to shortcut their usual procedures and recognize the necessity of following the mayor's leadership. Any problems or disagreements over the actions taken should be resolved in considering next year's budget.
In short, the city government must be scaled down in size, and it must be kept solvent. This will be a painful process, and may even be damaging to some parts of the city's economy and to some citizens. It will require clear public understanding and strong civic support. Above all, it will require strong leadership by the mayor and other city officials, with a minimum of procedural delays.