John Wilson was walking out of a briefing by the mayor. The subject had been the city's shortage of money. The mayor had told the council that the city was $175 million in the red. Now Marion Barry was turning to talk to the reporters. Wilson says he put an arm around the mayor and asked: "When are you going to start calling this a crisis?" Wilson says the mayor responded: "If I call it a crisis now, what will I call it when it gets worse?"
Good question. But in the meantime, how will anyone know just how serious are the city's financial problems? There have been hints of problems in the past. In 1975 and again in 1977 there were hiring freezes on city employees. But hiring continued, and to this day the freeze has never been called off. The whole problem looked to be empty talk. Former mayor Walter Washington even bragged that his administration was leaving the city with $40 million in the bank at the end of his term. But the next administration said the former mayor also left the city with more than $40 million in unpaid bills.
Now there are constant rumblings, public rumblings, about the city's deepening money problems. Are the politicians bluffing to get more money out of Congress for the federal government's payment to the city? Or has the budget situation become a real, New York-style big-city fiscal crisis?
Is it serious? "Serious as a heart attack," says Wilson, chairman of the council's finance committee. "Next year it will be even worse." Wilson and other budget analysts in the city differ only in their judgment of the size of the problem: some say it is serious, others say it is beyond serious and fast approaching desperate. All expect the trouble will eventually result in fewer city serivices; that could mean fewer policemen on the streets, a longer wait for an ambulance and fewer nurses at D.C. General Hospital.
"Yes, this time it's serious," said Matthew Watson, city auditor. "Right now, to meet immediate needs, the city has to save at least $100 million out of the $700 million left in this year's budget. That is one-seventh of the remaining budget. It's a lot of money to save rapidly. And every day we wait means we have a smaller total budget to get that $100 million out of."
Council member Betty Ann Kane agrees: "The numbers are so big that there is no way we could raise taxes to cover the gap for this year. And there is no permanent tax that will continue to cover the gap in the future."
The fiscal experts say Washington's problem is almost as bad as the money trouble that crippled New York City. The only difference is that the District is not on the bond market and has no outstanding private loans that it cannot repay. But the city is in danger of missing a payroll payment soon, which would amount to default. If the city goes into default, Congress will have to bail it out. A joint House-Senate committee would probably take over operations of the city.
The city is not far from that situation. Its cash balance at the end of January was about $29 million, with a $75 million payroll due every month. The city currently owes the U.S. Treasury $60 million. Twenty million dollars of the Treasury debt is unpaid from last year, with the remaining $40 million due at the end of this fiscal year, Sept. 30. The city has no current source of money available to repay any part of the debt.
Meanwhile, the city owes Metro $23 million from a bill received last December. Interest grows on that debt daily. And in March another $14 million Metro bill will be due. While spending increases, the city's revenues are decreasing, coming in below projections for this year. The "shortfall" from parking fines and water and sewer taxes totals about $20 million; gas and sales tax revenues fell about $6 million. Congress made the problem worse when it mandated that the city increase salaries to city workers by $14 million and increase pension payments by $21 million. The great federal payment and supplement that have saved the city so mahy times before are also a part of the problem. They are shrinking while inflation grows. In 1975 the payment was 25 percent of the city budget.Now it is only 17 percent.
The latest blow to the District's shaky financial condition this year came from two recent court decisions. The first outlawed a city policy that required all taxpayers who owed more than $100,000 in property taxes to pay the city government immediately after receiving their bills. The second rules that the city's tax on professionals who work in the city was illegal. The two decisions cost the city about $72 million. "We had a problem before" says Gladys Mack, director of the city's budget office. "But the court decisions made it a big problem."
The problem does not stop there. An additional $2.5 million is needed for upgrading St. Elizabeths Hospital. Heating oil prices are up, and the cost of overtime for city employees as well as overruns in city spending for this year are not yet known.
The problem totals about $175 million for this year. The debates about the size of the deficit have to do with how much of the money can be saved through tighter financial management of agencies, how much can be expected from Congress and what bills can be deferred.
The money problems look a good bet to get worse. The city would like to enter the bond market, possibly next year. But with its current problems, its bond rating would be pitifully low and congressional permission to enter the bond market would also be unlikely because any default on city bonds would have to be made up with U.S. government money.
Mack, the city's budget officer, says the budget problems are likely to grow because the city's expenditures have grown annually by about 15 percent while revenues have increased by only about 5 percent. Major cutbacks in city services or major tax increase will have to be made to close that gap in future years.
"By 1984," says John Wilson, "the city will have a $252 million debt beyond the city budget. That is speaking conservatively." The budget office estimates the city will have a $74 million deficit in 1981 and a $70.6 million deficit in 1982. So the seriousness of the city's budget problems is no longer the question. The question is what to do about it.