The District of Columbia Budget Crisis:
The numbers have changed from day to day. Is the deficit $84 million? More than twice that? Or three times as high?
Whatever the amount, it is serious enough to bring the mayor, his top aides and members of the City Council into daily marathon meetings behind closed doors. It is urgent enough to prompt an immediate freeze on city hiring, promotions and overtime pay. It cuts deep enough to spark consideration of new and higher taxes in a time of double-digit inflation.
It is a problem so fundamental that influential members of Congress view it as an acid test for Mayor Marion Barry's young administration and for the future of home rule in the nation's capital as well.
But the confusing, politically tinged and sometimes well-orchestrated responses of public officials have provoked curiosity and suspicion among anxious residents here.
Is this "crisis" simply a preelection-year ploy to raise taxes and lay off workers now because the city will not vote for mayor again until 1982? Is it a glorified cover-up for sloppy management in the past, incompetency in the present, or both? Is it really worth the hundreds of additional tax dollars, the service inconveniences and the other sacrifices that Barry is likely to ask?
The financial situation of the District of Columbia government was serious long before late January, wwhen Barry and his aides disclosed a possible $29 million deficit in the city's annual $1.5 billion budget. And it is likely to be felt long after the expected tax increases have been collected and spent.
For years, through a combination of questionable accounting methods, financial gimmickry and relying on plain old-fashioned luck, the D.C. government has managed to spend money it really did not have, to launch programs it could barely afford and to give back taxes that leaders should have known it would sorely need later.
The same congressmen who now cry for the city to pull itself up by its own bootstraps have aided in its financial misfortune -- often snatching away would-be budget surpluses, refusing to appropriate needed money and being a willing partner in questionable budget tactics.
"The city's been walking a tightrope. In every case up to now, it's been able to pull itself back from the edge," said Phillip M. Dearborn, vice president of the Center for Municipal and Metropolitan Research. "It's a tricky situation, and it doesn't take a great deal to push you into disaster. a
"It's very real and very serious. It's likely to continue to happen until the city and Congress clean up this budget process," Dearborn said. "We could have predicted that this would happen. What was unpredictable was the severity of it."
The solution also could be severe. Barry is contemplating a $21 million tax package, including a hefty boost in property tax rates, sources have told The Washington Post. That would make city tax bills, already expected to climb because of raising assessments, even higher. The owner of a typical District home assessed last year at $56,100 could wind up paying $225 more.
The mayor and his advisers are said to be undecided over whether to apply the tax rates only to businesses, many of whose owners are already clamoring about high taxes, or to all types of property. Either alternative is likely to be unpopular.
Barry also is considering a new tax on the professional and trade services, higher gasoline and hotel taxes and an increase in the deed recording tax -- all in an effort to make ends meet.
The city is required by law to have a balanced budget. But the budget is balanced in theory only and only at the point when it leaves Capitol Hill and goes to the White House for the president's signature. In fact, unexpected expenditures and revenue shortfalls are bound to throw it off, and the leftover deficits can be simply rolled over from one year to the next in the city's bookkeeping system.
In only three of the past 10 fiscal years has the city spent less money than it took in. In other years, bills incurred and paid have outstripped money coming in. The deficits have ranged from $1.7 million in 1969, $13.7 million in 1973, $61.8 million in 1976, and $41.7 million in 1979.
With the help of a tax package enacted in 1976, there were two outstanding years in the past decade. In 1977, the city had a $35.9 million revenue excess and in 1978 it took in $43.2 million more than it spent.
But the District is also prohibited by law from having a surplus fund.
Some of the extra money was given back to city taxpayers in the form of property tax relief at a time of soaring assessments -- and a vigorous election campaign for mayor involving Barry, former mayor Walter Washington and Sterling Tucker.
And, pointing to the higher than expected revenues, Congress reduced the federal payment, which is the annual appropriation to the city to compensate for revenues lost through federally owned, tax-exempt land and to help meet the cost of extra services the city must meet because it is the national capital.
City officials say the federal payment is one of the major problems in the budget process. Congress has used it as the major big stick to whip city spending into line.
If that means holding back money for spending that the city is required to make no matter what -- such as pay raises whose levels are set by the White House -- the money is held back. And in some instances, such as late last year, the new budget is not finally passed until days -- or even hours -- before the old one is set to run out.
"Using the federal payment to balance the budget is clearly a part of the problem. It's crazy," said Ivanhoe Donaldson, general assistant to the mayor and Barry's senior political aide. "How do you manage something when you're learning what your budget is the day before your authority goes into effect?"
"You can't just arbitrarily and blindly slash dollars and simply say, 'They have to cut 'em,'" Donaldson said. "It sounds good and it makes you look effective and efficient, but you don't have a responsibility for the management of the system and you don't have the sensitivity to the problem."
A key congressional aide acknowledged that in many respects the federal payment basically exists for one purpose -- to be cut. Even though the federal funds for the District are a tiny fraction of the total federal budget, they get lots of attention.
"The atmosphere may be pretty good at the [appropriations] hearings, but then you have to lower the boom," the aide said. "It's kind of a rotten deal if you ask me."
The city's budget process is a long one. Because it has to be acted on by the City Council, formally recommended by the White House, looked over and passed by Congress and then go back to the White House for presidential approval, the whole process takes nearly 1 1/2 years.
As a result, revenue estimates are sometimes inaccurate and inflation cannot be properly considered.
The final result is a city budget that is partially an understated case designed to draw a larger federal payment, a best guess at what life may look like a year-and-a-half away and only an imperfect reflection of a real city spending and fund-raising plan.
"It's a fact of life," said Thomas J. O'Brien, chief of the resource development division of the city's budget department, "that because of the process, there is a lot of softness in the budget. You do your best, but the crystal ball has not been invented yet that will give the kind of precision you need."
It was against this backdrop of financial uncertainty that Barry took office, allegedly with a $40 million municipal checkbook balance awaiting him, compliments of his predecessor and erstwhile political foe, former mayor Washington.
But, according to Barry administration budget officials, the so-called surplus was a fiction and the new government was really $40 million in the hole.
By the end of the year, overambitious estimates of revenues from the get-tough parking enforcement program had fallen $14 million short and a perennial problem in getting out water and sewer bills led to the loss of $9 million more.
Last April, the courts barred the city from collecting $14 million in property taxes before they would have ordinarily been due. Barry and his aides were already scrambling to make ends meet. They could not.
The city fell $23 million behind in its payments to Metro for bus and rail service. It borrowed $20 million from the U.S. Treasury but was unable to pay it back before the year ended. Serious cash-flow problems had developed, O'Brien said.
These problems were even more acute for the new administration, Donaldson said, because no longer were city checks drawn on the U.S. Treasury, which was more likely to be patient with District overdrafts. "When you're writing checks against local banks, you have to have the money there," Donaldson said, "You have to have real money there."
The city ended the fiscal year $42 million in the hole. And when City Administrator Elijah B. Rogers began revising revenue projections to take into account last year's shortfalls, he determined that $28.6 million had to be cut.
Rogers then sent out the now famous Jan. 23 memo, asking city department heads for recommendations of where trims could be made.
Three weeks later, the D.C. Court of Appeals increased his woes by ruling that the city would have to refund more than $40 million it had collected through a tax on professionals, and could not collect another $7.5 million it planned to this year.
By this time, the City Council had entered the fray, and various estimates of what the budget deficit was began to fly. Barry finally settled on $84.5 million. But council members found other items. They estimated the deficiat to be $175.7 million.
Council member John A. Wilson (D-Ward 2), soon announced that he suspected that the deficit was "in the area of $250 million." Budget Director Gladys W. Mack discagreed.
Leaders of the city's business community were confused, worried and fearful of having to bear the brunt of any new taxes. Key members of Congress told the mayor that the future of fiscal autonomy for the District was at stake and that Congress was not to blame.
The mayor then began a series of lengthy deliberations with top aides to decide on a remedy for the immediate ills. His precriptions are to be revealed tomarrow, when he briefs members of the City Council behind closed doors and later outlines his proposals publicly.
Whatever Barry roposes is not likely to be the long-term solution. Municipal money watchers believe there are deeply rooted problems in the city's finances that are just now beginning to come out.
In fact, one of the short-term measures Barry is considering is a financial delaying tactic similar to past gimmicks.
He is likely to wait for a U.S. Supreme Court ruling on a recent lower court decision that ruled invalid a city tax on professionals that raised $40 million, which the city has already spent.
Barry, concerned about the possibility of another "budget crisis" story appearing, called a reporter from his car during yesterday's snowstorm, proudly saying he had dug up the budget problem himself. "This is one that you don't scoop us on," he said.
"The system" is to blame, he said by way of explanation, adding that it was long years of neglect and large reductions from Capitol Hill. The situation is serious, he said, but, "technically speaking, not yet a disaster.
"If the city was about to bounce checks, or would not be able to meet its payroll or had no way to bring in revenues," Barry said, "then we would be in a crisis."