Recent Post news articles and editorials about the city's budget status and debt strategies seem to be leaving a false impression with the public about the state of our fiscal situation. The impression needs some correction.
It is important to separate two questions: First, what does the 1981 expenditure report reveal about progress in financial management? And second, should the debt management proposal designed and supported by the city's elected officials and independent financial advisers be supported and implemented? For the answers, let us look at the facts.
The total FY 1981 appropriated budget for the District is $1.4 billion. At the beginning of the fiscal year the internal controls and reporting mechanisms of the new system were ready to do their job: Agency heads are assigned primary responsibility to monitor monthly reports, which project spending forward for the year, and reveal potential problems. These reports are reviewed by our controller and our budget director; their analysis is reviewed by the mayor and me each month.
Recent informal briefings of the council and Congress have been advance discussions of an interim expenditure report, which was formally submitted to the council and Congress on April 1. This report illustrates several important facts:
1. Of 76 agency or program budgets in the government, 60 have instituted savings controls that are producing expenditures below their estimated rate, by a total of more than $13 million.
2. Of the 16 agencies that project possible deficits, six are independent agencies over which the mayor does not exercise daily administrative control (courts, schools, university and hospital); five are entitlement or transfer funds over which the city has no discretion (retirement, schools subsidy and compensation programs); and five are executive branch agencies.
3. Of those five executive agencies, two potential deficit amounts are small ($146,500) and easily corrected; three represent more serious problems:
The Corrections Department continues to assume responsibility for more prisoners than planned, with resulting unbudgeted costs for their placement in the federal prison system.
The Human Services Department continues to struggle with runaway and Medicaid costs and soaring food and energy costs in public institutions.
The Department of Transportation has a major potential deficit resulting solely from congressional action last December in lifting the 2 cents-per-kilowatt maximum rate for street lighting.
The interim report makes several things very clear. First, the reported potential for overspending the city budget is, at mid-year, only slightly more than 4 percent of the total budget. Second, the problems are created not by careless management or failure to control hiring and personnel costs. In fact, the size of the city's work force has diminished dramatically during the last two years. Our potential overruns are in areas that plague all cities.
As I assured Mayor Barry in an April 1 memorandum, we shall meet these problems. The necessary actions have been developing for several months, as periodic reports are produced. We are sharing this assessment with the council, and the public in preparation for sending forward this week some of the correction plans that require legislative approval.
But let us now look at the second question, the management of the previous debt. Some observers are suggesting that until we get to the end of the fiscal year in October, and have actually demonstrated the impact of these fiscal controls, no legislative action should be taken to allow the city to refinance its debts on the bond market. This suggestion is creating a serious crisis for the city, which may itself jeopardize the recent progress toward management control.
Cash flow and budget management are different and distinct needs. The cash problems is a new one to us. For many years the city paid old debts out of new income, rolling over the cash through unlimited access to the federal Treasury. Cutting lose from the Treasury, and changing to an accrual accounting system, has given a double jolt to our cash needs. Unless we refinance our accumulated debts in FY 1981, we will be forced to adopt one of two unacceptable alternatives: either suspend payments to our employees and creditors, or postpone the identical problem until 1982 by reverting to reliance on the Treasury. Postponing the problem does not solve it. This accumulated deficit must be faced, and paid off; the sooner the better. The mayor has taken the politically difficult but responsible course of accepting the problem, and proposing a solution, rather than trying to hide it.
In summary, a decade of poor accounting practices and deficit spending habits had acquired a momentum of its own, like a moving vehicle. The brakes have had to be applied in every division and branch of government, and every program -- along with city-wide training in new accounting principles. In fact, even the new accountind system and its requirements might be said to have created a few of the present budget problems. For example, the new method of accuring interest, the provision for grant disallowances, and so on -- all have required deficit entries in 1980 and 1981 that were not planned when those estimates were drawn up two and three years ago. But the brakes are on; the controls are in place. The results are increasingly evident in FY 1981.
Every budget -- a city's, a household's, the federal government's -- is an estimate drawn up beforehand. Comparison of that estimate to actual spending is a continuing process. Each month the real income and expenditures are entered, the projection is recalculated, problems are analyzed and solutions developed. Those figures change, as revenues and inflation and other factors move up and down. But the forecasting process allows for advance management. That is what we are doing, and will continue to do.
The mid-year assessment is not the cause for alarm that The Post appears to believe. On the contrary, it is a report of a remarkable turnaround in the management of a $1.4-billion enterprise.