The pension funds for D.C. teachers, police officers and firefighters will lose up to $21 million in investment income this year because the District government has not made legally required payments into the funds, the chairman of the D.C. Retirement Board said yesterday.

Frank Higgins, chairman of the powerful board created by Congress to administer the pension program and manage its assets, told a City Council committee that the District government's failure to make quarterly payments of $30 million into the funds "violates the statute" that revised the pension program, which is already one of the most difficult and potentially devastating financial issues facing the deficit-ridden city administration.

City officials confirmed that none of the pension payments has been made in the current fiscal year. Holding up the payments enables the cash-strapped city to use the money for operating expenses. But city officials said that was not the reason the payments were withheld.

The first two payments, which were due Oct. 1 and Jan. 1, were not made because the Retirement Board had not yet been sworn in, they said, but the payment that was due April 1 was also withheld because the city was short of cash at the time.

City administrator Elijah B. Rogers said he and city controller Alphonse Hill had "some questions" about whether the payments were legally required, but "if the law says that, which I now think it does, we will comply. If the law says we have to come up with $30 million on July 1, we will do it."

Rogers has repeatedly predicted that the city government will run out of cash this summer unless it finds some new source of funds.Asked how the city could commit itself to lay out $30 million at a time when its cash balance is expected to plunge toward zero because of other commitments, Rogers said, "It's going to be all right. We have said all along that July is going to be a very difficult month for us, but we will come up with something."

Rogers and Mayor Marion Barry are counting on the anticipated proceeds of a $184 million bond issue that they have asked Congress to authorize to tide the city over a cash crisis this summer.

New York financial experts have warned, however, that the city's pension problems might jeopardize its ability to sell those bonds even if Congress approves them, because investors would fear that pension claims might take precedence over bond repayments.

Congress, in bestowing limited home rule on the city, transferred to the city government the responsibility to make pension payments to D.C. firefighters, police officers, teachers and a few judges. But it did not provide enough money to cover the pension benefits they had already earned.

As a result, the city's unfunded pension liability is already more than $2 billion. By the year 2005 pension payouts and contributions to the trust funds will have to rise from the current $120.4 million to an estimated $706 million.

According to Higgins, the failure of the city government to meet its obligations in the current year only worsens those grim projections because it deprives the Retirement Board of investment income that would have helped to reduce the unfunded liability.

He said that the Retirement Board has invested $152 million in current assets in short-term accounts managed by American Security Bank and would soon develop a long-range fund management strategy. But he said that the loss of income on the quarterly payments only puts the funds deeper in the hole for the future no matter how well they are invested.

None of the estimated 8,000 current retirees has missed any pension payments as a result of the District's inaction on quarterly payments, although Barry warned them earlier this year that their payments "may be jeopardized" by the long-term underfunding of the pension programs. The problem, as explained by Higgins, lies with the method by which the monthly payments are being made.

Under the 1979 law, the board is required to collect and pay out all pension money for the employes who are covered, investing what is not used each month. The District is required to make advance payments to the Retirement Board every three-months of one-fourth of the total annual pension budget -- this year, that means just over $30 million per quarter -- and to turn over the contributions made by the workers as they are withheld from paychecks. The board in turn would disburse only as much as is needed each month, keeping the rest in high-yield investments.

The city has not made those payments. Unable to come up with $30 million in advance, it has made payments directly to retirees each month. The total amount disbursed in a three-month period is about the same, but by failing to give to the Retirement Board in advance, the city leaves the board without anything to invest.

At current interest rates, Higgins said, the annual loss to the pension funds that results from not having that cash to invest $21.6 million.