Our task force on local government, sponsored by the Greater Washington Research Center, has completed the only comprehensive examination of Washington area local governments' finances ever undertaken. We should stress at the outset that the local governments are among the most prosperous and, as far as we can tell, best managed in the nation.
No one in local government enjoys looking ahead, because the prognosis is so often bad. So, frequently, officials delay decisions until the last minute and take the easy -- or at least the expedient -- way out.
Typically, governments paper over budget gaps in two ways:
One is to cut down on maintenance, postpone badly needed capital improvements and cut all services across the board. We nibble and nibble away until nothing works right. Streets, schools and parks all begin to show signs of advanced deterioration.
The other is to use various accounting gimmicks to put off the day when the gap must be confronted. New York City is an extreme example. They patched things up until they couldn't patch them up any longer. That can happen to any local government that consistently fails over a period of time to face its underlying budget problems.
That need not happen here. The gaps can be identified in advance and ways can be found to deal with them.
Our projections -- which are not predictions -- cover fiscal years 1982 through 1987. Total area government spending is projected to increase from $4.4 billion in 1982 to $6.6 billion in 1987 -- an average annual growth rate of 8.6 percent, only slightly more than the assumed inflation rate of 8 percent. This compares to a 12 percent average annual growth rate from 1970 to 1980, and an average inflation rate during that period of 7 percent.
From 1982 to 1987, revenues are projected to grow at a rate of only 6.4 percent, compared to an average growth rate of 13 percent during the past decade. As a result, recent austerity mesures will be insuffficient, even when continued, to prevent substantial gaps between revenues and expenditures in each local jurisdiction.
For all six major governments combined--the District, Alexandria and the counties of Arlington, Fairfax, Montgomery and Prince George's -- the revenue/expenditure gap is expected to grow from zero this year to $605.3 million in 1987. That's over 9 percent of total spending in that year.
State laws in Virginia and Maryland and the home rule charter in D.C. require balanced budgets. So the projected gap of over $600 million is a measure of the fiscal pressures our governments will face.
Prospects for expenditure reductions are troubling. Commitments already made for Metro, capital spending and pensions make those reductions difficult. The most likely targets for cuts in spending are salaries and wages. However, because it has been assumed that wage rates will rise less rapidly than inflation, it is likely that spending cuts in this area will require reductions in employee numbers.
The biggest drag on revenues comes from the drop in the rate of growth of federal aid, which is projected to grow at only 40 percent of the rate of inflation. State aid, projected to grow twice as fast as federal, still grows less rapidly than inflation. Since neither source of aid shows much promise of closing the gap, local revenues will have to be raised to make up the shortfall.
Again, there are no obvious or easy answers. And as a practical matter, the solution will not be common to all governments. Each will have to find its own way, from its own politically feasible alternatives.
The $605 million gap is large but, we think, not unmanageable -- if we begin to plan corrective action now.