D.C. Mayor-Elect Sharon Pratt Dixon will face a financial emergency that dwarfs the gloomy projections for the city offered by the Barry administration and the recent Rivlin Commission, Dixon's top financial adviser told her in a memo obtained by The Washington Post.

"In five or six months the District will run out of cash and be unable to meet payrolls or pay its bills unless drastic actions are taken immediately," Franklin D. Raines, chairman of Dixon's Transition Financial Management Committee, wrote in a Dec. 21 memo to the mayor-elect.

While the Barry administration and the advisory commission headed by Alice M. Rivlin have projected that the deficit for the current fiscal year will be about $200 million, Raines estimated that the deficit for the fiscal year ending next Sept. 30 will be $275 million to $300 million.

The difference will come from "additional unbudgeted spending and a further deterioration of tax revenues due to the recession," wrote Raines, a partner in the investment banking firm Lazard Freres.

While at the firm, he advised the District on its finances during the early years of the Barry administration. He also has advised the cities of Chicago and Cleveland.

The District is not alone in its financial difficulty. Virginia is facing a projected two-year deficit of $1.9 billion, and Maryland officials predict a budget gap of $423 million this year.

But in his five-page memo, Raines said: "In my 11 years of working with governments in financial difficulty, I do not believe I have ever encountered a situation as potentially disastrous as this one. The nation's capital is at serious risk. Its problems are as big as those that faced New York City in the 1970s but despite the lessons of New York and other big cities which experienced financial crisis all the major actors in Washington have avoided their responsibility for many years."

Dixon said Saturday that she is familiar with a tendency politicians have to feign surprise at problems they face after taking office in an effort to buy more time to effect change.

"I know that approach," she said. "I thought about using it myself. I don't have to use any props. Good ol' Marion, he left me with something that's for real."

Rivlin, former director of the Congressional Budget Office, said she is familiar with the findings of Raines's committee. She said yesterday that deterioration in the nation's economy is the main reason for the gap between the $200 million deficit her committee projected and the one of up to $300 million that Raines is estimating.

"Our report was issued in November and was based on earlier numbers," Rivlin said. "I do think she {Dixon} has a near-term crisis that is more serious than we thought at the time we wrote the report . . . . She may have to take more drastic and emergency actions in the first six months in order to avoid insolvency. The basic situation the District faces is running out of cash."

Neither Raines nor Barry's deputy mayor for finance, Robert Pohlman, was available yesterday to comment on the memo.

Although an audit for the fiscal year that ended Sept. 30 has not been completed, Raines said the deficit for that year will approach $100 million. In the past four fiscal years, the city has spent more than $400 million more than it received in revenue, he added.

"Such overspending has been possible for a period of time because cash balances have been depleted, vendor and other payments delayed, and funds borrowed from other internal sources," the memo said.

Raines wrote that the District ran a deficit of more than $40 million in 1988 that it "disguised" with accounting maneuvers that made it appear to be a deficit of $14 million. Under the Home Rule Act, the city must not have a deficit.

Raines also blamed the federal government for establishing a pension plan for the District that requires the city to contribute more than 70 cents to pensions for every dollar of pay to police officers and firefighters.

"Other jurisdictions pay less than 30 cents," Raines's report said. "The liability {to the city} in 2005 will amount to an astounding $13,000 debt for every man, woman and child living in the District . . . . Fiscal prudence would suggest that something be done about these expensive liabilities."

The District's estimated $300 million shortfall must be financed in credit markets that are warily watching the city's deficit spending, its unfunded pension liability and the lowering of its bond ratings, the Raines committee said.

"Failure to act on these fundamental financial problems will almost assuredly result in the loss of a sufficient credit rating to permit the District to sell its debt to the public," the memo said. "Philadelphia failed to deal with similar problems. Philadelphia, at this very moment, has lost its investment grade credit ratings, cannot sell its cash flow notes and faces insolvency. Should the District follow Philadelphia's path, it would face the same consequences by the coming spring or summer."

The Raines committee put considerable blame for the District's plight at the feet of Mayor Marion Barry and the D.C. Council.

"The mayor has not been willing to undertake the difficult cuts in the budget required by deteriorating economic conditions," it said. "The Council has modified proposed budgets in unrealistic fashion, virtually building in deficits at the outset, and has failed to enact revenue measures promised in the budget."

Raines cited findings of the Rivlin report that faulted the federal government for saddling the District with pre-home rule financial liabilities, "severely restricting the District's revenue-raising capacity without providing adequate compensation." The federal government's annual payment to the city is low and is unpredictable, Raines said.

"I think the role the federal government plays is just absolutely absurd," Dixon said Saturday. "It is a major property owner in the District of Columbia that hasn't been reassessed or anything. Actually, their rates have gone down over the last five years yet we give them police service, fire service, all the rest . . . . It's an outrage."

Dixon will face considerable obstacles in her attempt to end the city's "pattern of fiscal irresponsibilty," Raines said. One problem is that Barry has declined to submit a supplementary budget to balance the current year's budget, Raines wrote. "But you should know that my transition committee members report that absolutely no work has begun on an FY 1992 budget . . . .

"Not only will you have to revise and balance the bloated FY 1991 budget, but the Council has passed a resolution requiring you to submit an FY 1992 budget within one month of taking office . . . . I do not see how anyone could expect you to prepare two budgets for submission to the Council in just 36 days."

In conclusion, Raines said, "Let me simply say you have inherited a mess."