A story Sunday incorrectly reported that Mayor-elect Sharon Pratt Dixon has ordered aides to prepare $250 million in budget cuts for fiscal 1991. The correct figure is $200 million, according to her aides. (Published 1/1/91)

Mayor-Elect Sharon Pratt Dixon has told aides to prepare a series of possible spending cuts totaling about $250 million in an effort to offset a mounting deficit without having to renege on her campaign pledge not to raise taxes, according to her financial advisers.

Dixon hopes to lay the groundwork for a boost in the federal payment to the District government by demonstrating to Congress and the White House that she is willing to take decisive steps to cut city spending, the aides say.

"She's going to try to show her bona fides before she asks for help," Franklin D. Raines, Dixon's top financial adviser, said in an interview. "She's got to show that she's taking care of the bulk of the problem herself."

Raines warned Dixon in a Dec. 21 memo that the deficit for the fiscal year ending next Sept. 30 could reach $275 million to $300 million -- far in excess of the $200 million deficit projected by a budget advisory commission headed by Alice M. Rivlin.

Dixon, who will be sworn in as mayor on Wednesday, has asked Deputy Mayor for Finance Robert Pohlman and other top finance officials from the outgoing Barry administration to draw up a series of options for deep budget cuts of about $250 million, more than 6 percent of the city's $3.8 billion operating budget.

Dixon said at a news conference Friday that she may announce within a day or two of taking office initial steps for cutting the projected deficit.

While she declined to reveal specific ideas under consideration, Dixon said her finance proposals will be "major" and "significant."

"You do a lot, and you do it quickly," Dixon said of her approach. "I don't think you can put it off, and I think one of the reasons we're in trouble now is that it was put off. We won't want to compound that problem."

Several top officials of the Barry administration, as well as council Chairman-Elect John A. Wilson (D), believe some new taxes are necessary to solve the D.C. fiscal crisis.

Raines conceded in the interview Friday that budget cuts alone won't solve the problem.

But by seizing the initiative, Dixon would be in a better position to appeal to Congress for an increase in the annual $435 million federal payment to the District, her advisers believe, while forestalling any congressional attempt to exercise greater supervision of the city's finances.

Dixon said last week that she expects the federal government to substantially increase the federal payment, which compensates the city for services provided to the federal government in lieu of taxes. The payment has remained constant for five years, and many observers of District finances, including Rivlin Commission members, have argued that the federal government has treated the city unfairly.

Dixon asserted that the federal government has "not paid their fair taxes," adding that "we will do our part, and we will hope that they will move with some dispatch to do their part as well."

Beyond helping with the long-term deficit problem, an immediate infusion of federal cash this spring is deemed critical by Dixon aides because of the perilous state of the District's cash reserves -- perhaps the most pressing problem facing the incoming administration.

City tax collections have fallen precipitously because of an emerging regionwide recession, while several major agencies, including the departments of Human Services and Corrections, have spent far beyond their budgets. Some city managers have been forced to defer paying bills and other obligations to ensure there is adequate cash on hand to meet the city's payroll.

But at some point in mid-1991, the city government is expected to run out of cash unless steps are taken to sharply cut spending or boost revenue.

The difficulty is that some of the most promising tactics for reducing government spending -- such as laying off workers -- are not likely to result in savings until the next fiscal year, which begins in October, according to D.C. fiscal experts. Many of the savings and efficiencies recommended by the Rivlin Commission similarly would not go into effect until next year if adopted.

The city typically borrows funds on a short-term basis to get through lean periods, but it has already borrowed $300 million this fiscal year, and some fiscal experts question the city's capacity to borrow more.

Dixon said during her campaign that raising taxes to deal with the city's budget problems would "border on criminal" and that most of the problems could be solved by reducing the city's "bloated" bureaucracy. Since then, Dixon has hinted that, under certain circumstances, she might go along with some type of tax increase.

Raines points out that as a practical matter it might not be feasible to get a tax increase in place in time to deal with the fiscal 1991 deficit problem. By the time a new tax is proposed and approved by the D.C. Council, it would probably be too late in the fiscal year for the city to realize the necessary revenue, he said.

"The problem is not necessarily the deficit -- but the cash-flow situation," said Wilson, the council's leading expert on taxes.

"What they're hoping for is a special appropriation from Congress," Wilson said of the Dixon strategy. "It is the only thing that I can see that will get us through this."

Raines concedes as much. "I do not see a way out of this without some money from Congress," he said. "I wish I did."

But whether the federal government would be willing to provide "bridge financing" for the District is highly speculative. Raines said Dixon and her advisers met recently with officials from the federal Office of Management and Budget, who expressed sympathy for the city's predicament but claimed their hands were tied because of the recent federal budget agreement.

Eleanor Holmes Norton, who will succeed Walter E. Fauntroy as the District's delegate, said she has received a positive response from several key House members during preliminary talks about the city's financial problems.

Among those she has met with are Rep. Jamie L. Whitten (D-Miss.), chairman of the Appropriations Committee, and Julian C. Dixon (D-Calif.), chairman of the D.C. Appropriations subcomittee.

"There seems to be some understanding that the federal payment has to be raised," Norton said last week. She stressed, however, that there have been no firm commitments as to how much or when the funds would be available.

A spokesman for Rep. Steny H. Hoyer (D-Md.), the fourth-ranking member of the House Democratic leadership and a member of the Appropriations Committee, said Hoyer is "open to the idea" of increasing the federal payment.

Meanwhile, Dixon is taking a crash course in the stark realities of the city's budget problems. She recently received a lengthy briefing from Pohlman and also met with Rivlin, a former head of the Congressional Budget Office, to discuss budget strategies.

She has decided to retain, at least temporarily, Barry's top financial team, including Pohlman and Budget Director Richard C. Siegel. She may also ask for a postponement of the date she is required to submit revisions to the 1991 budget and a new budget for fiscal 1992. The mayor currently is required to submit the budgets by Feb. 8, but Dixon's advisers have complained that they don't have sufficient time to meet the deadline.

During the campaign, Dixon said she believed the budget problem could be solved by eliminating "waste and inefficiency," and by cutting 2,000 workers from the city's 48,000-member payroll. She said she did not believe there would have to be cuts in programs or services.

However, Raines said he concluded after a recent review of the financial situation that Dixon will have to consider cutting programs to deal with the deficit. He said that programs for young people and the elderly must be protected, to fulfill Dixon campaign pledges, but that cuts in other services offered by the Department of Human Services should be considered.

Dixon may also reconsider her support of pay raises for city workers, Raines indicated. The city has planned for raises for teachers, police officers and other city workers totaling roughly $60 million to $80 million during the current fiscal year.

The D.C. Council recently canceled 2 percent raises for a large number of union and nonunion employees. By canceling raises for the remainder of the work force, the city could make a major dent in its deficit problem -- while inviting strong negative reaction from public employee unions and other powerful interest groups.

"It is going to be very hard," Raines said. "I can't tell you where we're going to get all the cuts, but I know it has to be done."