The nation’s capital is grappling with a problem inconceivable in the not-long-distant days when the city was a byword for fiscal recklessness: It has too much money.
Flush with carefully stewarded tax dollars from almost two decades of uninterrupted growth, the District today is unrecognizable as the bureaucracy that was hurtling toward financial ruin when it was rescued by Congress in the 1990s.
But many are questioning whether the city has learned too well the lessons of its humiliating stint under a federal financial control board. They say D.C. officials are now hoarding money better spent on social ills, such as an alarmingly high rate of homelessness, that continue to mar the city’s much-celebrated revival.
The debate intensified this week, as Mayor Muriel E. Bowser (D) delivered a $13.8 billion budget to the D.C. Council that proposes only modest spending increases for affordable housing, homeless services and education. Meanwhile, the budget would continue to build up reserves that have grown to $2.4 billion.
That amount — about enough to run the city of San Antonio for a year — is more than triple the District’s deficit when then-Mayor Marion Barry Jr. (D) went to Capitol Hill pleading for a bailout and precipitating the control board’s creation in 1995. How it is used could profoundly influence the District’s direction in uncertain times.
As they face growing pressure to spend, D.C. officials are also trying to gauge the threat posed by the White House to their hard-won financial stability. President Trump wants federal budget cuts that could weaken city social programs and decimate the federal workforce, which accounts for 1 in 4 District jobs.
Former mayor Anthony Williams (D), who also served as chief financial officer during the early years of the control board, said now is not the time to begin experimenting with a more relaxed approach to fiscal management.
“Everybody’s running around town and talking about how great everything is,” said Williams, now executive director of the Federal City Council, a civic-improvement group. “There are a lot of forces now that are beginning to forget what the control board was like, and why we had a control board.”
The circumstances that begot Congress’s six-year takeover of the District’s finances after years of budgetary missteps by mayors Barry and Sharon Pratt Kelly (D) were not simple. But Williams said the predicament was shaped in part by the same noble impulses driving current criticism of how the District manages its money.
“We had promised everything to everybody and were doing practically nothing for anyone,” he said. “There’s only so much you as a city can do to solve all the world’s problems.”
Since then, the District has come a long way.
A mix of financial restructuring and assistance imposed by the control board — including the establishment of a powerful, independent chief financial officer and the federal government’s assumption of much of the city’s old pension burden — laid the groundwork for the District’s renaissance.
The city’s booming population — now at 681,000, up from a post-World War II low of 565,000 in 1998 — has also flooded its coffers with tax dollars. The District faces unusual financial handicaps, such as its inability to tax federal property or the incomes of nonresident workers, but it compensates by levying a trifecta of property, income and sales taxes. Few cities have all three, said Michael A. Pagano, dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago.
Tom Davis, a former Republican congressman from Virginia who served on the committee overseeing District affairs during the control board era, said some of his successors on Capitol Hill still do not understand the extent to which the city has outgrown its once-deserved reputation as a financial basket case.
“I don’t think word has gotten back to members of Congress that this city is actually pretty responsible,” Davis said. “On the fiscal issues, on building a tax base, on the issues that are just basic to governance, this city is a leader.”
But Ed Lazere, executive director of the D.C. Fiscal Policy Institute, a left-leaning think tank, said the District has erred by placing an absolutist vision of financial responsibility ahead of the needs of residents who have been harmed by gentrification.
“I don’t think anybody can disagree that the District’s finances are amazingly strong, and maybe stronger than they’ve ever been,” Lazere said. “It’s been a tremendous missed opportunity in recent years that we haven’t used our surplus . . . to reinvest in the city and to address the uneven impacts of the city’s growing prosperity.”
The Fiscal Policy Institute was one of more than 90 organizations, many of them providers of social services, that sent a letter to Bowser last month urging her to delay tax cuts scheduled to take effect next year and instead spend surplus dollars on affordable housing, schools or public transit.
The tax reductions, some aimed at lower- and middle-income D.C. families, are triggered when the city brings in more revenue than expected; essentially, the District is giving away some of its surplus money in the form of tax relief.
In the letter, the organizations said the city’s strict rules for managing its money force District officials to “govern with their hands tied.”
D.C. Chief Financial Officer Jeffrey S. DeWitt said the city has nearly reached its goal of having enough money in the reserves to run the government for 60 days. Once that mark is hit, future surpluses will go toward affordable housing and infrastructure under a formula established by the council.
Those amounts could be substantial: By the end of this fiscal year, DeWitt projects, the city will have raked in surplus revenue of $128 million.
DeWitt cautioned against easy prescriptions for drawing on the reserves to fund social programs. Only about $1.2 billion of the reserves is now accessible, he said, with the rest locked up for special purposes, such as debt payments or cleanup of the Anacostia River.
Dipping into the available money prematurely, DeWitt said, could have counterintuitive effects, causing bond-rating agencies to downgrade the District’s credit rating and leading to higher borrowing costs that would force cuts to existing programs.
Furthermore, under the rules established by the control board, a drawdown on the reserves must be paid back within two years, he said. “They’re not spending it,” DeWitt said. “They’re borrowing it, and they have to pay it back in two years.”
Bowser said this week that she does not intend to move money out of the reserves or delay tax cuts. It remains unclear whether any council members will prove sympathetic to those protesting the District’s rigid fiscal policies.
The District already spends large sums on education and social services, which account for more than half — about $4 billion — of local spending in Bowser’s proposed budget.
Close inspection of the District’s government programs regularly raises questions about whether funds are well-spent. Just last month, a report by the D.C. auditor found that the city has mismanaged its trust fund for affordable housing, which has doled out $700 million to help developers over the past 15 years.
“There is a feeling among many that we’re spending a lot without a clear vision for how to actually achieve results,” council member Vincent C. Gray (D-Ward 7), a former mayor, said at the council’s first budget hearing Thursday.
Council Chairman Phil Mendelson (D) was blunt about proposals to tap the reserves. “If we spend it, we don’t have it,” he said. “The point is to have it, so we’re protected.”
Mendelson was nevertheless unable to resist sounding an optimistic note in his April newsletter, which pointed out that the District’s operating revenue would grow by $312 million next year even after the required amounts had been siphoned into the reserves.
The newsletter had a headline that would have seemed like a bad joke in 1998, when Mendelson was first elected and the control board held sway:
“Budget Season is Here and A Lot of Money is Available.”
Aaron C. Davis contributed to this report.