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D.C. mayor proposes filling $1.5 billion budget holes with pay freezes, reserves

D.C. Mayor Muriel E. Bowser (D) arrives at the City Council to present her budget plan on May 18. (Bill O'Leary/The Washington Post)

D.C. Mayor Muriel E. Bowser (D) on Monday proposed addressing $1.5 billion in revenue shortfalls due to the coronavirus pandemic by freezing employee hiring and pay, using federal relief funds, and exhausting reserves and budget surpluses.

After years of flush revenue, the District, like many jurisdictions across the nation, is confronting its first budget holes in nearly a decade.

But city officials say they were able to avoid widespread programmatic cuts, layoffs or tax increases under Bowser’s plan to address revenue plunging after she shut down the local economy to contain the spread of the novel coronavirus.

Bowser entered the budget cycle with two challenges. The city lost more than $700 million in revenue for the current budget, which officials had to balance. And she had to propose a budget for the year starting in October, for which projected revenue declined by nearly $800 million.

“Just as this pandemic forced our residents and businesses to make very difficult spending decisions, D.C. government has had to do the same,” Bowser said Monday. “But I want to be clear: While this is not the budget I expected to send to the council earlier this year, it is a budget I am proud of and the city can be proud of.”

Her administration treated the revenue drops as temporary, filling them with reserves and stopgap measures to control personnel costs while expanding money for schools, police and more.

D.C. proposed budget documents are available online here

The roughly 37,000-strong D.C. government workforce would bear the brunt of the cuts under the mayor’s plans.

The budget proposals would freeze cost-of-living adjustment pay increases for four years, including for teachers, firefighters and police officers, and for nearly 12,000 workers who already had those raises negotiated in their contracts. Workers are still eligible for step increases available for government employees.

Officials said this move — which would save $250 million — prevents deeper cuts.

“We will not throughout this plan be increasing pay, but we do not have mass layoffs here, we do not have furlough days here, and what we have asked our employees to do is work with us while the economy comes back,” Bowser said.

For the current year, city officials saved nearly $200 million by implementing a hiring and new spending freeze in the spring and addressed the remaining shortfalls with federal covid-19 relief funds and reserves.

For next year, the mayor is proposing a $16.7 billion budget, of which the city directly controls about $8.5 billion.

It is the first budget in a decade to see stagnant revenue, putting city officials in a rare position of scaling back spending.

The budget must be approved by the D.C. Council, which is scheduled to hear the mayor present the budget Tuesday and to vote on the plan later this summer.

City officials said they addressed a revenue shortfall of nearly $800 million for the upcoming budget with roughly $500 million in reserves and surpluses and $166 million in reductions to agency budgets, mostly through the spending freeze.

By relying on reserves and pay freezes, Bowser was able to increase spending on other priorities.

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The mayor’s budget includes a 3 percentage-point increase in per-pupil schools funding, and money for new hospitals to replace Howard University Hospital and United Medical Center. She also preserved a $1.7 million increase to the police cadet program to train another 50 high school graduates.

Many of the sacrifices made in the budget are reflected by what did not get funded, rather than what got eliminated or cut.

For example, the mayor declined to increase funding for her preferred tool for creating affordable housing in a rapidly gentrifying city.

The annual contribution to the Housing Production Trust Fund will return to $100 million, as in the first years of Bowser’s tenure. Last year, Bowser sought $130 million and the council authorized $116 million.

The housing trust fund also lost another $160 million when officials redirected surplus revenue that was supposed to be evenly split between the fund and payments for capital projects.

Officials also said they were unable to fully fund a law expanding early-childhood education and new campaign finance restrictions that prohibit contributions from city contractors. Both were priorities of left-leaning D.C. activists.

The budget includes the layoffs of 14 employees, which officials said were planned before the pandemic.

Bowser’s budget also includes some measures to increase short-term revenue, including delaying payments for the construction of Nationals Park and a few changes in tax laws affecting businesses.

Unlike most cities, the District has to budget over a four-year period and has a host of restrictions on its city finances stemming from the 1990s, when it teetered on bankruptcy and the federal government installed a control board.

Jeffrey DeWitt, the city’s chief financial officer, described the latest budget as “prudent” because it preserves enough money in reserves to help the city in the event of another wave of infections or a worsening economy.

Several estimates and assumptions in the budget show the toll covid-19 has taken on the local economy.

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The city expects the overall personal income of Washingtonians to decline for the first time since 1969. Sales tax revenue is forecast to plunge this year by $350 million — about 20 percent — and return to pre-pandemic levels in 2023.

Other areas of note in the budget include:

●Preserved funding to expand the D.C. Streetcar to Ward 7 and for a new K Street Transitway with dedicated bus lanes by 2023.

●An expansion of funding for the city’s new public campaign finance program, which the mayor had initially opposed.

●$40 million over two years to improve conditions at public housing buildings. This was a major source of contention in the last budget cycle.

●$200,000 for a new case management system at the Department of Consumer and Regulatory Affairs, as recommended after a deadly fire at an illegal boardinghouse revealed gaps in city code enforcement.

Advocacy groups and legislators were still digesting the budget proposal as of Monday afternoon. The budget did not include higher taxes on the wealthy sought by activists on the left, nor did it offer tax relief sought by business groups.

D.C. Council Chairman Phil Mendelson (D) had a positive first reaction to the proposal but cautioned that lawmakers would be closely scrutinizing individual agency budgets.

“What has been presented solves the problem — the problem being the first time in a decade we have seen a substantial drop in revenues,” Mendelson said.

Perry Stein and Julie Zauzmer contributed to this report.

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