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CFO Unveils Alternatives to Cope with the District's Unbudgeted Spending Needs

Friday, December 15, 2000

CFO Unveils Alternatives to Cope with the District's Unbudgeted Spending Needs

WASHINGTON, DC - Chief Financial Officer Natwar M. Gandhi today submitted to the Mayor, the City Council and the Control Board three different alternatives for addressing approximately $250 million in "spending pressures" in the District's FY 2001 budget. The alternatives propose to close the gap between new spending needs and budget availability assuming the District would not be able to tap into such potential sources of money as its $150 million budget reserve, an estimated $60 million coming from the tobacco settlement, or additional revenues that might be received over projected amounts.

"I want to say up front that the financial state of the District is sound," said Gandhi. "By identifying spending pressures this early in the fiscal year and by proposing ways to reduce the spending pressures, we are exercising fiscal discipline."

Continued Gandhi, "I am working closely with Deputy Mayor John Koskinen and agency directors to close these spending gaps and to end Fiscal Year 2001 with a balanced budget and a much improved financial position over prior years."

Gandhi pointed out that of the $215-$250 million in newly identified spending pressures, only about $60 million arose from projected overspending by agencies or items now determined priorities that were not included in the FY 2001 budget. This compares with amounts in the $100 million range the last two fiscal years. The key spending pressures are unusual, extraordinary, or one-time projected expenses that were unanticipated at the time of Fiscal 2001 budget preparation. These include the need to restructure the Public Benefit Corporation, unforeseen lawsuit settlements or judgements, and a late budget cut made by Congress.

The CFO's data show that of the $3.3 billion in funds from local sources in the DC budget, two-thirds must be used to pay non-discretionary costs - pensions, debt service, entitlements, receiverships, and fixed costs of the physical plant (rent, utilities). Therefore, any reductions in the existing budget to cover new needs must come from so-called discretionary programs, mainly by reducing personnel costs. Unless the District is able to tap into its own funds currently held in reserve, basic city programs such as police, tax collection, public works, parks and recreation would face budgets cuts averaging 15 percent.

To avoid such a step, the CFO noted the District had a number of options:

  • Work to restore the authority to spend approximately $75 million eliminated by the Congress during its conference of the FY 2001 budget.
  • Defer about $25 million in settlement and judgement payments until next fiscal year when they can be budgeted.
  • Hold in abeyance planned new FY 2001 program spending associated with tobacco settlement money ($30 million) and redirect this money to meet other more critical needs.
  • Reevaluate approximately $26 million in new FY 2001 program spending in light of core program needs.
  • Work with the City Administrator to identify targeted agency budget cuts that would have a minimum effect on city services ($25 - $50 million).