(Washington, DC) Chief Financial Officer Natwar M. Gandhi announced today that the District of Columbia received an unqualified, “clean” opinion from the city’s independent auditors on its Fiscal Year 2002 Comprehensive Annual Financial Report (CAFR). Dr. Gandhi also announced that the city fully funded its $248 million cash reserve requirements five years ahead of a congressionally mandated schedule. The financial statements show that the District ended FY 2002 with a general fund operating surplus of $27.4 million. This was achieved after managing a $109 million decline in revenues compared to the original FY 2002 budget estimate and various spending pressures identified within the first quarter of fiscal year 2002.
A clean opinion indicates that the city's financial books are in order. It also means that the CAFR fairly presents the District's financials and that the results of its fiscal year 2002 operations are in accordance with generally accepted accounting principles.
“The District is fiscally solvent and financially prudent,” declared Dr. Gandhi, who, as chief financial officer, serves as the primary guardian of the District’s financial viability. “The District’s elected leaders are the real heroes. They were able to come together and address serious financial challenges to ensure the District ended the year with a balanced budget.”
Mayor Anthony A. Williams said, “The District's financial recovery continues. I am proud of how the executive and legislative branches, with the help of a very credible, well respected chief financial officer, are able to work together to ensure that the District does not revert to the days of financial crisis. For the District's citizens, this means that we can focus on what is important to them – investing in strong schools, safe streets, affordable housing, and improved health care. As a result of strong fiscal management, we will continue to attract economic development to the District.”
“The fiscal year 2002 operating surplus must be viewed as part of a continuum of financial management under difficult circumstances,” said Council Chairman Linda W. Cropp. “Fiscal year 2002 was balanced only after addressing an estimated $250 million in spending pressures and revenue shortfalls. That was followed by a projected $323 million shortfall in fiscal year 2003. The mayor and the council, with the assistance of the chief financial officer, revised the budget and financial plan in October to bring us back into balance. We face continuing uncertainty and, while we can take comfort in the fiscal year 2002 results, we remain aware of the financial constraints that we must live within.”
“I am very pleased that the District has achieved its sixth balanced budget in a row, and its sixth clean and ‘on time’ audit,” said Councilmember Jack Evans, chairman of the Committee on Finance and Revenue. “With tough financial times upon us, it is incumbent that the mayor, council, and chief financial officer continue to make the tough decisions in order to ensure the continued financial good health of the District. This will entail examining the core missions of District agencies and seeking greater efficiencies and cost savings. Working together, I believe we will be able to meet these challenges.”
Even though the District was able to close fiscal year 2002 successfully, Dr. Gandhi foresees fiscal challenges ahead as the city continues to face the impacts of a national recession. The District must resolve current spending pressures and find remedies to its inherent structural imbalance, which, if not addressed, Dr. Gandhi warns, could precipitate spending in excess of revenues or serious cuts in city services.
The District’s structural imbalance includes a prohibition on taxing federal real property, which comprises 42 percent of the District's property value, and other non-municipal tax-exempt property, such as universities, which comprise an additional 11 percent. Further constraining the District's tax base are restrictions on taxing income at source, which means that the District can tax just 34 percent of the income earned within its borders. The District also provides state-like functions such as human services, mental health, and higher education estimated at $500 million annually.
KPMG LLP conducted this year's independent audit under the auspices of the District's Inspector General. This is the first District CAFR issued that implements the new Governmental Accounting Standards Board statements.