(Washington, DC) Chief Financial Officer Natwar M. Gandhi announced today that the District of Columbia government received an unqualified, “clean” opinion from the city’s independent auditors on its Fiscal Year 2003 Comprehensive Annual Financial Report (CAFR). The financial statements show that the District ended FY 2003 with an operating surplus of $32 million, or less than 1 percent of the District’s $3.850 billion local budget. The CAFR also reflects that the District ended the year with a general fund balance of $897.4 million, which includes $253.8 million in congressionally mandated cash reserves. This cash reserve requirement, which totals 7 percent of the operating budget, is among the highest for government jurisdictions nationwide.
A clean opinion indicates that the city's financial books are in order. It also means that the CAFR fairly presents the District's financial position and that the results of its fiscal year 2003 operations are reported in accordance with generally accepted accounting principles.
“I am proud of the District’s financial performance in 2003,” said Dr. Gandhi, who, as chief financial officer, serves as the principal adviser on the District’s financial viability. “The real credit for the District’s financial condition rests with the elected officials, who have consistently made sound financial management of the city a top priority. In 2003, the District overcame two potential budget shortfalls, received a positive outlook on its general obligation bonds from Moody’s, and earned bond-rating upgrades to A- from Standard & Poor’s and Fitch Ratings, up from BB junk status in 1997. These major milestones occurred at the same time many jurisdictions nationwide were ending the year with deficits and having their bond ratings downgraded.”
Mayor Anthony A. Williams said, “Many localities are having their bond ratings downgraded by Wall Street right now. The District, on the other hand, continues to exercise great financial discipline, as shown by these audit results. Given our success, it is time that Congress recognizes our efforts by supporting greater budget and fiscal autonomy for the District.”
Council Chairman Linda W. Cropp said, “I am proud of the District of Columbia today. Fiscal year 2003 presented a myriad of challenges, which the Mayor and the Council successfully overcame. Investors will examine our financial statements and find a jurisdiction that carefully manages its resources. Those currently invested in the District through our debt instruments will sleep better at night, and those considering District bonds will find them attractive. Rest assured that we will continue to turn in good results for many years to come.”
Council member Jack Evans, who chairs the Council’s Committee on Finance and Revenue, said, “I am very pleased the District has recorded yet another budget surplus and clean and on-time audit. This is a tribute to the very sound financial management of the Mayor, Council, and Chief Financial Officer. I hope this audit will give Wall Street the ammunition it needs to continue to upgrade the District’s bond rating – in short, we’ve earned it.”
Even though the District was able to close fiscal year 2003 successfully, Dr. Gandhi foresees fiscal challenges in the long-term. The District must find remedies to its inherent structural imbalance, which, if not addressed, Dr. Gandhi warns, could precipitate serious cuts in city services.
Last year, the General Accounting Office, on the heels of two other independent reports, confirmed that the District of Columbia government has a structural imbalance of $470 million to $1.143 billion. One of the causes is the District’s inability to tax more than 50 percent of the real property within its borders, including federal real property and other non-municipal tax-exempt property, such as universities. The District is also further constrained because it can only tax 34 percent of the income earned within its borders. People who work in the District, but who live in Maryland and Virginia, pay their income tax in those respective states. Additionally, the District provides state-like functions such as human services, mental health, and higher education estimated at $500 million annually. Congress has signaled its interest in reviewing how the imbalance might be remedied.
“The District is one of the few major city or state governments in the United States that prepares its own CAFR,” said Dr. Gandhi. “As we have continued to refine and improve our financial systems and processes, it is now firmly established that the annual audit requirement has become a routine event in the District’s overall financial management reporting.”
KPMG LLP conducted this year’s audit under the auspices of the District's Inspector General.