Jack Evans Report

The September Democratic primary has come and gone and the Council’s summer recess is over. It’s back to school, back to work, and back to reality…literally! After a heated campaign, we have my colleagues Vince Gray as the Democratic nominee for Mayor and Kwame Brown for Chair. And we have an outgoing Mayor Fenty with three more months on the job. Together we face a tremendous challenge right off the bat – rebalancing the fiscal year 2011 budget, which began October 1st.

Last week the independent Chief Financial Officer, Dr. Natwar Gandhi, released the revised revenue estimate for the fall quarter.

While I was by no means expecting good news – anecdotal accounts of the economy continue to be pretty bad –the actual news turns out to be worse than I expected. Dr. Gandhi estimates an additional revenue shortfall of about $100 million for FY 2010, and potential spending pressures in the range of an additional $65 – 75 million. And this is just on October 1st!

We continue to see weaknesses in several areas: commercial real property values, income taxes – particularly capital gains and sales taxes. In fact, the decline in real property taxes in one year is $236 million – a figure which should take your breath away.

With the primary now over, all of this will force us to have our “rendezvous with reality” and refigure the FY 2011 budget within the next month. I have some hope of a higher level of cooperation between the Council and the Mayor in coming up with a consensus plan. I would like to see that plan avoid “one-time” fixes as I believe the continued revenue shortfall is likely to persist for a few years. While income and sales taxes will likely bounce back with the economy, I do not see commercial property coming back for several years, and the next wave of loan refinancing in this area is likely to reveal further weaknesses. So as I have said before, what we face is not a “rainy day,” but rather “climate change” and we have to rethink our government in order to live within our means.

This means we cannot keep raiding our accumulated fund balances to pay our operational expenses. We cannot mandate vague and unspecified spending cuts. We cannot raise taxes which discourage investment in the city and hurt our ability to continue to attract new residents and taxpayers to the District. The past 10+ years have seen an unprecedented movement back into DC – and this has had a phenomenal positive effect on our “bottom line” and on our ability to pay for the social safety net we all want. But we need to avoid short-sighted policies which will ultimately kill the golden goose, as it were. We are entering into the third year now of reduced economic circumstances, so clearly one-time fixes are not going to work.

We cannot let the various spending pressures gallop out of control, such as the potential $30 million in special education, the $35 million more we won’t be getting from the Feds for Medicaid, or the spending pressures related to our ownership of the United Medical Center.

It seems to me the fairest thing is to freeze things across the board: pay grades, step increases,
pension contributions, procurement contracts, all of which will result in a rate of zero growth. That way, everyone is making a contribution to our financial stability and we can attempt to avoid the painful process of laying people off.

Can we do it? It’s not really a question of “can.” We simply must do it. The next month or so will be a real test of our city’s leadership and whether we will approach the problems facing our city head on, or whether we’ll stick our heads in the sand.