Facing a Two-Front Crisis
By May 5, 2020 0 505•
The District is facing a two-front exigent crisis. At one front, a health crisis with the potential to cripple the city’s health system, with thousands sick and many potential deaths; at the other front, a financial crisis that could set the city back and potentially bring back federal control. The Council will soon have to look at where the city collects funds, how it spends funds and how and when we can replenish our reserves.
The coronavirus crisis will create at least a $1-billion shortfall between now and the end of the fiscal year on Sept. 30. Of the taxes collected, the city will lose nearly $700 million in sales taxes this year alone. We will also lose another $300 million from property taxes and income taxes.
We’re better positioned to take a financial hit than any other American city. This is due to the fact that the city has four reserve funds — two federally mandated funds and two local funds — totaling $1.4 billion.
The city cannot touch the federal reserves without congressional approval, but we regularly use the local reserve funds to make payments throughout the year, until tax revenue is deposited and the city replenishes them. The local reserves of over $1 billion provide cash flow to pay our bills. This amount is roughly the same as the shortfall the city will face due to the coronavirus.
There is one catch, however.
By law, the reserves must be paid back over the next two years. The fiscal year 2021 budget must be at least $1 billion less than our current budget, and that may be a best-case scenario. Once the health crisis ends, our citizens and our businesses will need substantial support from the local government, for which there are no line items in the budget. Any reductions and reallocations in spending will be difficult and painful, but necessary to balance our budget and prioritize essential services.
Raising taxes to cover the $1 billion loss in this environment would be a real mistake — and, frankly, not feasible. It would make life more difficult for residents trying to meet expenses and businesses trying to survive.
The challenges threatening the District’s economic footing are immediate and enormous. Residents should feel healthy and safe, just as they should feel confident in their employment.
We could be reeling from the effects of this pandemic for months and we may not fully recover financially for years. In 1995, the District government failed to fully acknowledge and decisively act upon the magnitude of its budgetary problem. It cannot afford to fail again.
Jack Evans is the former Ward 2 representative on the District Council. He is running in the June 2 Democratic primary. Guest columns by other candidates for the Ward 2 Council seat will appear in future issues.