Jack Evans Report
• June 17, 2010

This past week the council completed its work on the FY 2011 budget. States and localities around the nation, of course, are dealing with problems similar to those facing the District: a significant decline in revenues matched up against state and local budgets, which have seen sharp growth through the current decade. Much like the housing mortgage market, irrational exuberance in the stock market or the sovereign debt crisis in Europe, state and local governments have been overleveraged for a few years and now that revenues have remained flat for a third straight year, it would make sense to make some adjustments.

A good case in point is the dust-up which occurred over the funding for the proposed streetcar lines on H Street N.E. and in Anacostia. I’m pro-streetcar and supported the mayor’s original proposal, although I agree with the sentiment that we should put some more planning into what we are doing. That being said, as part of our budget deliberations last month we took what was a program funded by reallocating existing funds and changed it to a program for which we will now borrow an additional $47 million. I think this is a bad idea. As you may know, about two years ago the council passed a law to put a 12 percent cap on our borrowing, which I fully supported. What this means is if our operating budget for the year is $1 billion (it’s more like $5 billion!) then we can only borrow up to 12 percent of that, or $120 million. Borrowing an additional $47 million puts us very close to that line, not just for FY 2011, but going forward the next couple years.

I don’t think we should play it that close. In fact, I would advocate we do the very same thing with respect to our operating reserves and fund balances, because we don’t know what the future may hold. If the District’s revenues go down farther — witness the plunge in the stock market over the past month, which would impact our income tax collections — then the 12 percent cap becomes smaller. If we either leverage our debt all the way up to that line, or spend our fund balances or reserves all the way up to the line, then when something bad happens we have no margin for error. No margin at all. That should make people nervous — I know I am.

We should not borrow the additional $47 million. We can fund the streetcar project by maintaining the original proposed cut to the various Great Streets projects that are not going forward, by making the necessary recommended cuts by the Committee on Human Services and by reversing the plan to spend $7 million in cash on a proposal for small business streetscape relief (which is money we don’t have). It is likely the mayor and the council will revisit the budget when we come back from the summer recess on September 16, and hard decisions may well need to be made.