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Budget Brouhaha

Things that make me crazy

Published May 25, 2023

We’re near the end of the District’s FY 2024 budget debate with Council expected to give final approval of the local budget on May 30. Both branches of government agree it’s been a challenge but some of the rhetoric and decisions to date have been crazy-making. This new post lists the top four instances of language or decisions we’ve found particularly irksome. Are we heading for “a bit of a fiscal cliff” as described by D.C. Council Chairman Phil Mendelson and do we really have a $1.7 billion deficit? Here’s what I think.

The “$1.7 billion deficit”

We. Have. No. Deficit.

We only have a deficit when you assume the continued practice of spending beyond our means which D.C. policymakers have been doing since the start of the pandemic when Congress turned on the spigot of time limited federal COVID funds. The Mayor’s March 22, 2023, the presentation of her proposed FY24 budget stated:

“After the CFO released the February revenue estimate, the District was facing a $1.7 billion deficit.”

And the items that made up that faux deficit? Collective bargaining agreements negotiated and signed by the Executive. A major increase (5%) in the school funding formula, also a decision by the Executive. Inflation-related costs for capital projects that could be delayed.

What the CFO’s February estimates did say was that there would be a slight decrease in local general fund revenue in FY24 when compared with (1) December’s estimate for FY24 and (2) the new estimate for FY23, the current fiscal year. But that new bottom line for FY24 was still higher than the previously anticipated FY23 revenue number projected in December when the Mayor’s budget was being developed.

The steps taken by the Mayor to pay for the new expenditures included tapping District reserve funds and CFO certification of more than a half-billion dollars in new traffic camera revenue plus—as the press has noted—choosing not to fund two Council priorities: free bus rides and the “baby bonds” program.

Despite the deliberate decisions to increase spending, The Washington Post’s report on the Mayor’s budget used the d-word as fact: “the projected revenue and required expenses left the District with a $1.7 billion deficit across its five-year financial plan.”

As if.

“Finding” money

The Washington Post report on the Council’s annual work session, where they chew over committee recommendations on spending, noted that one lawmaker said “he was able to find an additional $6.3 million” for the Emergency Rental Assistance Program—money he actually “found” via a transfer from another committee.

To support the “baby bonds” program, one Councilmember “was tasked with finding $54 million to restore funding across multiple years” while another said “she was able to find an additional $3.9 million for Access to Justice.” Even Chairman Mendelson—a veteran budgeteer—joined in with a May 15 tweet on his budget package in which “we were able to find considerable resources…”

People! You “find” money on the sidewalk or under a seat cushion of your sofa. You don’t “find” money in a state or municipal budget. You identify and you reallocate. And when your revenue increases are overtaken by inflation or your own overspending—as is the case with the District of Columbia right now—you “cut” in order to fund.

Please be careful with language! The notion of finding money for this or that devalues what is actually required and that’s understanding where the taxpayer’s money goes and where it’s spent less effectively and therefore can and should be reallocated to a higher priority where it’s better spent.

“Sweeping” vacant positions

“Sweeping” vacant positions. Lots of jobs eliminated in this year’s debate. But the usual sweeps are there as well—money taken from special purpose revenue funds set up in the District’s financial system for specific and statutorily authorized purposes . The Mayor “swept” more than $100 million from a total of 90 individual revenue funds as disparate as the Ballpark Fund, the Tree Fund, the Early Childhood Educator Pay Equity Fund, and the FEMS Reform Fund.

That means 90 enumerated purposes won’t be met, whatever they are, because that money has been swept away for purposes for which it was not intended. We chastised elected officials on this gimmick several years ago. If such funds are successfully raided in every budget cycle, why have them?

The Mayor’s budget, per her March presentation, also reallocated funds for 749 vacant positions. In its turn the Council committees cut vacant positions at the Department of Human Services, Child and Family Services Agency, Office of the State Superintendent of Education and Department of General Services—though they also added positions to DGS and sprinkled others across the budget.

Eliminating vacant but funded positions can be a legitimate budget tool if the positions are in fact unnecessary as positions or as funds intended for other legitimate purposes. Like other budget actions though, eliminating positions requires intimate knowledge of the agency’s budget and programs.

“Local revenue replacement funds”

I saved the best—or worst—for last. The District’s elected officials continue to spend one-time federal funds for ongoing, recurring needs that will continue when the COVID funds run out at the end of 2024. In May 2020 ODCA presented the Council with a tool to use for oversight of spending federal COVID funds—a report detailing the COVID funding streams from the initial federal emergency bills.

The Council could have required a separate, segregated budget for the pandemic funds including the largest, the State and Local Fiscal Relief Fund (SLFRF) provided by Congress, some $3 billion across the four years. The Council did not take that step, though, and the Mayor has threaded COVID relief fund dollars through the budget for the last two years.

The SLFRF came with strings attached and the general requirement that spending serve to mitigate the impact of the pandemic. But the U.S. Treasury also permitted the relief fund to be used when a jurisdiction asserts that revenue has been lost due to COVID that would otherwise be spent for government services that are not specifically COVID-related.

In this manner the District has spent COVID funds as “local revenue replacement” to the tune of more than $700 million, according to a Council budget summary. That funding is continuing in the FY24 budget, with some $51 million spent as “local revenue replacement” according to the Council summary.

Federal IGs will review how states, including the District, have spent COVID-19 emergency funds and there are reports required that the Office of the City Administrator and Office of the Chief Financial Officer are jointly providing. Using funds as revenue replacement, while technically permitted by the federal rules, is not necessarily sound if that spending needs to be replaced by actual and scarce local dollars in the next cycle.

Just because you can doesn’t mean you should. The federal funds disappear at the end of FY24. D.C. Councilmembers are calling it “tough budget decisions,” but no matter what you call them they’re only going to grow more difficult.

Chairman Mendelson said the budget situation “a bit of a fiscal cliff.” He’s right and that first step next year—and the years following—are going to be a doozy.

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