A QUICK Q&A ON THE CAFR AND THE $240 MILLION FY 2011 SURPLUS

January 30th, 2012 | by DCFPI staff

DC’s Certified Annual Financial Report, or CAFR, for Fiscal Year 2011 (FY 2011) was released today and came with some good news: The District ended FY 2011 with a $240 million surplus.  The surplus reflects a combination of higher revenues (some of which had been anticipated in previous revenue forecasts) and below-budget spending in some agencies.

While clearly this is good news, several questions about the surplus have been raised, including whether this means DC didn’t have to increase revenues for FY 2012, what will happen with the surplus, and how this news impacts the FY 2013 budget.

Here’s a quick Q&A. We’ll have more to say about the CAFR soon.

Does this mean the District should roll back the tax changes made last spring and fall? DCFPI agrees with Mayor Gray, who said at the CAFR press conference this morning that the District’s finances remain fragile. It’s important to keep in mind that the CAFR is for FY 2011, and that revenue changes such as the increase on high income earners were made to balance the budget for the current fiscal year, FY 2012, and beyond. District leaders construct the budget based on quarterly revenue projections from the Chief Financial Officer. Again, the surplus announced today only covers FY 2011. Dr. Gandhi’s next projection will arrive sometime in February, but the projections last December showed a loss of revenue in FY 2013 and beyond due to potentially significant cutbacks in the federal government.

In other words, right now it appears that the surplus in Fiscal Year 2011 was a one-time gain. As Mayor Gray said, it would not be prudent to make policy changes now based on funds that cannot be projected for FY 2013 and the four years beyond that DC is required to budget.

What will happen with the $240 million? Under current law, the funds will be sent to DC’s savings account, often referred to as the fund balance. Right now, any end-of-year surplus funds are devoted to two separate accounts in the city’s fund balance: Half goes to a “Working Capital” fund, helping ensure that DC has enough cash-on-hand to pay its bills without extensive short-term borrowing. The other half of any surplus goes to a budget reserve that is available to meet unanticipated needs, but—as credit card commercials often say—certain restrictions apply.

What could be done with the surplus? Mayor Gray and the DC Council have made clear that building up DC’s savings is a high priority, and Mayor Gray seemed to indicate that he favors keeping it in the fund balance. The mayor could propose to use some of the surplus funds, but this may not be prudent at this time for these reasons:

  • Surplus funds are one-time and impact only FY 2011. If program funds are increased or taxes are lowered, it would impact FY 2012 and beyond.
  • DC is facing spending pressures this year. Just four months into FY 2012, a number of agencies have spending needs that exceed their budget. Other spending pressures may arise as the year continues.
  • We won’t have a clear sense of the city’s finances until the February revenue forecast.

For these reasons, it makes sense, for now at least, to let all of the surplus stay in the fund balance.

What does this mean for FY 2013? This may be a sign that agency spending is on a trend that is lower than expected and that revenues are on a higher than expected trend.  This could be good news for FY 2013, but we won’t know for sure until the revenue forecast is released and the CFO issues a “current services” baseline budget for 2013.

Stay tuned to the District Dime!

3 Responses to “A QUICK Q&A ON THE CAFR AND THE $240 MILLION FY 2011 SURPLUS”

  1. Thanks, as always, for the great updates DCFPI. What would DC nonprofits do with out plain-language explanations of what’s going on at the Wilson Building? I hope the administration doesn’t sway from its intentions to keep the surplus in the fund balance.

  2. Ron Johnson says:

    Sooo Predictable, DCFPI. Have you ever advocated lowering income taxes, for any reason?

    When your only tool is a hammer, every problem looks like a nail.