The Good News and Bad News on DC’s Revenue Outlook

Happy Holidays District Dime readers!

Let’s start with the good news. On Thursday afternoon, DC Chief Financial Officer Natwar Gandhi gave DC residents some holiday cheer, announcing a $42 million revenue surplus in the current fiscal year (FY 2012). But it turns out that that good news ill be short-lived, because Gandhi also said that expects large revenue shortfalls over the next three years.

The increase in revenue collections in the current fiscal year is driven primarily by higher than expected income and sales tax revenues. But that uptick is expected to slow down significantly in future years because of the impact to the District’s economy from significant across-the-board cuts to federal programs, slated to take effect in early 2013. Gandhi notes that the significant cuts in federal funds will likely result in reduced wages and cautious spending in the District, leading to lower income, sales, and deed tax collections.

In FY 2010, 60 percent of the District’s economic activity came from federal spending. Gandhi projects the reduced federal spending will contribute to a deficit of $46 million in FY 2013, which is expected to increase to $130 million by FY 2015. Gandhi noted that the outlook could change, depending on how and in which program areas Congress decides to make the cuts.

As for the $42 million surplus in the current fiscal year, it is not clear at this point how those funds will be used. Prior revenue surpluses were required to be spent on a contingent list of priorities passed by the DC Council in the spring, including funding for mental health services, health care, and police officers. That contingency list no longer applies to current or subsequent revenue forecasts.

The $42 million surplus will likely be one of the first topics the Council and Mayor take up when they return from the Holidays. Tune in to the District’s Dime after the New Year for more details on what the most recent revenue report will mean for the District’s budget.