The Untold Story of the DC Budget: Overall Spending Has Grown Only Modestly Since 1990 but Support for Services to Low-income Residents Has Fallen Sharply

| March 16th, 2004 |

By Ed Lazere and Idara Nickelson

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The DC budget has undergone dramatic changes since 1990.  Most notably, the District experienced a major fiscal crisis in the early 1990s.  This led to the establishment of a federal financial control board in 1995 that remained in existence for six years.  During this period, substantial reductions were made in numerous programs and services.  The fiscal crisis also led to federal legislation — the 1997 Revitalization Act — that significantly altered the fiscal relationship between the District and the federal government.

In the late 1990s, the District’s economy boomed and its financial conditions improved substantially.  As a result, funding for a number of program areas was increased.  In recent years, some District leaders have argued that spending is now rising too rapidly.

This analysis assesses the net effect of these budget changes since 1990.   It focuses primarily on DC’s “local funds” budget — the portion supported by local taxes and fees — which is the part of the budget over which DC officials have the most control.  It finds that despite recent increases, the District’s budget is only slightly larger today than it was in 1990, after adjusting for inflation.  Moreover, the DC budget grew far more slowly than the District’s economy during this period — and thus now consumes a smaller share of the city’s economic resources.

While overall spending has not grown, spending priorities have changed markedly.  In particular, funding has fallen dramatically for several services targeted on low-income and other vulnerable populations — in the areas of housing, human services, and employment services.  A handful of agencies, on the other hand, have experienced significant budget increases.

  • The District’s local funds budget for fiscal year 2004 is $3.60 billion.  This is 3.1 percent higher than the fiscal year 1990 budget, which totaled $3.49 billion when adjusted for inflation to equal 2004 dollars.  (This analysis includes adjustments to reflect changes in local spending responsibilities resulting from the Revitalization Act.  See Appendix I for details on the adjustments.)
  • The relatively modest budget growth occurred despite significant increases in some program areas that largely were out of the control of local officials.  In particular, local Medicaid spending rose from $189 million in 1990 to $324 million in 2004, after adjusting for inflation, as part of the national trend of rising health care costs.  (DC’s Medicaid program grew more slowly than in nearly every other state during this period.)  If Medicaid is excluded, the remainder of DC’s local budget for fiscal year 2004 is one percent lower than in fiscal year 1990.
  • The District’s local budget consumes a much smaller share of the city’s economic resources today than it did in 1990.  While the inflation-adjusted budget has remained stable, the economy — measured in terms of personal income — grew 15 percent after adjusting for inflation between 1990 and 2004.  As a result, the DC budget as a share of personal income fell from 15.2 percent in 1990 to 13.7 percent in 2004.

  • The fiscal year 2004 budget is $400 million lower than it would be if spending had grown at the same rate as personal income since 1990.

While overall local spending in the District in 2004 is roughly the same as in 1990, there have been significant reductions in a number of program areas, most notably in agencies that serve low-income and vulnerable populations.

  • Employment Services:  Local funding for the Department of Employment Services is $10 million in fiscal year 2004, or 80 percent lower than the local budget of $51 million in 1990.  (Unless otherwise noted, all 1990 figures in this report are adjusted for inflation to be comparable with 2004 figures.) Even when increases in federal funding are considered, the total  — or “gross” — budget for employment services is 21 percent lower today than in 1990.
  • Housing:  Local funding for affordable housing programs is $26 million in 2004, or less than half the 1990 budget of $55 million.  This decline occurred despite efforts in recent years to boost funding for the Housing Production Trust Fund, including a $21.5 million appropriation for fiscal year 2004.  Without the Trust Fund appropriation, local support for affordable housing this year would be over 90 percent lower than in fiscal year 1990.
  • Human Services:  The local budget for the Department of Human Services fell from $346 million in 1990 to $233 million in 2004, a 33 percent decline.  This reflects cuts in a variety of services, including child care, homeless services, emergency assistance, and welfare.[1]
  • Non-Medicaid Health Services:  Local funding for health services other than those provided through Medicaid fell 15 percent, from $159 million in 1990 to $135 million in 2004, including an $18 million cut in addiction services.
  • Other reductions in programs for low-income and vulnerable populations include a 21 percent cut in funding for Mental Health and a 15 percent cut in the Office of Aging.

In addition to these cuts, other notable spending cuts include:

A 57 percent cut in support for the University of the District of Columbia;

A 26 percent reduction in funding for the Department of Parks and Recreation.

Finally, the Department of Consumer and Regulatory Affairs and the Office of Personnel have faced significant budget cuts since 1990, 42 percent and 57 percent respectively.  The reductions at least partly reflect transfers of certain functions from these agencies to other agencies.  In addition, spending on debt service — principal and interest payments on bonds used to support construction projects such as schools — is 11 percent lower in 2004 than in 1990.  This does not, however, appear to reflect a reduction in investment in infrastructure but instead a variety of other factors.

Substantial budget increases, on the other hand have been limited to a handful of agencies.  In general, these increases reflect factors that are beyond the District’s control or efforts to address highly dysfunctional systems.

  • Medicaid:  The District’s local Medicaid budget has increased from $189 million in 1990 to $324 million in 2004, an increase of 72 percent after adjusting for inflation.  (This comparison adjusts the 1990 budget to reflect the increase in the federal matching rate for DC’s Medicaid program that occurred in 1998).  The increase reflects sharp increases in health care costs nationally, as well as federal and local program changes that expanded Medicaid eligibility and enrollment.  Nevertheless, DC’s Medicaid program has grown more slowly than in most other states.  According to a recent analysis, for example, DC ranked 48th in Medicaid spending growth between 1991 and 2001.[2]

  • K-12 Education:  Local spending on DC Public Schools and DC Charter Schools in 2004 will be $883 million.  This is $169 million, or 23 percent higher than school spending in 1990, which stood at $714 million.  The increase stems in large part from a substantial increase in the number of students receiving special education services, including students enrolled in private schools but supported by DCPS funds and students served within the DC schools.  A second factor is the establishment of the charter school system in the 1990s.  Charter schools, which did not exist in 1990, have a budget of $137 million in 2004.  Finally, per-pupil spending in DC Public Schools is 2.9 percent higher than in 1990, after adjusting for inflation.  This increase accounts for about one-fifth of the overall increase in the K-12 budget.
  • Financial and other Management:  Three agencies that support basic government functions have experienced significant budget increases: the Chief Financial Office, the Office of the Inspector General, and the Corporation Counsel.  In addition, the cost of legal settlements against the District has grown.  Together, the local budgets for these agencies grew from $98 million in 1990 to $135 million in 2004, an increase of 38 percent.   Most of these increases occurred after 1996 and appear to reflect efforts following DC’s fiscal crisis of the mid-1990s to improve management of the DC government.
  • Child Welfare: The fiscal year 2004 local funds budget for the Child and Family Services Agency, which provides foster care and adoption services, is $145 million.  This is $59 million, or 67 percent higher than the amount spent on child welfare services in fiscal year 1990, which stood at $86 million.  In 1997, DC’s child welfare system was placed under a federal receivership, following a lawsuit that found major deficiencies in the system.  The growth in the child welfare budget — all of which has occurred since 1997 — reflects efforts to meet court mandates and to otherwise address shortcomings in the District’s provision of these services.  (The receivership ended in 2001.)

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End Notes:

[1] The services currently provided by the Department of Human Services, the Department of Health, the Department of Mental Health, and the Child and Family Services Agency were provided by one umbrella agency in 1990.  In this report, the 1990 budget for this agency was divided to match the current four-agency structure.  See Appendix II for more information.

[2] This figure comes from the Kaiser Family Fund’s “State Health Facts Online” web site.  http://www.statehealthfacts.org/.