Three Things to Keep in Mind about DC’s Fund Balance

August 16th, 2010 | by Jenny Reed

Last week, the Washington Post wrote a story about the use of the District’s fund balance, including some quotes from the DC Fiscal Policy Institute.  The fund balance, which is essentially the District’s savings account, is a complicated topic that we have written about a couple of times.  But even we, who agree that DC’s fiscal health should be an important topic, are surprised that the fund balance has become the number one fiscal issue for many in DC. 

Yes, our fund balance has declined, but that is largely because we suffered the worst economic downturn in decades, with huge drops in tax collections and a rising need for services among record unemployment levels.   The recession has forced cuts in all parts of DC’s budget, from libraries to recreation centers to affordable housing.  Without using fund balance, our budget choices would have been much harder with much more severe effects on DC residents.  Also — it is important to note that use of fund balance has not put us in a crisis state.  Consider these 3 points:

 1)      Despite its use, DC’s fund balance remains higher than the large majority of states.  Most states — including DC — have used a combination of cuts, tax increases, and savings to balance their budgets and limit disruptions to programs and services in the midst of the recession.  Nearly all states have drawn down their fund balance during the recession and despite DC’s substantial use of its fund balance, DC will have a higher fund balance than 43 other states at the end of FY 2011. 

2)      DC had built up an extraordinarily high fund balance during times of economic boom.  As a result of a booming economy, our fund balance peaked at $1.6 billion —   37 percent of our budget — when the average for most states was 8 percent.  Policymakers put that extra money to good use: paying for a backlog of infrastructure improvements without borrowing, paying for DC government retiree health benefits, and most recently using funds to fill huge budget holes left by the recession. 

3)      You save in good times, to help you get through the bad times.  The last three years certainly have been some of the worst times both for DC residents and the DC’s coffers.  That is the right time to use your savings. 

If we hadn’t used our fund balance, we would have had to borrow more, raise taxes more, or cut more —  or all three —  while sitting on an unusually large savings account.  That would not have made sense.

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