Understanding Why DC’s $321 Million Surplus Isn’t Much of A Surplus

February 7th, 2014 | by Ed Lazere

The District ended fiscal year 2013 with a $321 million surplus, due both to better-than-expected tax collections and spending that was below-budget in a number of DC government departments. These left-over funds go to DC’s “fund balance” – in essence, our accumulated savings –which is now at a record high. But it doesn’t mean we have additional dollars to spend, because almost all the money is already spoken for.

That’s why when the news was announced last week, Mayor Gray cautioned that the big surplus should not be eyed as an opportunity for new public investments such as schools or housing. DCFPI agrees with this assessment. A big part of the reason is that a large share of the surplus actually will be spent on programs, because it was allocated months ago when city officials were confident that revenue trends would leave us with additional funds.

Here is a breakdown of the $321 million surplus:

  • It’s really $240 million. Due to accounting adjustments that we don’t understand, the countable surplus is less than the cash-basis surplus.
  • $96 million of the surplus is being spent – but those decisions have already been made. During 2013, as the city’s finances improved, Mayor Gray chose to hold on to $96 million – rather than spend it at the time. Those funds were budgeted for 2014, which means they would first show up as part of the 2013 surplus before being spent.
  • $100 million set aside to meet borrowing needs. DC borrows money for capital construction projects, like schools and libraries, by issuing bonds. The banks that lend to us require the city to keep cash on hand as collateral. The set-aside requirement jumped $100 million last year, due largely to changes in the way DC borrowed funds. That should not happen again next year.

Much of the remaining surplus is in special funds with uses restricted to special purposes, such as a storm water fund. In the end, only $10 million of the surplus was not strictly claimed, and that went into a local cash reserve.

This year’s surplus news has important implications for next year’s surplus. This year, along with Councilmember Kenyan McDuffie, Mayor Gray announced that he wants to devote 50 percent of future surpluses to the Housing Production Trust Fund to help address the city’s serious affordable housing shortage. Yet under current law, that would occur only after surpluses are used to fill a “working capital” fund that serves to help the city with cash-flow needs during year, and that reserve is far from its target level.

This means that the recent proposal to devote half of future surpluses to the Housing Production Trust Fund won’t have any effect until at least 2016. That is unfortunate—and unnecessary. DCFPI has long argued that the need to build up cash-on-hand should be balanced with the need to address pressing issues, such as housing. DCFPI prefers a save some, spend some approach. If the city announces another big surplus a year from now, wouldn’t it be great to say that half is being saved, adding to our record-high fund balance, and half is being used to ensure that more DC residents can afford to live here?

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