Balancing the FY 2009 and 2010 Budgets: the Good, the Bad, and the Future

As the great worldly philosopher Yogi Berra once said: “It ain’t over till it’s over.”

Last Friday, the DC Council agreed on a mix of cuts and revenue increases that would close budget shortfalls for fiscal years 2009 and 2010. By all indications, Mayor Adrian Fenty will sign them into law. Given the national recession, this likely won’t be the last time the Mayor and Council take a red pen to these financial books. But for now, it’s over.

So what happened?

First of all, the budgets are now balanced. The actions taken by our elected officials were necessary to keeping our city fiscally healthy, and the Mayor and Council deserve credit for taking on this task. The decisions were hard and agonizing. On the positive side, the Council saved programs crucial to the city’s safety net from the chopping block and avoided even deeper funding cuts by raising revenue. Yet some of the tax increases are regressive, meaning they will have a greater financial impact on moderate and low income DC residents.

In the end, the council made about $100 million in cuts on top of those proposed by the mayor. The biggest slashed approximately $30 million from the public education budget. A majority of the programs targeted for funding cuts were in human services, which help the District’s most needy and vulnerable residents. In final negotiations, however, the council agreed to partially restore money to crucial programs that provide money to low-income residents and grandparent caregivers as well as to legal aid.

One reason additional cuts were made is because the council decided against dipping into the city’s rainy day fund, which the mayor had initially proposed. D.C., unlike almost every other state in the country, must pay back its fund within two years due to congressional mandate. Council members worried this would make the budget even worse in fiscal year 2011. Almost everyone agrees it’s “raining” economically, but this and other restrictions make the rainy day fund impractical to use during a prolonged economic downtown like we’re in now. Hopefully our elected leaders will soon persuade Congress to lift these onerous rules for the future.

Some of the shortfall was also closed through fee and tax increases. Many economists, including the 2001 Nobel Prize winner, believe that raising revenue is sound policy during a recession. Though many council members were initially resistant, they decided to raise about $50 million in revenue largely by increasing sales, cigarette, and gas taxes as well as delaying the inflation adjustments to the standard deduction and personal exemption. Council members rejected more progressive proposals, such as raising the personal income tax on high-earners.

The deliberations were also painful because the council decided to keep their decision-making secret, meeting behind closed doors. The budget is a reflection of our priorities as a city, and we believe the public needs to be part of the discussion. We also hope future budget balancing will lean more toward progressive fiscal policy and not fall so heavily on those who need the government safety net the most right now.