Five Principles to Close DC’s Budget Gap

The Council may have passed the budget last month, but a new revenue forecast has sent the city’s leaders back to the drawing board.  As we mentioned last week, DC again faces a budget shortfall: $190 million for FY 2009 and $150 million for FY 2010.

As the Mayor and Council begin the difficult task of balancing the budget again, we’ve identified five principles to help them close the gap: 

  • Use the Rainy Day Fund: Over half of states with rainy day funds have chosen to use their reserves to close a budget gap in FY 2009 or FY 2010. Using rainy day funds minimizes the need for spending cuts or tax increases. DC should use its rainy day fund to fill the FY 2009 budget shortfall and should work with Congress to fix the fund’s overly strict repayment rules.
  • Tap Other Resources: The District has a number of special-purpose funds that are financed by fees and other revenues collected by the government. The FY 2009 budget includes 178 approved special purpose funds that are expected to collect $484 million in FY 2009. Some of these accounts have surpluses that can be used to close the budget shortfall. The District should scour aggressively for extra funds, including the city’s Ballpark Revenue fund.
  • Spread Budget Cuts Broadly: DC agencies already have been asked to cut their budgets considerably to address previous revenue shortfalls. Future cuts should be spread across agencies to minimize the impact in any one area. Possible programmatic cuts include postponing the Healthy DC program, postponing lower-priority transportation projects, and delaying an expansion of the police force.
  • Raise Revenue: The District’s budget shortfall stems almost entirely from falling revenue collections. During the current recession, 23 states have enacted revenue increases, with 12 more considering increases. To raise revenue, DC should consider measures like eliminating the CAPCO tax credit, expanding the sales tax base, and raising the minimum corporate franchise tax. High-income households should contribute through a new top income tax rate or by forgoing the tax exemption for interest received from out-of-state bonds.
  • Preserve Safety Net Programs: Given the current economic downturn and DC’s high unemployment rate, the District should avoid cutting services that help with basic needs like housing, healthcare, and food assistance. Demand for the District’s safety net programs has risen over the past year; the Temporary Assistance for Needy Families (TANF) caseload has risen by 9 percent, while Food Stamp/SNAP participation has increased by 14 percent.