The Collateral Damage of the Fiscal Cliff: DC Has Been Forced to Hold Back on Important Programs

Happy New Year, District Dime readers!  We hope 2013 brings you many good things. 

We also hope it brings many good things for DC, including the opportunity to address some of the city’s greatest challenges, such as education and affordable housing. Unfortunately, the major ongoing debate over how to reduce the federal budget deficit is making it hard for DC to do that. 

The impact of the federal budget impasse on the District was felt 10 days before the New Year’s Eve fiscal cliff deal.  On December 21, Dr. Gandhi released the latest revenue forecast for the city, and for the third quarter in a row, the CFO declined to make a new revenue projection for 2013 and beyond.  The reason? Uncertainty over the federal budget and its possible negative impact on the DC economy.

The federal budget gridlock has been holding the city back. There are many signs that DC’s economy is doing well, from revenues that were higher than expected in 2012 to the recent news that the city added as many residents in the last two years — 30,000 — as in the entire prior decade. Without the concerns over the future of the federal budget, there is no doubt that the CFO’s December revenue forecast would have shown that the city’s tax collections are growing notably.

The inability to officially recognize the growth in DC’s tax base is stopping the city from meeting many needs. The budget for 2013, adopted last June, left a number of important programs under-funded.  The Housing Production Trust Fund, for example, was cut in half. The budget also left holes in other areas such as domestic violence services, efforts to meet the mental health needs of teens, and plans to better identify young children with developmental delays, just to name a few.  All of these were included in the 2013 budget on a “contingent revenue“ list — services that would get funded if the city’s revenues grew faster than expected.

Many of those services would be funded today if the CFO were able to project revenues based on current economic trends — without the fear that deep federal budget cuts will take DC’s economy in the other direction.

Unfortunately, the deal passed by Congress to avoid the fiscal cliff did not resolve all of the issues that have been holding DC’s revenue projections back. In particular, the deal did not resolve how to address the “sequester,” the planned deep cuts in both defense and non-defense programs, which could affect federal government employment and federal contracting, and thus could put a drag on the DC economy.  Right now, it appears that the sequestration cuts will not be addressed until March.

The District needs to move ahead with its financial planning, despite the federal budget uncertainty.  The CFO will release the next revenue forecast in February, and that forecast will be used to set the budget for the upcoming year. 

We hope that the federal government will resolve its budget debates before the next revenue forecast, but that seems unlikely. Until then, we hope that the CFO will make new projections for 2013 and beyond that reflect the city’s growing economy, allowing the city to move ahead with important investments, while also making reasonable guesses about the near-term impact of the federal budget on the city’s economy.