2009 Gap-closing Narrative Summary

 

FY 2009 and FY 2010 

    Government of the District of Columbia    Office of the City Administrator   

       

       

   

 

 

GAP‐CLOSING PLAN OVERVIEW  July 16, 2009

FY 2009 and FY 2010  GAP‐CLOSING PLAN OVERVIEW    Overview

The FY 2009 Budget The FY 2009 budget approved by the Council and signed by the Mayor one year ago was a $9.5 billion spending plan, including $5.7 billion in Local funds. After the Chief Financial Officer issued revised revenue estimates, certifying a $130.7 million shortfall in unrestricted Local Fund revenues for FY 2009 on September 24, 2008, the Mayor and the Council proposed gap closing plans to address the shortfall. On November 10, 2008, the Council approved a revised FY 2009 spending plan including $5.6 billion in Local funds, and the Mayor signed the amended, balanced budget. Since the November approved budget, revenue projections for FY 2009 have declined in each of the Chief Financial Officer’s quarterly estimates. In total, Local fund revenue estimates dropped by $452.8 million over the past eight months. In order to reduce the budget to the level of estimated revenue, the Mayor has proposed a second FY 2009 gap-closing plan that includes $138 million in fund balance use, $152 million in stimulus funding for budget stabilization, $125 million from the Contingency Reserve Fund, and $15 million from agency spending reductions. The following table summarizes the major elements of the Mayor’s FY 2009 gapclosing proposal: FY 2009   Revenue Shortfall  Gap Closing Plan (in millions)  ARRA Stimulus funding   Fund Balance, including dedicated taxes and special purpose revenue  Contingency Reserve Fund (Rainy Day Fund)  Convert dedicated taxes to Local funds  Agency savings from spending control  Settlements income and additional parking meter revenue  Net effect on operating margin 

   (453)  152  138  125  14  15  10  1 

This gap-closing proposal also shifts $76 million from accounts with available funding, including the cash reserve and surpluses in debt service agencies, to agencies with spending pressures. For example, the DC HealthCare Alliance has higher than anticipated costs from enrollment growth related to high unemployment rates. In past years, the effect of some spending pressures projected early in the fiscal year was fully absorbed by slower-than-projected spending in the affected agency. In light of the revenue shortfalls this year, it is not likely that many agencies will end the year with excess resources, and this plan allocates funding to reduce known spending pressures as far as possible now.

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FY 2009 and FY 2010  GAP‐CLOSING PLAN OVERVIEW   

FY 2010 Budget On March 20, 2009, the Mayor proposed a balanced budget for Fiscal Year 2010 with a reduction in Local Funds expenditures of 3.9 percent. That proposal included the elimination of approximately 1,631 positions across the government, including about 458 vacant positions and 1176 filled positions. The Council approved the budget with amendments on May 12, 2009, maintaining a balanced budget and increasing revenues through enhanced parking enforcement. The approved FY 2010 budget is a $10.4 billion spending plan, including $5.4 billion in Local funds. One month later, on June 22, 2009, the Office of the Chief Financial Officer released revised quarterly revenue estimates that projected a decline of $150 million in FY 2010. Under the District Charter, the budget must be balanced before submission to Congress. The use of the Contingency Reserve Fund (or Rainy Day Fund) to address the revenue shortfall in FY 2009 exacerbates the shortfall in FY 2010 due to the fund replenishment requirements. Unlike any other state, the District must repay 50 percent of the Contingency Reserve Fund in the fiscal year after a withdrawal from the fund, and the remaining 50 percent by the end of the next year. In FY 2010, the District has to repay $62.5 million to the Contingency Reserve Fund even though the District economy is expected to continue to experience recession conditions throughout the year. To submit a balanced budget, and repay the Contingency Reserve Fund, the Mayor has proposed an amended FY 2010 budget that includes $110 million in agency gap closing initiatives, including the elimination about 250 positions, and an additional $35.8 million of stimulus funding. The following table summarizes the major elements of the Mayor’s FY 2010 gap-closing proposal: FY 2010   Revenue Shortfall  Contingency Reserve Fund required replenishment   Gap Closing Plan (in millions)  Agency gap closing initiatives  Convert dedicated taxes and special purpose revenue to Local funds  ARRA Stimulus funding   Fund Balance Use  Sale of assets  Net effect on operating margin 

   (150)  (63)  110  57  36  4  6  1 

FY 2011 and long term outlook. Although the District presently has a detailed budget only for FY 2010, the District develops a multiyear financial plan to estimate resources and projected expenditures at inflationary growth rates over a 4-year period. The FY 2011 budget development process will begin in the fall, with submission to Council anticipated in late March 2010. However, agencies will begin to identify additional savings this summer to prepare for the FY 2011 budget.

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FY 2009 and FY 2010  GAP‐CLOSING PLAN OVERVIEW    While the revised revenue estimates present an immediate problem in FY 2010, the situation for FY 2011 is an even greater challenge. The projected revenue shortfall is larger in FY 2011 than in FY 2010 by $61.3 million. The use of one-time fund balance and stimulus funding to close the FY 2010 gap means that there is a remaining problem to be addressed in FY 2011 and beyond. The most appropriate forum to solve this problem is the detailed budget development process, which entails extensive involvement of individual agencies, the Chief Financial Officer, the Mayor and City Administrator, the Council, and the public.

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