- The Washington Times - Wednesday, January 31, 2007

D.C. officials yesterday lauded the city’s 10th straight balanced budget, but they also acknowledged independent auditors’ concerns that the troubles of the public school system could place the city in future financial jeopardy.

The auditors “have alerted us, sounded an alarm, and it is a major concern to us,” Chief Financial Officer Natwar M. Gandhi said yesterday at a briefing announcing the findings of the city’s fiscal 2006 Comprehensive Annual Financial Report. “We’re going to stay very vigilant on that front.”

The annual report — which is distributed to Congress, the mayor and the D.C. Council — gave the District a “clean” audit opinion and found that the city has achieved a $1.4 billion fund balance, driven in part by a $325 million budget surplus during fiscal 2006.

The figures represent a roughly $2 billion turnaround from the District’s $500 million deficit in the mid-1990s, and current city officials lauded the efforts of former Mayor Anthony A. Williams and past council members in helping to restore the city’s fiscal integrity.

“It’s important to say as the new executive of the city that I’m committed to continuing and improving upon the fiscal policies and financial viability that [Mr.] Williams achieved during his tenure,” Mayor Adrian M. Fenty said.

However, an independent audit conducted as part of the report said failures in the city’s school system could hamper theDistrict’s finances and future bond rating.

The audit cited concerns with the system’s federal grants management, procurement practices, human resources, payroll and Medicaid services, and called the items a “material weakness” in the District’s finances.

Mr. Gandhi, who confirmed yesterday that he will accept Mr. Fenty’s nomination to stay on as CFO, said the school system’s issues could affect future audit opinions. That in turn could hamper the city’s ability to borrow money.

“It would be a major problem for us,” Mr. Gandhi said. “We would lose our credibility on Wall Street.”

The audit’s findings were released as the council is considering Mr. Fenty’s plan to place the school system under mayoral control.

Council Chairman Vincent C. Gray said yesterday the failures identified in the audit would “weigh ultimately” in his consideration of Mr. Fenty’s call for a new accountability structure.

Mr. Janey said during a hearing Tuesday on Mr. Fenty’s audit plan that he had not heard of the auditors’ concerns.

Schools spokesman John C. White said yesterday that the audit showed improvement in the school system compared with past years, and that the number of problems cited had decreased since 2005.

“We feel that some progress has been made,” Mr. White said. “That’s not perfect, but we think we’re going in the right direction.”

Mr. Gandhi also cautioned that the District has the highest per-capita debt in the nation and that a structural imbalance caused by tax limitations could weaken the city’s financial foundation.

He said the District’s housing market also has softened, but that overall the city stands on relatively firm financial footing.

“My sense here is that, all in all, we have had a very good year,” Mr. Gandhi said.

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