- The Washington Times - Monday, January 24, 2011

The timing is awful for the new D.C. mayor and chief lawmaker.

D.C. budget officials and elected leaders have been finessing or ducking questions about how big a budget deficit they really have to close in the wake of reports that the gap could widen again, to as much as $600 million.

The official estimates from the city’s chief financial office are expected in late February. On Feb. 10, city officials will visit Wall Street to reassure the money men on the city’s financial status, making current talk of an even-higher budget gap potentially embarrassing and costly to the city.

“We just haven’t any confirmation of $600 million,” said at-large D.C. Council member Michael A. Brown, before adding, “I don’t think it would be a shock to anyone. We knew [revenues] were trending downward.”

Right now, everyone is sticking to the official figure of $545 million, a figure that already had been revised upward in the past few months and already had Wall Street on edge.

When asked by The Washington Times to comment on the $600 million figure, which was published Friday by the Washington Business Journal, several D.C. officials declined to speak on the record.

The latest jitters come as the District’s new top leaders lay out a road map to financial recovery over the next several weeks, with Mayor Vincent C. Gray and Council Chairman Kwame Brown try to close the budget gap.

Timing is crucial.

First, the mayor, the chairman, Chief Financial Officer Natwar Gandhi and Council member Jack Evans are bracing for their first annual visit to Wall Street, but have already received troubling news.

Standard & Poor’s is concerned about the city’s fiscal woes — the decline in revenues, its use of reserve funds to balance the budget, and the acquisition of United Medical Center, the formerly private hospital that now has become the city’s heavily subsidized public facility.

In the meantime, the mayor is in the throes of developing his first spending plan and the council is gearing up for oversight hearings under new leadership. All of which are making the budget gap a fluid number.

The budget hole was about $400 million before the November general election. Now, as the gap widens, Kwame Brown said he will focus on three key issues to solve the city financial woes — and raising taxes isn’t on his list.

“We need to go get money from people who owe us,” Mr. Brown said, adding that includes federal dollars and reimbursements for Medicaid.

Special education, child-and-family services and health care finance officials have left unclaimed hundreds of millions of dollars, he said. “We need to go after that money.”

For his part, Mr. Gray said he wants a thorough investigation on Medicaid costs in the wake of a report by the D.C. inspector general that said the city overpaid $97 million on Medicaid, the federal program that covers health care for the poor.

Standard & Poor’s, meanwhile, has informed the city’s CFO that it expects the District’s financial situation “to weaken based on a trend of using reserves to offset revenue shortfalls.”

In his Jan. 5 letter to Mr. Gray and the council chairman, Mr. Gandhi said, “I am concerned that if the District’s [general obligation] bond rating were to be downgraded, the adverse impact to the District’s reputation, both on Wall Street, and particularly here in the Metro area, would be significant.”

It’s a warning that Mr. Evans said Wall Street made last year, when then-Mayor Adrian M. Fenty proposed using reserve funds to balance his fiscal 2009, 2010 and 2011 budgets.

On Monday, Mr. Evans said that, while he agrees with Kwame Brown that the city needs to collect its due revenues, Wall Street and Congress need to hear a different message.

“Stop spending.” Mr. Evans said. “Neither Congress nor Wall Street is interested in us raising taxes. With [congressmen] Ron Paul and Rand Paul [who support lower taxes] taking leadership roles and Wall Street warning us about spending reserves, we have to fix the budget, cut expenditures and sell the hospital.”