- The Washington Times - Thursday, April 12, 2012

The District of Columbia is “very much worried” about cuts on Capitol Hill that could eliminate millions of dollars in revenue and spending capacity in the city, a potentially austere task as the D.C. government simultaneously learns to wean itself off one-time stimulus money it became accustomed to in recent years.

Fallout from the savings plan known as federal sequestration remains to be seen, but officials who control the city’s purse strings are committed to keeping their house in order, D.C. Chief Financial Officer Natwar M. Gandhi said.

“The sequestration is a major issue for us. As you know, it’s the law already,” Mr. Gandhi said during an interview with editors and reporters at The Washington Times. “But no matter what happens, no matter how much money we would lose from the federal government … we will balance our budget.”

Congress set forth sequestration in the Budget Control Act of 2011 as an attempt to cut $1 trillion in federal spending, about half of it from defense, over the next 10 years. Although observers are skeptical that the plan will be implemented, at least in full, state and local finance officials nationwide are girding for its potential impact.

Mr. Gandhi’s office estimates that roughly $1.7 billion will be exempt from the cuts, namely $1.3 billion in Medicaid payments and the balance through the Temporary Assistance for Needy Families and several other programs.

But estimates show the city could lose $40 million in federal grants annually under sequestration and lose about $24 million in revenue in fiscal 2013 - and even more in succeeding years - from frozen federal hiring, salaries and procurement in the city, Mr. Gandhi said.

The District finds itself at a budgetary crossroads as it navigates its give-and-take relationship with the federal government. A plethora of steady federal jobs fortified the D.C. economy while cities across the country suffered debilitating effects from the recession.

“On one hand, it’s a major driver of the economy,” Mr. Gandhi said of the federal presence. “At the other end, it also is a major burden because we have to provide services for which we do not get paid. It’s a double-edged sword.”

Cities and states across the country floundered without steady government jobs or a rosy real estate market such as the District’s - the “hottest in the country, if not the world,” as Mr. Gandhi is fond of noting - to buoy them through the recession. But like the District, they used stimulus funds for operating costs as well as capital projects.

Mayor Vincent C. Gray told the D.C. Council on Tuesday that budget holes are re-appearing now that those stimulus dollars are gone, and lawmakers should also consider the looming effects of sequestration as they hash out the city’s spending priorities for fiscal year 2013 and a supplemental budget for the rest of the current year.

“Sequestration is going to make things ever more difficult, because again we have a receding situation with federal dollars,” he told council members.

Council member Jack Evans, Ward 2 Democrat, is not convinced that the federal cuts will impact the District as severely as some expect, although he respects Mr. Gandhi’s stance.

Many federal employees do not live in the city and do not spend enough of their income in the District to make a significant dent if sequestration gets the green light, said Mr. Evans, chairman of the council’s Committee on Finance and Revenue. As for direct cuts to the District, he said Congress has not “drilled down into what the effects will be.”

Mr. Gandhi acknowledged there is a philosophy that, “Washington being Washington,” things will work themselves out and the impact will not be so bad.

“I cannot take that view,” he said, “because I think sequestration is a law and we must account for that.”

The executive branch and council members appear to agree that federal money is no longer a sure bet.

“Either we use local dollars to have these services provided, or we do not award those services at all,” Mr. Gandhi told members at Tuesday’s meeting.

Yet as host to the national government, the city’s financial potential is limited by unique planning rules and federal buildings it cannot tax - even if local crews are the first ones on the scene if one of them catches on fire.

Mr. Gandhi said the District is not subsidized by state appropriations, and its boost from the federal government does not always outpace its liabilities. He recalled the expansive view from his old office at Judiciary Square, where he could see federally controlled museums, galleries, monuments - “nothing we could tax.”

“That’s a major problem,” he said. “Not only that, but because of the height limitation, we cannot intensify or take advantage of the real estate we have. When I go to Wall Street, I come out of Penn Station and look at the high-rises there and say, ‘My God, the tax base!’ “

Rep. Darrell E. Issa, California Republican with oversight of D.C. affairs, has been speaking to Mr. Gray and Delegate Eleanor Holmes Norton, the city’s nonvoting member of Congress, about easing the height restrictions to increase living and working space - not to mention tax revenue - in the city as its population grows at a nation-leading pace, The Washington Post reported Thursday.

The money, Mr. Gandhi said, is needed to address the vast divide between the haves and haves-not in the city, where about a third of residents struggle with illiteracy, skyrocketing unemployment rates and lack of skills to seize on a number of jobs in the District.

“This is the nation’s capital - it’s a scandal,” Mr. Gandhi said. “We have to take care of this population ourselves with a constrained tax base, and that is the problem. What the city needs here is a recurring, regular, annual budget relief - and we don’t have that.”

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