- The Washington Times - Thursday, March 9, 2000

The District of Columbia government's economy is so fragile that it cannot afford further tax cuts without cutting programs, and a budget deficit looms unless agency overruns are curbed, budget officials said yesterday.

"I can best describe the fiscal year 2001 budget as very tight," Alice M. Rivlin, chairwoman of the D.C. financial control board, said during a rare public hearing.

The city enters the next fiscal year with a balanced budget only if it eliminates $39 million in agency overspending this year and if $47 million in cost-cutting steps are taken quickly, she said.

"Both are doable, but pose major challenges," Mrs. Rivlin said. She repeated a dour forecast made by her predecessor on the control board, Andrew F. Brimmer, that the city will have deficits again in the near future. Mrs. Rivlin said the city will finish fiscal 2004 about $123 million in the red without overhauling revenues and expenses.

The sobering financial news comes as the D.C. Council and Mayor Anthony A. Williams prepare to negotiate a fiscal 2001 budget. Mr. Williams is expected to announce his budget plan next week. The city anticipates $4.8 billion for its 2001 budget. The current budget calls for $4.7 billion in spending.

Mr. Williams opposes broad tax relief, while the council appears set to pursue several additional tax cuts. Last year, the council successfully pushed through sweeping tax relief over a five-year period for personal income, property owners and businesses.

Mrs. Rivlin refused to say whether she would advise city officials not to cut taxes again.

"The point we wanted to make is it's a zero-sum game," she said. "The money [for tax cuts] has got to come from somewhere… . I'm not recommending anything."

Council member Phil Mendelson, at-large Democrat, said the council has not seen the numbers Mrs. Rivlin has relied upon, but said the city should pursue some additional tax relief.

"Even if we do a little bit of tax-cutting, it sends a signal that that is the direction we're heading in," he said. "We the council are having to argue this without having seen the numbers."

The city has been awash in annual budget surpluses in recent years. A $186 million surplus in fiscal 1997 and a $445 million surplus in fiscal 1998 erased the city's accumulated deficit, which was the reason Congress had imposed a control board on the city.

The city expects that fiscal 1999 has produced another significant surplus, though a tardy audit means the amount remains uncertified.

There is good news in the District's economy, said Julia Friedman, the city's chief economist.

Resident employment continues to grow; construction is under way for office space for 10,000 employees; and owner-occupied housing sales have jumped 50 percent in the past two years, she said.

"The District will do fine as long as the national economy does fine. We are as vulnerable to that as anybody," Ms. Friedman said. "The [national] economy has been in bloom for eight years and the District is just beginning to feel the impact in a way we can measure."

None of the financial figures is final because Chief Financial Officer Valerie A. Holt still has not completed the annual audit for fiscal 1999, which was due Feb. 1.

But Ms. Holt said the city's lottery revenue dropped considerably, largely because there were no major jackpots. Lottery revenue was $81.3 million in fiscal 1998 and was about $64.2 million in fiscal 1999.

Property tax revenue fell from $695 million to $679 million last year. Overall, the general fund revenue fell from $3.2 billion to $3.1 billion, the CFO reported. Revenue will match fiscal 1998 levels if the city's expected $38 million in tobacco settlement funds are added to the 2001 budget.

The D.C. Office of Tax and Revenue helped prepare the budget estimates and projects the city's population, which has shrunk for decades, to begin growing again in fiscal 2004.

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