- The Washington Times - Friday, March 15, 2002

The D.C. Federal City Council issued a report yesterday warning that Mayor Anthony A. Williams' government is well on its way to a major financial crisis just six months after the dissolution of the D.C. financial control board.
The study, released by the private group of influential Washington civic and business leaders headed by former Sen. Bob Dole, predicts a $500 million budget deficit for the city by fiscal year 2005 if spending isn't brought under control.
"We believe that the city needs to take an action on spending," said Robert G. Liberatore, the vice president of the group and a former city administrator. "We think it's prophylactic to act now and not wait until the problems get worse."
The looming deficit is a result of a slowdown in the rate of revenue growth in the city, coupled with unbudgeted increases in annual spending in areas such as public education, Medicaid and mass transit funding, according to the study conducted by McKinsey & Co., a New York-based international management-consulting group.
The study, commissioned by the Federal City Council, calls on elected city leaders to defer for several years the planned tax cuts for individuals called for under the Tax Parity Act of 1999.
The group also calls for the District to "aggressively pursue increased management efficiency" by cutting annual costs by between $110 million and $160 million by 2005.
Such savings could be achieved without a significant reduction in the delivery of city services, Les Silverman, director of McKinsey's Washington office, told reporters during a news conference at the Federal City Council headquarters on 15th Street NW yesterday.
Mr. Silverman however, said that if the tax cuts are deferred and cost cuts made, the city still would face a deficit of between $190 million and $240 million by 2005. "To close that gap, the District would need to seek additional financial assistance from the federal government to compensate for the structural constraints under which it operates and the financial burdens associated with being the nation's capital," he said.
Terence Golden, the group's chairman, said, "Clearly, the precondition for entering into a dialogue with the Bush administration and the Congress about additional federal assistance is further belt-tightening on the part of the D.C. government."
Mr. Williams was unavailable for comment yesterday, but his spokesman said the city is already working hard to close the gap.
"We can do more with belt-tightening, but this belt is pretty tight already," said Tony Bullock.
"The real question is will the federal government step up to the plate and do its part," the spokesman added. "They cannot continue to ignore the reality which is that their presence here in our city is an enormous burden to the city government. We see no property taxes from the federal government; we're not able to tax the federal income being made in this city; and we're prohibited from taking sales tax from the federal museums."
In his 2003 budget proposal, the mayor is taking a stance "identical" to that taken by the Federal City Council about postponing the planned tax cuts, Mr. Bullock said.
The District has balanced its books for four consecutive years under the Williams administration, a feat that brought about the end of the D.C. financial control board, which was created by Congress in 1995. The termination of the congressional board put budgetary decisions back into the hands of local officials.
D.C. Council member Jack Evans, who heads the Committee on Finance and Revenue, said he agrees with the study's conclusion that the District is shortchanged by the federal government, but he said the "basis of the report is flawed."
"If I were the Federal City Council, I wouldn't pay the bill for this study," said Mr. Evans, Ward 2 Democrat. "It identifies … the wrong areas where we're overspending. We're not overspending on Metro, we're overspending on schools, special education, Medicaid and mental health."
The revenue assumptions made by the study also are inaccurate, Mr. Evans said. "The District's revenue growth of 7 percent has been substantial over the last four years."
"The idea of eliminating or postponing the tax parity act is a political agenda of the mayor that worked its way into the report," he added. "I am not going to support the indefinite postponement of tax parity."
But council member Harold Brazil, at-large Democrat, said the study validates what he has been supporting for years. "I've introduced legislation to slow down spending by 3.5 percent this year. That would save about $100 million."
"In 2002, we're looking at a $250 million deficit, and the spending pressures are going to make it worse year after year," Mr. Brazil said. "We can't go through with tax cuts for 2003 because they would only exacerbate the mounting deficit."
The Federal City Council is made up of 175 top business, educational and civic leaders who advise on and oversee economic development in the District.


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