Last week the Council met at its annual retreat to review legislative priorities, receive briefings from various officials and make plans for the coming year. Of particular interest to me as Chair of the Council’s Committee on Finance and Revenue was the briefing by Chief Financial Officer Natwar Gandhi on the audit of the FY 2009 budget – known as the Comprehensive Annual Financial Report (CAFR). The Council will hold a hearing on the audit this Friday, February 5 at 10:00 am in the Council Chambers.

The good news from the FY 2009 CAFR is the District sustained its 13th annual balanced budget and unqualified “clean” audit. In short, our finances are a far cry from the desperate straits we faced in the mid-1990’s. The audit also confirmed we have reduced “material weaknesses” from 2 in FY 2008 to zero this year, and “significant deficiencies” from 4 to 3. I am glad we have made progress on reducing these problems. Every year the District spends millions on various audit functions – not only the CAFR, but of course the operations of the DC Auditor and the Office of the Inspector General. Early last year we decided to pool all this information more systematically and bring in under-performing agencies to submit remediation plans to correct the deficiencies. This new approach has begun to pay off.

We finished FY 2009 with a surplus of nearly $140 million residing in various special accounts. Before we rush to spend this money, however, we have already received briefings on the status of the current FY 2010 budget and the upcoming FY 2011 budget submission by Mayor Fenty, which is expected on April 1st. Clearly from the information we received, we will need that $140 million to address ongoing problems in FY 2010 and 2011. These problems, of course, are due largely to the overall state of the economy, although the District is in somewhat better shape than our neighbors to the north and south and I believe our revenue shortfalls are in the manageable range.

Every year, seemingly, we face “spending pressures” in the middle of the fiscal year – but since it is February we have the opportunity to review these problems and make corrective actions at the time so we end FY 2010 with a balanced budget. A more difficult challenge will be the work of the Mayor and the Council to balance the FY 2011 budget. We were told – if we do nothing else – the cost of continuing current operations of the DC government will increase by over $470 million from FY 2010 to FY 2011. That’s truly an astonishing figure! With very flat revenue growth this will not be possible. Of this “automatic growth,” the big increases, both financially and statistically, are the Education cluster, which would increase by 11.8% and the Human Support Services cluster which would increase by 20.7%. Other cluster area increases are far more modest. Clearly this spring we will have some very serious challenges facing us and many tough decisions to make.

Sincerely,

Jack