D.C. Council Approves Bills to Close 2009, 2010 Budget Gaps

WASHINGTON - The District of Columbia Council unanimously passed legislation on Friday to close budget gaps that have grown for fiscal years 2009 and 2010 as revenues continue to plummet.

Separately, the District Council approved a funding agreement for the convention center hotel. The $537 million financing package includes $206 million of bonds and establishes a public-private partnership between the district and two development companies.

The convention center hotel "is a cornerstone project that can help revitalize the surrounding Shaw neighborhood," council member Kwame Brown said yesterday in a statement. Brown played a key role in negotiating the deal as chair of the committee on economic development.

The budget and convention center legislation will have to be approved by Congress.

The Second Fiscal Year 2009 Balanced Budget Act and 2010 Budget Support Act that were approved by the council would raise certain taxes and tap contingency reserves to plug deficits of $190 million for fiscal 2009 and $140 million for 2010.

The 2010 budget measure would raise the sales tax by 0.25%, the gasoline tax by 3.5 cents, and the cigarette tax by 50 cents to $2.50 a pack. The tax increases would automatically sunset in three years with the expectation for an improved economy.

"In the end we have jointly developed [a budget] proposal that is a responsible, balanced approach to solving the district's financial gap going forward and ensures we never go back to the days when the district did not control its own destiny," council chairman Vincent C. Gray said in a statement referring to the financial control board's takeover of the district's finances during the 1990s.

The budget legislation would reduce the summer youth employment program and slots available for summer school. Further, district funds would not be used to hire police officers, though district officials expect federal funds will be provided for new hires in the next two to three years. The budget legislation also would eliminate some grants for 2010.

The council's plan differs from Mayor Adrian Fenty's initial budget revision announced July 16. The mayor's plan called for plugging the budget gap by using fund balances in 2009 and 2010, borrowing from the district's rainy-day fund, and cutting spending by $140 million.

"I was concerned that this strategy further depleted our fund balances, which dropped precipitously from $1.2 billion at the end of fiscal 2009 to $700 million at the end of fiscal 2010," Gray said.

The mayor's plan relied on $125 million from the rainy-day fund in 2009. But using money from the rainy-day fund can exacerbate future budget shortfalls in the district's future budgets.

Unlike states, the district is required to repay 50% of any funds withdrawn from the rainy-day fund within the next fiscal year. The remaining funds must be repaid the following year. Under the mayor's plan the district in fiscal 2010 would have had to repay at least $62.5 million to the rainy-day fund despite the expected continuing weak economy and budget problems.

Gray said the tax increases are a better alternative to spending reserves given the uncertain economic future.

"I decided that an approach of facing the problem head-on now was a more responsible tact to take," Gray said. He said his decision to avoid tapping reserve cash was related in part to his recent trip to Wall Street to talk with bond rating agencies about the district's debt.

"We have focused gap-closing solutions on shared sacrifice, on belt-tightening, and on spending the district's dollars as wisely as possible," Gray said.

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