WASHINGTON - The District of Columbia expects a $65.2 million drop in revenues for fiscal 2009, reflecting the national economic downturn, but its problems are meager compared with other cities and states, chief financial officer Natwar Gandhi said yesterday.

In a letter containing a revised fiscal outlook that was sent to Mayor Adrian Fenty and District Council members, Gandhi said fiscal 2009 revenues are estimated to be $5.4 billion less than the figure projected in December. However, fiscal 2008 revenue was revised up to $5.2 million, a $4.2 million increase over December's estimate, he said. Washington, D.C.'s overall budget is $7.5 billion, making the $65.2 million revenue drop seem small.

"I think our problem is, relatively speaking, small compared to our neighbors," Gandhi said.

Gandhi's letter comes a day after Standard & Poor's released a report on how the slowdown is affecting the country's largest cities - New York, Los Angeles, Chicago, Dallas, Houston, Phoenix, Philadelphia, San Antonio, San Jose, and Detroit.

While overall, these larger cities enjoy stronger economies, they still face troubles in the slowing national economy, according to the rating agency.

"These cities are all confronting the developing economic slowdown," the report said. "All are feeling the effects of the housing slump, which is starting to impinge upon certain revenue streams."

Six out of the 10 largest cities rely on property taxes, which make up 21% to 42% of their general fund revenues, the report said. And even those cities that get a significant portion of their revenue from sales taxes are not immune to housing troubles.

"This is because as real estate demand softens, construction and related spending on building supplies also fall," the rating agency said.

Gandhi's letter also notes that housing woes are expected to reduce sales tax revenues from building materials and home furnishings.

"In addition to slowing sales tax trends, most big U.S. cities are bracing for large double-digit declines in real estate transaction taxes levied when properties are sold," the Standard and Poor's report said.

Weaker trends in employment and consumer spending will contribute to slower growth in demand for commercial office space and manufactured goods, the report said. Standard & Poor's economic forecasts predict that nonresidential spending and capital equipment investment will be weaker in 2008 than in the past two years.

"What began as a slowdown in residential real estate has spread more generally to affect other sectors of the economy, and has several unfortunate implications for large U.S. cities from flagging property and sales and other tax receipts," the report said. "Conversely, a slowing economy has the potential to reduce pressure on capital budgets, at least temporarily, as development trends - and any necessary supporting infrastructure - moderate."

While talk of a national recession looms, Gandhi said his forecast is cautious, but not a worst-case scenario, even though the letter also noted that employment and wage growth rates will slope downward, real property transfers will slow down, and construction projects will be delayed..

"We are not expecting a recession; this a slowing of the economy," Gandhi said.

Though real property transfers are expected to slow down, Gandhi said current projections show a $70 million increase in commercial property sales.

While housing has not been tremendously affected in the city, the report estimates that in fiscal 2008, home sales will decline 20%, and 10% in fiscal 2009, with prices declining 2% in both fiscal years 2008 and 2009.

The nation's troubles are reflected in the city's weakened tax collections and a slumping single-family housing sector.

"Our problem is in income taxes and business taxes, where, because of the volatility of the stock market, we feel the capital gains tax is where we will have a problem," Gandhi said.

Collections for both general sales and withholding for individual income tax weakened in the three-month period ending in January, the report said. The December corporate estimated payments and the January declarations for the individual income tax were below the amounts collected from those sources during those same months of the prior year.

Should the current slowdown become more severe, however, district revenues would likely be lower, especially in fiscal 2009, Gandhi said.

The city faces some risks, including an 'April Surprise' in both fiscal 2008 and 2009, in which taxpayers over pay estimated taxes for the calendar year generating lower payments and larger refunds, the letter said.

In addition, the more the economy slows, the less likely that tourists will visit the district, and a tourism accounts for one quarter of the total sales tax receipts.

Another potential risk is that business income taxes will fall sharply as the economy contracts, according to the letter.

In spite of these concerns, Gandhi was optimistic. "My sense is that we should be okay with what we have here," Gandhi said. "We are still doing quite well."

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