DC Council Overreacts To Lower Fund Balance

June 11, 2010

A new posting on the DC Fiscal Policy Institute blog shows that I didn’t altogether understand how the DC Council would handle concerns about the fund balance when I ranted about its real or contrived control board fears.

I assumed it would wait to start rebuilding the “savings account” until the economy improved. Turns out it won’t do anything so sensible. Instead, it’s put highly-restrictive proposals for two reserve funds into the Fiscal Year 2011 budget legislation.

One would get all uncommitted end-of-year funds until it reached 9% of the budget. These funds couldn’t be tapped for fiscal emergencies. That, says DCFPI, would put about $530 million off the table–three times as much as the District’s ever had in cash reserves.

The second reserve fund could be used for fiscal emergencies or other unexpected spending pressures. But it wouldn’t start getting funds until the other reserve had reached the required level. The maximum in this account would be about $120 million.

In short, the Council has decided to tie its own hands. Come any shortfall, no matter how temporary, it will, for the indefinite future, have no choice but to engage in another round of program cuts and/or enact new revenue raisers. If past is prologue, we know which option it will prefer.

DCFPI has issued a report that explains all this in more detail and offers recommendations for a more rational approach.