WASHINGTON -- A much anticipated report by congressional auditors says that unless the District of Columbia makes policy changes to head off potential cash shortfalls, "it may be forced to borrow from the U.S. Treasury by fiscal year 1995."
But the district's top finance official, Ellen O'Connor, said yesterday that Treasury borrowing "is not on the radar screen."
The June 22 report by the General Accounting Office, which was released yesterday by California House Democrats Julian Dixon and Pete Stark, said the district faces "both unresolved long-term financial issues and continual short-term financial crises." The report was prepared with the assistance of the Congressional Budget Office.
In a joint statement, Dixon and Stark said the district's finances "need substantial restructuring that must occur immediately in order to avoid dire circumstances."
There is no plan yet to produce the cash needed to carry out a June 7 settlement between the district and the retirement board overseeing the city pension fund, the report said. The settlement moves up the district's schedule of payments to the fund, which had been deferred.
However, the district has a year to come up with a revenue plan, which is likely to involve increased collections of receivables as well as sale of surplus property, said O'Connor, who is deputy mayor for finance and chief financial officer. "When you have 12 months to do something, you have the opportunity to perform," she said.
Aside from its dire prediction of Treasury borrowing, the report is "solid" because it "focuses the issues" and sets priorities that the district agrees with, O'Connor said.
In a June 13 response to an earlier draft, she called for a "new relationship" between the district and the federal government that focuses on the district's "structural restraints."
Such restraints include federally imposed taxing restrictions that result in exclusion of 68% of the income earned within the district from its tax base, she said.
Some analysts who have closely monitored district finances questioned why the lawmakers waited until this year to focus attention on the district's problems, given .its longstanding structural imbalances.
Dixon, who for 14 years has chaired the House Appropriations Subcommittee on the District of Columbia, has watched the. district use various means to balance the annual budget, one financial analyst said. Mayor Sharon Pratt Kelly's proposal last February to defer fiscal 1994 pension payments until next year was similar to other budget contrivances, yet it triggered an outcry and prompted the congressional audit file, the analyst said.
A congressional source defended Dixon, saying he has gone out on a limb to persuade his colleagues to support home rule for the district. Dixon thinks the Kelly Administration has not done enough to improve the district's finances and has not provided the political capital needed to back up his position on home rule, the source said. Dixon was giving Kelly, a long-time personal friend, a chance to produce better fiscal results, and now "he feels betrayed," the source said.
Dixon could not be reached for comment.
A spokesman for Stark, who has chaired the House Committee on the District of Columbia for about a year, has a harsh views of the district's financial performance. District officials "are cooking the books. They are bankrupt. They are making no attempt to deal with serious Structural changes in their budget that need to be done," the spokesman said.
However, the report does not show any wrongdoing by district officials, and O'Connor gave a detailed account in her June 13 letter -- which is included in the report -- of district efforts to control finances and cope with a lingering recession and growing health costs.
"It certainly is not our objective to use this report to point fingers or place blame," Dixon and Stark said in their statement
"Nevertheless," they said, "we would abdicate our congressional responsibilities were we not to take a hard look at the district's finances. After all, our colleagues rely on our judgment when Congress considers authorizing and appropriating hundreds of millions of federal dollars to the district."
The district "is under a microscope precisely because it is the district," said David Herships, vice president and municipal bond analyst for for Kemper Securities Inc. in Chicago
The GAO report said the district is "unique" because it is the only governmental unit with county and state as well as city functions. "In a very broad category, their problems aren't that bad," Herships said. "I just think it's overdone ... It isn't going to be pretty, but the district will balance its budget. It's the nature of government," he said.
"I suspect the District of Columbia will have a balanced budget a hell of a lot sooner than the federal government," Herships said.
Dixon and Stark were particularly concerned that the district has spent $200 million more than it has taken in since 1991 and cash balances are expected to continue to decline.
In addition, the district projects Medicaid expenditures to decrease 1.7% in fiscal 1994 and 0.8% in fiscal 1995, even though such spending has increased significantly in recent years. The fiscalyear begins Oct. 1.
Dixon and Stark also highlighted an accounting change the district made in its 1993 property tax year, which generated revenues of $174 million, but no cash.. In effect, the change allowed the district's spending to increase by $174 million and resulted in a $41 million increase in the federal payment by affecting the formula on which the payment is based, the legislators complained.
The report also said the district has understated cash shortfalls at the District of Columbia General Hospital, and that district officials have not estimated full Compliance costs under various court orders. The GAO generally faulted the district's forecasting techniques.
The full House Appropriations Committee is scheduled to vote on the district's supplemental fiscal 1994 and fiscal 1995 budgets today. The Dixon subcommittee late last week voted to approve the full $670 million federal payment proposed by the Clinton Administration.
