D.C. may turn to U.S. for financial bailout

March 21, 1994|By New York Times News Service

WASHINGTON -- Washington has such financial problems that it may be forced to borrow money from the federal government to pay its bills, a blow to efforts by the district to win more independence from Congress, officials say.

"The situation is that they have really had unbalanced budgets for the last several years," said Philip M. Dearborn, a financial research director of the U.S. Advisory Commission on Intergovernmental Relations. "They've used up all their cash and are in a very difficult cash situation now."

The possibility of a federal bailout was reported yesterday in the Washington Post, which quoted officials who said that borrowing from the government was under consideration.

"We are exploring our authority for borrowing from the Treasury," Ellen O'Conner, the district's chief financial officer, told the newspaper. She could not be reached for comment yesterday.

Already, the district gets about one-fifth of its $3.4 billion budget from the government; the rest is supposed to come from taxes and fees.

To avoid a bailout, which many politicians here would see as undermining the district's efforts to gain more control over its own affairs, Mayor Sharon Pratt Kelly has proposed postponing a required payment of $230 million to the city's pension fund this year. That would allow the district to end the year with $75 million, but it would also face challenges in the courts and in Congress, and seemed unlikely to succeed.

Cutting spending enough to find the pension money is virtually impossible, officials say.

The District of Columbia, though governed by a mayor and a 13-member City Council, is a unique entity whose political decisions, including its budget, can be vetoed by Congress. The district does not have the power that the states and some cities do to raise money, but it still must provide the kinds of services that states do -- welfare, Medicaid, prisons and courts.

The district is prohibited by Congress from taxing commuters to recoup the cost of public services used by suburban residents who work in the city. Moreover, half the real estate in the district is exempt from taxation because it is used by the government, embassies or nonprofit institutions.

The city has faced financial problems since it won limited political independence in 1974.

During Mayor Marion Barry's 12 years in office, the city borrowed $150 million to $300 million a year from private lenders. Mayor Kelly eliminated that practice with a $336 million bond sale in 1991, at the end of her first year in office. That erased the city's accumulated deficit and put the district in its best financial condition since limited home rule began, experts say.

But over the last three years, the city's budget has been balanced only through a series of accounting maneuvers. City officials said the financial cushion from the bond sales was used to provide city services during the recent recession. Now the mayor's office projects that if nothing is done, the city's annual deficit will increase to almost $800 million by the year 2000 from $225 million in 1996.

John A. Wilson, the late chairman of the District of Columbia City Council, had voiced concern over the city's financial state after the Rivlin Commission reported four years ago that the city would become insolvent without major cuts in spending and substantial increases in revenue.

Some associates attributed Mr. Wilson's suicide last year to his frustration with the city's failing fiscal health.

"To go back to the Treasury now -- and that's assuming the Treasury would honor their requests -- is a step away from home rule," said Mr. Dearborn, a longtime analyst of the city's finances who was once a financial adviser to Mr. Barry.

He said that if such a request was honored, "based on what has happened in Philadelphia, New York and Cleveland, there would be some kind of oversight board, some kind of supervision."

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