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P. 1
Gray letter to Brown on Pocket Veto

Gray letter to Brown on Pocket Veto

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Published by Mike DeBonis

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Published by: Mike DeBonis on Aug 08, 2011
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08/08/2011

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VINCENT
C.
GRAY
MAYOR
August8,2011TheHonorableKwameR.BrownChairmanCounciloftheDistrictofColumbia1350PennsylvaniaAvenue,NW,Suite504Washington,DC20004DearChairmanBrown:ThankyouforyourAugust3,2011letterwhereinyoureaffirmyourcommitmenttoworkingwithmetorestoretheDistrict'sfundbalance.WhileIdonotwanttoengage
in
aback-and-forthexchangeofletters,IdofeelthereweresomeerroneousstatementsmadeinwritingandtothemediathatcouldgiveDistrictresidentsanincorrectimpression.Thus,Iwishtoprovidenecessaryclarificationtothosestatements,sothattherecordisclear.
Clarification#1:ImovedlegislationasCouncilChairmaninJune2010tocreateaframeworkforreplenishingthefundbalance.Therefore,theCouncil'sdesignationofadditionalrevenuewasacontinuationoftheefforts
I
ookasCouncilChairman,butwas
by
nomeansthefirst,only,ormostsignificantsteptowardsreplenishingourfundbalance.
IthoughtIwouldstartbyrecountingthehistoryofthelegislationImovedforwardasCouncilChairmantoestablishtheexistingstatutoryframeworkforrestoringtheDistrict'sfundbalance.AspartoftheFiscalYear2011budget,IaddedasubtitletoBill18-731,the"FiscalYear2011BudgetSupportActof2010"entitledthe"SustainableCapitalInvestmentandFundBalanceRestorationActof20I0."IrealizedthatsomethinghadtobedonetomaintaintheconfidenceWallStreethasshown
in
theDistrictofColumbiaaftertheprioradministration'soverspendinghaddepletedmostoftheCity'sreserves.IaddedthislegislationtotheBudgetSupportActtocreatealegislativeframework,whichiffollowed,
will
ensurethattheDistrictmovesforwardinafiscallyprudentmanner.
 
ThefundbalanceportionofthislegislationrequirestheChiefFinancialOfficertodepositallundesignatedend-of-yearsurplusfundsintotwonewlycreatedreserveaccountsuntiltheDistrictachievestwomonthscashamong
its
fourreserveaccounts.TwoofthesereserveaccountsaretheDistrict'sCongressionally-mandatedRainyDayFunds:theEmergencyCashReserve(2%)andtheContingencyCashReserve(4%).ThetwonewaccountsIcreatedweretheFiscalStabilizationReserve(2.34%)andtheCashFlowReserve(8.33%).TheFiscalStabilizationReservewasdesignedtoprovideflexibilityifunforeseenspendingpressuresariseorrevenuedropsunexpectedly.TheCashFlowReservewasdesignedtoreducetheDistrict'srelianceonshort-termborrowing,calledTaxRevenueAnticipationNotes(TRANS)borrowing.Thesereserveswouldbuildupgraduallyoverthenext5to10yearsuntil,coupledwiththefederally-mandatedRainyDayfunds,theDistrictachievesthetwomonthscashonhand,whichis16.67%oftheDistrict'soperatingbudget.ImodeledthisprovisionafterrecommendationsfromtheGovernmentFinanceOfficersAssociation(GFOA).GFOAhasrecommendedgovernmentshavetwomonthscashasabestpracticeforgovernmentstofollow.D.C.ChiefFinancialOfficer,Dr.NatwarGandhihasalsorepeatedlyemphasizedthis2-monthrecommendationduringtestimonybeforetheCouncil.WepresentedthisapproachtothebondratingagenciesinFebruary2011.Thebondratingagencieslaudedthisapproachtoreplenishingourfundbalances.Youwereinattendanceateachofthosemeetings,whichiswhyIampuzzledbythestatementinyourAugust3,2011letterinwhichyouwrite,"1feelcompelledtonotethatiftheCouncilhadpassedyourproposalwithoutrevisions,wewouldbeinthedifficultpositionofexplainingtothecreditratingagencieswhywewerenottakinganystepstorebuildthefundbalancedespiteourstandingcommitmenttodoso."Clearly,thereisastrategyinplacetoreplenishthefundbalance,andallend-of-yearsurplusfundswillbedepositedevenlyintotheFiscalStabilizationReserveandtheCashFlowReserveaswecommitted.
Clarification#2:TheCouncilbudgetsdidnotsetasidemorefundsthantheExecutiveproposalsforrebuildingthefundbalanceunderanycomparativeversionofthelegislation.
IreadanumberofquotesbyyouandanotherCouncilmemberinvariousmediaarticlesthatstatedthattheCouncilsomehowsetasidemorefundsthanmybudgetproposalsforrebuildingthefundbalance.Icloseda$322.1millionbudgetgapandsubmittedastructurallybalancedFiscalYear2012budgettotheCouncilonApril1,2011thatrequiredaseriesofverydifficultcutsandrevenueincreases.Becauseofthesedifficultchoices,thebudgetIsenttotheCouncilonApril1,2011setasidenonewdollarsforrebuildingthefundbalance.TheCouncilobviouslyexperiencedsimilarproblemsfromthistightbudget,becausethebudgetapprovedbytheCouncilonMay26,2011setasidenoadditionaldollarsforrebuildingthefundbalance.
(Executive-$0;Council-$0)
2
 
Leftunchanged,theFiscalYear2012budgetIproposedApril1,2011wouldhavedepositedtheentire$77millioninadditionalrevenuecertifiedbytheChiefFinancialOfficerintothefundbalance,$38.5milliontoFiscalStabilizationReserveand$38.5milliontotheCashFlowReserveattheendofthefiscalyearviathe"SustainableCapitalInvestmentandFundBalanceRestorationAct0[2010."InitsMay26,2011budget,theCouncildecidedtoengage
in
contingentbudgeting
and
allocatefuturerevenuethathadnotbeencertifiedbytheCFO.ForJune,thismeantthatthe$77millionthatwaseventuallycertifiedwasallocatedasfollows:$21.6milliontoreversepositionsthatyouhadshiftedfromtheoperatingbudgettothecapitalbudget,$27.7milliontotheCashFlowReserve,and$27.7to
a
listofexpenditurepriorities.
I
don'twanttocriticizethesubstanceofwhatyoudid,because
I
actuallyagreedwiththeendresultofthisprioritization.Butyoushouldatleastbecognizantthatthroughyourchangestomyproposedbudget;
$49.3
millionlesswasultimatelydesignatedforthe
fund
balancebylawthanwouldhaveoccurredwithmyoriginalproposal.
(Executive-
$
77
million;Council-
$27.7
million)
IsupportedtheCouncil'sbalancedallocationoffuturerevenue,
with
50%ofnewrevenueforimportantprogramexpendituresand50%tobedepositedintotheCashFlowReserve.IsignedtheFiscalYear2012BudgetRequestAct,therebycommittingmyselfandtheDistricttodeposit50%ofJuneandSeptemberrevenueintotheCashFlowReserve.TechnicalamendmentstothebudgetwererequiredinJulybeforethebudgetcouldbesenttoCongress.Inmybudgetre-submissiontotheCouncil,Iheldfirmin
OUf
commitmentwemadeearlier,andkepttheentire$27.7million
in
theCashFlowReserve.Then,inabilllabeledthe"TechnicalClarification"Act,theCouncilpassed
an
amendmentthatwithdrew$13.4million
fromthe
CashFlowReserve.
(Executive-
$27.7
million;Council-
$14.3
million)
Therefore,undereveryscenario,thebudgetproposedbytheExecutivewouldhaveresultedinmoredollarsflowingintothefundbalance,bylaw,thantheequivalentbudgetapprovedbytheCouncil.
Clarification#3:NeitherDr.GandhinorIhaveeversuggestedthatanamountof$13.4
millionwillbethetippingpointinanegativeoutlookordowngrade.InyourAugust3,2011lettertomeyoustatedthat,"Theuseof$13milliontopermitadelayedimplementationofthetaxoninterestearnedonout-of-statebondswillnotbreaktheDistrict'sfinancialback,andanysuggestiontothecontraryismisleadingDistrictresidents."First,neitherDr.Gandhinormyselfhaveeversuggestedthatthedollaramountof$13.4millionwillbetheimportantdeterminingfactorinwhethertheDistrictreceivesanegativeoutlookordowngrade.IthoughtIhadmadethispointclearinthetwomeetingsIhadwithyouTuesday,August2,2011.
3

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