The second reason for the decline in real property tax revenue is a decrease in the assessed value of the District’s commercial and residential property. In fiscal year 1995, over 75 percent, or about $653 million, of the District’s operating grants were for health and welfare programs. The Federal Payment

The District has been receiving a federal payment since the 1800s. For example, it does not fully compensate the District for (1) the additional responsibilities it carries as a result of the federal government’s presence or (2) the loss of revenue due to federally imposed restrictions. The studies reported that the District’s inability to tax nonresident wages results in a loss of revenue because nearly $2 of every $3 earned in the District is earned by nonresidents. District’s Overall Expenditures

The general fund, at $4.2 billion, or 79 percent of the District’s $5.4 billion in gross expenditures/expenses for fiscal year 1995, far exceeded the expenditures and expenses of the other funds that comprise the District’s budget and, thus, is the primary focus of our analysis. Overall, expenditures/expenses increased from $5.5 billion in fiscal year 1993 to $6.0 billion in fiscal year 1994 and decreased to $5.4 billion in fiscal year 1995. The significant change from year to year was primarily due to shifts in Medicaid and employee benefits expenditures/expenses between the years. Today, the unfunded liability stands at $4.7 billion and is expected to increase to $7 billion in 2004. For example, in fiscal year 1994, the District delayed pension, vendor, and Medicaid payments and borrowed internally from its capital projects fund. In fiscal years 1995 and 1996, the District also borrowed short-term from the U.S. Treasury to finance operations and capital projects. According to New York City officials, the control boards made significant contributions.
Why GAO Did This Study

Pursuant to a congressional request, GAO discussed the financial and budget trends in the District of Columbia's revenues and expenses.

What GAO Found

GAO noted that: (1) the District's revenues decreased from $2.9 billion in fiscal year (FY) 1993 to $2.7 billion in FY 1995, due to a one-time accounting change and a decrease in the assessed value of the District's commercial and residential property; (2) over 75 percent of the District's operating grants were for Medicaid reimbursements in FY 1995; (3) the District received a federal payment in FY 1995 totalling $660 million, but this payment did not adequately compensate the District for the additional responsibility it assumed or the loss of revenue due to federally imposed restrictions; (4) the District's inability to tax nonresident wages resulted in a loss of revenue; (5) the District's overall expenditures increased from $5.5 billion in FY 1993 to $6 billion in FY 1994, and decreased to $5.4 billion in FY 1995 due to shifts in Medicaid and employee benefits expenditures; (6) the District's unfunded pension liability stands at $4.7 billion and is expected to increase to $7 billion by 2004; (7) the District has delayed pension, vendor, and Medicaid payments, and borrowed short-term bonds from the Treasury to finance its operations; (8) the District Financial Responsibility and Management Assistance Authority has reviewed 1,562 contracts, developed a strategic plan, approved 10 privatization plans for FY 1996, and allocated reductions to several departments; and (9) the New York and Philadelphia financial control boards have taken numerous actions to reform their cities' accounting and budgeting practices.