D.C. Hits Fiscal Milestone: A Full Rainy Day Fund, And Some Money To Spare

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Two decades ago, D.C. was barely emerging from a fiscal crisis that had left the city almost bankrupt and taken over by a federal Control Board. But the last few years have seen explosive growth that has swelled D.C.'s coffers, so much so that for the first time the city has a full rainy-day fund to navigate any future challenges.

As part of the annual outside audit of D.C.'s finances released on Friday, D.C. Chief Financial Officer Jeffrey DeWitt says the city now has $1.43 billion in its rainy day fund. That's equivalent to 60 days worth of money stocked away in case another recession or downturn hits, long considered a best practice for cities.

"We have been trying to achieve that from surpluses that came up since 2010, and for the first time ever we'll reach that," he says.

City officials say hitting the 60-day milestone is both practical and symbolic. First, it puts D.C. in a better position to weather any future economic downturns. DeWitt says that when the 2009 recession hit, D.C. only had 22 days of cash in its rainy day fund, forcing the government to cut programs and services. It also had to borrow money — and pay it back with interest — to cover operating expenses. That's less likely to happen from now on, he says.

toggle caption Courtesy of/D.C. Council Budget Office

Mary Murphy, an expert on state finances at the Pew Charitable Trusts, says that a majority of states have increased contributions to their rainy day funds in recent years, and at least 35 states have larger funds than they did going into the last recession. And she says these rainy day funds are critical for local government across the country.

"Without savings, policymakers end up being forced to make very difficult choices at the most painful times they could be making those choices, things like having to raise taxes or cutting spending and support for critical programs and services that residents rely on," she says. "Those are really painful choices to make at any time, but particularly during a downturn. Accumulating appropriate savings is critical for state and local governments to prepare for those events."

After the last recession, the D.C. Council passed a law increasing the size of the rainy day fund and dedicating budget surpluses to filling it until it hit the 60-day mark. DeWitt says that as of five years ago, the city was still hovering around the 45-day mark, and slowly building towards the goal. And now that it has hit that, it also means that future budget surpluses will be spent on critical programs instead of being shuffled off to fill the city's savings account.

"One of the other great things about hitting 60 days is that any additional money we see at the end of the year goes to fill up two really important buckets of money: the Housing Production Trust Fund, which helps pay to build affordable housing, and for pay-go capital, which is when use cash to build schools and recreation center and we don't have to borrow," says Jenny Reed, budget director for Mayor Muriel Bowser.

And that's happening immediately. A budget surplus of $323.6 million from the last fiscal year has been divided evenly between the two purposes: $161 million for affordable housing, and $161 million for infrastructure.

DeWitt says the value of hitting the 60-day threshold is also symbolic. Not only has the city prepared for the next time the economy sours, but he says it is putting itself further away from the financial mess it was in the mid-1990s.

"We're not the D.C. of 25 years ago," he says. "We have a triple-AAA rating on our income tax bonds, we have a triple-AAA on our general obligations bonds. You can look at the Charlottes and the San Antonios and the Denvers and the Bostons and those cities that are considered high-quality credits. We are strong, and in some cases stronger than them."