District Government: Information on Its Fiscal Condition and the Authority's First Year of Operations

GAO discussed the District of Columbia's financial condition, focusing on efforts to resolve its financial crisis. GAO found 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 assessment value of commercial and residential property; (2) over 75 percent of the District's operating grants go to Medicaid reimbursements; (3) the District's federal payment formula was discontinued in FY 1995 and replaced with a federal payment of $660 million; (4) this payment does not adequately compensate the District for the additional responsibility it assumes or the loss of revenue due to federally imposed restrictions; (5) the District's inability to tax nonresident wages results in a loss of revenue; (6) 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; (7) the District's unfunded pension liability stands at $4.7 billion and is expected to increase to $7 billion by 2004; (8) the District has delayed pension, vendor, and Medicaid payments, borrowed internally from its capital projects fund, and borrowed short-term bonds from the Treasury to finance its operations; (9) the District Financial Responsibility and Management Assistance Authority has reviewed 1,562 contracts, developed a strategic plan and annual report, approved 10 privatization plans for FY 1996, and allocated reductions to several departments; and (10) the District needs a new financial management system.