What is Congress doing to our budget and what are the “realistic” projections for FY26 in DC?

It was a crazy, wild ride this last week with Congress passing a short-term funding bill last Monday, March 10th. The House failed to add the appropriate language to exempt DC from other federal agencies so the bill that was passed by the House and Senate restricted DC to FY24 spending levels. That means, six months into our FY25 budget, we are on track to overspend by $1.1 billion dollars.

The Senate approved the Continuing Resolution (CR) and passed a separate bill to restore DC’s funding. Some people think that the House will take up and pass the Senate bill to fix this ‘mistake’ when they return on Monday, March 24th. Some people think they won’t.

What might happen if DC can’t spend the $1.1 billion of local funds?

• A 16% reduction could happen across the board which would be a reduction in police, teachers, firefighters, and city services. 85% of DC expenditures is on human capital so DC citizens would have to be laid off.
  
• The City could make cuts in line with the anticipated reduction in spending for FY26. DC has been anticipating a 10-15% reduction in revenue for FY26, one reason being an end to the American Recovery Funds that helped DC survive the covid shutdown.
  
• DC could pass a supplemental budget based on increased revenue from a return-to-work of federal workers. DC could access the $550 million it has in reserves. DC could possibly continue at current levels if certain criteria is met.

These are local DC tax dollars that we would have returned to the City on September 30th (or when the final Appropriations Bill was passed). We would get this $1 billion back.

What about the DC Budget for FY2026?!

There are several more unknown variables for revenue in FY26. DC receives approximately 27% of its income revenue from federal workers. The City receives approximately 24-30% of its overall revenue from federal grants.
Mayor Bowser has prioritized growth as a way to increase revenue which may not be as reliable if there is an economic downturn.

The DC CFO has projected that we will lose $350 million annually from a reduced federal workforce: fired federal employees who reside in DC. We could lose any or all of our federal grants, including $800 million in Medicaid, $30 million in HUD reimbursements, $55 million in cuts from the Department of Education, $330 million in cuts to SNAP funding. Federal grants account for approximately $7 billion of the DC budget.

There is also the concern of federal agencies being removed from the DC area. That could exacerbate shortfalls with WMATA, depress downtown property values, and result in loss of sales revenue in the downtown area. Moody’s projects that DC and the surrounding area could see an economic recession based on federal actions.

It is almost impossible to assess the risk of future economic trends or congressional action. Perhaps DC will become a hub for tech or experience a revitalization as a sports and culture hotspot. Regardless, we believe the uncertainty requires a very conservative approach to spending moving forward.

What comes next?

The Mayor will release the FY26 budget to the Council on or around April 1st.
The Council will hold open hearings on the proposed budget, make changes, and then send it back to the Mayor’s office in time for it to be presented to Congress in June.

It is unclear how the timeline will change or what the procedure will be if the September congressional appropriations bill substantially affects revenue projections.

We will advocate that any budget adjustments be fully transparent and open to public feedback, even if done outside the traditional budget process.

The DC Action Committee would like to represent the pragmatic voice on the budget.

We would like to advocate for:

• Transparency and 2-way communication through ALL significant budget changes;
• Advocate for budget expenditures to prioritize existing (status-quo) human-based, critical services across ALL wards;
• An extremely conservative approach to spending based on a high level of uncertainty;
• A hold on spending for non-essential capital upgrades such as increased bike lanes, development of the civil core, and funding for rank-choice voting;
• A better understanding of what these challenges mean to DC citizens across the wards.

Please join us for future meetings to exchange ideas, information, and begin a productive conversation as to how we move forward and build our resiliency as a city to weather the storm to come. Our financial health is arguably the most important part of maintaining our greatness.

Please contact DCStrong@dccitizens.com for more information or a more substantive role in our strategy planning.

(Please note we are also forming committees on Education and Climate! Join to share your ideas and use your voice! It will be “fun with a purpose.”)