Municipal CFO Series: Natwar Gandhi, Washington, D.C.

Natwar M. Gandhi is the Chief Financial Officer (CFO) for the District of Columbia and is responsible for the city’s finances, including approximately $10 billion in annual operating and capital funds. He was initially appointed to this position on June 7, 2000 by Mayor Anthony Williams, and has been reappointed by each subsequent Mayor (Fenty and Gray).  He is currently serving his third full term as CFO. 

Twelve years ago, Washington D.C. faced a substantial deficit and came close to bankruptcy. Over the past years, the District’s fund increased from a negative balance of $518 million to a positive balance of $1.1 billion in FY 2011. What measures has your office taken to turn this around?

In the mid-1990s, we had about a $500 million deficit in our fund balance. District bonds were junk bonds.We had lost access to the financial markets and had to go to the U.S. Treasury to borrow money. Congress, which has the ultimate responsibility for Washington D.C. as the nation’s capital, established a Control Board and the Office of the Chief Financial Officer. The Congress made the CFO independent of the mayor and the council. The primary function of the CFO is to assure that the city remains financially viable.

Great credit for the city’s financial turnaround goes to the Control Board, which imposed fiscal discipline, and to the city’s elected leadership, which continues to implement sound fiscal policies. The independent CFO plays a critical role in ensuring that sound financial practices are consistently followed regardless of any prevailing politics. As outlined in the District’s Home Rule Act, the CFO is appointed by the mayor who cannot fire the CFO without cause. Additionally, the mayor must have the approval of a 2/3 majority of the Council and the decision must be sent to Congress for 30 days, which can disapprove it. All of these factors make it possible to have prudent, independent financial management. Whatever differences may arise between the mayor and the council, both respect the role of the independent CFO. And, however they may grumble, they still work to stay within our financial means, and say okay, “The CFO says that this is the money available. That is all we are going to spend.”

At its apex, the District’s fund balance reached $1.6 billion in 2005. During the most recent recession, we used about $700 million of fund balance to support the city’s priorities and operations. When a family’s income is decreased and it faces financial distress, it uses its savings account. Accordingly, that is what we did as a jurisdiction. Last year, as the economy recovered, we were able to add $240 million to our fund balance, which increased to $1.1 billion. This year we are likely to add another $200 million.

As a jurisdiction, we have gone from junk bonds to income tax bonds rated AAA by Standard and Poor and GO bonds in the A+ and AA category. Other cities have gone through a control period experience, but not one has been able to come back as well or as quickly as the District.

You mentioned other cities have not been able to replicate this move from deficit to surplus as well and as quickly. Why do you think that has been the case?

My sense is that CFO independence was not made available to other places. Policymakers and advocates may have worthy projects, but the independent CFO is able to say, “Sorry we have no money.”

I recommended we have a debt cap, which the mayor and council approved. With the debt cap, 12% of the budget goes toward debt services and 88% is available to provide services for residents. There are people who would like to borrow more and increase our debt burden, and we said no; that would not be fiscally prudent. We must live within our means and more borrowing further strains our budget and sends the wrong signal to Wall Street. I think those mechanisms that monitor our debt —revenue estimation, the enforcement of a debt cap— help to ensure that the District remains financially viable.

Our function is not to give policy guidance. Policy choices are made by the mayor and the council. All the CFO can tell them is that they have $6 billion available to spend. As to where they spend their money, that is the prerogative of the elected leadership.

Whenever there is a new proposal, we tell them about the fiscal and budgetary consequences, but the decision is theirs. For any new proposal, we provide a fiscal impact statement that analyzes the impact on the District’s budget and financial plan. If it disturbs the balanced budget, then the proposal would not be approved.

Deficit spending is not allowed by any agency in the District. Everything that moves money in Washington has to be cleared by your office. How do you ensure this happens?

All financial personnel in District agencies work for the CFO. They all report to the CFO. We have more than 100 agencies, and we want to be absolutely certain that each agency stays within the budget. Now, when you have a government of this complexity—a state, county, municipality, city, and a school district combined and a $10 billion gross budget– unforeseen expenditures can arise. For instance, after 9/11, our revenues were reduced by approximately $300 million. Emergencies arise, but we have to manage no matter the circumstance.

Every Tuesday, we have meetings with the associate CFOs to check on agency finances and spending. Balancing the budget is fundamental to the CFO’s mission. If I ever go before the mayor and council and say I haven’t balanced the budget, I am out of a job. If we were not to balance the budget, eventually it could lead to loss of our limited local democracy.

How does the federal government play a role in shaping your budget?

The District’s economy is dependent on the federal government—60 dollars of every 100 dollars spent in the District are federal dollars: salaries paid to District residents who are federal workers, daily expenses of people who commute to the city, Medicare, Medicaid, Social Security, contracts, etc.

Whatever the federal government does has a profound impact on us. So, we are carefully estimating the impact of a so-called “sequestration.” Moody’s, the rating agency, has put some jurisdictions on a credit watch—Maryland, Virginia, the District, and New Mexico—because our economies depend heavily on the federal government. We are very much concerned about what the federal government does. We talk regularly with OMB, the Treasury, Congressional committees and members offices, etc., to get a sense of their spending priorities and what impact their actions will have on us.

In many respects, the federal government is a great blessing to the District. Because of the federal government, the city has not gone into recession. Since December 2007, we created 37,000 new jobs because the federal government implemented a big stimulus package. About 30% of our residents are employed in government—federal, state, and local—but mostly federal. So, when the federal government is busy spending money, that means government workers, consultants and lobbyists are all working in the District and contributing to our local economy. In addition to the government sector, another 8 or 9 percent of residents are in education, and another 8 or 9 percent are in health. These three sectors—government, health, education—were still growing during the national recession.