The Times has a piece this morning that has some concerning numbers about city spending and the state of the reserve fund. Once at $1.5B, the fund could be drawn down as low as $600M by the end of 2012, with no immediate plans to help avoid further draws on the fund. While this may sound just like rainy day spending, Wall Street, which sets the District’s credit ratings, may not be so fond of a city that’s just spending away its reserve with no plan to replenish. Currently, the District maintains a very good rating (A+, A1, A+) but should the city continue to spend down its reserve, that may not continue, costing the city in higher debt service costs.
So, in times of economic difficulty, how do you cope with a declining reserve? There are a couple options that are before the Council now: raising taxes (there’s a proposed income tax increase on all residents earning more than $200,000), cutting spending (which some coalitions argue has been cut too far in social services already) or both. It’s not a pretty picture, but it is a time for the mayoral candidates to better explain their positions.