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Chairman Mendelson June 23, 2026 Response to OCFO Letter Regarding the FY 2027 Budget

By Lindsey WaltonJune 23, 2026Uncategorized

Dear CFO Lee:
RE: F Y 2027 Budget and Financial Plan
I am in receipt of your June 22'd letter urging the Council to pass a balanced budget and four-
year financial plan that does not reduce the local reserves. "It is imprudent to depend on these resources
[the local reserves] to support appropriations..." (emphasis added)
I t is not imprudent to leave almost 95% o f the reserves untouched, especially when the reserves
have never been higher and still will hold over $2 billion, equal to maintaining 62 days of operating
expenses. That is above the GOA gold standard. Moreover, our reserves are more than enough t o
satisfy Wall Street. In its April 20t rating action, Moody's stated that their concern would arise i f the
District's "available fund balance [fell] below 15% of revenue." Our fund balance will remain
comfortably above that threshold.
I appreciate that building and protecting the reserve funds is your policy view, but, as you know,
policy decisions are reserved under the Home Rule Act t o the Council and Mayor. The creation o f the
two local reserve funds was a policy decision o f the Council. Use of local reserve funds t o support
appropriations - as has been done several times in the past - is a policy decision o f the Council. The
level set in law for the two local reserves funds also has been a policy set by the Council. The CFO does
not now have the authority t o make a policy decision that this time the Council may not use local
reserves t o support appropriations.
The need, as described in your letter and as you have said repeatedly in meetings, is liquidity -
the cash flow needs o f the District's fiscal operations. The June 22"° letter omits that this concern occurs
not next year, but in Fiscal Year 2028. I have repeatedly asked for a monthly cash flow analysis through
2028, which you have been unable to produce. This analysis would quantify the need. W e could then
know the effect of numerous measures that can be taken t o address that need. For instance: you are
restructuring your approach to capital financing; included i n this budget is spreading pension payments
over the fiscal year; you are currently negotiating the timing o f transit subsidy payments t o WMATA;
maybe w e can change the timing o f real property tax payments. How much will each o f these measures
reduce o r even eliminate your liquidity problem i n 2028, and are all o f them necessary? The point here
is that we should not hoard cash when we don't know that other measures are insufficient.
Moreover, "liquidity" is not synonymous with "balanced budget." The Home Rule Act provides
that the District's budget is balanced when i t would not "result in expenditures being made by the Dis-
trict government, during any fiscal year, in excess of all resources which the Mayor estimates will be

available from all funds available to the District for such fiscal year."' The OCFO apparently reads into
the plain language o f this provision a requirement t o keep the reserves at their current levels to address
potential month-to-month cash flow shortfalls i n Fiscal Year 2028. However, the Attorney General
categorically rejected this position i n a formal legal opinion issued over two years ago. The Attorney
General expressly stated that "the amount o f reserves does not factor into whether, on the whole, bud-
geted obligations for a particular year exceed available resources[I" and that "[t]he CFO's interpretation
o f the balanced budget requirement is at odds with the plain language o f the Home Rule Act."
That same formal Opinion of the Attorney General held that the Chief Financial Officer cannot
require the Council to maintain the District's local reserves at a certain funding level. According to the
Opinion, allowing the CFO t o dictate the funding level o f the local reserves "would remove the local
budget process from within the control of the Mayor and Council and interfere with the locally elected
officials' decisions about how District government resources should be spent." Accordingly, your
attempt to block the Council from using the $150 million from the Fiscal Stabilization Reserve exceeds
your authority.
Finally, included i n the pending Budget Support Act i s a subtitle that would repay the Fiscal
Stabilization Reserve in Fiscal Year 2026 o r 2027 i f any o f your forthcoming revenue estimates this year
exceed the February revenue estimates on which the FY 2027 budget and Financial Plan are based. This
would allow the reserves to b e maintained a t their current levels in the event the CFO has again
substantially underestimated the revenues on which the District's annual budget i s based.
In sum, the OCFO does not have the authority t o block the Council's appropriation o f a small
amount o f reserves t o support the FY 2027 budget. The Council's appropriation still will leave the
District's reserve funds at a very healthy level. The real concern - liquidity i n 2028 - can likely b e
addressed through various actions to smooth cash flow. But the OCFO lacks a cash flow analysis that
quantifies the problem. And in any event, the Council's legislation includes a provision to replenish the
reserves at the level you want.
Sincerely,
Phe Mens
Phil Mendelso
Chairman

Chairman Amendment #5 to Bill 26-659

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