Washington D.C. CFO predicts $342 million revenue drop

Christopher Mobley

Washington D.C.'s Chief Financial Officer sent a foreboding letter to the mayor and City Council chair late last week warning them of imminent revenue shortfalls resulting from a reduction in the federal workforce.

"The fiscal year 2025 local source revenue forecast has been revised downward by $21.6 million as year-to-date collections show lower-than-expected receipts for the sales and non-tax revenue sources," per the ten-page letter coming from Glen Lee, the city's CFO. 

Looking towards the longer term the letter warns the revenue forecast "for the rest of the financial plan period has also been revised downward by an average of $342.1 million annually, largely due to forecasted sharp declines in employment levels as the Federal government proceeds with reducing its workforce significantly."  

Washington boasts a strong triple AAA credit rating and submits to a rigorous 4-year budget cycle that is subject to Congressional oversight. The city has been reeling from the effects of the work from home movement which is now swinging back to mandates requiring a return to the office.  

According to the letter over 75,000 federal employees have already accepted buyouts, nationally and federal employment in the city is projected to decline by approximately 40,000, or 21% by the end of the financial plan period.

Last week unemployment claims in Washington jumped 25% for the week ending Feb. 22, as compared to the previous week.  

Labor economists attribute the spike to government contract workers cuts, cancelled projects, and funding freezes.  

About 175,000 federal employees live across the river in Virginia and about 160,000 live in Maryland.   

Virginia's Republican Governor and vocal Trump supporter Glenn Youngkin responded to the jobs cut by saying, "We have a federal government that is inefficient, and we have an administration that's taking on that challenge, rooting out waste, fraud and abuse and driving efficiency in our federal government," while encouraging laid off federal employees to apply for jobs with the state.  

In early February, Virginia's General Assembly agreed to a billion-dollar state tax rebate that computes to $200 per taxpayer.

Maryland's Democratic Governor Wes Moore made a similar pitch about federal workers taking positions in his state while addressing what some believe to be indiscriminate force reductions. "This is not patriotism," he said, "this is cruelty."

The state currently has about 5,200 job vacancies while also dealing with its own budget issues. 

In addition to the uncertainty caused by federal job loss and the ensuing legal challenges, the city also has a glut of office space that's expected to remain in place through 2029 despite the move back to the office resulting in "a sharper-than-anticipated decline in property values."  

In January the CFO had better news by reporting a $169 million bump in revenue projections thanks to litigation proceeds, cost recoveries, and accounting adjustments. 

In November 2024, Fitch Ratings upgraded the District of Columbia's ballpark revenue bonds Series 2006A and 2006B to AA from AA-minus. 

In October 2024, Moody's Ratings provided credit upgrades on five different special tax bonds.   

Potential budget shortfalls at the Washington Metropolitan Area Transit Authority which the city supports is another area of concern. Last July WMATA issued $625 million in second lien dedicated revenue bonds via a negotiated sale. 

Per the letter, "The prevailing risks and high degree of uncertainty make for a challenging forecasting environment. As such, we will continue to monitor international, national, and local economic activity for any developments that would impair the forecast."