Summary: The District of Columbia's financial situation continues to deteriorate. In December 1994, the District borrowed $250 million from Wall Street to meet its critical cash needs, months earlier than forecasts had shown. In February 1995, two financial investment services lowered the District's bond ratings, one of them to below investment grade. The District has abandoned earlier plans to close the spending gap on its own and now seeks substantial federal assistance. According to the District's own estimates, fiscal year 1995 expenditures could reach nearly $3.9 billion, $631 million above the $3.25 billion spending cap mandated by Congress. Given the continued spending levels, GAO predicts that the District will run out of money this summer. In fact, the District is today insolvent--it does not have enough cash to pay all its bills. GAO's testimony discusses (1) the evolution of the District's crisis, (2) congressional actions related to the fiscal year 1995 budget, (3) GAO's own analysis of the District's fiscal year 1995 first quarter financial report, (4) the District's recent actions to address the financial crisis, and (5) the District's cash situation.
