Photo by aperryproductions.

The next two years aren’t looking good for the District’s finances. In a televised speech this morning, Mayor-elect Vince Gray described the District’s fiscal challenges as “daunting” and warned that “everyone is going to have to take a hit and share in the sacrifice.”

Standing next to members of the D.C. Council and his transition team, Gray stated that the budget deficit for the current fiscal year stands at $188 million and will balloon to $345 million in 2012. The budget gap has been caused by a combination of over-spending and a 16 percent decline in revenues over the last two-and-a-half years. Additionally, Gray noted that the District’s fund balance has decreased by 57 percent over four years, leaving the city with little additional money to cover further spending increases or revenue shortfalls. He also proposed freezing all capital projects not yet underway and establishing a Blue Ribbon Commission to decide what projects survive and which have to be cut.

“To recap — for four straight years, the District has spent more than its taken in, and we’ve had to raid the fund balance to make up for it,” said a somber Gray.

Gray laid out a plan to deal with the immediate budget shortfall, stating that the Council would hold a hearing on November 30, a first vote on December 7 and a second and final vote on December 21. (Of course, before any of that happens, Mayor Adrian Fenty has to hand over his plan for closing the budget gap, which is already a week late.)

If that sounds tough, 2012 is much worse. Gray offered details on how city spending breaks down, making a clear point that it won’t be easy to find more places to cut without inflicting some serious pain on residents. Of the $5.3 billion budget, he pointed out, only $3.8 billion lends itself to cuts (the remaining amount goes to fixed costs like Metro), and of that, a huge chunk goes to public safety, health and schools.