Photo by a loves dc.

Just like any normal resident, the District government has a checking account from which it pays for daily operations. But according to Mayor Vince Gray, the balance on the city’s checking account is a little low these days.

In a letter to D.C. Council Chair Kwame Brown explaining his pocket veto of a measure that would delay the implementation of a tax on out-of-state municipal bonds, Gray wrote that “the District has less than 20 days of cash on hand.” Moreover, he added, most experts on municipal finance added that cities should keep at least two months of cash on hand, meaning that our collective checking account is short a few (million) dollars.

Even with a remedial understanding of city finances, this sounds bad. After all, if I told my landlord that I could only pay 20 days worth of rent this month, I imagine she’d be mighty peeved.

For clarification, I posed a question about the District’s cash-flow problem to David Umansky, the spokesperson for D.C. Chief Financial Officer Natwar Gandhi. According to Umansky, 20 days worth of cash is roughly $350 million. Unfortunately, the District spends closer to half a billion dollars every month, so we don’t have enough to pay all of our bills right now, should they be called in. By comparison: last week, the U.S. Treasury admitted to a similar problem, saying that it had just over $73 billion in cash-on-hand, or about a week’s worth of money to pay for national expenditures. New York City, on the other hand, recently reported $6.9 billion in available cash, and even with a stop in federal and state contributions, said that “the City is in no immediate danger of running short of cash.”

Usually, the District would be able to call upon its savings to make up the difference, but that’s not really an option right now. Umansky said that because of the economic recession, the city has had to spend a “substantial amount” of its accumulated savings and reserves to fund government expenditures in recent years. What was once a $1.6 billion piggy bank in 2005 shrunk to $890 million at the end of fiscal year 2010, leaving Wall Street bond raters jittery about the District’s financial trustworthiness. Umansky stressed that the District wasn’t alone in this regard, though — plenty of cities and states had to spend down reserves during the recession. Additionally, the D.C. Fiscal Policy Institute reported last year that, despite the shrinking savings, D.C. will still have more saved up than 43 states by the end of 2011.

Regardless, the 2012 budget passed by the D.C. Council will again start directing funds towards rebuilding the city’s savings account (50 percent of June and September revenue estimates), so drawing from there isn’t likely to happen should the District need to pay for monthly expenditures. Instead, Umansky said, the District will likely have to borrow against the tax revenue it expects to take in via real estate taxes (collected in March and September) and income taxes (collected in April) beginning in October. That borrowing will amount to roughly $900 million.

In a letter in late July, Gandhi stressed that this borrowing — known as tax revenue anticipation notes — is vital to keeping the city solvent. “Without the proceeds from the cash-flow borrowing, the District would quickly face the prospect of being unable to meet all of its obligations. In the extreme, this could lead to one of the events that trigger a Control Period, such as missing payroll or failing to make required payments to retirement funds,” he wrote. Basically, if the District didn’t get the money it needs through short-term loans, it could risk Control Board 2.0.

This fear is why Gandhi and Gray have been so worried about the potential implications of a federal default, not to mention keeping Wall Street bond raters happy so that the city can keep borrowing money. (Gray said that those concerns motivated his pocket veto; he wants all available funds to go into replenishing the District’s fund balance.) If borrowing were suddenly cut off, the District could soon start facing some really daunting choices about how and when to pay bills. (Both have been called alarmists by some who argue that while things might be tough, they’re not as dire as Gandhi often claims.)

But as it stands, until that $900 million comes through to help the city pay its bills, the District is going to be searching through a lot of couch cushions for as much spare change as it can find.