D.C. officials told lawmakers this week that the city saw an $834 million budget surplus at the end of the 2022 fiscal year, but also warned of possible economic and fiscal uncertainties in the coming years — much of them potentially fueled by declines in office use and commercial property values in downtown D.C.

The mixed message was delivered as part of the publication of the city’s Annual Comprehensive Financial Report, an audit of the D.C. government’s budget and finances for the preceding fiscal year. (Fiscal Year 2022 ran from Oct. 2021 to Sept. 2022; the local budget for that year was $10.7 billion.) And it comes at a pivotal moment for D.C., emerging into an unsettled post-pandemic reality and preparing for the end of significant federal COVID-19 assistance to cities, counties, and states across the country.

D.C. Chief Financial Officer Glen Lee told the D.C. Council on Thursday that the city saw a “substantial growth” in revenue over the year prior, with a 17% jump in income tax revenue, a 27% percent increase in deed tax revenue, and a 39% spike in sales tax revenue. All of that additional cash contributed to the $834 million budget surplus, and enabled the city to fully replenish its reserves (which now stand at $1.679 billion, enough to run the government for 60 days) and split $440 million that was left over between a fund to build affordable housing and another one to pay for infrastructure projects.

City Administrator Kevin Donahue similarly noted that D.C. added 3,000 residents last year (after having lost residents in years prior), created 14,000 hospitality and retail jobs, saw the unemployment rate drop to 4.6% from 6.5% in 2021, and experienced an 84% spike in hotel room stays, bringing that sector almost back to pre-pandemic days.

Still, both Lee and Donahue added significant caveats to what seems like rosy news. Lee said the jump in deed taxes — which are paid when properties are sold — was likely a “one-time gain” spurred by property owners rushing to refinance while interest rates were at historic lows. He also noted that revenue from residential property taxes remained strong, the value of commercial properties (which impacts the taxes paid) dropped 9% from 2021 to 2022.

For his part, Donahue cautioned that 2022 would likely mark the beginning of what are expected to be leaner years to come, both because the tax revenue spikes may not repeat and the $2.3 billion in federal assistance D.C. received is winding down.

“The next few years will be pivotal for the District. While we have benefited from a historic influx of federal funds, it was a once-in-a-generation event and that money, in large part, will not be available after [fiscal year] 2024. At the same time, some of the key drivers of our robust revenue growth in 2022 have flipped,” he said. “Over the next two years, our investments must be strategic and prudent. We simply cannot maintain the level of growth in new government spending that came as a result of federal stimulus programs. All of us – the executive and the council – will need to make tough choices in the upcoming budget.”

That sentiment was shared by a number of lawmakers.

“The bottom line is that the District government, as of last September 30, was in a healthy financial position. But there are reasons to be concerned about the financial future and therefore the need still to be careful in our spending,” said Council Chairman Phil Mendelson.

Councilmember Zachary Parker (D-Ward 5) recognized that budget surpluses may be fewer and far between in years to come, and urged Bowser and his colleagues to “look where we can cut excess spending; this may be through eliminating redundancies and ending ineffective programs to free up money to go to evidence-based supports for our people.”

One of the largest concerns raised by D.C. officials and lawmakers was the fate of downtown D.C., where the presence of office workers is far lower than it was before the pandemic, a reality that is bringing down property values and thus tax revenue the city takes in. “We understand that commercial property owners are under a lot of stress,” said Lee, telling lawmakers that later this month he’ll more specifically lay out what the possible hit to city coffers could be in years to come if property values keep falling.

Donahue highlighted the importance of federal workers to D.C.’s economy, and why bringing them back to the office had become a critical request from Bowser to President Biden.

“It has been vital for our resiliency and it doesn’t make us as vulnerable to slowdowns like in other cities,” said Donahue of the presence of the federal workforce. “We recognize that downtown D.C. will transition. We need the federal government to be a partner with us in letting downtown transition.”

As part of a “comeback plan” for D.C., Bowser has proposed increasing the number of people who live downtown by 15,000 over the next five years, but while also retaining a healthy mix of daily office workers. To date, Biden has made no immediate moves to bring federal workers back in significant numbers.

The audit also highlighted a specific challenge D.C. faces: the city’s population is split between rich and poor residents, with far fewer in between. That means D.C.’s median income of roughly $94,000 was 35% above the national average, while the poverty rate of 16.50% outpaced the national average of 11%. In response to questions about this from Councilmember Robert White (D-At Large), Donahue said Bowser’s comeback plan included a focus on creating 35,000 new jobs in high-demand industries and training existing D.C. residents to be able to claim those jobs.

Bowser’s proposed budget for 2024 will be submitted to the council in March.