2016_Budget

Appendix A:

D.C.

Comprehensive

Financial

Management

Policy

FY 2016 Proposed Budget and Financial Plan D.C. Comprehensive Financial Management Policy

Appendix A-1

Introduction

In accordance with requirements set forth in the District of Columbia Home Rule Act, approved December 24,

1973 (Pub. L. No. 93-198; 87 Stat. 774; D.C. Official Code §§1-201.01 et seq.) (Home Rule Act), this

Comprehensive Financial Management Policy provides a framework for fiscal decision-making for the Office of

the Chief Financial Officer (OCFO) and the Government of the District of Columbia (“District government” or

“District”). The intent of this document is to establish policies that ensure the availability of financial resources to

meet the present and future needs of the citizens of the District of Columbia. This document establishes the

District government’s policies in the following areas:

• Debt Management

• Financial Asset Management

• Capital Asset Management

• Reserve Management

• Fiscal Management

• Economic Development

These financial management policies were established by the OCFO subject to continuing review and comment

by the Mayor of the District of Columbia (Mayor) and the Council of the District of Columbia. The OCFO will

consider amendments to this document on a continuing basis using the established review and approval process.

Debt Management Policy

The District government will maintain, at all times, debt management policies that are fiscally prudent, consistent

with District and federal laws, and reflect the District’s unique municipal status and limitations.

Credit Ratings

The District will do everything in its power to attain and maintain the highest possible credit ratings for its

outstanding bonds, including producing balanced budgets and financial statements with “clean” audit opinions

annually, implementing and maintaining sound financial and debt management policies and practices, and

maintaining regular communications with the major rating agencies.

Long-Term Debt Capacity

The District will stay within its statutorily mandated debt limits of (a) 12 percent (annual debt service to total

adjusted General Fund expenditures) for all debt supported by taxes, fees, or other general revenues, and

Appendix A

District of Columbia

Comprehensive Financial Management

Policy

D.C. Comprehensive Financial Management Policy FY 2016 Proposed Budget and Financial Plan

Appendix A-2

(b) 17 percent (maximum annual debt service to total General Fund revenues) for general obligation bonds (and

by local District laws, income tax secured revenue bonds). Also, the District will maintain other debt ratios and

practices that are prudent in light of industry standards, rating agencies’ benchmarks and the District’s long-term

financial health. The District will seek to balance the need for improvements to its capital infrastructure with the

need to maintain reasonable debt ratios and debt service expense levels.

Timing and Amount of Long-Term Borrowing

When the District engages in annual long-term borrowing for its capital projects, it shall do so in amounts that are

planned and reasonably expected to be spent up to two years after the date of such borrowing. Such borrowing

amounts will be determined in the context of an ongoing effort to balance the need for continuing development

and refurbishment of the District’s infrastructure with the need to prudently manage the District’s debt obligations.

Method of Bond Sale

The District shall monitor and evaluate market conditions in consideration of the respective credit, prior to

coming to market, to determine which method of sale, competitive or negotiated, is optimal for issuance.

Determination will be made by the OCFO, supported by a recommendation of the Treasurer, to proceed with the

sale method that is likely to yield a more favorable result for the District.

Composition of Debt Portfolio

The District shall issue general obligation bonds, income tax secured bonds, or tax-supported revenue bonds,

depending on a determination by the Chief Financial Officer (CFO) regarding the type of bond issuance that is

most favorable for the District. The District shall issue tax-exempt bonds, except under circumstances in which the

nature of the project(s) being financed (or some portion thereof) require the issuance of taxable bonds, or

circumstances in which taxable bonds are deemed to provide a more favorable result (for example, the issuance of

Build America Bonds pursuant to the American Recovery and Reinvestment Act). The District shall issue fixed-

rate debt, except that not more than 10 to 20 percent of its outstanding debt may be variable-rate bonds. This

policy allows the District to take advantage of the generally lower interest rates associated with variable-rate debt

without over-exposing itself to higher levels of risk associated with such debt. In addition, with every issuance of

debt, the District shall evaluate whether or not it is financially beneficial to issue the debt with bond insurance or

some other form of credit enhancement, and shall structure the issuance accordingly. The District will regularly

examine its financing structures and the financial marketplace to determine what form of debt is most beneficial

to issue (e.g. income tax secured revenue bonds, general obligation bonds, other revenue bonds, or master

lease/purchase financing) to fund certain governmental projects.

Timely Debt Service Payments

The District shall escrow funds received from its Special Real Property Tax levy in amounts sufficient to ensure

timely payment of all principal and interest due on its outstanding general obligation bonds, and shall set aside

income tax revenues in amounts sufficient to ensure timely payment of all principal and interest due on its out-

standing income tax secured revenue bonds, as required by the relevant debt statutes, bond indentures, and

covenants.

Compliance with Arbitrage Regulations

The District shall contract with a reputable firm to perform annual analyses of the District’s investment and

expenditure of bond proceeds in order to ensure compliance with federal arbitrage regulations.

Refunding of Outstanding Debt

The District will regularly monitor its outstanding debt for optimal opportunities and timing to refund (refinance)

such debt at lower interest rates to produce debt service savings to the District.

FY 2016 Proposed Budget and Financial Plan D.C. Comprehensive Financial Management Policy

Appendix A-3

Selection of Financial Consultants and Service Providers

To assist with issuing its bonds in the most efficient and effective manner, and to ensure compliance with all

applicable legal requirements, the District selects Bond Counsel, Disclosure Counsel, and Financial Advisors, and

does so on a competitive basis through a Request for Proposals (RFP) process in general. However, this process does

not preclude the District from engaging bond counsel or disclosure counsel or Financial Advisors without the

competitive process where a unique or emergency situation warrants such engagement as permitted by law, and the

District will document the situation in writing.

Equipment Financing Program

The District maintains a program to finance (on a tax-exempt basis) the acquisition of agency capital

equipment with estimated useful lives of five to ten years. This program is part of the District’s policy of seeking

to match the useful lives of its capital assets with the duration of the debt that finances such assets, identifying

competitive cost of financing, as well as managing agency operating costs associated with equipment lease

financing.

Independent Agency/Instrumentality Debt Issuance

The CFO shall determine whether or not it is advisable for certain independent agencies/instrumentalities of the

District that have segregated revenue streams to pursue issuing bonds supported by such revenue streams. If the

CFO determines that such a transaction is advisable, the CFO shall, through the Mayor, submit a written request

to the District Council for enactment of the necessary authorizing legislation. The CFO must approve the ultimate

structure of any such transaction, and must approve the transaction itself. In the event of such a financing, the

independent agency/instrumentality shall provide pertinent information and documents to the CFO related to

such financing (including the project or program financed) on an ongoing basis and upon request.

Short-Term Borrowing

The District’s policy is to issue short-term debt in the form of Tax Revenue Anticipation Notes (TRANS) to finance

any intra-year seasonal cash flow needs. TRANS must be repaid by the end of the fiscal year in which they are

issued. A long-term policy goal is for the District to obtain and maintain sufficient operating cash balances in order

to minimize or eliminate the need for short-term.

The District may utilize additional short-term financing vehicles including Bond Anticipation Notes,

Commercial Paper, and others to meet interim capital funding needs. Bond Anticipation Notes and Commercial

Paper may be rolled or redeemed with the issuance of long-term debt.

Financial Asset Management Policy

Authorization and Responsibility

The CFO, established by the District of Columbia Financial Responsibility and Management Assistance Act of

1995, approved April 17, 1995 (Pub.L. No. 104-8, §302(a), 109 Stat 142, D.C. Official Code §1-204.24a), is

responsible for maintaining custody of all public funds belonging to or under the control of the District

government and depositing all amounts paid in such depositories and under such terms and conditions as may be

designated by the District Council pursuant to Section 424 of the Home Rule Act. Except where prescribed by law,

the CFO has delegated this responsibility to the Treasurer of the District of Columbia (Treasurer).

The Treasurer, on behalf of the CFO, actually maintains custody of all public funds belonging to or under the

control of the District government or its agencies and deposits all funds in depositories pursuant to D.C. Official

Code §1-204.24d(11). The Treasurer is responsible for the administration and supervision of the Office of Finance

and Treasury (OFT), which includes the responsibility for the collection and deposit of all receipts. The Treasurer

shall also specify operational procedures and standards to be used for all depository intake facilities.

D.C. Comprehensive Financial Management Policy FY 2016 Proposed Budget and Financial Plan

Appendix A-4

Deposit of Cash Receipts Policy

All District government agencies and instrumentalities, including component units, boards, commissions and other

public entities, are subject to D.C. Official Code §§47-351 et seq. and shall deposit all cash, checks and other

negotiable instruments received within two business days after collection or receipt of such monies. Items

deposited pursuant to D.C. Official Code §§47-351 et seq. shall be properly posted in the District’s accounting

system of record within two business days of receipt. If cash needs to be collected by an agency, OFT cashiers must

either collect the actual cash or have oversight of the collection process.

Background: The timely deposit of monies received provides several benefits. The most important benefit is

effective and efficient control of these funds, which reduces the risk of loss due to errors, carelessness or theft. In

addition, the timely deposit of funds helps to maximize cash flow for interest earnings; lowers borrowing needs,

and lessens the risk of returned checks due to non-sufficient funds or account closure. It also provides a responsive

service to the payers who would otherwise be uncertain whether their checks were received.

Disbursement of Public Funds Policy

All disbursements from District depository accounts shall be made by check, electronic transfer or pay cards. All

District agencies shall comply with the OCFO’s Financial Management and Control Orders No. 08-008 and No.

07-004A, which establishes guidelines of authority, indicates required documentation, and requires expediency in

the processing of payment vouchers. All District agencies and employees shall comply with the OCFO’s Financial

Management and Control Order No. 12-24, which governs the establishment, control and maintenance of bank

accounts, checks and signature authority to prevent fraud, abuse or other irregularities. Likewise, all District

agencies shall also comply with the provisions in the District’s Quick Payment Act, which ensures the timely

payment of public funds to vendors, suppliers, and contractors.

Background: The OFT recognizes the financial risks associated with the issuance of checks. The prevalence of

check fraud demands that the District take measures to safeguard the District’s funds, including the use of a single

state check design. Checks issued by the District government use a controlled paper stock with numerous security

features and a background design that makes all District government checks easily recognizable as official, legal

payment instruments of the District government. In addition, the District uses banking services and policies that

prevent fraud by requiring that the District’s banking institutions only honor checks that the District has previously

identified as being validly issued. To further reduce costs and risks, the District has and will continue to reduce its

use of checks as a predominant means of disbursement.

Collateralization Policy

It is the policy of the OFT to ensure that at all times the District’s funds held at financial institutions are fully

federally insured or, at a minimum, collateralized at 102 percent in compliance with the Financial Institution

Deposit and Investment Amendment Act of 1997 (the Depository Act), D.C. Law 12-56, §§47-351. The

responsibility for monitoring financial institutions’ compliance with the District’s collateral requirements on a daily

basis is delegated to the OFT Banking Services Unit.

Banking Services Policy

It is the policy of the District government to procure banking services and establish bank accounts pursuant to

competitive award practices consistent with the Financial Institutions Deposit and Investment Act, as amended

(D.C. Official Code 12-56; §§47-351 et seq.), and the OCFO’s standard contracting processes. The OFT shall

routinely monitor bank performance using predetermined performance standards and assess penalties for failure to

perform. Bank accounts shall only be opened by OFT. Agencies cannot open bank accounts independently.

FY 2016 Proposed Budget and Financial Plan D.C. Comprehensive Financial Management Policy

Appendix A-5

Electronic Benefit Payment Policy

The OFT, in conjunction with the Department of Human Services, shall administer the District’s Electronic

Benefit Transfer (EBT) Program in compliance with the Personal Responsibility and Work Opportunity

Reconciliation Act of 1996, approved August 6, 1996 (Pub. L. No. 104-193; 110 Stat. 2105) (Welfare Reform

Act) and provide necessary training to eligible District of Columbia residents on who participate in the EBT

Program.

Background: The Welfare Reform Act of 1996 mandated that all states and the District of Columbia establish an

electronic delivery system for the distribution of food stamp benefits (Supplemental Nutrition Assistance Program,

or SNAP) by October 2002. As a result, the District’s EBT system was implemented in 1998. The system

electronically delivers both SNAP and cash assistance (Temporary Assistance for Needy Families, or TANF)

benefits to District recipients. EBT is a special application of electronic funds transfer (EFT) technology, which

allows both TANF and SNAP benefits to be loaded directly to a pay card eliminating the former costly and

cumbersome processes surrounding paper food stamps and check writing. Also, it provides access to mainstream

payment methods for District citizens, provides food retailers with point-of-sale methods of accepting SNAP

payments, enhances methods used to account for SNAP benefits, and facilitates more

efficient payments to individual merchants with funds from the U.S. Department of Agriculture.

Internal Control Policy Related to Financial Assets

The District government shall maintain sound internal control policies and practices to ensure: (a) compliance

with applicable laws, guidelines, regulations, and professional standards; and (b) adequate safeguarding of cash

under the control of agencies, component units, boards and commissions. Therefore, agencies must adhere to the

following policies and prescribed practices:

• Employees who handle cash, checks, credit cards, pay cards or any other negotiable instruments should be

bonded as a condition of employment and should not record the related transactions in the general ledger nor

maintain accounting records;

• Cash shall not be accepted or received directly by any District agencies, only OFT. Exceptions to this policy

must be approved in advance and oversight provided by the OFT;

• Check payments received shall be restrictively endorsed payable to the D. C. Treasurer, not to an agency or a

District employee;

• Cash receipts shall be reconciled daily and discrepancies shall be investigated promptly by the designated

authorized personnel;

• Access to cash shall be restricted to OFT cashiers and secured when not in use; and

• Any site that secures cash, checks, pay cards or other negotiable financial instruments shall maintain them

securely in a vault under dual control for access or removal. Dual control requires two people to cooperate in

maintaining and confirming assets, with the work of one employee being verified or approved by a second

employee. Both are equally accountable for the protection of asset.

Investment Priorities

The District will invest cash not needed for immediate disbursement in a manner consistent with applicable

District law and policy, and in doing so will (a) provide for the safekeeping of principal amounts invested,

(b) maintain adequate liquidity to fund the District’s operations and other funding needs, and (c) maximize

earnings on invested funds, in that order of priority. The maximization of earnings will be accomplished by

analyzing up-to-date cash flow projections documenting the amounts and timing of the District’s operating cash

needs over the course of a given fiscal year, as well as the general investment environment and the respective

earnings (interest) rates available to the District from the various permissible investment instruments. Based on

these factors, the appropriate investment decision will be made.

D.C. Comprehensive Financial Management Policy FY 2016 Proposed Budget and Financial Plan

Appendix A-6

Investment of Operating Cash Balances

Each business day, using same-day data from banks (check/ACH/wire clearings), OFT will determine if the District

has excess cash on hand for that particular day and factor in a cushion for unexpected disbursements. Any excess cash

will be invested in one or more of the permissible investment instruments in accordance with the policy described in

the “Investment Priorities” section above.

Investment of Additional Bank Account Balances

The District government will strive to ensure that no cash balances sit idle without being invested. The majority

of the District’s operating bank accounts are structured such that all funds not utilized in collection or

disbursement accounts at the end of a given day will be consolidated to the pooled cash account and invested or

will be used to generate credit to offset bank fees.

Investment of Bond Escrow and Note Escrow Funds

The District government will invest bond escrow and note escrow balances (funds set aside for the payment of

principal and/or interest on outstanding District bonds or notes) in accordance with the same general policy guide-

lines described in the “Investment Priorities” section above, except that the maximum duration of such

investments (the liquidity aspect referenced above) will be determined by the principal and/or interest payment due

dates on the bonds or notes as opposed to operating cash flow projections as well as any other requirements

contained in the respective bond or note documents.

Investment of Bond and Note Proceeds

Proceeds from the sale of District bonds and notes shall be invested in allowable investments in accordance with

applicable federal and District laws, stipulations in the respective bond or note documents as to how such funds

are to be invested, federal arbitrage regulations regarding the investment of bond and note proceeds (both of which

may be more restrictive than District law), and pre-determined payout schedules (or estimates) for such proceeds

(based on the purpose and manner of use of such Funds).

Investment of Debt Service Reserve Funds

Debt service reserve funds established either from the proceeds from the sale of District bonds and notes or other

sources shall be invested in allowable investments in accordance with applicable federal and District laws,

stipulations in the respective bond or note documents as to how such funds are to be invested, federal arbitrage

regulations regarding the investment of bond and note proceeds (both of which may be more restrictive than

District law), and pre-determined payout schedules (or estimates) for such proceeds (based on the purpose and

manner of use of such Funds) as well as any other requirements contained in the respective bond or note

documents.

Investment of Bond and Note Related Accounts

Investment of Bond and Note related accounts shall be invested in allowable investments in accordance with

applicable federal and District laws, stipulations in the respective bond or note documents as to how such funds

are to be invested, federal arbitrage regulations regarding the investment of bond and note proceeds (both of which

may be more restrictive than District law), and pre-determined payout schedules (or estimates) for such proceeds

(based on the purpose and manner of use of such Funds), as well as any other requirements contained in the

respective bond or note documents.

Investment of Statutory Reserve Funds

Investment of statutory reserve funds (see Reserve Management Policy section) of the District shall be invested in

permitted investments in accordance with District law and policy.

FY 2016 Proposed Budget and Financial Plan D.C. Comprehensive Financial Management Policy

Appendix A-7

Limits on Placement of Funds

In accordance with applicable law, the District will not deposit/invest more than 25 percent of its funds on hand

with any one financial institution and/or product, and will not deposit/invest an amount with any one financial

institution and/or product that amounts to more than 25 percent of the assets of such institution.

Capital Asset Management Policy

Policy for Defining Capital Assets

Capital assets are long-lived items that provide a benefit for a number of future periods. They are either classified

as “capitalized assets,” subject to the District’s standard depreciation rules, or “controllable property,” which are

neither capitalized nor depreciated for financial reporting purposes.

Proper accounting for capital assets requires the capitalization of appropriate expenditures for each of the

following asset categories:

• Land - non-expendable, real property, for which title is held by the District;

• Land Improvements - including the cost of permanent attachments, other than buildings, which add value to

land;

• Buildings - all real estate, excluding land and land improvements, used for shelter, dwelling, and other similar

purpose;

• Equipment/Furniture/Vehicles - tangible personal property that is: a) complete in itself; b) does not lose

identity or become a component of the building where it resides; c) of a durable nature with an expected

service life of three or more years;

• Intangible Assets – assets that lack physical substance, are nonfinancial in nature, and have an initial useful life

extending beyond a single reporting period, including, for example, easements, water rights, patents,

trademarks, and computer software;

• Construction-in-Progress (CIP) - includes the costs incurred when constructing long-lived assets (e.g.,

buildings and other improvements); CIP represents the costs associated with incomplete projects; and

• Infrastructure Assets - long-lived capital assets that normally can be preserved for a significantly greater

number of years than most capital assets and that are normally stationary in nature. Examples of infrastructure

assets include roads, sidewalks, bridges, tunnels, drainage systems, water and sewer systems, dams, street

lighting systems and transit subway systems.

General Fixed Asset Policy

Capital assets must be properly authorized, classified, valued and adequately safeguarded. Physical and accounting

control policies and procedures established by the Office of Financial Operations and Systems (OFOS) must be

followed by each agency. Each agency must implement the following policies:

• All capital assets that have been capitalized or are a part of controllable inventory shall be included on the

agency’s capital asset listing;

• All capitalized or controllable assets shall be reported in the Fixed Assets Subsystem (FAS) of the System of

Accounting and Reporting (SOAR) maintained by OFOS;

• Each agency shall designate an individual who will be responsible for accounting for capital assets and

ensuring that all divisions within the agency comply with District requirements;

• All agencies shall adhere to the capitalization and controllable inventory policies and procedures established by

OFOS;

• All acquisitions and disposals of capital assets shall be properly authorized by applicable laws and approved by

the agency director or designee. In addition to the agency director, some acquisitions and disposals may require

the approval of the appropriate regulating bodies; and

D.C. Comprehensive Financial Management Policy FY 2016 Proposed Budget and Financial Plan

Appendix A-8

• All agencies shall maintain documentation related to the acquisition, use, and disposal of capital assets. Such

documentation is to be retained throughout the life of each capital asset and for a specified period of time after

disposal, consistent with the OCFO’s and the District’s records retention policies. Where bond proceeds are

used to acquire or improve the property, all agencies shall work with the Mayor and the OCFO to ensure that

the acquisition, use, transfer or disposition of the property is in compliance with the applicable laws.

Capitalization Policy

• All land, land improvements and building additions must be capitalized regardless of cost.

• Capital improvements shall be capitalized if the total project cost is $5,000 or more, and the improvements

increase the utility of the asset or significantly extend its useful life by 2 years or more. Expenditures for

improvements that do not increase the service utility of the asset or significantly extend its life should be

classified as repairs and maintenance and not capitalized.

• Furniture, vehicles, and equipment shall be capitalized if the aggregate cost is $5,000 or more and the useful

life of the asset is three years or greater. Costs pertaining to computers include amounts incurred for monitors,

cables, battery packs or any additional accessories needed for the equipment to function. Capitalizable

computer costs do not include printers because printing functions can be spooled to a central printer, allowing

several computers to utilize it.

• Computer software system costs shall be capitalized if the total cost including purchase, installation, and

testing is $5,000 or more. Training that is directly related to installation and testing should be capitalized. The

cost of training after the system has been placed in service should be expensed as incurred. Upgrades and

enhancements should only be capitalized if such costs significantly increase the life or functionality of the

system by 2 years or more.

• Computer hardware system costs shall be capitalized if the total cost including acquisition, installation, and

testing is $5,000 or more. The cost of each component of a computer hardware system should be initially

recorded as controllable inventory in the FAS. When the hardware system is ready for its intended use, the

inventoried costs should be grouped and capitalized as one unit of property in the FAS. Upgrades and

enhancements should only be capitalized if such costs significantly increase the life or

functionality of the system by 2 years or more.

• Betterments shall be capitalized if the cost is $5,000 or more and the addition made to the fixed asset is

expected to prolong its life or increase its efficiency over and above that resulting from repairs or maintenance.

The cost of the betterment is added to the book value of the asset. Betterments do not include building

improvements. Betterments that cost less than $5,000 should be classified as expenses and charged against the

operating budget.

• Equipment with a unit cost of less than $5,000 shall be identified as controllable equipment of the agency. The

minimum unit cost level required to be identified as controllable equipment of the agency is $1,000, except

certain items. Equipment below $1,000 may be tagged with a property identification number and recorded

on a supplementary listing for stewardship and sensitivity reasons.

• Agencies may account for and record items under $5,000 in the FAS. Agencies shall record and maintain a

supplementary listing internally on the agency FAS or in the OFOS FAS for those items that are between

$1,000 and $5,000. The agency shall also maintain records for items less than $1,000 that are considered

sensitive or at high risk of theft, such as weapons, computer components, and cellular equipment.

• Agencies shall recognize intangible assets if they: (a) are separable (capable of being separated or divided from

the District government and sold, transferred, licensed, rented, or exchanged, either individually or together

with a related contract, asset, or liability); or (b) arise from contractual or other legal rights, regardless of whether

those rights are transferable or separable from the District government or from other rights and obligations.

• The useful life of an intangible asset that arises from contractual or other legal rights shall not exceed the

period to which the service capacity of the asset is limited by contractual or legal provisions. An intangible asset

should be considered to have an indefinite useful life if there are no legal, contractual, regulatory,

technological, or other factors that limit the useful life of the asset.

FY 2016 Proposed Budget and Financial Plan D.C. Comprehensive Financial Management Policy

Appendix A-9

Controllable Property Policy

Controllable property is non-capitalized tangible property that is considered valuable and/or sensitive with a high

risk of theft with a value of less than $5,000 and/or with an expected life of less than three years. Similar to

capitalized property, controllable property is subject to the requirements of this Comprehensive Financial

Management Policy regarding security, stewardship, maintenance, and utilization. These assets shall be excluded

from depreciation calculations and financial reports. They shall, however, appear on other management

information reports and capital assets records. Each agency director shall designate an individual to account for

capital assets and ensure that all divisions within the agency comply with the District’s accounting policy.

To ensure that personal property capital assets are properly safeguarded and accounted for, the OFOS shall

conduct a physical inventory of personal property capital assets on a biennial basis. The inventory shall be

conducted based upon the assets listed in the FAS as of a given date. Each agency shall be responsible for making

sure that the proper personnel are available to guide the agency designated staff to the location of the assets. The

physical inventory shall be properly managed and supervised by the individual who is responsible for the agency’s

property management function to ensure that the inventory process is effective and efficient. OFOS shall oversee

reconciliations and adjustments to the detailed accounting records resulting from the physical inventory.

Acquisition Policy

Capital assets shall be initially recorded at historical cost, which is defined as the cash or cash equivalent price of

obtaining the asset and bringing it to the location and condition necessary for its intended use.

Donated assets shall be recorded at fair market value at the date of acquisition, generally defined as

“consideration given or consideration received, whichever is more clearly determinable.”

Construction-in-progress represents capitalization of labor, material, and overhead costs of a capital project.

When the project is completed, costs in the construction-in-progress balance sheet account shall be reclassified to

one or more of the property and equipment accounts.

Valuation Policy

The most desired method of valuation is original cost (historical). Such data can be determined by retrieving original

invoices, purchase orders, check copies, contracts, minutes, or auditor’s work papers. However, if the original cost cannot

be established, estimated historical cost data may be used.

Stewardship Policy

Capital assets comprise the majority of the District’s total assets. Extreme care shall be used in safeguarding and

accounting for all capital assets. Persons provided with capital assets (e.g., cellular telephones, iPads and laptop

computers) for their direct official use shall be held responsible and liable for the asset(s) assigned to them. Such assets

shall be returned to the agency whenever an individual’s employment with the agency terminates.

Document Retention Policy

Documents related to the acquisition, use, and disposal of capital assets shall be retained throughout the life of the

capital asset and for a minimum of three years following the disposal of the capital asset or as required by

applicable laws and regulations.

Depreciation Policy

The FAS automatically calculates and posts depreciation for capital assets. Depreciation expense shall be

calculated using the straight-line method based on the useful life of the capital assets.

Property Control Policy

Each agency fiscal officer (or designee) shall identify an individual who will be responsible for accounting for

capital assets and ensure that all divisions within the agency comply with the District’s accounting and inventory

policy.

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Appendix A-10

Disposal Policy

All disposals of capital assets shall be properly authorized by applicable laws and approved by the agency director

or designee. In addition to the agency director, appropriate regulatory bodies shall approve some disposals. All

proceeds from the sale of District government property shall be dedicated for use by the government for the

construction and rehabilitation of its facilities, unless the District Council approves an

exception. Where bond proceeds are used to acquire or improve the property, all agencies shall work with the Mayor

and the OCFO to ensure that the disposition of the property is in compliance with the applicable laws.

Reserve Management Policy

Emergency Reserve Fund Management

It is the policy of the District government to comply with D.C. Official Code §1-204.50a for the establishment,

deposit, maintenance, use and replenishment of the District of Columbia’s Emergency Reserve Fund. Any

modifications to these requirements shall be implemented when the law changes and reflected in the Policy.

The Emergency Reserve Fund may only be used for unanticipated and nonrecurring extraordinary needs of an

emergency nature, including a natural disaster or calamity as defined by section 102 of the Robert T. Stafford

Disaster Relief and Emergency Assistance Act (Pub. L. 100-707, effective November 23, 1988) or unexpected

liability created by Federal Law. The Fund may not be used to fund any department, agency, or office of the District

government administered by a receiver or other official appointed by a court, shortfalls in any projected reductions

included in the budget proposed by the District government for the fiscal year, or settlements and judgments made

by or against the District of Columbia government. Funds may only be allocated after an analysis has been

prepared by the CFO and only after a projection by the CFO that the entire Contingency Reserve Fund (see next

section) will be completely exhausted at the time of the allocation. Interest earned on the Emergency Reserve Fund

shall remain in the account for permitted uses pursuant to D.C. Official Code §1-204.50a.

For purposes of cash flow management, the CFO or his/her designee may borrow from the Emergency Reserve

Fund as long as the amount borrowed does not exceed 50 percent of the total balance in both the Emergency and

Contingency Reserve Funds and neither fund is depleted by more than 50 percent. The amount borrowed shall be

replenished to the fund by the earlier of 9 months after the date the money was borrowed or the end of the fiscal

year in which the money was borrowed. If, after a cash flow management borrowing, the amounts in the funds

are later depleted below the 50 percent threshold as a result of qualified emergency or contingency fund

expenditure, the District shall restore the funds to the 50 percent level within 60 days.

The District shall budget and deposit sufficient funds in each fiscal year to maintain or replenish the Emergency

Reserve Fund as required by D.C. Official Code §1-204.50a or move unassigned fund balance into the Fund as

needed. Replenishment of an allocation may also be made within the same fiscal year through a reprogramming of

budget authority or a Supplemental Appropriation.

The District government will invest Emergency Reserve Fund account balances in accordance with the same

general policy guidelines described in the “Investment Priorities” section above.

Background: The District is required to maintain an Emergency Reserve Fund equaling a minimum of 2 percent

of the qualified operating expenditures based on the applicable Comprehensive Annual Financial Report (CAFR)

pursuant to D.C. Official Code §1-204.50a.

Contingency Reserve Fund Management

It is the policy of the District of Columbia to comply with D.C. Official Code §1-204.50a for the establishment,

deposit, maintenance, use and replenishment of the District of Columbia’s Contingency Reserve Fund. Any

modifications to these requirements shall be implemented when the law changes and reflected in the Policy.

The Contingency Reserve Fund may be used only for nonrecurring or unforeseen needs that arise during a

fiscal year, including expenses associated with unforeseen weather or other natural disasters, unexpected obligations

FY 2016 Proposed Budget and Financial Plan D.C. Comprehensive Financial Management Policy

Appendix A-11

created by Federal law or new public safety or health needs or requirements that have been identified after the

budget process has occurred, or opportunities to achieve cost savings. The Fund may also be used, if needed, to

cover revenue shortfalls experienced by the District government for 3 consecutive months (based on a two-month

rolling average) that are 5 percent or more below the budget forecast. The Contingency Reserve Fund may not be

used to fund any shortfalls in any projected reductions that are included in the budget proposed by the District

government for the fiscal year. Funds may only be allocated after an analysis has been prepared by the CFO and

all other surplus funds available to the District have been completely exhausted. Interest earned on the

Contingency Reserve Fund shall remain in the account for permitted uses pursuant to D.C. Official Code

§1-204.50a.

For purposes of cash flow management, the CFO or his/her designee may borrow from the Contingency

Reserve Fund as long as the amount borrowed does not exceed 50 percent of the total balance in both the

Emergency and Contingency Reserve Funds and neither fund is depleted by more than 50 percent. The amount

borrowed shall be replenished to the fund(s) by the earlier of 9 months after the date the money was borrowed or

the end of the fiscal year in which the money was borrowed. If, after a cash flow management borrowing, the

amount in the fund is later depleted below the 50 percent threshold as a result of qualified emergency or

contingency fund expenditure, the District shall restore the funds to the 50 percent level within 60 days.

The District shall budget and deposit sufficient funds in each fiscal year to maintain or replenish the

Contingency Reserve Fund as required by D.C. Official Code §1-204.50a or move unassigned fund balance into

the Fund as needed. Replenishment of an allocation may also be made within the same fiscal year through a

reprogramming of budget authority or a Supplemental Appropriation.

The District government will invest Contingency Reserve Fund account balances in accordance with the same

general policy guidelines described in the “Investment Priorities” section above.

Background: The District is required to maintain a Contingency Reserve Fund equaling a minimum of 4 percent

of the qualified operating expenditures based on the applicable CAFR pursuant to D.C. Official Code §1-204.50a.

Fiscal Stabilization Reserve and Cash Flow Reserve Funds

It is the policy of the District government to comply with current requirements for building and maintaining the

District of Columbia’s Fiscal Stabilization and Cash Flow Reserve Funds as defined by D.C. Official Code

§47-392.02. Any modifications to these requirements shall be implemented when the law changes and shall be

reflected in the Policy.

The District government will invest fiscal stabilization and cash flow reserve account balances in accordance

with the same general policy guidelines described in the “Investment Priorities” section above.

Background: The Fiscal Stabilization Reserve Fund may be used by the Mayor for the same purposes for which

the Contingency Reserve Fund was established (except for cash flow management purposes), as certified by the

CFO, with approval of the Council by act. At full funding, this reserve must equal 2.34 percent of the District’s

General Fund operating expenditures for each fiscal year. The Cash Flow Reserve may be used by the CFO or

his/her designee to cover cash flow needs. When amounts are used, the Cash Flow Reserve must be replenished in

the same fiscal year of use. At full funding, this reserve must equal 8.33 percent of the General Fund operating

budget for each fiscal year.

If either the Fiscal Stabilization Reserve or the Cash Flow Reserve is below full funding upon issuance of the

CAFR, the CFO must commit 50 percent of the unassigned end-of-year fund balance to each reserve, or 100

percent of the end-of-year fund balance to the remaining reserve that has not reached full capacity, to fully fund the

reserves to the extent allowed by the end-of-year fund balance. Moreover, if the amount required for the

Contingency Reserve or Emergency Reserve is reduced, the amount required to be retained in the Fiscal

Stabilization Reserve is to be increased by the same amount.

D.C. Comprehensive Financial Management Policy FY 2016 Proposed Budget and Financial Plan

Appendix A-12

Fiscal Management Policy

Revenues

The District shall strive to maintain a balanced and diversified revenue system to protect against adverse

fluctuations in any one source of revenue, which may result from changes in local and/or national economic

conditions.

Quarterly Revenue Adjustments: The OCFO shall make revised quarterly adjustments to the revenue

estimated for the year in progress as required by law (D.C. Official Code §1-204.24d(5)(B)). These adjustments,

as certified by the CFO, will be submitted to the Mayor and the District Council. They shall serve as the basis for

determining whether revenues are in balance with anticipated expenditures. In addition, the CFO’s certified

revenue estimates shall be used as the basis for any request for supplemental appropriations submitted to the U.S.

Congress that would increase the total amount of General Fund revenue appropriated to the District.

General Fund Balance

In FY 2011, the District implemented Governmental Accounting Standards Board (GASB) Statement No. 54,

Fund Balance Reporting and Governmental Fund Type Definitions. Consistent with the requirements of that

Statement, the District’s General Fund balance is comprised of five components: non-spendable, restricted,

committed, assigned, and unassigned, which are described more fully below.

• Nonspendable – resources which cannot be spent because they are either: (a) not in spendable form; or

(b) legally or contractually required to be maintained intact.

• Restricted – resources with use constraints which are either: (a) externally imposed by creditors (such as

through debt covenants), grantors, contributors, or laws or regulations of other governments; or (b) imposed

by law through constitutional provisions or enabling legislation.

• Committed – resources which can only be used for specific purposes pursuant to limitations imposed by

formal action of the District government’s highest level of decision-making authority (the Mayor and the

District Council). Amounts in this category may be redeployed for other purposes with the appropriate due

process. Committed amounts cannot be used for any other purpose unless the District government removes

or changes the specified use by taking the same type of action it used to previously commit the amounts.

• Assigned – resources neither restricted nor committed, for which the District has a stated intended use as

established by the Mayor, District Council, or a body or official to which the Mayor or District Council has

delegated the authority to assign amounts for specific purposes. These are resources where the

constraints/restrictions are less binding than that for committed resources.

• Unassigned – resources which cannot be classified in one of the other four categories. The General Fund is the

only fund which may report a positive unassigned fund balance amount. In other governmental funds, if

expenditures incurred for specific purposes exceed the amounts restricted, committed, or assigned to those

purposes, negative unassigned fund balance may be reported.

Fund balance appropriated for the current fiscal year’s operating budget shall be used only to the extent

needed, if any, to balance the current fiscal year’s actual revenues to actual expenditures. In a given year, actual

revenues may exceed projected and appropriated revenues. When this occurs, the District shall first apply the excess

revenues before it applies any appropriated fund balance. Under no circumstances shall the District apply more

fund balance than has been duly appropriated.

Moreover, it is the policy of the District to use restricted resources first, followed by committed resources and

then assigned resources, when expenses are incurred for purposes for which any of these resources are available.

The portion of the fund balance of the General Fund that is restricted or committed shall be maintained for

its specific purpose, unless modified by subsequent legislation. The District strives to maintain within its restricted

and/or committed fund balance components an amount up to the level that would result in sufficient working cash

to reduce the need for short-term borrowing to finance operations of the subsequent year.

FY 2016 Proposed Budget and Financial Plan D.C. Comprehensive Financial Management Policy

Appendix A-13

Background: The fund balance of the General Fund represents the difference between the Fund’s assets and its

liabilities at the end of a fiscal year, or September 30th. The ending fund balance of a fiscal year is also the

beginning fund balance of the ensuing fiscal year. Positive differences between revenues and expenditures, or

surpluses, increase the fund balance. Negative differences, or deficits, decrease the fund balance.

An ever-growing fund balance that is inaccessible is not advantageous to the District because it restricts the

District’s ability to allocate resources among priorities. The amount of the fund balance is not indicative of funds

that may be used for any purpose in the future. Rather, unassigned fund balance would represent an amount that

may be used for District priorities after approval by both the District Council and the U.S. Congress.

Expenditure Reporting

The District shall make expenditures only in accordance with federal appropriations law and the District’s budget

approved by Congress and the District Council. Financial statements will accurately reflect these expenditures. The

District’s CAFR shall reflect expenditures in the relevant appropriations titles.

Accrual Accounting

The District shall prepare financial statements using both the modified accrual and the full accrual bases of

accounting in accordance with GASB Statement No. 34, Basic Financial Statements – and Management’s

Discussion and Analysis – for State and Local Governments.

Background: The District implemented the requirements of GASB Statements Nos. 34, 35, 36, 37, and 38

during FY 2002 as required by GASB. As a result of this implementation, in FY 2002 the District began issuing

two full accrual financial statements (Statement of Net Assets and a Statement of Activities) and including a

Management’s Discussion and Analysis section in its CAFR. Accrual accounting reports all of the revenues and

costs of providing services each year. This approach includes not just current assets and liabilities (such as cash and

accounts payable) but also capital assets and long-term liabilities (such as buildings and infrastructure, including

bridges and roads, and general obligation debt). Accrual accounting helps the District meet the following

important objectives of financial reporting.

• Assess the finances of the government in its entirety, including the year’s operating results;

• Determine whether the government’s overall financial position has improved or deteriorated;

• Evaluate whether the government’s current-year revenues are sufficient to pay for current-year services;

• Assess the government’s cost of providing services to its citizenry;

• Assess how the government finances its programs – through user fees and other program revenues versus

general tax revenues;

• Understand the extent to which the government has invested in capital assets, including roads, bridges,

and other infrastructure assets; and

• Make better comparisons between governments.

Tax Expenditure Budget

The CFO is required by law to prepare a biennial tax expenditure budget that estimates the revenue loss to the

District government resulting from tax expenditures during the current fiscal year and the next three fiscal years.

Special Purpose Revenues

Special Purpose Revenues are program revenues that are generated from fees, fines, special assessments, charges for

services, and reimbursements that are set aside for a specific purpose for the District agency that collects the

revenues to cover the cost of performing the related function. Special Purpose Revenues are classified as General

Fund revenues.

Program revenues are defined as revenues that derive directly from the program itself or from parties outside

the reporting government's taxpayers or citizenry as a whole; they reduce the net cost of the function to be financed

from the government's general revenues.

D.C. Comprehensive Financial Management Policy FY 2016 Proposed Budget and Financial Plan

Appendix A-14

An agency may have more than one fund within the Special Purpose Revenue category. Revenues will be

estimated for each agency’s funds on a quarterly basis consistent with all general fund revenues.

It is the policy of the District government that all program revenues generated by any agency belong to the

District as a whole, unless otherwise required by law. As a general rule, all revenues should be allocated through

the budget and appropriations process. Dedicated funds limit the use of the District's general fund revenue by

earmarking a portion of the revenue for special purposes.

In certain limited cases, Special Purpose Revenue fund accounts are necessary to support a particular program

or activity. In such limited cases of need, the agency fund account must be created through the normal legislative

process and adhere to requirements to be recommended by the CFO and adopted by the Mayor and District

Council. Since program revenues are reported in a governmental fund, they should therefore be accounted for

under the modified accrual basis of accounting in fund financial statements.

The District could commit or assign in fund balance unspent program revenues in accordance with the

criteria established by generally accepted accounting principles and make available for use in subsequent years if

permitted by the authorizing legislation that established the fund. The function of restricted or committed fund

balance is simply to isolate the portion of fund balance that is restricted by external entities or enabling legislation,

or committed through the actions of both the legislative and executive branches of the District. Assigned fund

balance represents management's intended use of resources and generally should reflect actual plans approved by

the District. District agencies must have budget authority to expend Special Purpose Revenues, as with other

revenue sources. Budget authority is backed by certified revenue estimates, planned use of certified amounts set

aside in the fund balance, or a combination of these two sources. Unassigned fund balance represents residual

resources after the allocation of resources to all other classifications.

Expenditures are limited to the lesser of budget authority or available resources, which is the sum of realized

revenues and available fund balance.

Special Purpose Revenue budgets may be modified in accordance with federal appropriations law.

Reprogramming of budget authority from one agency fund to another is also permissible pursuant to

reprograming statutes. The CFO shall have discretion to reduce budget authority for agency funds where revenue

falls short of estimates.

Any existing Special Purpose Revenue fund accounts that are not supported by legislative authority may be

converted to local revenue. In addition, when required to cover a revenue shortfall, such revenue may also be

converted to local revenue.

Grants

The District depends on Federal and Private Grant Funds to support a wide range of services and programs for the

citizens of the District. This section sets forth the District’s policies related to resource development, grants

administration and reporting, budget authority for grants, and fairness in awarding grants.

Resource Development: To better serve District residents, all District agencies shall pursue to the maximum extent

possible federal and other funding opportunities that enhance their ability to carry out the Mayor’s strategic plan

and initiatives and address the needs of the residents of this city, without binding the District to unrealistic

financial commitments.

Background: For the last decade, grants have comprised approximately one-fourth of the District’s annual budget,

and as such, have contributed significantly to the District’s ability to meet the needs of its citizens. The District’s

policy is to continue and, to the extent possible, increase its use of funds from other sources to maximize delivery

of services to residents.

FY 2016 Proposed Budget and Financial Plan D.C. Comprehensive Financial Management Policy

Appendix A-15

Grant Administration and Reporting: The District of Columbia government, by accepting grant funds, and when

designating subgrantees, agrees to administer and report on them in strict adherence to the grantors’ programmat-

ic and financial rules and regulations, the District’s Grants Policies and Procedures Manual, and

applicable federal and District laws.

Budget Authority for Grants: District agencies will spend grant funds for allowable costs only at such time as a

grant award has been received, and to the extent they have budget authority to do so. Budget authority applies to

a particular fiscal year. If a grant covers multiple fiscal years, the sum of the budget authority across those fiscal years

should not exceed the grant award amount. Changes in budget authority will be made only in accordance with

the District’s policies and procedures regarding budget modifications (increases or decreases in overall budget

authority for a grant) or reprogrammings (increases or decreases in particular line items within a grant that leaves

the overall budget authority unchanged). Spending grant funds without budget authority is a violation of the

Anti-Deficiency Act. Agency updates to the spending plans required by the Anti-Deficiency Act should reflect all

changes to grant budget authority.

Background: Many of the grants that the District receives have performance year(s) different from the District’s

fiscal year. The timing differences between the grant year(s) and the District’s fiscal year impact the budgeting for

grants. Through the budget modification process, the CFO submits documentation to the District Council

requesting the establishment of budget authority for new grant awards received during the fiscal year or grant

budget authority not included in the congressionally approved budget for the fiscal year. This process is unique

among the District’s funding types and is mainly due to the nature of grants in comparison to the District’s fiscal

year requirements. All government officials work together to ensure that this administrative process is as efficient as

possible. The efficiency of the process can play a critical role in grants management.

Fairness in Awarding Grants: It is the intent of the District to have a fair and open competitive process for the

awarding of grant funds. To that end, the following procedures shall be followed:

• A Notice of Funds Availability (NOFA) shall be prepared and published in the D.C. Register.

• The agency administering the grant shall prepare the Request for Applications (RFA).

• For the purpose of awarding grants, District government agencies shall hold fair and open competitions that

comply with the D.C. Grants Policies and Procedures Manual and the Notice of Final Rule making, Chapter

50: Subgrants to Private and Public Agencies.

The only exception to the above procedures occurs when an organization merits a targeted grant, and the

awarding of this targeted grant becomes transparent and is justified through the budget formulation process.

After the NOFA has been published and the RFA released, the District government agency appoints a neutral

and objective review panel. The panel is comprised of a minimum of 3 individuals with knowledge and expertise

in the objectives of the grant and RFA, as well as in the standard administrative requirements mandated by the

source of funds. The review panel scores the submitted applications and makes recommendations on which

applications should be funded. The head of the District agency administering the grant makes final decisions on

awards and amounts. After this review and before the agency issues the award documents, the Agency Fiscal Officer

shall certify that the award funds are in place and available for distribution.

Background: The receipt of grant funds triggers many requirements including, but not limited to, spending and

reporting requirements. Grant awards typically mandate the terms and conditions governing grants and

incorporate the relevant regulations and statutes. Funds that are awarded to private and public agencies by District

agencies, as subgrants, are bound by the appropriate U.S. Office of Management and Budget (OMB) Circular and

Cost Principles as well as any policy guidelines issued by the grantor. Subgrants to other District agencies are

generally awarded through the Memorandum of Understanding process. Grants to parties outside the District

D.C. Comprehensive Financial Management Policy FY 2016 Proposed Budget and Financial Plan

Appendix A-16

government generally are awarded through a grant agreement that specifies the performance obligations of the

grantee. In the case of grant awards from general funds, grantees must comply with both the appropriate OMB

Circular and Cost Principles and any other policy guidance included in the grant agreement. The CFO will meet

the District’s reporting requirements by publishing the Congressional Grant Budget and Activity report sent to

Congress and the District Council, which provides grant-level information; and monthly financial status reports,

which provide summaries at the agency level.

Donated Funds Monitoring Policy

Donated funds shall be authorized and monitored pursuant to D.C. Official Code § 1-329.01, Mayor’s Order

2010-167, effective October 15, 2010, and the related donation agreement with the respective donor. All

donated funds shall be used for the specific purpose expressed in the respective donation agreement, deposited into

the appropriate account, and shall be available for the intended purpose of the donation until expended or unless

the donor, for valid reasons, requests a refund. The Office of the City Administrator (OCA) or a designee and the

respective District agency or entity that receives the donation shall be responsible for monitoring the expenditure

of the donated funds, in accordance with the applicable rules and regulations.

Capital

Prior to recommending or approving new projects, the District must ensure that the budget for all capital

expenditures, including any planned acquisitions and any necessary replacement of assets, does not exceed

designated revenue streams and available debt service capacity. The annualized cost of any proposed changes is

compared to the approved budget totals from the prior 6-year Capital Improvements Program (CIP) period for

each fiscal year. New projects may be approved only insofar as the designated revenue streams are not exceeded and

long-term financing cost of the CIP stays within available funding limits, which require that debt service costs not

exceed a cap of 12 percent of the District’s General Fund expenditures, as detailed in the Debt Management Policy.

Anti-Deficiency Act

District officials and employees must comply with: (a) the federal Anti-Deficiency Act, 31 U.S.C. §§1341, 1342, 1349

through 1351, 1511 through 1519 and D.C. Official Code §§ 1-206.03(e) and 47-105 (the “Federal ADA”); and

(b) the District Anti-Deficiency Act, D.C. Official Code §§47-355.01 et seq. (the “D.C. ADA”, and (a) and (b)

together, as amended from time to time, the “Anti-Deficiency Acts”). Among other provisions, the D.C. ADA requires

agency heads and agency fiscal officers to submit a spending plan and a position roster (Schedule A) at the beginning

of each fiscal year to the CFO. Managers must submit, on a quarterly basis, projections of year-end spending to the

agency head and agency fiscal officer, with summarized reports being forwarded to the District’s CFO no more than

30 days after the end of each quarter. Employees are prohibited from:

• Making or authorizing an expenditure or obligation exceeding an amount available in an appropriation for an

agency or fund;

• Obligating the District for the payment of money before an appropriation is made or before a certification of

the availability of funds is made, unless authorized by law;

• Approving a disbursement without appropriate authorization;

• Allowing an expenditure or obligation to exceed apportioned amounts;

• Deferring recording a transaction incurred in the current fiscal year to a future fiscal year;

• Submitting a required plan or projection in an untimely manner;

• Knowingly reporting incorrectly on spending to date or on projected total annual spending;

• Failing to adhere to a spending plan through overspending that is greater than 5 percent of the agency’s

budget, or $1 million; or

• Making or authorizing an expenditure or obligation for one capital project from another capital project.

A review board was established, consistent with the Act and implementing regulations, to review potential

violations referred to the board, determine culpability, and recommend penalties for violations. The CFO submits

FY 2016 Proposed Budget and Financial Plan D.C. Comprehensive Financial Management Policy

Appendix A-17

quarterly reports to the Mayor and the District Council on actual expenditures and obligations compared to

planned levels. The CFO also is required to develop the quarterly apportionment of funds, by source of funds, for

each agency based on the spending plans submitted by the agency heads and fiscal officers.

Background: District officials and employees are bound by the Anti-Deficiency Acts, which bar them from

obligating funds except in accordance with appropriations. Further, the D.C. ADA establishes a greater level of

control than does the Federal ADA, and it provides specific penalties for violations. Spending plans are one of the

D.C. ADA's key requirements to ensure that appropriations are not exceeded.

Economic Development Policy

Real Property Tax Exemptions

The Office of Tax and Revenue (OTR) implements real property tax exemptions in accordance with applicable law.

Except for property exempted by specific legislation or immune from taxation by the District, real property is

taxable unless an administrative exemption with respect to such property has been granted. As a general matter,

owners of property for which an exemption is sought must apply to OTR. The applicable requirements for

exemption are generally set forth in section D.C. Official Code § 47-1002 and the regulations promulgated there-

under. OTR reviews each application and determines whether the requirements for the applicable category of

exemption, including those pertaining to ownership and use of the property, have been met. A property cannot

qualify for exemption simply because its owner is exempt from federal income tax or other taxes. Once granted,

the exemption remains in effect as long as the property continues to meet the applicable requirements and the

owner files the required annual use reports. If ownership of the property changes, the categorical exemption

terminates.

Analysis of Proposed Tax Exemptions and Abatements

Per the Exemptions and Abatements Information Requirement Act of 2011, effective September 14, 2011 (D.C.

Law 19-21; D.C. Official Code § 47-4701 et seq.), new tax abatements and exemptions proposed under Title 47

of the D.C. Official Code are subject to OCFO analysis prior to consideration by the District Council. The

advisory analysis includes a determination of whether or not the abatement is needed to (a) meet the fiscal needs

of the specific existing building, entity, or persons receiving the abatement, (b) cause a specific development

project to go forward, or (c) achieve the policy goal of the abatement if the abatement broadly applies to a

category of taxpayers. It also includes the estimated cost of the proposed tax abatement. Finally, the District’s

fiscal impact analysis procedures require that the District budget incorporate any reductions in revenue that result

from newly authorized tax abatements, prior to such abatements taking effect.

Debt Financing Tools

The District may provide public-sector financing of economic development to qualified projects pursuant to the

District laws and subject to the District’s laws on borrowing limitations (D.C. Official Code §47-334 et seq., the

Cap Act). The OCFO works with the executive branch of the District government in the review, consideration,

and approval of the financing of qualified projects.

The primary economic development debt financing instruments used are:

• Tax Increment Financing bonds or notes, in which incremental tax revenues from a project area are pledged to

pay debt service on tax increment financing bonds or notes to finance a portion of a qualified project; and

• Payment In-Lieu-of-Taxes (PILOT) Financing bonds and notes, in which the PILOT payments from a

project area are pledged to pay debt service on PILOT bonds or notes to finance a portion of a qualified

project. PILOT bonds or notes are used only for projects located on parcels that were previously exempt from

the payment of real property taxes.

D.C. Comprehensive Financial Management Policy FY 2016 Proposed Budget and Financial Plan

Appendix A-18

In addition, the District assists private entities, primarily nonprofit organizations and owners of rental

apartment complexes, by issuing private activity revenue bonds on their behalf. The District’s Revenue Bond

Program is administered by the Office of the Deputy Mayor for Planning and Economic Development, and

housing development related bonds are issued by the District of Columbia Housing Finance Agency. The debt

service on these bonds is payable solely from the revenue of the private entity and is not the District’s obligation.