With federal relief money drying up, some key revenue streams shrinking, and a transit system in dire need of a bailout, D.C.’s 2025 budget season was already shaping up to be a painful one for local politicians. But Chief Financial Officer Glen Lee has kicked off a dispute in recent weeks that has taken things from bad to worse. 

Lee has managed to blow up the budget process with his insistence that the city must redirect $250 million in its new spending plan to replenish a reserve fund depleted during the pandemic years, according to a pair of Wilson Building sources. This has driven Mayor Muriel Bowser and her budget team a bit bonkers, the sources add, as they’re already considering a mix of steep cuts and tax hikes to close a roughly $1 billion budget gap. The last thing they want to do is put money in a rainy day fund when there are more pressing needs elsewhere.

But Lee holds a great deal of power in the budget process, a relic of the role’s creation in the 1990s as Congress tried to clean up the city’s finances. He can refuse to “certify” the budget as balanced, a tool past CFOs have used to enforce their policy preferences, and that is precisely what he’s doing here. Lee argues that he won’t let any spending plan move forward unless it immediately addresses the city’s reserves. 

“I think he’s wrong,” Council Chair Phil Mendelson tells Loose Lips. “You’re now talking about almost $1.2 billion dollars in cuts. And that creates a lot of damage.”

LL hears that Lee’s insistence has generally caused chaos in the Wilson Building just as the budget process was about to kick off in earnest. Mendelson has already been forced to postpone Wednesday’s planned Council-mayor breakfast meeting for the formal unveiling of the budget as well as Friday’s hearing on the matter, a key chance for lawmakers to question Bowser directly about her proposal. At this point, Mendelson tells LL he doesn’t expect to see Bowser’s proposed budget until late next week or even the week after—delays that threaten to entirely upend the Council’s schedule of hearings and votes on the annual spending plan. 

A Bowser spokesperson confirmed that this description of the dispute with the CFO is accurate, but declined to comment further. A spokesperson for Lee did not respond to a request for comment. 

Mendelson cautions that this delay is not entirely Lee’s fault, arguing that Bowser has known for some time now about the CFO’s position on this matter and should have come up with some sort of solution in time to meet the legally required March 20 deadline for the budget’s submission to Council. Worse yet, Mendelson says that Bowser’s team has been “making other changes to the budget” that go beyond the reserve issue, though he declined to discuss specifics. He says those adjustments have further slowed the process. As of Monday, he says, the mayor still hasn’t handed over her full proposal to the CFO, who says he needs 10 days to review it before sending it on to the Council. 

“The theory behind the concept of ‘pencils down’ is that there’s a time to be done [with the budget],” Mendelson says. “And, evidently, that’s not respected by the executive.”

But it is hard to dispute the fact that Lee’s intervention has scrambled the process. Most of the Council sources LL has spoken with wouldn’t argue that the city’s reserves are unimportant, since they act as a key financial backstop in the event of another federal government shutdown, recession, or other unexpected hiccup. But they also believe that Lee is being unreasonable in demanding that the city hand over all $250 million at once. 

For now, Mendelson believes Bowser has agreed to “go along under duress and threat” with Lee’s demands to fund the reserves “and then it would become the Council’s problem.” In particular, a pair of sources familiar with the deliberations believe Bowser will seek to cut the “Pay Equity Fund” for early childhood educators, which aims to repair decades of unfair pay gaps between day care workers and teachers. 

There have been persistent battles over the funding for the program since its creation in 2021, but it has endured and helped thousands of local workers (and the facilities that employ them) earn millions in payments. The program is funded at roughly $74 million in fiscal year 2024, but that figure escalates over the next few years, making it a tempting target for a budget fix. Bowser almost certainly knows that raiding the program would be a politically toxic move, but it would ultimately fall on the Council to shuffle money around and try and fund it, Mendelson predicts.

“Every dollar that is rushed to fill the reserves is one fewer dollar available to address our residents’ unmet needs,” says Tazra Mitchell, chief policy and strategy officer at the left-leaning D.C. Fiscal Policy Institute and a longtime critic of the city’s reserve policies. “If she’s looking at using this pay equity fund to balance her budget, it would disproportionately harm Black and brown women, particularly. And it just undermines the trust we’ve been able to build and sustain among these educators.”

This is a big reason why Mendelson says he has been working to dissuade Lee from sticking to his guns on this matter, but he has so far been unsuccessful. (The pair doesn’t exactly have the rosiest relationship after a bruising budget battle last year over Mendelson’s push to provide free Metrobus service.) 

Lee’s argument, as LL understands it, is that the Council has been promising to refill these reserves for years but has repeatedly reneged. Bowser and lawmakers opted to use nearly $217 million from one of the city’s four reserve funds, the “fiscal stabilization reserve,” to fill budget gaps as the pandemic upended the District’s finances in 2020. The city typically redirects tax revenue that comes in above the CFO’s projects into that fund, but the money hasn’t materialized these past few years. Accordingly, Lee is insistent that lawmakers need to act now. 

“We have, then, a requirement under law for the local reserves that either in this fiscal year, ’24, or next fiscal year, ’25, that there be affirmative budget actions to set aside resources in order to fund these completely,” Lee testified during a Feb. 1 Council hearing.

Otherwise, he fears that the city’s bond rating (which determines what kind of interest rates D.C. can secure when borrowing for big capital projects) will take a hit.

But many budget minders reject those arguments and believe Lee is being too conservative (which has been a persistent critique of D.C.’s CFOs over the years). The city is already legally required by the feds to maintain two reserve funds (another Control Board-era policy), so it’s not as if the city’s reserves are completely empty. The fiscal stabilization reserve and another fund, the cash flow reserve, are both locally created programs dating back to then-CFO Natwar Gandhi. They aren’t bound by the same restrictive repayment rules as the two reserves required by the feds. Essentially, Wilson Building sources believe Lee is conflating the rules for the federal and local reserves. The two reserves required by the feds require replenishing within two years after the city uses any of the funds. And the city is close to hitting its funding targets for the local cash flow reserve, which currently stands around $978 million, per estimates from the CFO’s office released last week. 

This is not exactly the picture of a local government being irresponsible with its reserves, and a pair of sources familiar with the city’s budget believe the credit rating agencies would agree. Besides, they add that the city routinely used to borrow money for cash flow needs instead of relying on the reserve funds and never suffered negative consequences to its bond rating. (After this article was published, former Ward 2 Councilmember Jack Evans called to LL to dispute this characterization, arguing that he and then-Mayor Vince Gray fought for the creation of those reserve funds specifically to placate Wall Street bankers worried about the city’s creditworthiness. “I think Glen is doing the right thing,” he offers.)

These same two sources floated one potential compromise position to LL: Why couldn’t the city just sketch out a repayment plan of sorts, sending more money to the reserve fund over a multiyear period? Mitchell notes that past budgets have envisioned the gradual replenishment of the fund and then-CFO Jeffrey DeWitt, who was not afraid to tangle with the Council on occasion, routinely signed off on those plans. Mendelson says he floated the idea to Lee, but he has so far not accepted it as a solution.

“I would like to be able to work this out with the CFO, but he has been unwilling to,” Mendelson says. 

That leaves Bowser and the Council a bit stuck. They could try pursuing a truly radical solution such as firing Lee, but that would get messy. Bowser would have to submit a resolution that wins approval from two-thirds of the Council; the resolution would be subject to 30 days’ worth of review by hostile Republican lawmakers in the House of Representatives. Their best shot is probably more diplomacy, but they’re running out of time. And every day the budget submission is delayed further pushes back a final vote on its passage. As it stands now, humorously enough, Mendelson notes that the Council could end up casting its main budget votes on June 4, the day of the hugely consequential Democratic primary. 

Mitchell is hopeful that there can be one good outcome, at least, from this whole embarrassing mess. She’s argued for years that the city’s reserve rules are outdated and are keeping the city from spending money on badly needed priorities. Maybe this latest bit of bickering can convince lawmakers to finally do something about all that.

“This is an opportunity for lawmakers to take a step back and get on the same page about what the rules actually are and what they should be,” Mitchell says. “And let’s be clear: The consequence of having to pay reserves back more quickly is fewer dollars to fund rental assistance, make sure schools in wards 7 and 8 have adequate resources, all of these things that we need.”