Is the District’s financial honeymoon over?

This morning, Chief Financial Officer Natwar M. Gandhi told the mayor and the D.C. Council—and later reporters—that according to his estimates, the District will take in $131 million less in fiscal 2009 than originally anticipated. (The fiscal year starts Oct. 1 of this calendar year.)

The shortfall, Gandhi explained, is primarily, but not exclusively due, to a foreseen decline in revenue from capital gains taxes paid by individuals—a consequence, he said, of “the worst financial crisis since the Great Depression.”

Gandhi, characteristically, went to great lengths to put the number in context, explaining that the District remains in far better budgetary shape than surrounding jurisdictions. At one point, he said, “Two point five percent is not that big a deal….I’m confident that this mayor, this council can manage this.”

Later, Gandhi clarified his statement, saying that the cuts will indeed have to be substantial: “That will mean a real impact on services, a real impact on people.”

Those are impacts that Mayor Adrian M. Fenty has thus far been able to avoid.

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This morning, the Washington Post flooded the proverbial zone on its Nationals Park coverage—dozens of its reporters documented every last aspect of the ballpark’s first official major-league game. The Post also flooded the paper with an inaccuracy: That the stadium cost $611 million.

The $611 million figure reflects the cap that the D.C. Council imposed on District financing back when it approved the stadium deal. Since then, costs have risen, largely due to inaccurate estimations of land acquisition costs by Chief Financial Officer Natwar M. Gandhi. A January report issued by the CFO’s office showed that land and environmental remediation costs had to date run $43 million over estimates. (To get around the cap, some legal costs were moved out of the capped-cost category to an uncapped “ancillary costs” category last summer.)

Depending on the outcome of various land disputes (check out some early CP reporting on the issue), the local contribution to stadium construction is likely to edge into the mid-to-upper 600s, with the total project cost—including contributions from the team, Major League Baseball, and the federal government—likely to end up close to $800 million.

And yet:

• In their A1 lede-all, Dave Sheinin and Daniel LeDuc refer to “a $611 million, taxpayer-built palace in a formerly blighted part of the District”
• Marc Fisher kicks off his column with, “So, Mr. and Mrs. Taxpayer, what did you get for your $611 million?”
• Tom Boswell refers to MLB’s sweetheart deal as comprising “a $611 million stadium and a $450 million purchase price by the Lerners”
• Barry Svrluga’s sports-section fronter talks about the Nats’ “brand new, custom built, $611 million home”
• Philip Kennicott wraps up his pan of the stadium and its surroundings with the line, “All that for $611 million in public money.”

Here’s the thing: Plenty of people have repeated the $611 million figure, but the Post should know the number isn’t right. They published a very helpful graphic saying so last week!

Photo by D.F. Shapinsky for pingnews/Shapinsky MultiMedia

Every month (sometimes more often) the D.C. Council meets on a Tuesday for its legislative meeting, where the full body sits in the chamber all day and actually passes bills and things like that. There’s usually some fairly interesting stuff, but there’s usually even more not-so-interesting stuff. Of late, Chairman Vincent C. Gray’s started doing a press conference the day before to get reporters acquainted with the concil’s business. LL goes to these things so you don’t have to, and he will now be rounding them up in convenient bullet form:

• The tally this morning: Four reporters (myself, the Examiner’s Michael Neibauer and Jonetta Rose Barras, and the Post’s Nikita Stewart), eight of 13 councilmembers (Gray, Ward 1’s Jim Graham, Ward 3’s Mary Cheh, Ward 6’s Tommy Wells, Ward 7’s Yvette Alexander, and At-Large members David A. Catania, Carol Schwartz, and Phil Mendelson), and approximately three dozen staffers and randoms. In other words, about a 10-to-1 nonpress-to-press ratio.
• Gray announced that he’s hired a new communications director to replace Denise Reed, a longtime Wilson Building fixture who left Gray’s office in December for a job with the Court Services and Offender Supervision Agency. Her replacement is familiar face: Doxie McCoy, who’s served as the press aide to congressional Delegate Eleanor Holmes Norton since October 2001. She starts next week.
• Graham announced emergency legislation to force the mayor to issue rules implementing mandatory inclusionary zoning. (Here’s the whole complicated background on “IZ”—long story short, the rulemaking’s been delayed to give the development community a chance to weigh in.) Graham had introduced a nonemergency bill last month that would have given the mayor 30 days after enactment to issue the regs. This bill gives him until April 1.
• While we’re talking emergency legislation, there’s 10 emergency bills on the agenda coming out of the mayor’s office, all of which are contract approvals (the Council has to approve any contract greater than $1 million). Barras questioned Gray on why this stuff’s being done by emergency legislation. Blame, naturally, went to the mayor’s office and a blown contracting and procurement system. Good question, Jonetta!
• Mendelson announced a pair of bills coming out of his committee. One will require the sale of “fire-safe” cigarettes in the District by July 1. (Fire-safe cigs use a different type of paper that cause them to extinguish themselves if not actively puffed.) The other is the Motor Vehicle Theft Prevention Act of 2007, which creates a fund dedicated to fighting, yes, auto theft, funded mainly by a $5 hike in the yearly car registration fee. The money’s overseen by a mayoral-appointed board and can be spent on more cops, bait cars, public-awareness campaigns, and things like that.
• Schwartz got up to talk about her “Paid Sick and Safe Days Act of 2007,” which is now the “Accrued Sick and Safe Days Act of 2007.” The new name reflects the fact that the bill stands to be heavily amended, mostly to make it more palatable to folks who do the hiring. “We have really worked hard to win a buy-in from the business community,” Schwartz said. Despite the changes, the votes haven’t been counted yet (members of the Service Employees union rallied at the Wilson Building this afternoon, citing “wavering as Tuesday’s vote nears” in a press release) and there’s rumors of mayoral veto being bandied about.
• Gray gave some early, rough numbers on the budget surplus from FY07: Total surplus is about $248 million. About $50 million of that has been earmarked for spending, and another approximately $100 million was allocated in a December supplemental appropriations bill. Of the remainder, Gray indicated he’d hoped to put that money away for a rainy day, and given the economic outlook right now, looks like things could get rainy indeed. Revenue projections won’t be in from the CFO’s office for another few weeks—but LL did get this fun tidbit from Gray: “Dr. [Natwar M.] Gandhi has informed us it will not be like we’ve seen in the recent past.”
• The Fenty steamroll on school closings is all but complete. Last month, Ward 8 Councilmember Marion Barry and Ward 5’s Harry Thomas Jr. introduced their “School Closing Fairness and Accountability Emergency Act of 2008,” which would have given the Council a chance to vote on the proposed school shutterings. On Friday, both Barry and Thomas stood behind Fenty as he announced the final closings list (as Marc Fisher pointed out in his column over the weekend). And today, Gray quiety announced that Barry and Thomas had withdrawn their bill.

After Chief Financial Officer Natwar M. Gandhi gave his speech to the Anacostia Coordinating Council, LL and Post reporter David Nakamura followed the man outside to an awaiting 15-passenger van, hoping to get a little more out of the now tight-lipped bean counter.

Not much luck. He declined to give any meaningful response when Nakamura asked him for a response to Congress’s decision to nix his pay raise.

LL asked Gandhi if he had any regrets not taking the lucrative Amtrak job he’d been offered earlier in the year. His response: “That’s all gone now.”

But Gandhi implied during his speech that he’d had other job offers since the scandal broke, and LL asked if he would expand on that. “You know,” he started, “That’s part of being a financial officer…”

At that point, former Ward 8 Councilmember Sandra Allen appeared and gave Gandhi a convenient out. “Hi Sandy!” Gandhi said, walking away from the reporters.

This afternoon, Chief Financial Officer Natwar M. Gandhi tucked his tail between his legs—as he has been doing often the past six weeks—and made his way down to the Anacostia Community Museum to address the members of the Anacostia Coordinating Council about the $40 million tax scandal.

The speech was notable because Gandhi’s been essentially tight-lipped about the scandal to the press since the story broke and because it represents part of his effort to save his job in the wake of the greatest municipal embezzlement scandal in the city’s history. Gandhi asked to address this group, and he showed up today with D.C. Treasurer Lasana Mack and spokesperson Karyn-Siobhan Robinson in front of a crowd several dozen strong.

Robinson says that Gandhi’s addressed “a number of community and business groups” since the scandal. This has been the first where press has been invited (and not by Gandhi).

“More than anything,” he began, “what I have to say is how deeply sorry I am for what happened in the tax department.”

From there began what was essentially a hour-long “my bad.” Some highlights:

• “We basically lost the confidence and the trust of the citizens.”
• “What was [achieved] over the past 10 years was lost in that day, in one day….I’m deeply disgusted about that.”
• “This has been a profound management failure.” (That’s an oldie, but a goodie.)
• “Now all of us are branded as inefficient, incompetent, and worst of all, cheats.”
• “The bottom line is that this scandalous, fraudulent thing has heppened, and it’s tearing me apart.”
• “We have been burned badly.”
• “The most honest answer is, we made a major mistake. We goofed.”

As far as his own job goes, Gandhi stuck to the line he gave the day the scandal broke: I’m here as long as you want me, and I want fix this mess. “As long as I have the confidence of the mayor and the council collectively, I stay in this job, he said. “I’m not going to fight for this job.”

Later Gandhi said, “It would be far easier to go home….It happened on my watch—I must fix it.” At another point, he said quitting “would be a dereliction of my responsibility to the city.”

Gandhi several times reminded the crowd of the sorry state of the District’s financial operations when he arrived a decade ago. He reminded folks that he’d fired 15 tax-office employees already and said it was “quite likely” that more firings were to come. Gandhi also talked up an internal audit committee he’d recently named to look at city fiscal operations and controls, whose members include Sheldon Cohen of investment firm Farr, Miller & Washington, retired Arthur Young & Co. auditor Donald H. Chapin, and Federal City Council CEO John Hill.

More than once Gandhi was asked exactly how widespread the scandal was, to which he replied he didn’t know: Federal investigators have seized all of those paper tax records, and he couldn’t get at them. (In fact, he said, city auditors have had to ask permission to inspect those records to complete this year’s report.)

Ward 6 muckamuck Charles Burger gave him the hardest questioning of the day, essentially asking why the firings stopped at the Office of Tax and Revenue and didn’t ascend into the executive suite. Gandhi managed to dodge the question.

In any case, the Gandhi PR strategy seems to be working: The meeting turned into a lovefest of sorts for Gandhi, with virtually everyone who spoke up expressing support for the CFO.

Longtime activist Eugene Kinlow spoke up for Gandhi, and after the CFO left (in a 15-passenger District van), former Councilmember and ACC Chair Arrington Dixon assessed Gandhi’s performance as “good, very good.”

Ward 8 Councilmember Marion S. Barry Jr., as he is wont to do, walked in just as Gandhi walked out, and proceeded to praise the CFO: “He has been a tremendous asset to the financial health of our city,” he told what was left of the crowd.

Schools Chancellor Michelle Rhee just took the mike at today’s D.C. Council school-system oversight hearing. Council Chairman Vincent Gray’s preamble, of course, took Rhee & Co. to task for the school-closings plan but started a line of questioning on the DCPS budget.

What came out early: The schools are facing an approximately $100 million shortfall on their nearly $1 billion budget just two months into the fiscal year. About $81 million of that would be covered by a supplemental appropriation asked for earlier in the fall (assuming the council grants it). The rest of the $20 million, however, is going to be harder to find. Between $5 million and $8 million, Rhee said, will likely come from taking currently vacant job positions off the books. For the rest, she said, her people are “looking at sort of supplies, furniture, that sort of thing.”

At-Large Councilmember David A. Catania picked up on Gray’s line of questioning and noted that this is nothing new for DCPS budgeting: “Almost every year, we seem there is a 10 percent ‘ask’ after the budget is passed,” he said. And, like only Catania can, he found a way to get a dig in at the Office of the Chief Financial Officer and its beleaguered chief, Natwar M. Gandhi. He noted that a CFO worth his salt would point out as soon as possible that the school system was outspending its budget. Not happening in this case, Catania alleges.

Now Ward 8 Councilmember Marion Barry’s putting Rhee through the paces: “She is doing some of the same things that got us in trouble before.”

I guess we can call the Rhee honeymoon officially over. Five months—not bad!

UPDATE, 2:10: Weak defense from Rhee on the botched school-closings announcement: “If I could control what the Washington Post writes, than we wouldn’t be in this position.”

Barry lays into her (rightly), pointing out the leak must have come from someone in her office. The Mayor-for-Life seems especially lucid today.

Gray’s point on finding the closings plan in the Post: “It’s simply become a symbol of the lack of communication with [council] members.”

Washington’s thrown-on-the-lawn daily this morning reports that investigators are still looking for the beginnings of the $30 million tax-refund scam that has rocked the city in recent weeks. Earlier in the month, federal prosecutors charged tax-office hacks with routing property-tax refund checks to themselves via front companies. Though the fraud had intensified in recent years, it appears to extend as far back as 1999.

But it could go back much further. As the Examiner points out, the mastermind of the alleged plot, Harriette Walters, started in the tax office in 1981.

The paper also notes, with little in the way of attribution, that “a consensus” at City Hall is emerging that D.C. CFO Natwar Gandhi may have to go. Apparently that consensus doesn’t include Washington Post columnist Marc Fisher, who yesterday gave Gandhi a bit of a boost with this column.

OK, folks, they’re about to get started in the Council chambers. After your typical round of grandstanding opening statements from councilmembers, you’ll have a panel of civic activists before getting into the real meat of the lineup: fired Deputy CFO Sherryl Hobbs Newman, District Auditor Deborah Nichols, and, the man himself, CFO Natwar M. Gandhi. Follow along on Channel 13.

Things to watch out for:

Who’s running the show? Right after the scandal broke, Ward 2 Councilmember Jack Evans almost immediately announced that his Committee on Finance and Revenue would investigate. By the end of the week, the hearing was a joint production with the Committee of the Whole, which essentially means that Council Chairman Vincent C. Gray bigfooted Evans.

What’s Newman’s excuse? Dozens of fraudulent six-figure checks, some as large as a half-million dollars, went out the door without Newman catching on. How exactly did that happen?

How far back does the malfeasance go? The CW before Tuesday was that Gandhi was bruised by the scandal, but that he would survive. But an Examiner story Tuesday suggested that the phony checks date back as far as 1999, when Gandhi was overseeing Tax and Revenue. Then yesterday’s Post accounting put the total losses at almost twice the original estimates of $16 million.

Who goes after Gandhi? The CFO has built up tremendous political goodwill over the years, and now he’s going to have to cash it in. Virtually the only councilmember willing to take on Gandhi over the years has been David A. Catania. But Catania told me earlier this week he was not planning to nail Gandhi personally.

***

1:14 P.M.: OK, so Vince is in charge. He’s gracious enough to introduce his “co-chair,” Jack.

1:18: Jack: “I thought I’d been here long enough to see it all.”

1:23: Evans’ question for Gandhi: “Why should he not bear the same responsibility as those who have been fired?” It’s gonna be a long day, Nat.

1:28: It took Kwame Brown eight months to get his reimbursement check for a Vegas convention trip, thanks to zealous auditing. Where were the auditors this time? he wants to know.

1:30: Oof. So much for Catania laying off the jugular: “To be honest at this point, my prejudice is not in favor of [Gandhi's] continued tenure.” But not just yet, he says. Gotta find out what happened first.

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Today’s hearing on the tax scandal, a joint effort between the Committee on Finance and Revenue and the Committee of the Whole, kicks off at 1 p.m. Check back around then for the liveblog.

Here’s the witness list:

Panel 1: good-government types Marie Drissel, David Mallof, Anna Escobar, and Gail Dixon

2. Sherryl Hobbs Newman, former deputy CFO, Office of Tax and Revenue. (Read all about Newman in this week’s LL.)

3. Deborah Nichols, D.C. Auditor

And the main event…

4. Dr. Natwar M. Gandhi, Chief Financial Officer

If only Natwar M. Gandhi had been more of a train buff.

If so, his financial security might be in better shape right now: In April, Amtrak tried to lure Gandhi, the city’s chief financial officer, with a $250,000 salary plus a $100,000 signing bonus. In order to keep the man widely credited with restoring the District’s fiscal health over the past decade, Mayor Adrian M. Fenty decided to up Gandhi’s salary from $186,000 to $279,000.

Now, in the wake of the quickly expanding property-tax scandal, the bloom has come off Gandhi’s rose for the first time in his 10 years of District service. And his most persistent critic, At-Large Councilmember David Catania, now suggests that the raise needs to be rolled back.

“He should go without this recently approved pay increase,” Catania said in an interview this afternoon. “I think that would be in bad form….I’m at the point where that should be rescinded.”

Gandhi was not immediately available for comment.

On Thursday, the council’s committee on finance and revenue will hold hearings on the scandal. Catania, who has clashed with Gandhi repeatedly, most notably on baseball-stadium financing, says he plans to focus on improving oversight for disbursements across the District government.

“I don’t want to pile on with Nat,” he says. “This is not a time to be engaged in that. This is about how quickly we can put a plan in to restore confidence in this government.”

By now, you’ve gotten the broad strokes of the $16 million-plus tax-refund scam—alleged to be the greatest theft in D.C. government history. You’ve heard how Office of Tax and Revenue employees Harriette Walters and Diane Gustus, along with conspirator Jayrece Turnbull and others, cut themselves huge tax refund checks and spent it on fur coats, jewelry, and a 2005 Bentley.

But how exactly did the scam go down? At yesterday’s press conference, prosecutors and investigators were understandably tight-lipped with details, but the charging documents are always good for filling in the gaps. Here in PDF format, for your reading pleasure, is an affidavit compiled by FBI Special Agent Matthew T. Walsh to support the search and arrest warrants executed yesterday.

There’s some sweet reading in there. Some of the highlights:

Page 4: Besides Walters and Fustus, there are five additional, unnamed D.C. government employees mentioned in the affidavit—all work in the Office of Tax and Revenue. At yesterday’s press conference, U.S. Attorney Jeffrey Taylor refused to comment on whether more arrests are to come, citing the ongoing investigation.

Page 7: “[S]ome of the money stolen from the District of Columbia has been sent to a money exchange institution in the Dominican Republic that has no bank branches in the United States.”

Page 8: “[T]here is probable cause to believe that the scheme has generated at least 42 fraudulent checks, with a financial loss to the District of Columbia of more than $16 million. That amount may continue to grow as the investigation continues and additional fraudulent checks are discovered. Moreover, of that $16 million, less than $2 million in bank accounts have been located thus far.”

Page 10: The checks weren’t sent out by mail, but typically labeled “Hold for Pickup.” When picking them up, Walters signed for many of the checks that she had approved.

Page 13: A $350,000 check was authorized to refund taxes on a piece of propety that doesn’t even exist. A property referenced in the attached “Refund Research Form,” however, does: the Omni Shoreham Hotel. More than $200,000 ended up in Walters’ bank account.

Page 17: A $330,000 check also refunded taxes on a nonexistent property. It was actually made out to a legitimate building owner, “BGW LLP.” There’s no explanation why Bank of America would have deposited it.

Page 27: The check that brought the whole scheme down. Based on Walters’ approval, a $410,000 check made out to “First American Home c/o David Fuss” was issued on May 23 this year. The same tax payment checks included as supposed evidence of overpayment had been included on four other refund vouchers approved by Walters as well.

Page 29: In June, Turnbull deposited the $410,000 at a SunTrust bank branch in Bowie, Md. Later a SunTrust employee actually called up David Fuss, who’s a real estate lawyer with Wilkes Artis. He told the bank that he had no idea what this check was or who First American Home is. On July 9, a SunTrust employee met with Turnbull and asked for references to prove she was authorized to accept checks made out to First American. Says the affidavit: “TURNBULL accused the SunTrust Bank employee of illegality but nevertheless stated that the nature of her business was making investments in real estate and vacation property rentals abroad.”

Page 30: SunTrust wanted corporate docs, so Turnbull got some corporate docs: She went to the Prince George’s County courthouse and filed a trade name application for “First American Home.” She sends the application documents to SunTrust, and, yes, they notice she filed for the trade name a day after they asked for it—and two weeks after the check was issued. Then, in September, still trying to convince SunTrust she was on the level, she gave then a letter on D.C. government letterhead signed by one of the unnamed co-conspirators vouching for her as a “fully registered” tax sale purchaser. Still wasn’t good enough for SunTrust.

Page 33: The biggest check fraudulent detailed in the affidavit: $459,990—prepared by Gustus and approved by Walters.

Page 37: Walters, on three occasions, wrote letters to the District’s check-issuing office asking for “expedited payment” on fraudulent checks. When they were ready, they were to be held for pickup, and Gustus or one of the unnamed coconspirators was to be contacted.

Page 39: Turnbull had the help of a Bank of America employee, whom she had authorized to make withdrawals, deposits, and transfers without her being present. Needless to say, that’s not B of A policy. Probably neither is accepting $145,000 in “gifts” from Turnbull, which he did. The employee was fired in February.

Page 43: In early July 2006, Gustus bought a new GMC Envoy for $40,456, for which she took out a six-year $35,000 loan. She paid off the loan within a year.