In two close votes, lawmakers refused to sign off on either of two compromise versions of the spending plan, which Gray and Brown negotiated after legislators largely defeated an earlier supplemental budget the mayor proposed.
"We are disappointed the council has failed to approve this critical legislation," said Gray spokesman Pedro Ribeiro, who called the vote "immensely short-sighted and highly irresponsible."
The proposal's centerpiece was a $22 million plan to pay city workers for four furlough days they were forced to take last year as District leaders tried to close a $188 million budget deficit.
Legislators killed two versions of the furlough payment plan: one that would've immediately paid workers for all of the furlough days and another that would've paid employees immediately for two days and allocated about $11 million to health care and housing programs. The remaining two furlough days would have been paid after city leaders received new revenue estimates.
"Workers walked out with nothing. Needy families got nothing," said at-large Councilman Michael Brown, who authored the hybrid plan. "It's a loss for everybody."
It was a particular defeat for labor unions, which had lobbied for the plan. Jos Williams, president of the D.C. affiliate of the AFL-CIO, said Monday that failing to approve the proposal would be tantamount to "government-sanctioned robbery."
Tuesday's vote was the culmination of a remarkable 24 hours in which the hopes of Gray and Brown were diluted and then dashed.
"We thought we had a deal," one city official acknowledged.
In an interview with The Washington Examiner, Brown said he didn't think the vote was a defeat for him.
"I see that as people with different issues on how to spend this revenue," Brown said. "There's going to be some more conversation."
But Ward 1 Councilman Jim Graham said the vote could carry a political price for the District's top two leaders.
"It's something they worked very hard on," Graham said. "It's something that mattered very much to them."
One legislator, who requested anonymity to speak candidly about negotiations, said neither Gray nor Brown aggressively sought votes.
"Neither one called me to say, 'I need your vote,' " the lawmaker said. "I believe either one could have gotten a bill through."
The council member added that the vote's failure could fuel allegations of incompetence in city government.
"It damages the confidence people have in us to be able to govern, along with the backdrop of personal ethics and all those things," the lawmaker said.