[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



           WHITE HOUSE PROPOSAL FOR THE DISTRICT OF COLUMBIA

=======================================================================

                                HEARING

                               before the

                          SUBCOMMITTEE ON THE
                          DISTRICT OF COLUMBIA

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM
                             AND OVERSIGHT
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 20, 1997

                               __________

                            Serial No. 105-4

                               __________

Printed for the use of the Committee on Government Reform and Oversight


39-564              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 1997
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              COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois          TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland       ROBERT E. WISE, Jr., West Virginia
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
STEVEN H. SCHIFF, New Mexico         EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          PAUL E. KANJORSKI, Pennsylvania
ILEANA ROS-LEHTINEN, Florida         GARY A. CONDIT, California
JOHN M. McHUGH, New York             CAROLYN B. MALONEY, New York
STEPHEN HORN, California             THOMAS M. BARRETT, Wisconsin
JOHN L. MICA, Florida                ELEANOR HOLMES NORTON, Washington, 
THOMAS M. DAVIS, Virginia                DC
DAVID M. McINTOSH, Indiana           CHAKA FATTAH, Pennsylvania
MARK E. SOUDER, Indiana              TIM HOLDEN, Pennsylvania
JOE SCARBOROUGH, Florida             ELIJAH E. CUMMINGS, Maryland
JOHN SHADEGG, Arizona                DENNIS KUCINICH, Ohio
STEVEN C. LaTOURETTE, Ohio           ROD R. BLAGOJEVICH, Illinois
MARSHALL ``MARK'' SANFORD, South     DANNY K. DAVIS, Illinois
    Carolina                         JOHN F. TIERNEY, Massachusetts
JOHN E. SUNUNU, New Hampshire        JIM TURNER, Texas
PETE SESSIONS, Texas                 THOMAS H. ALLEN, Maine
MIKE PAPPAS, New Jersey                          ------
VINCE SNOWBARGER, Kansas             BERNARD SANDERS, Vermont 
BOB BARR, Georgia                        (Independent)
------ ------
                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                       Judith McCoy, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

                Subcommittee on the District of Columbia

                  THOMAS M. DAVIS, Virginia, Chairman
CONSTANCE A. MORELLA, Maryland       ELEANOR HOLMES NORTON, Washington, 
ILEANA ROS-LEHTINEN, Florida             DC
STEPHEN HORN, California             THOMAS H. ALLEN, Maine

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
                        Ron Hamm, Staff Director
                 Roland Gunn, Professional Staff Member
                           Ellen Brown, Clerk
             Cedric Hendricks, Minority Professional Staff


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 20, 1997................................     1
Statement of:
    DeSeve, G. Edward, Controller, Office of Management and 
      Budget.....................................................    24
    Raines, Frank, Director, Office of Management and Budget.....     7
Letters, statements, etc., submitted for the record by:
    Raines, Frank, Director, Office of Management and Budget, 
      prepared statement of......................................    11

 
           WHITE HOUSE PROPOSAL FOR THE DISTRICT OF COLUMBIA

                              ----------                              


                      THURSDAY, FEBRUARY 20, 1997

                  House of Representatives,
          Subcommittee on the District of Columbia,
              Committee on Government Reform and Oversight,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:35 a.m., in 
room 2154, Rayburn House Office Building, Hon. Tom Davis 
(chairman of the subcommittee) presiding.
    Present: Representatives Davis, Morella, and Norton.
    Also present: Representative Wynn.
    Staff present: Ron Hamm, staff director; Howard Denis, 
counsel; Roland Gunn, professional staff member; Ellen Brown, 
clerk; Cedric Hendricks, minority professional staff; and Jean 
G. Gosa, minority administrative staff.
    Mr. Davis. Good morning and welcome to the first hearing of 
the 105th Congress of the District of Columbia Subcommittee. I 
would like to welcome back our ranking minority member, Eleanor 
Holmes Norton, the Delegate from the District of Columbia, as 
well as our new vice chairperson, Connie Morella of Maryland. 
Because of scheduling factors, this hearing is taking place 
during the President's Day recess. Therefore, the other members 
of the subcommittee are unable to join us today. However, I can 
assure everyone that Representative Steve Horn, who has had 
several generations from his family born in Washington, DC; 
Ileana Ros-Lehtinen; and Tom Allen are all highly committed to 
the goal of making Washington, DC, the world's finest Capital 
City.
    Two years ago, the Congress and the Clinton administration, 
acting together in a bipartisan effort, created the Financial 
Responsibility and Management Assistance Authority, more 
commonly referred to as the D.C. Financial Control Board. This 
board was created in direct response to the overwhelming 
financial difficulties that engulfed the District of Columbia. 
It was the first major step in a long road to recovery.
    During these past 2 years, the Control Board has 
accomplished many important things. Among these are canceling 
wasteful government contracts; stepping in to help the 
beleaguered school system; moving to reform the police 
department; and, most importantly, putting the city on a path 
toward a balanced budget.
    In addition to that, Congress has also acted to enable the 
construction of the new MCI Arena, a new state-of-the-art 
convention center, and created a new water and sewer authority, 
thereby safeguarding the metropolitan region's drinking supply 
and protecting taxpayers.
    Everyone agrees that there is still a lot to be done. To 
paraphrase Winston Churchill, we are only at the end of the 
beginning. I believe we all must work to the best of our 
ability this year to make Washington, DC, a shining example of 
the best America has to offer. Many of you have heard me say 
this before; this goal is not only in the best interest of the 
District but also of the region and, indeed, the entire 
country.
    I strongly believe that the economic health and quality of 
government in the District is of vital concern to the suburbs. 
In fact, Dr. Stephen Fuller of George Mason University, the 
leading regional economics expert, has just completed a new 
study that confirms the view that the District is vital and 
beneficial to the suburbs. Improving the economy and 
governmental performance of the District of Columbia is crucial 
to the continuing prosperity of the entire metropolitan region.
    Ladies and gentlemen, we are at a crossroads. In fact, we 
have reached a unique set of circumstances. Rarely do we face a 
situation where all the major political winds are aligned in 
one direction. The Clinton administration and the leadership of 
both Houses of Congress, Republicans and Democrats, all 
consider the situation in the District of Columbia one of our 
top five national priorities. We must take advantage of this 
positive environment.
    Mr. Raines, I think you deserve a lot of credit for the 
initiative that you have shown as the head of OMB. Our agenda 
is ambitious. It builds on our work and on the work of the 
Control Board that we created with the Clinton administration 2 
years ago. I am encouraged that the President has put forth a 
broad-based proposal to realign the relationship between the 
District of Columbia and the Federal Government. The proposal 
seeks to enhance the prospects of home rule by more closely 
matching the District's resources and capabilities with its 
responsibilities.
    In other areas, however, the plan may not fully address the 
concerns of others, most notably tax relief and economic 
development for the city. I believe we should use the 
President's plan as our starting point. Therefore, it is my 
intent to work with this administration, the leadership in 
Congress, city officials, and the Control Board to fashion a 
bipartisan plan that will gain wide support.
    I am under no illusions. This will take months of hard 
work, patience, delicate negotiations, and many more committee 
hearings. In fact, I intend to follow today's hearing with 
testimony from the city and the Control Board and then from 
interested parties from the District and the region.
    After these hearings on this proposal, its key components, 
significant alternatives, and any other issues, we will work to 
design the best and most effective plan for the rebirth of our 
Nation's Capitol. Our challenge is great, but we have no other 
choice. If we fail to act now, Washington, DC, may never 
recover. In short, it is our duty, our mission, and our 
responsibility to give our collective best efforts for this 
city.
    In conclusion, I am pleased to have as our sole witness 
today Franklin Raines, Director of the Office of Management and 
Budget and the chief architect of the President's proposal for 
the District. I look forward to hearing Mr. Raines' testimony 
today and working with him and the President in the months 
ahead.
    At this point, I yield to my ranking member and ask if she 
would like to make an opening statement.
    Ms. Norton. Thank you very much, Mr. Chairman.
    I want to welcome OMB Director Franklin Raines to the first 
of several hearings on the National Capital Revitalization and 
Self-Government Improvement Plan, as it is called, for the 
District of Columbia. I also want to thank Chairman Tom Davis 
for skillfully laying out a series of hearings designed to 
explore the full details of the President's plan and the 
implications for the District. The President of the United 
States deserves the gratitude not only of District residents 
but of other Americans as well for bringing forward a workable 
and well-conceived plan that will help revive the Capital of 
the United States.
    Much of that gratitude belongs to Frank Raines, a 
Washingtonian whose understanding of the District's finances 
and operations is matched by the exceptional skill he is 
bringing to national and Federal financial and economic issues. 
Already his deft hand has been a major factor in steering us 
toward a bipartisan solution to the budget deficit and to other 
serious fiscal problems of the country. All the while he has 
been designing a plan to help eliminate the most vexing 
problems of the Nation's Capital. The plan's major strengths 
are, first, its careful and principled conceptualization, based 
on the Federal interest in certain State functions and in 
eliminating congressionally created pension liability, and, 
second, its recognition that the plan must address two 
audiences at once: District residents, and a Congress whose 
major focus this year is deficit reduction.
    The President's plan is not perfect, but it surpasses the 
expectations of most D.C. residents and analysts. It is the 
best document from which to work because it is the only plan 
for assistance to the D.C. government that stands any chance of 
being seriously considered or enacted by this Congress this 
year.
    If the President had not offered a plan, I had intended to 
offer a bill that created a quasi-State relationship between 
the District and the Federal Government for financial purposes. 
However, at every turn I encountered the same barrier that has 
made most thinking about the District conventional and 
unimaginative. That barrier is money.
    Any plan, whatever its merits--if I may paraphrase--that 
asks for $1 billion here and $1 billion there will soon end up 
sounding like real money of the kind that Congress has 
systematically denied to the District. This plan takes at least 
some of the District's State functions and, by placing them in 
larger appropriations, demonstrates how small a difference the 
District's portion really makes.
    For example, analysts tell us that the District may be only 
$25 million to $50 million ahead next year if the plan becomes 
law. The most controversial aspects of the plan need to be 
approached with a problem-solving attitude. Among the most 
troublesome are the elimination of the Federal payment, which, 
ironically, has both positive and negative consequences, and 
the application of Federal criminal law to the District as the 
price for absorbing Lorton inmates into the Federal system.
    We have already made progress on both. For example, we can 
now say that D.C. criminal law, not Federal criminal law, will 
continue to apply in the District. There remain outstanding 
issues here and in a number of other areas on the proposal. The 
way to solve them is by methodically working them through.
    The plan also must be subjected to further financial 
analysis before I can fully embrace it. Will the District 
consistently come out ahead, especially when compared with the 
Federal payment, which has lost much of its value and is almost 
never increased? Structural changes such as the President's 
proposal should not be expected to endure more than a 
generation unrevised. I am seeking an analysis of the plan on a 
20-year time line to test its fiscal effectiveness and to 
ensure that the District will not be left with unintended cash 
shortfalls and other financial difficulties.
    The administration has several working groups perfecting 
the concept and the necessary legislation. I hope that they 
will form a close relationship with the subcommittee. The 
progress we have made on the criminal law matters is an 
indication that even unacceptable parts of the plan can be 
resolved. For example, I have met with Attorney General Janet 
Reno, Chief Judge Eugene Hamilton, U.S. Attorney Eric Holder, 
and Department of Corrections Director Margaret Moore. Mr. 
Holder is continuing to work with Justice Department and Bureau 
of Prison officials to resolve the remaining criminal law 
issues, among them parole and determinant sentencing. I have 
also met with Federal Highway Administration officials and 
believe we are making headway in helping to shape the component 
of the plan that would create a badly needed National Capital 
infrastructure fund.
    Chairman Davis has wisely found a way to keep the 
President's plan from becoming an uncontrollable octopus, 
spread across many committees, risking its necessary and useful 
coherence.
    The plan holds together like a well-wrought puzzle. This 
subcommittee must help keep it together or it cannot do the 
job. The first test for the Congress will be to facilitate 
prompt and rapid participation of other specialized committees 
without losing the plan's central purpose and functional 
utility.
    Chairman Davis is the impresario, but this is not the first 
time he has been called upon to help lead such a complicated 
task. The model for our work on the President's plan is the 
financial authority legislation, where we worked in a 
bipartisan and bicameral way to quickly put in place a control 
board. The urgency of this plan now is just as great as the 
financial authority statute was then.
    I especially appreciate the interest of the members of this 
subcommittee and of the region in this plan. Regional members 
may want to take note of the experience of the Detroit region 
as reported in yesterday's Washington Post. The article 
recounted the recent and significant progress the city of 
Detroit has made. Mayor Dennis Archer reported that the 
estrangement between the suburbs and the city had become so 
severe that there were often discussions among friends about 
the last time they had been in Detroit. According to the 
article, ``That began to change as Detroit area firms, even 
those in the suburbs, realized the city's dismal image was 
hurting their ability to attract employees from elsewhere. 
Suburban parents began seeing their grown children leave for 
jobs in other cities, and that became a pivotal issue for a lot 
of people. You can try to separate yourself with a different 
name, but Southeast Michigan, to most people in the world, is 
Detroit. So how people view Detroit will have an impact on 
economic development and investment elsewhere in the region.''
    The President's plan is designed to help the District and 
to help the region before the District gets to the point of no 
return. As the Detroit suburbs have learned, the region can 
neither run nor hide from its core city. The District is 
prepared to pay a great price for the President's plan. The 
plan offers the District scant immediate relief yet requires 
the District to balance its budget a year earlier than the 
financial authority law requires.
    The city is already braced for more cuts in services on top 
of draconian cuts that have already taken place and have helped 
hasten the exit of middle-income taxpayers from the city at 
frightening rates. The word ``suffering'' is not too strong to 
indicate the effect of these cuts on residents. Yet the 
District continues the painful work of rebuilding its 
government first by cutting it, the President's plan is before 
us, and only the Congress is missing.
    Congress has left the city to revive alone, without the 
undergirding support that New York State gave to New York City, 
that Ohio gave to Cleveland, and that Pennsylvania gave to 
Philadelphia when each of those cities became insolvent. It is 
time for Congress, the last to step up to the plate, to now 
come forward.
    I welcome Mr. Raines, whose thoughtful work is designed to 
help this body meet its constitutional obligations to the 
Capital of the United States.
    Mr. Davis. Thank you, Ms. Norton.
    I yield now to the vice chairman of the committee and one 
of our new members, Mrs. Morella of Maryland.
    Mrs. Morella. Thank you very much, Mr. Chairman.
    Although I have participated on this panel on several 
occasions during the 104th Congress, this is my first hearing 
as an official member of the District of Columbia Subcommittee, 
and I am delighted to serve under your leadership and with the 
ranking member.
    As a representative from Montgomery County, MD, I am deeply 
concerned about the future of the District of Columbia. The 
District does not exist in a vacuum. The economic health of the 
District is important to the economic health of Montgomery 
County, of the whole Washington metropolitan region.
    When I first came to Congress in the 1980's, the District 
government was already showing signs of the deficiencies that 
marked the beginning of a spiraling economic crisis. Services 
in the District were deteriorating, businesses were relocating, 
and middle-class residents were moving to the suburbs in search 
of lower taxes, safer streets, better schools.
    From 1990 to 1995, the District lost more than 22,000 
households, most of them middle-class taxpayers. There has been 
a lack of employment growth and a decline in retail sales and 
the formation of small businesses.
    For the past few years there has been a good deal of debate 
here on Capitol Hill about how to resolve the District's 
financial crisis. During the last Congress, under your 
distinguished leadership, Mr. Chairman, on a bipartisan basis, 
we established the District of Columbia Financial 
Responsibility and Management Assistance Authority, commonly 
called the Control Board, which represents a temporary 
restructuring of the D.C. government and provides oversight and 
support to improve the District's financial situation.
    The President's plan would further restructure the District 
government by allowing the Federal Government to fund the 
District government, much in the same way as State governments 
support their cities. The White House proposal would eliminate 
the $660 million Federal payment to the District.
    Instead of the Federal payment, the Federal Government 
would relieve the District of certain expenses, among them the 
growing unfunded pension liability which was incurred by the 
Federal Government for District employees that were part of the 
Federal work force before home rule. The Federal Government 
also would assume a larger share of the Medicaid costs and take 
over the operation of the prison system.
    If the Federal Government assumes some of the District's 
administrative responsibilities, perhaps there will be more 
time for the District of Columbia officials to concentrate on 
the schools and services that have deteriorated to an alarming 
degree.
    It is the poor and vulnerable citizens of the District who 
have suffered the most from the insufficient services that have 
resulted from insufficient funds. The economic turmoil in the 
District must be reversed, and that is what this first meeting 
in the whole series is all about.
    The downward spiral of deteriorating services and middle 
class flight did not happen overnight. There is no quick and 
easy solution. Consideration of the White House proposal is, as 
you said, just a beginning. There will be many hours of debate. 
Hopefully we will choose compromise over confrontation. If we 
work hard, in the end we will take a large step toward creating 
a new and revitalized District of Columbia.
    I look forward to hearing more about the President's plan 
from our expert witness, the craftsman of the plan, Frank 
Raines, and look forward to working with members of this 
subcommittee and the OMB Director on a plan that will benefit 
the region and make the District a safe and thriving Capital 
City that is the source of pride for the entire Nation.
    Thank you, Mr. Chairman.
    Mr. Davis. Thank you, Mrs. Morella.
    Before I swear in our witness and we hear from the man of 
the hour, Mr. Raines, I want to recognize a couple of members 
of the city council here today: Charlene Drew Jarvis, chairman 
pro tem of the city council. Charlene, thank you very much for 
being here. You will have a chance to testify at a later 
hearing, and we look forward to your comments on this and your 
being an important part of this. And also Carol Schwartz, an 
important and returning member of the city council. And Harold 
Brazil just walked in, too. Harold, perfect timing. You are 
here just in time to be introduced. He is also council member 
at large from the city. We appreciate your being here as well.
    Frank, at this point it is the committee's custom to swear 
in its witnesses.
    [Witness sworn.]
    Mr. Davis. Thank you very much for being here and making 
your time available. I just preface that you have been making 
the rounds on Capitol Hill, speaking with key members of both 
parties prior to this, and we are just very pleased to have you 
here today.

 STATEMENT OF FRANK RAINES, DIRECTOR, OFFICE OF MANAGEMENT AND 
                             BUDGET

    Mr. Raines. Thank you very much, Mr. Chairman. I thank the 
members of the committee for having me appear before you today. 
I am pleased to be here to discuss with you the President's 
plan to revitalize Washington, DC, as the Nation's Capital, and 
to improve the prospects for home rule to succeed. After I 
conclude my remarks, I would be happy to take any questions 
that the committee might have.
    The Nation's Capital, which should serve as a symbol of 
pride to all Americans, has fallen on hard times. It faces not 
only serious budget problems, but even serious obstacles to 
providing the most basic services to its residents.
    As the President said recently, the District of Columbia 
suffers from the ``not quite'' syndrome. That is, it is ``not 
quite a State, not quite a city, not quite independent, not 
quite dependent.''
    The District is not like other cities, which receive 
assistance from their States. In fact, the District has broad 
responsibilities for what are--elsewhere in the Nation--State, 
county, and local functions. And while Congress has voted to 
give the city a lump sum annual payment in recent years, it has 
kept the payment basically flat while imposing strict limits on 
the District's budget and taxing powers.
    Clearly, the current relationship between the Federal and 
city governments does not work. As a result, the President has 
proposed a landmark plan to significantly re-order that 
relationship.
    In developing his plan, the President had two goals in 
mind--first, to revitalize Washington, DC, as the Nation's 
Capital and, second, to improve the prospects for home rule to 
succeed.
    Under the plan, the Federal Government will invest nearly 
$4 billion over the next 5 years in the Nation's Capital. In 
exchange, the plan will end the yearly Federal appropriation 
and other payments to the District, saving over $3.5 billion 
over 5 years.
    While net Federal costs come to nearly $400 million over 5 
years, the plan will save the District over $800 million over 
the same period. The difference results, in part, because the 
Federal Government will assume responsibility for certain 
pension payments and assets of the current pension system.
    Congress will continue to perform oversight for the 
District, and the Appropriations Committee will determine the 
budgets for those functions that the Federal Government funds 
directly. But Congress would no longer appropriate every detail 
of the District's budget, which will, in the future, be funded 
solely with local funds.
    All Federal assistance will be conditioned on the District 
taking specific steps to improve its budget and management. The 
plan will require the District to submit a balanced budget for 
1998 and thereafter. A Memorandum of Understanding among the 
Federal and District governments and the Financial Authority 
will outline other improvements in performance that the 
District will have to meet.
    To achieve these goals, the President's plan proposes four 
concrete steps.
    First, the plan will relieve the District government of 
major financial and managerial responsibilities--including 
certain pension obligations and parts of the criminal justice 
system--that are beyond its financial capacity, and help the 
city resolve its cash shortfall that stems from its accumulated 
deficit.
    Beginning in fiscal 1998, the Federal Government will 
assume both financial and administrative responsibility for the 
District's retirement programs for law enforcement officers and 
firefighters, teachers, and judges. Upon enactment of 
legislation providing for the transfer, the Federal Government 
will take responsibility for virtually all pension benefits 
accrued under the plans for all active and retired employees as 
of the date of transfer, contingent on the District 
establishing replacement plans as specified in the MOU. The 
Federal Government will pledge its full faith and credit to 
meet its responsibilities to these beneficiaries. This action 
will be conditioned on the District setting up new plans for 
its current and future employees and providing adequate 
employment records to a third-party trustee.
    The Federal Government also will take direct responsibility 
for funding the District Court system. The courts will remain 
self-managed, because the current court system is well run. 
But, court funding is a drain on the District's budget. 
Therefore, the Federal Government will take responsibility for 
it. The costs will total $129 million in the first year and 
$685 million over 5 years.
    Also the Federal Government will assume financial and 
administrative responsibility for the District's felony 
offenders, including substantial capital investment in 
providing appropriate prison facilities. The Federal Government 
will take responsibility for incarcerating the District's 
sentenced felons, a function usually borne by States. During 
the transition, the Federal Government will provide funds for 
incarcerating the District's felons to a trustee appointed by 
the Financial Authority. Funding will include capital for both 
constructing new facilities and renovating existing ones. The 
Bureau of Prisons will be responsible for determining how these 
capital funds will be used. The trustee will oversee the D.C. 
Department of Corrections operations related to the 
incarcerated D.C. felons for 3 to 5 years, after which the 
Bureau of Prisons will assume responsibility. The plan assumes 
that a portion of the existing Lorton complex will continue to 
serve as a prison facility. Necessary new construction will 
take place at Lorton, at other locations, or both.
    At the end of the transition period, the Federal Government 
will accept all existing prisoners, as well as those new 
prisoners sentenced in accordance with standards comparable to 
Federal sentencing guidelines. To manage the inmate population, 
the Bureau of Prisons will be able to transfer D.C. inmates 
elsewhere in the Federal Prison System. The current D.C. 
prisons staff will have to apply for positions with the Bureau 
of Prisons and meet Federal standards. After the transition 
period, the Federal Government will assume responsibility for 
D.C.'s parole system and a portion of the community corrections 
system.
    In another matter, the Federal Government will increase its 
share of the District's Medicaid payments from 50 to 70 
percent. In essence, the Federal Government will pay both the 
Federal and State share of Medicaid costs, reducing the 
District's share to 30 percent--which is the most that 
localities can pay in States with a 50 percent Federal match. 
At the same time, the Department of Health and Human Services 
will provide more intensive technical assistance to help the 
District improve the management of its Medicaid program and 
ensure that Federal funds are not mismanaged. The increased 
Medicaid funding will be conditioned on the District following 
various HHS suggestions for programmatic improvements.
    Finally, the Federal Government will allow the District to 
borrow from the Treasury to finance all or part of the 
District's accumulated deficit of between $400 and $500 
million. The terms and conditions for such loans are not yet 
determined, but will likely enable the Federal Government to 
offer Treasury-based interest rates for a maximum term of 15 
years and enable the District to refinance the loan after the 
District's credit picture improves.
    Second, the Federal Government will invest considerable 
resources to improve the city's capital infrastructure.
    The Federal Government will establish a National Capital 
Infrastructure Authority (NCIA) to benefit District residents 
and commuters by funding the capital associated with repairing 
and constructing roads and mass transit facilities. To 
capitalize the fund in 1998, the administration will provide 
$125 million in seed money from the Federal Highway Trust Fund. 
Activities eligible for funds will include the construction of 
roads and bridges, the local match for Federal-aid road and 
bridge projects, and capital expenditures for the Washington 
Metropolitan Area Transit Authority. In addition, the NCIA will 
be able to accept contributions from other sources, such as 
voluntary payments in lieu of taxes from tax-exempt 
organizations, including universities and hospitals.
    Third, the plan proposes a number of mechanisms to 
strengthen the District's economic base.
    The plan will create an Economic Development Corporation 
(EDC) to revitalize the city's economy, with local planning and 
control that leverages Federal and private resources. The EDC 
will be capitalized with Federal funds. The program will be 
designed to encourage jobs for disadvantaged D.C. residents and 
revitalize District areas where development has been 
inadequate. The plan includes a 5-year, $260 million tax 
incentive program, with a series of targeted incentives to 
build on the administration's Empower-ment Zone and Enterprise 
Community programs.
    Fourth, the plan will draw on Federal technical expertise 
to help make the city government more effective in such areas 
as income tax collection, education and training, housing, 
transportation, and health care delivery.
    For instance, the Internal Revenue Service will be able to 
collect District income and payroll taxes. The plan will 
simplify District residents' tax filing, allowing one form for 
both District and Federal taxes, as well as improve enforcement 
and collections. Other Federal agencies will work with the 
District to identify other areas in which the Federal 
Government might provide technical assistance to help the 
District government improve the efficiency with which it 
delivers services.
    The President's plan is the most ambitious plan that any 
administration has ever proposed to deal with the problems of 
the Nation's Capital. It will benefit the city, the region, and 
the Nation.
    It benefits District residents by reducing their 
government's financial burdens, improving the delivery of city 
services, and investing in the criminal justice system, 
economic development, and transportation.
    It benefits the region because of the city's economic 
recovery; the financial support given to police, fire, 
teachers, and judges' pension funds; the rebuilding of the 
District prison system; and the improvement of a key component 
of the regional transportation infrastructure.
    It benefits the Nation, because it begins to create a 
Capital City that we can all be proud of, improves its 
transportation system, and helps ensure the safety of residents 
and visitors.
    Mr. Chairman, that concludes my testimony. I would be happy 
to answer any questions that the committee might have.
    [The prepared statement of Mr. Raines follows:]

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    Mr. Davis. Mr. Raines, thank you very much. I think it 
shows the thoughtful preparation that has gone into that. We 
will have a number of questions for you.
    I am going to start the questioning with Mrs. Morella, who 
I know has to leave a little early to go represent the Congress 
reading George Washington's farewell address, as I understand 
it. Connie, I will start with you.
    Mrs. Morella. Thank you very much, Mr. Chairman. I 
appreciate your giving me the opportunity to pose a few 
questions, since, as you mentioned, I will be in the Capital 
City laying the wreathe and giving the speech from Congress for 
George Washington's commemoration.
    Thanks, Mr. Raines, for the wonderful testimony that you 
gave. There is something I feel was rather omitted in the plan 
that you did not mention, either. Some questions have been 
asked about where does St. Elizabeth's fit into this picture. 
Do you see that as being something that the Federal Government 
has a responsibility to operate, and maintain?
    Mr. Raines. We do not see that as being an appropriate 
activity for the Federal Government, primarily because we do 
not have a lot of experience in running mental health 
facilities of that size and complexity, and would find it 
difficult to take over the operation of one such facility and 
create a whole capacity to do that.
    That is the distinction between--with the prisons and St. 
Elizabeth's. With the prisons, we run a prison system. We have 
experienced professionals who know how to do that. Therefore, 
we view prisons as something that could be included in the 
Federal operations. But St. Elizabeth's really would be in a 
different category.
    Mrs. Morella. But you do recognize there is a problem posed 
by the fiscal situation at St. Elizabeth's?
    Mr. Raines. Absolutely. Our plan we view as being one that 
gives the city more flexibility and more resources for the city 
to be able to deal directly with those areas that we are not 
taking over.
    Mrs. Morella. In your testimony, you note that the 
District's accumulated deficit is between $400 million and $500 
million, right?
    Mr. Raines. Yes.
    Mrs. Morella. Would you like to comment or explain the 
impact of the District and its cash position from carrying this 
kind of deficit?
    Mr. Raines. As a result of the deficits run up by the city 
over the last 5 or so years, the city has developed an 
accumulated deficit. What that has meant is that the city has 
not been able to pay its bills in a timely way, and it has had 
to indirectly borrow from vendors by delaying payment of their 
bills. It means that the city has periods of time in which it 
is in a negative cash position, and therefore needs access to 
borrowing.
    Over the last year, the Treasury Department has been 
providing funds to assist the city in meeting its cash-flow 
needs. But as we go forward, there will be a need for a 
permanent solution so that the city's cash position is 
restored. That is why we are proposing to help the city by 
financing that deficit over a period of years, so that the city 
can recreate its cash balance and pay off that accumulated 
deficit over a period of time.
    Mrs. Morella. I wondered if you might explain why the 
initial Treasury provision to finance this debt in 1995 was 
dropped from the Control Board legislation?
    Mr. Raines. I am unaware of the background on that, so I am 
not sure what happened in that case.
    Mrs. Morella. It would be interesting to look into that. In 
your experience with cities in trouble, why is it important to 
finance the accumulated debt, for the reasons that you gave, 
and----
    Mr. Raines. The primary need is for the city to be on a 
sound financial basis, where it is making its payments in a 
timely manner, so that it can attract the kind of vendors that 
the city would like to be able to have perform its services.
    The District, for example, had difficulty lining up 
contractors to serve as part of the force dealing with 
potential snowstorms because of a failure in the past to pay on 
a timely basis. The city would be paying extra if vendors did 
not believe they could be paid on a timely basis, so it is 
important in that respect.
    It is also important from a financial standpoint with 
regard to the city's bond ratings. Failure to be able to 
finance current operations with existing cash would be a major 
negative in the review of the city's credit standing.
    Mrs. Morella. If the Federal payment is done away with, 
what will the Treasury use for collateral, and what is the 
potential impact of that on outstanding bonds and/or new debt?
    Mr. Raines. The Treasury is in the middle of working on 
that very issue with the city and the Control Board at this 
point. They have not come to a conclusion yet as to what form 
of collateral they would be seeking, but we would be careful to 
ensure that these loans would not impair the security on the 
city's outstanding debt or future debt that the city issued for 
capital purposes.
    Mrs. Morella. I would like to also ask you, jumping to 
another topic, about whether or not this plan envisions the use 
of so-called empowerment zones or enterprise zones or whatever 
the current language is that is used for that in the District 
of Columbia.
    Mr. Raines. The city already qualifies as an enterprise 
community, and has received certain benefits from that. But our 
plan goes further and proposes the creation of an Economic 
Development Corporation that has authority to operate in the 
downtown areas as well as in the low-income communities of the 
city, that will have additional powers that are similar to but 
different in some respects from what is included in the other 
programs that we believe can begin to provide the kinds of 
incentives necessary for increasing economic development in the 
city.
    Mrs. Morella. Can you see that there could be an increase 
in the Federal payment to the District, or there could be some 
amount in addition to this plan, or do you think that this 
totally handles it; in other words, total elimination of----
    Mr. Davis. Would the gentlewoman yield?
    Mrs. Morella. Yes.
    Mr. Davis. Mr. Raines, I would also ask as part of that 
question, would the administration remain flexible if Congress, 
in looking at this, felt that the city still needed some cash 
to operate? Is this an area we are willing to look at together 
and move forward, or is it fixed? As Ms. Norton had said 
earlier, there are pluses and minuses to having this plan for 
the city. One is you get the annual appropriations process, and 
the baggage that comes with it. On the other hand, you are 
having that cash involved, and this is something that I know 
the Control Board has expressed some concern about. I just want 
to understand, I think as Mrs. Morella does, the flexibility we 
have in dealing with this.
    Mr. Raines. Sure. We put this plan together with the idea 
that the city had to come out ahead in any plan such as this, 
and that there had to be a net benefit to the city in the first 
year and an increasing benefit in future years. We believe that 
the plan meets that test, and therefore the city is better off 
under the plan than they are with the Federal payment alone.
    We also believe there are important benefits to the city in 
having the city have final authority over its own budget, and 
final responsibility for that budget. We thought that was an 
important improvement in home rule, but also one that would 
increase management responsibility. But we understand that the 
committee may have additional ideas that it would like to put 
forward, and we would be happy to talk to the committee about 
those in your deliberations.
    Mrs. Morella. I think the concept of the subcommittee is 
the fact that this is a beginning, and it is worth looking 
into, and we may come up with a package, I hope that we do, 
that is going to encompass all of the concerns we have.
    Thank you very much, Mr. Chairman. I would like to also be 
able to submit questions for Mr. Raines.
    Mr. Davis. Without objection.
    Mr. Raines. I would be happy to answer them.
    Mr. Davis. Let me just ask, I don't think there is any 
question that the city is better off under the plan the 
administration has submitted than under the current situation. 
If we can add value to that, as we hope to do as it moves 
forward, I think you will join us in looking at ways we can do 
that. But when you add it up, one of the difficulties is the 
cash situation may not be improved on day one when you lose 
that payment. I think that is part of the concern. But that is 
why we are going to have this dialog and continue to work 
together and hear from everybody, because I think we all want 
the same result at the end of the day.
    This is just a great improvement. I think it has been given 
a lot of thought.
    I yield to my ranking member, Ms. Norton.
    Ms. Norton. Thank you, Mr. Chairman. To follow on the 
Federal payment concern, perhaps you can be as candid with us 
as you have been, why had you incorporated in your plan the 
necessity to forego the Federal payment in the first place? Why 
has it become a necessary element of your plan?
    Mr. Raines. There are several reasons. I think the most 
important one is that, as we looked forward over the next 5 
years, it appeared to us that the likelihood of the Federal 
payment meeting the various purposes for which it has been 
created were small and maybe decreasing. The pressures on the 
budget would be very heavy, and it would be difficult to see 
increases in the Federal payment. If we looked back at the last 
5 years, we could see that the payment has been basically 
static during that period, so that when we came to the 
conclusion that the Federal payment was unlikely to be, in 
reality, a significant part of a new plan, because of those 
fiscal realities, we began to look to alternatives, and the 
alternatives we looked to were for the Federal Government to 
relieve the District of financial responsibilities that were 
burdening it, and that inherently involved increasing expenses 
for the city over time, so if we could not index the Federal 
payment, we could take over responsibilities which were 
inherently indexed because their costs were rising over time.
    So we think that we have managed to move from a situation 
of a static Federal role with regard to the city to one that is 
dynamic, and one that we have included in the President's 
balanced budget plan within the agencies that would be taking 
over these responsibilities. So that was our thinking in how we 
looked at the Federal payment and how we structured the plan, 
and as I mentioned before, the home rule aspects of not having 
the entire District budget appropriated by Congress we believe 
to be attractive as well. We do not believe that you get the 
best out of decisionmakers if they do not believe their 
decisions are final, and therefore, we think there is a real 
benefit in having the city be responsible for its own 
resources.
    There is a major benefit in not having the Federal payment 
in that all the city's resources would then be local, and the 
local officials would be responsible for those resources, and 
would not harbor in the back of their minds that somehow the 
Congress would relieve them of the need to make tough choices.
    Mr. Davis. Ms. Norton, will you yield?
    Ms. Norton. Yes.
    Mr. Davis. You make a good statement. We will ask if the 
city council agrees with this when they come here. But it seems 
to me one of the problems is that the decisions the Mayor and 
council make sometimes are not final decisions, and that allows 
you sometimes not to be quite as responsible in what you are 
doing because you are not firing real bullets, so to speak, 
because somebody else will make tougher decisions, and that is 
part of the difficulty when we build a strong civil service in 
government.
    There has been no tradition in making final decisions and 
being accountable for the final result, because Congress has 
always been there, to overturn inadequate policies. To me that 
ought not be. That is for somebody in local government.
    I am going to be interested in the reaction of the Mayor 
and council at the appropriate time. With that responsibility 
and accountability, I think there is a downside to that. But 
not having Congress looking over your shoulder on every 
decision has some advantages as well. We will be interested in 
how they react. I just think it is a very good point and 
something that the city has lacked, and maybe one of the 
reasons they have not developed the culture of accountability 
that most other jurisdictions have.
    I thank the gentlewoman for yielding.
    Ms. Norton. Thank you, Mr. Chairman. The concern, of 
course, about the Federal payment is well placed, because the 
District is in such a precarious financial position. We have 
had some numbers run on the Federal payment, though, and I must 
say, I have very serious concerns about the Federal payment as 
it is.
    During my first term, we got a very large increase in the 
Federal payment. However, that was to make up for no increases 
for 5 previous years. Every year there is no increase there is 
a cut, and yet the District acts as though the Federal payment 
is something important. Well, it is important, but it is 
important for cash reasons. I want to move there.
    By the way, when we had the numbers run on the over $700 
million Federal payment, it turned out it was worth today about 
half a billion dollars. And that may also contribute to the 
shortfall.
    I want to say for the record that it has been all that I 
could do to get the Federal payment out every year. Members do 
not enjoy voting for a payment for a single district, and what 
they have done instead is, over the past 5 years when we got 
the increase, we have had caps on the Federal payment. So the 
Federal payment has not only lost value in inflationary terms, 
but Congress has actually cut the Federal payment. It is a red 
flag. It is the one thing that people can cut or not vote for 
that does not harm them at home.
    One of the things that we are all going to have to do as we 
look at this plan is to try to think more deeply so that we get 
over some of the problems and don't simply build in the same 
problems that we have had all along. And the 5-year deficit 
reduction plan does not bode well for the Federal payment.
    I can say without fear of being contradicted that if I 
haven't been able to get increases before deficit reduction 
became the only issue for the Congress, I cannot imagine what 
it will take for me to hold on to the Federal payment in this 
body.
    The District's concern about cash is important. Any large 
entity has periods of shortfalls in revenue where borrowing is 
necessary.
    I guess I have two questions. One has to do with whether or 
not there are going to be cash shortfalls at all, and the other 
has to do with collateral and what kind of thinking about 
collateral has gone on given how borrowed-up the District is 
and the limits on its borrowing authority.
    Mr. Raines. Well, as you mentioned, most cities have 
periods of cash shortfalls and surpluses because certain taxes, 
such as property taxes, only are paid twice a year, whereas 
most expenditures are on a monthly basis. So the city is going 
to have to monitor its cash-flow after the plan is in effect to 
ensure that it can even out those periods.
    But we are aware that, from a cash standpoint, the city 
will start off in the hole. That is why we are proposing to 
assist the city in financing its accumulated deficit so it will 
have the cash on hand, and that will help the city meet its 
cash needs.
    Ms. Norton. Would you describe how having the cash from the 
accumulated deficit. Many people have overlooked altogether 
your proposal to fund the accumulated deficit, even the Control 
Board, in its strategic plan, left the accumulated deficit out 
altogether. Which would mean that we would arrive at year 4, 
when we are supposed to be balanced, still carrying half a 
billion dollars in deficit, which would mean that we have the 
Control Board here for a long time trying to get rid of that 
accumulated deficit.
    How would borrowing to fund the accumulated deficit help 
the District with its cash shortfall, and how long would that 
be available, in your judgment?
    Mr. Raines. Well, if the city--the exact amount of the 
accumulated deficit will depend on the financial operations of 
the city through this year. But let's assume that the city has 
a $400 million accumulated deficit. What that means is that 
they spent $400 million more than they brought in over prior 
years, and the way that they have been financing that is by not 
paying vendors.
    If you hold enough bills, it is like any of us if we don't 
have enough money in our paycheck to pay all of our bills that 
month, we let a couple of them ride over to the next month. And 
that caused a real crisis in the city for a lot of vendors, not 
just businesses, but also churches, nonprofit groups who had 
contracts with the city.
    By financing the deficit, the city would get $400 million 
that would permit them to pay its bills on a timely basis. But 
the city would have to then repay that, and we propose to give 
them up to 15 years to repay it. So every year--it would be as 
though the city were atoning for the prior deficits by now 
appropriating sufficient funds to repay the borrowing. So past 
deficits would be financed, and they would be repaid over a 
period of years.
    I believe that financing the deficit will go a long way 
toward, or will totally meet, the cash-flow needs of the city. 
But that is something we are going to have to work out with the 
Financial Authority to ensure that either--that deals totally 
with the cash-flow needs or we have an alternative vehicle 
available for the city to meet small, intra-year cash-flow 
shortfalls.
    Ms. Norton. Many residents point up that the Federal 
payment is, at least theoretically, to account for the fact 
that there is a Federal presence and a large Federal impact, 
because the District has a height limitation, it has more 
zoning strictures than any city in the United States, and of 
course the most expensive land it can't build on at all.
    What is your response to those who say that we are still 
left with this impact and with whatever services we provide the 
Federal Government?
    Mr. Raines. Well, the Federal payment over the years has 
been pointed to as the compensation for a wide variety of 
limitations on the city, and the value of those limitations has 
always greatly exceeded the amount of the Federal payment.
    What we have tried to do is change the paradigm. What we 
tried to say is that this Federal payment can't carry all of 
that weight and what we need to do is, instead of compensating 
the city by giving an annual lump sum payment, we should 
compensate the city by taking over some of its expenses, and if 
we take over more expenses than the value of the Federal 
payment, then this is a better deal for the city.
    But it will take a while, I think, before people 
reconceptualize the Federal payment and see that what we are 
proposing is a new deal. It is not a preservation of the deal 
cut in home rule, but it is a new deal that says that the 
Federal payment is inherently going to be an inadequate measure 
over time of compensating the city for restrictions. We need 
another method of balancing the responsibilities of the city 
and the limitation on the resources that the city has.
    So our approach is just an alternative way of doing it and, 
we believe, one that is better for the city. But I can 
understand why people who have grown up with thinking that the 
Federal payment was the compensation for a variety of things 
would have difficulty moving to a new paradigm, but that is 
what we are hoping that they will do.
    Ms. Norton. Mr. Raines, I appreciate that you came and 
spoke patiently and heard all the questions at my town meeting 
on the President's plan. Perhaps you would like to respond here 
as well, for the record, to the fact that many residents came 
forward to ask why there was not direct assistance to the two 
issues of which--or the two functions which many residents 
regard as paramount today: Public safety and education.
    Mr. Raines. The structure of our plan is to relieve the 
District budget of certain of its very extensive 
responsibilities and thereby provide more room in that budget 
for the city to tackle those responsibilities that are 
inherently local. Education and police protection are 
inherently local responsibilities. We believe that by relieving 
the city of the other financial burdens that they face, that 
the city officials now will have more room in which to deal 
with the issues of education and police within their own 
resources.
    We believe it is very important for the future of the city 
that the city leadership take dramatic action with regard to 
public safety and education. There is no prospect of a 
financial revitalization and an economic revitalization of the 
city unless citizens and visitors feel safe and unless the 
young people in the city are trained to join the work force of 
the 21st century.
    And so there is no higher important issues for the city 
government than dealing with those. But we believe they are 
inherently local, and we believe we are providing additional 
resources for them to deal with those issues by removing 
certain other expenses from their budget.
    Ms. Norton. During this round--I have just one more 
question during this round for you, Mr. Raines. Your plan would 
have the District government come into balance a year earlier 
than the financial authority statute. And you, of course, have 
watched the District go through excruciating pain just getting 
to balance year by year and then retread itself just to keep 
from overspending each year.
    Why did you think it was important for the District to 
balance its budget this year, in fiscal year 1998, rather than 
in fiscal year 1999 as the original authority statute 
indicated?
    Mr. Raines. There are several reasons for our view on that. 
First, any additional deficit that is run up is more money that 
the District is going to have to borrow and repay with interest 
going forward, and it adds to the cash problem that the city 
has.
    Second, it has been my experience that taking decisive 
action to balance a budget in as short a time as possible is 
more likely to lead to an enduring balance than struggling each 
year and doing only what is necessary to move toward a balanced 
budget without actually balancing.
    Third, I think it is an important symbol and signal to 
Congress that the city is taking decisive action, moving ahead 
of schedule to deal with the city's financial problems, and I 
believe it puts the city in the position of taking aggressive 
action on its own that I think is--I know is certainly 
appreciated within the administration, and I would think would 
be appreciated by the Members here, that the city is doing 
everything it can to bring its affairs in order as quickly as 
possible.
    Ms. Norton. Mr. Chairman, before I relinquish the 
microphone, in response to what Mr. Raines has just said, there 
is a thought here in the Congress, the notion that this is a 
bailout.
    You indicated that one reason for wanting us to come into 
balance early is to show that the District has stepped forward 
to do something that is equally painful as the Congress will 
find it painful to come up with any additional money. How would 
you respond to Congress when it says that this is a bailout?
    Mr. Raines. Well, I think that this is definitely not a 
bailout in this sense. First, the Federal Government has an 
interest in the Nation's Capital, and the services that we have 
targeted for the Federal Government to finance are services and 
government programs that directly relate to that Federal 
interest, and therefore our first step is in protecting the 
Federal interest. That we need to do for ourselves and for the 
Nation and not simply for the citizens of the District.
    Second, we do provide some additional room for the city by 
relieving it of some of these responsibilities, but by no means 
are we obviating the need for the city to make very difficult 
financial choices. The city is going to have to significantly 
rethink everything it does in order to reach structural 
balance. This is not just a matter of not spending certain 
dollars in a year, it is not a problem that will be solved by 
furloughs or deferrals, the city will need to fundamentally 
rethink what it does, and therefore I don't think anyone in the 
city will view this as a bailout, as keeping them from having 
to make tough choices. Indeed, it merely highlights the need 
for those tough choices.
    So it is anything but a bailout, it is an opportunity for 
the city, but I believe it is a necessity for the national 
government that we have to have a well-functioning Nation's 
Capital. So the national interest requires us to act, and our 
concern about home rule and the well-being of the residents of 
the District requires us to do it in the way that increases 
their chances of success.
    Ms. Norton. Thank you.
    Thank you, Mr. Chairman.
    Mr. Davis. Thank you.
    I have a few questions I want to go through with you as 
well. First of all, I don't think there is any question--I will 
just say this again--that the city is much better off with this 
proposal than they are today, whether you have a Federal 
payment or not; the city is much better off financially under 
this proposal. It is not even a close call.
    In addition to that, you have taken some of the fastest 
growing elements of the budget that will increase the deficit 
in later years and helped the city by providing a better 
percent on Medicaid; taking over corrections where there is 
huge cost avoidance built into the city that they have not 
invested; and on the unfunded pension liability, that stops in 
the year 2004. If something is not done, it is going to be 15 
percent of the city budget. So this not only helps the city 
today, but over the long term. I think this is critical to the 
city's success.
    You have clearly given this a lot of thought. You have even 
thought of some of the cultural changes and incentives and 
disincentives as you have worked through this. And I even 
understand it better now sitting here. I think we are going to 
be adding some and moving the plan around a little bit, as it 
often happens when it comes here, but you have clearly given 
this a lot of thought. I think it hangs together fairly clearly 
at this point, and we will be hearing from other perspectives 
as we proceed. I want to congratulate you on your efforts.
    I also want to recognize our colleague from Prince 
Georges's County. Congressman Wynn has just come in, and we 
will give him an opportunity to ask questions later.
    Let me move to a couple of issues. Mrs. Morella had asked 
why the initial Treasury provision to finance the debt in 1995 
was dropped from the Control Board legislation. Mr. DeSeve, who 
is sitting behind you, has been so helpful in that and other 
matters, can answer that more clearly. But as I recollect, that 
was a scoring problem as to how that would be scored under the 
Budget Act. I would ask Mr. DeSeve if he might want to, just 
for the record, answer that more fully.

STATEMENT OF G. EDWARD DeSEVE, CONTROLLER, OFFICE OF MANAGEMENT 
                           AND BUDGET

    Mr. DeSeve. During the process of creating the financial 
responsibility and management assistance authority legislation, 
Treasury and the committee staff proposed the terming out of 
the deficit over a period of time, a 15-year period of time. 
There were two concerns raised at that point.
    No. 1, without the existence of the Financial 
Responsibility Authority, people were concerned that the city, 
having the ability before the Authority had a chance to work 
and demonstrate what real fiscal restraint was like, might be 
inappropriate.
    Second, there was and there remains today the likelihood 
that under the Credit Reform Act that a loan of that length, 15 
years, would have scoring implications. There are other similar 
kinds of loans that are made by various agencies to State and 
local governments that have that same characteristic. So let 
the Authority work was concern No. 1. Concern two was that 
there was and will be a scoring component to that particular 
loan. And for those reasons it was agreed by the administration 
and the Congress to allow those provisions not to be included 
in the Financial Responsibility and Management Assistance Act.
    Ms. Norton. Will the gentleman yield?
    Mr. Davis. Happy to yield.
    Ms. Norton. This plan is paid for. Is that not the case at 
this time with all of its provisions?
    Mr. Davis. It is in the President's budget. Now Congress 
has to adopt its own resolutions. But it is.
    Mr. Raines. Yes.
    Mr. Davis. Thank you very much.
    I would like to, if I could, spend this part of my 
questions on the corrections issues, which have not only the 
interest of the Virginia delegation but for all of us because 
of the crime issues in the city. The proposal is going to 
affect crime in the city and the region.
    What do you mean by comparable sentences to Federal 
sentencing guidelines? Does the President's proposal 
contemplate the straight imposition of Federal sentencing 
guidelines on the District courts?
    Mr. Raines. We have been meeting extensively with District 
officials, and there have been meetings within the Justice 
Department to further define our call for sentencing guidelines 
that meet Federal standards. We are proposing the creation of a 
set of standards that reflect Federal policies with regard to 
determinant sentences. We also are proposing that they be 
enacted by the D.C. council as a part of D.C. law.
    They need not be the same as Federal sentencing guidelines, 
but they need to reflect a difference in philosophy about 
sentencing, which primarily involves determinant sentences, so 
that if someone is sentenced for 2 years, they serve for 2 
years. There also need to be a much more restrictive use of 
parole in the sentencing process.
    We think it is important for prisons to serve their 
purposes. It is also important to have some consistency with 
the procedures that affect Federal prisoners, because it is 
clear that some District prisoners will need to be in 
facilities other than those in the local area, and therefore we 
are concerned that there be some consistency in sentences. But 
there is not a requirement that they be identical to the 
Federal sentencing guidelines.
    Mr. Davis. Thank you very much.
    There are many District crimes that fit into the municipal 
or State category and have no comparable Federal statute. Would 
you envision the Federal Sentencing Commission determining new 
guidelines for each of these crimes, or how would this----
    Mr. Raines. We envision setting up a Federal/District 
process to recommend new sentencing guidelines that would be 
included in law by the D.C. council. So these would be 
sentences that were created to be applicable to the District of 
Columbia, and that would fill in any gaps that may exist as 
between how the Federal Government has conceived of sentencing 
and how the local government has. But we view these would be a 
unique set of guidelines affecting the District of Columbia.
    Mr. Davis. What is the timeframe for that? Would we be 
doing that as part of this legislation as we move through, or 
would that come after?
    Mr. Raines. What we will be asking is an authorization for 
us to begin that process. We would see it being completed 
during that 3- to 5-year transition period with the prisons, so 
that it would be completed prior to the Bureau of Prisons 
taking control of the facilities.
    Mr. Davis. Thanks. I couldn't help but notice that the 
proposal recommends that the Lorton complex be renovated where 
possible and even expanded. That was called to my attention by 
interested constituents. Is this something that the President 
intends to insist on, or are we willing to negotiate on whether 
Lorton should be retained or moved to a new location?
    I know that you have some new cost data coming your way 
with the NCCD report that is in your office at this point. Is 
the administration going to be flexible on this, in working 
with this committee and with Congress?
    Mr. Raines. Mr. Chairman, we will certainly be flexible in 
working with the committee on the specifics of how the plan is 
implemented. Our major concern is to ensure that adequate 
facilities will exist for the prison and, as far as possible, 
that these facilities are as close to the District of Columbia 
as possible.
    It is our preference to have these facilities renovated and 
constructed on the Lorton property, because that exists. But we 
will be happy to work with the committee on any ideas that the 
committee might have.
    Mr. Davis. Thank you. Lorton is there. The land is there. 
You don't have to find new land, and for that reason it is very 
convenient. And I understand that, and I think that the burden 
on us is to go and find that we can do this in a cost-effective 
manner and still meet the guidelines that we all want to meet, 
because Lorton, as currently constituted, has failed, and I 
think we all recognize that.
    The numbers that I have seen point to almost $1 billion for 
replacement of that facility where it is now, but as we get new 
cost estimates we want to continue this dialog with you as 
well. We appreciate the administration's being willing to take 
a flexible view as long as we can meet the final goal that I 
think we share with you.
    In one of the briefings I received on the proposal, I heard 
a figure of 10,000 inmates used as a basis of a cost estimate 
of $850 million in capital costs. Now my understanding is that 
there is a new study currently under final review in OMB that 
concludes that in the year 2006 there will be 7,400 felons 
sentenced from the District. I don't know how you conclude what 
you will have in 2006, but they have people that do that.
    Do you know what the rationale is for a 33 percent increase 
in population estimate that was concomitant cost increases over 
the NCCD estimates that were consensus estimates? Have you 
gotten that far in looking at this?
    Mr. Raines. Yes, the study you referred to assumes that 
there is no change in sentencing practice. Our estimate of 
10,000 assumes that there is a change and that there will 
therefore be more inmates who are actually in the facilities.
    Now, there was a lot of ups and downs in this because there 
may be more prisoners but they may be serving, in some cases, 
shorter sentences, and therefore it is not clear all of the 
details of that. But we think that the 10,000 estimate is a 
good planning estimate at this point, given the changes in 
sentencing.
    Mr. Davis. What about the prison privatization issue? The 
Federal Bureau of Prisons generally does not get into that, it 
is my understanding. As you know, the District is already 
moving toward privatizing at least a large portion of its 
inmate population control, and it has a long-range plan to do 
more in that direction. Does that remain a viable alternative?
    Mr. Raines. Well, the Bureau of Prisons has spent a lot of 
time studying the issue of privatization, and particularly in 
the context of a couple of facilities in California. The 
Department of Justice has some serious concerns about 
privatizing prison facilities, given the extraordinary powers 
that prison guards and officials have over the lives of the 
prisoners and the need to take and to use the police power to 
maintain order in prisons.
    But we did not rule out privatization of some parts of the 
system should the Bureau of Prisons believe that that is the 
most effective way to go and that it is consistent with the 
need for the maintenance of order.
    Mr. Davis. So as we look at these numbers and deal with 
them, we could find that it could make sense for the Federal 
Government to take over D.C. Corrections and perhaps privatize 
them ourselves rather than incur higher BOP costs. We need to 
work through those issues?
    Mr. Raines. We need to work through it. I am not sure that 
there is going to be a major cost difference here, but again, 
the Bureau of Prisons has done quite a bit of work on this and 
has some fairly strong feelings about the concerns about what 
happens, for example, in the case of prisoner disorders and the 
need for the guards on the premises to exercise police powers. 
If it is a purely private facility, questions arise as to the 
appropriateness of the use of force and other measures that 
have caused them some concern as they look at the issue.
    But I am sure that the representatives from the Bureau of 
Prisons would be happy to meet with the committee and go over 
their concerns as well as provide the committee with the 
benefit of the work they have done.
    Mr. Davis. Just a couple of other questions before I yield 
to the gentleman from Maryland. Who would administer the courts 
under your proposal, and who administers them now?
    Mr. Raines. The courts are essentially self-administered 
now, although financed by the city government. The city 
government provides a lump sum to the courts, and the courts 
then utilize those funds to finance themselves.
    Under our plan, the management of the courts would remain 
the same. We would simply have the funds come from the Federal 
Government through the Administrative Office of the Courts--of 
the Federal Courts, and then to the local court system. So 
there would not be a substantial change in how the courts are 
managed.
    Mr. Davis. Are there real policy or principal reasons that 
the Administrative Office of the Courts couldn't and shouldn't 
oversee the District courts?
    Mr. Raines. Well, we have had a number of discussions with 
them. They are quite busy. They have a full plate in 
administering the Federal courts, but we believe they are the 
most appropriate administrative agent for funds for the D.C. 
courts.
    It would be difficult to do it through the Justice 
Department because the Justice Department appears before the 
courts so extensively that some might believe that there was a 
conflict of interest if the Justice Department also controlled 
the funding for the courts.
    Mr. Davis. Thank you very much.
    Well, before I yield to the gentleman from Maryland, I just 
want to note that we have had some suburban Members here. I 
think the great thing about what you have proposed and the way 
we hope to conduct this is that we no longer have suburbs 
versus city in these conflicts. We are going to try to move out 
of this and move to the fact that our destinies are intertwined 
and we are one region and we all have a strong investment in 
making the central city work. And I know that Mr. Wynn shares 
that with me, and in that regard I am happy to recognize the 
gentleman from Maryland.
    Mr. Wynn. Thank you, Mr. Chairman. And I concur with your 
sentiments about the interdependence of our region. And I thank 
Mr. Raines for appearing today.
    I apologize for not being here for the beginning of your 
presentation. I have a couple of questions that I hope have not 
been covered or explained.
    One of the fundamental issues of concern to me has to do 
with law enforcement. I understand and heard your comments with 
regard to the takeover of the court system. My first question 
is: Is there any direct assistance for the District of Columbia 
Police Department? Is there any aid going to the D.C. Police 
Department under this proposal?
    Mr. Raines. Under our plan, we are taking over certain 
functions that will provide additional budget room within the 
District's budget, that the local officials can choose to 
invest in the police department.
    But we are also quite interested in working with the 
Financial Authority on their efforts to try to improve 
management in the police department, and we will be working 
with them and providing whatever technical assistance we can 
from any of the Federal law enforcement agencies to help 
improve the functioning of the police department.
    And so the benefits for the police department come from 
expanded room in the District budget and technical assistance 
that we have offered to make available.
    Ms. Norton. Will the gentleman yield on the police 
department question?
    Mr. Wynn. Certainly.
    Ms. Norton. I just want to indicate to the gentleman that 
the Congress negotiated a plan for an additional $42 million 
for the police department last year. Working with Senator 
Hatch, the chairman of the Judiciary Committee in the Senate we 
were able to get $15 million. The needs of the police 
department are immediate. I believe that the Federal Government 
now owes us $27 million and that we cannot wait for this plan 
or any plan to get that money. And I intend to use the next few 
weeks to get the additional $27 million that I think we have 
coming to us.
    Mr. Wynn. Well, I certainly share your concern, and have a 
similar sense of urgency with respect to funds for the police 
department, which actually led to my next question. I 
understand that basically by assuming certain pension liability 
for the police department, that that would be the basis on 
which these additional funds, additional space if you will, 
would be created to provide. How much money approximately would 
be available to the D.C. government as a result of the takeover 
of the pension liability that could be used in whole or in part 
for the police department?
    Mr. Raines. We have not divided the dollars by the 
components of the plan, but I believe we begin, in the first 
year, in the range of $60 or $70 million and that rises over 
time. That is the net value of what we are taking over minus 
the Federal payment.
    Mr. Wynn. Sixty million? OK. And you mentioned that there 
were certain management improvements with respect to the police 
department that you thought were necessary. Could you comment 
briefly on that?
    Mr. Raines. Our plan does not have extensive detail on 
that, but let me just say this. The experience in a number of 
other cities has been that using information technology, 
changing patrol practices, and maximizing the number of 
officers on the street have a significant impact on crime. And 
these kinds of changes have been introduced in part in the 
District, but not as aggressively as in other cities. We 
strongly encourage the city to use the most advanced thinking 
on deployment of police resources as they deal with the issues 
of crime.
    The Control Board has just received a study that I have not 
yet seen, but I have read the press reports, and I think it 
begins to address some of these issues. I look forward to 
working with the Control Board to see what additional help the 
Federal Government might provide to assist the police 
department in becoming one of the best in the Nation, and in 
using the most modern techniques to have a very direct impact 
on crime.
    Mr. Wynn. Well, I agree. I noted in recent reports that New 
York City had had significant success by dramatically 
increasing the number of officers on the street and that would 
be something that I think could work in this area as well.
    Let me ask briefly in the area of economic development, I 
understand that there is some consideration or proposal for a 
tax incentive program to spur economic development. Could you 
comment a little bit about the specifics of what would be 
envisioned in terms of the tax incentives?
    Mr. Raines. We have proposed the creation of an Economic 
Development Corporation that would have certain powers. Among 
those, the ability to provide tax incentives to businesses. The 
actual details of that are not yet available. I hope that they 
will be in the next week or so we will be able to give you the 
specific items and what the tax advantages are, how they would 
work, and who would qualify. But I think we are still about a 
week away on that.
    Mr. Wynn. Would capital gains relief be included?
    Mr. Raines. It is not our current plan to include any 
capital gains provision in the proposal.
    Mr. Wynn. All right. Thank you, Mr. Chairman. At this time, 
I wouldn't have any further questions. I would like the 
opportunity to perhaps submit some written questions at a later 
date.
    Mr. Davis. Happy to. Thank you.
    Ms. Norton.
    Ms. Norton. Thank you very much, Mr. Chairman. Mr. Raines, 
as you know, when District employees were Federal employees, 
Congress saw fit never to set up a trust fund for pensions. 
When pensions were finally transferred in 1980, the Congress 
set up--the Congress required the District to set up a trust 
fund and to contribute amounts such that now our pensions since 
home rule are significantly overfunded.
    In that regard, would you indicate why transferring that 
entire amount--why it is that your plan calls for transferring 
that entire amount to the Federal Government?
    Mr. Raines. Well, our plan involves taking over virtually 
all of the unfunded liability of the District pension plans, 
and that unfunded liability is considerable. It is in excess of 
$4 billion. The total liability is in excess of $7 billion. And 
so that the funding that has been generated since 1979 has kept 
the unfunded liability from growing totally out of control, but 
the liability is still quite large.
    Rather than trying to find a methodology of sharing that 
unfunded liability, or of coming up with new Federal dollars to 
go into the pension plan, it struck us that it was more 
consistent with our overall approach to simply relieve the city 
of the full responsibility. And if we are going to relieve them 
of the responsibility for those benefits, we need, as well, to 
acquire the assets that are now offsetting part of that 
liability. And that is what we propose to do.
    You should recall that the assets are an estimate of what 
will be available to fund the liability. But if for any reason 
the performance of the economy and the performance of the stock 
market doesn't meet the estimates, then the unfunded liability 
would be larger. If we take it over, the pensioners will be 
assured with the full faith and credit of the United States 
that they will receive their benefits, regardless of the 
performance of the stock market. So that from the standpoint of 
beneficiaries we believe this is a very--it is very important, 
and from the standpoint of the city, removing this entire 
liability and giving the city a fresh start, we think, is 
important to the long-term financial health of the city and to 
its credit ratings.
    Ms. Norton. You propose that the present pension plan would 
be closed with no further accruals to that plan, and that a new 
plan would be instituted for the very same employees who are 
here and so they would be subject to two plans. Do you envision 
that an employee would risk final receipts of pensions in the 
amount that she would have had had there been only one pension 
plan? In other words, will going to two pension plans in and of 
itself diminish the pension of individual employees?
    Mr. Raines. No, it should have no impact on the individual 
employee. They will receive credit for their time served under 
the existing plan. They will receive a benefit that is 
calculated based on looking at their terminal pay, just as they 
would under the current plan. So there is nothing in our plan 
that by itself would result in any diminished benefits to 
employees.
    And as I mentioned, there is an added improvement in that 
the payments would no longer be subject to the vagaries, at 
least on the older plan, or whether or not the District would, 
in fact, be able to meet that unfunded liability.
    One of the issues, I think, that has not been addressed by 
many, but Chairman Davis mentioned, the increase in the 
requirement for the city contributions to the pension plan in 
2004 are enormous. And I don't believe anyone has identified a 
plan whereby the city would actually be able to make those 
payments. We think that our plan forestalls that issue and does 
so before pensioners and others would become concerned about 
the fact that the city does not have the financial wherewithal 
to increase its payments by the amount now required in law.
    Ms. Norton. I can certainly tell you that having worked 
very hard on a pension bill last year that I grow very nervous 
if anyone in the District thinks that the Congress has any 
interest in stepping up on this issue. It is frightening. It 
has been frightening to see how little response I get when I 
talk about what would really be the biggest catastrophe of the 
city and that is either not doing it or waiting so long to do 
it that you have untold repercussions on our bond and on 
everything else that the District has.
    This is a very, very troublesome issue because the Congress 
is 100 percent responsible and has shown not the slightest 
interest in doing anything about it. This is a 100 percent 
congressionally created liability.
    May I ask one more question, and that is about the notion 
that the Internal Revenue Service collect taxes for the 
District, including local taxes. First, how would this occur? 
What are the mechanics of how this would occur, especially for 
the ordinary taxpayer?
    Second, what efficiency does this build in for the District 
government? And third, if this is already available to the 
States, why do other States not also do it at this point?
    Mr. Raines. From the efficiency standpoint for taxpayers, 
this would be a major breakthrough. They would no longer have 
to file separate returns with the city, but they could 
calculate their city income taxes as well as their Federal 
income taxes on the same form. And that would be a major 
efficiency for the city.
    Also, the city, being a small part of a larger region, has 
some unique enforcement problems and that is that it is not 
able to determine what jurisdiction people may be living in and 
has not been able to take advantage of some of the matching 
programs that the States use in working with the Internal 
Revenue Service ensuring enforcement of their tax laws.
    Third, I believe that the economic incentives that we will 
be suggesting as part of the Economic Development Corporation 
will depend greatly on residence of employees. And one of the 
ways of ensuring that the city gets the benefit from these 
incentives in its tax system is to ensure that those new 
employees are, in fact, paying District taxes.
    The experience elsewhere with this option has been, at 
least my experience in the couple of States that I am aware of 
who have looked at this question, has been that those States 
were large enough in general and sufficiently isolated in 
particular from surrounding jurisdictions that they didn't have 
these cross-border problems that were of concern and they are 
large enough to afford the kind of system that you need to 
enforce an income tax jurisdiction.
    The District is a relatively small jurisdiction and does 
not have access to a lot of the tax tools that other agencies 
have, and therefore I think the city would uniquely benefit 
here. Both that the citizens would have a more simplified tax 
return, but also the Internal Revenue Service enforcement 
mechanisms would be available and we believe it could have a 
salutary impact on the total amount of taxes actually paid to 
the city.
    Ms. Norton. The District has a reputation for inefficiency. 
No inefficiency, though, is greater in the District than the 
notorious inability to collect the taxes that it enacts into 
law and apparently doesn't see. To the extent this would help 
this, I would be interested in exploring it further. Thank you, 
Mr. Chairman.
    Mr. Davis. Frank, I just have a few more questions on the 
Economic Development Corporation. Two things to flush out on 
that and I am sure that will have the option of a lot of give 
and take as we move through it. I want to make sure I 
understand what you have in mind.
    Could you explain what would the geographical area of 
operation be for the Economic Development Corporation? Would it 
be the whole city; what authorities it is intended to have and 
what is the funding source and the level?
    Mr. Raines. Well, the primary area of activity of the 
corporation will be the central business district and those 
communities outside of the central business district that have 
a large percentage of low-income people. It is not our current 
thinking that it would be active in the higher income areas 
where there is substantial amount of economic activity 
currently taking place.
    We intend to fund the corporation with up-front money to 
capitalize it, but also making available tax credits that could 
be part of its program. We also think that the corporation 
should have an extensive involvement with the private sector, 
since economic development in this city as well as any other 
city, has to be really driven by private investment, private 
job creation, and so that there will be a close tie to private 
economic activity.
    And it is our desire to attract private capital as well to 
the corporation to supplement the funds made available by the 
Federal Government in the initial capitalization so that 
activities ranging from major development projects to job 
training and job creation would be effective under the 
corporation.
    Mr. Davis. OK. Is this at all similar to the Pennsylvania 
Avenue Development Corporation and the proposed New York Avenue 
Development Corporation?
    Mr. Raines. It is really not as geographically focused. 
They may well decide to have a focus on a particular area, but 
it would not be the entire focus on any one particular area. 
Second, there would be more reliance on the tax system and tax 
incentives as opposed to direct Federal appropriations.
    Mr. Davis. What about the redevelopment land authority? 
Would this corporation assume or be capable of assuming some or 
all of that responsibility?
    Mr. Raines. Well, that is one issue that we have had some 
discussions on and really don't have a conclusion. I could see 
the city deciding, or this committee deciding, that combining 
certain other economic development activities as part of the 
corporation might be beneficial. We really haven't come to a 
conclusion there. But the more that we can have a coordinated 
effort, I think, the better.
    Mr. Davis. What about the corporation assuming control over 
existing District-owned land that is determined to be surplus? 
For example, you could have a number of school sites perhaps 
coming available with General Becton looking at some school 
closings. That could be a good catalyst if it is put under some 
central authority.
    Mr. Raines. We think it would be beneficial for the 
corporation to have access to land that it could include in its 
development plans. Indeed, it would be our hope to make 
available where we could Federal lands that had been declared 
surplus that might be available for economic development and 
the extent to which the city could do the same thing, I think 
that it might be helpful.
    The private sector orientation of the corporation, I think, 
would be important. There is something of a history of land 
being allocated for certain developments and those developments 
not happening for many, many years. And I think it would be 
necessary to ensure that development projects could move 
expeditiously as the result of the corporation's activities.
    Mr. Davis. OK. Do you think it would be helpful for the 
city to have one agency authorized and responsible for all 
surplus district properties so that it could put together 
adequate parcels for development? Is that not a determination 
that this proposal makes?
    Mr. Raines. We have made no determination on that as part 
of this plan.
    Mr. Davis. Many District government buildings, public 
housing, schools, police stations, are built on federally owned 
land. Would the administration support transferring these 
parcels, most of which were acquired for District-only purposes 
over the years, to District ownership?
    Mr. Raines. We would be happy to work with the committee in 
looking at the particulars to see the extent to which that 
would make a difference in the success of the plan.
    Mr. Davis. Finally, how would this corporation be governed? 
Is it intended to have District participation but not 
domination? Would it be charged with protecting Federal 
interests as well as District interests? Any conclusion on that 
yet?
    Mr. Raines. Our view is that the corporation ought to be 
primarily made up of private sector individuals appointed by 
some combination of the Federal Government and the local 
government.
    Mr. Davis. OK. And moving to the last topic. As you know, 
all of the District's general obligation debt carries a proviso 
that if other funds are not available, the Federal payment can 
be used as security for the debt. We ran into considerable 
discomfort from the existing bondholders on this issue 2 years 
ago when we allowed the Federal Treasury to use the Federal 
payment as collateral for short-term loans.
    How do you expect the elimination of the Federal payment to 
affect the value and liquidity of outstanding District debt and 
on the District's future bond rating? I don't know if you want 
to answer that or Mr. DeSeve. He doesn't want to take it.
    Mr. Raines. Well, Mr. Chairman, I actually wrote the bond 
indenture for the District of Columbia many years ago, and I 
believe it is a very strong indenture. As I recall, the actual 
reference is that the Federal payment, if any, is available for 
support of the bonds.
    I think the most important thing we can do in supporting 
the value of the District's bonds is to remove the financial 
cloud over the city, particularly by eliminating the concerns 
about the pension liability. So if you take the plan as a 
whole, I believe it would be a very strong net positive for the 
bonds, far more than the prospect of using the Federal payment 
to meet the payments. Currently, the bonds have a very strong 
security in the property tax and, as long as that security is 
respected and enforced by the courts, I think it should be 
adequate security for bondholders.
    Mr. Davis. Thank you very much. Mr. Wynn, do you have any 
additional questions?
    Mr. Wynn. Thank you, yes, just one. Going back to the issue 
of the Federal Government assuming responsibility for prisons, 
I note that prison staff would not be automatically integrated 
into the Federal Government system, but would have to reapply 
based on their ability to meet Federal standards. That gives me 
some concern. What exactly is the difference between the 
current Federal standards and the District of Columbia's 
standards now?
    Mr. Raines. Well, they were developed separately, and I 
think the Bureau of Prisons wants to ensure that all of their 
employees have met the standards, have had similar training, 
and will be able to be successful.
    I think there would be a reluctance, as I think there is a 
reluctance in any of these cases, to simply have a blanket 
promise that everyone will be hired who is currently employed. 
It is one of the things that will have to be worked out during 
this transition period, is what is the necessary employment 
levels; is the structure of the work force that is currently in 
the prison system the same as the one that the Bureau of 
Prisons would like to operate? What is the level of supervision 
and the number of supervisory personnel?
    So there are a lot of issues that are going to have to be 
worked out, but I think the Bureau would be very reluctant to 
give a blanket promise that everyone who is currently employed 
would have a job under the new system.
    Mr. Wynn. Would it make sense to provide for a transition 
period so that if the issue was training and a number of hours 
of training or something like that, that existing personnel 
could obtain that training without being immediately discharged 
purely because they lack this specific training component that 
the Bureau of Prisons personnel had that they had never been 
offered?
    Mr. Davis. Will the gentleman yield? We would be very happy 
to work with the administration on those kinds of things to 
bring people up to the required hours and so on on this. I 
would think that would be a possibility and would be very 
helpful. You could retrain people instead of hiring new people 
with a proven record.
    Mr. Raines. Absolutely. And we provide for a 3 to 5-year 
transition period and during that period it would be my hope 
that not only would the physical facilities be improved, but 
also any training necessary that would be comparable to that 
provided to the Bureau of Prisons would also be provided so 
that the vast majority of employees would know on the first day 
that they had been retained once the Bureau of Prisons takes 
control. So we don't view there would be an abrupt moment. We 
view this 3 to 5-year period as not only dealing with physical 
capital, but also human capital in the system.
    Mr. Wynn. It sounds like between your comments and those of 
Chairman Davis that this issue could be resolved without the 
loss of prison personnel that could otherwise be qualified to 
be employed by the Bureau of Prisons.
    Mr. Davis. I would think that the prison employees who have 
the experience and would accept the training would be a great 
asset, obviously. These are issues that we need to think and 
work through together. You have a number of affected 
constituents, but on the other hand, the Bureau of Prisons has 
to ultimately make this determination or they are not going to 
want to be involved. But I would think there would be room for 
most of the people.
    Ms. Norton.
    Ms. Norton. To my good friend from Maryland, I should say 
for the record that the nature of his questions say all that 
needs to be said about where District employees live.
    Mr. Wynn. Throughout the region, it is my understanding.
    Mr. Davis. Is that your question?
    Ms. Norton. No, it is not, and I appreciate his help on 
that issue because at least a few of them live in the District.
    I have only one question, and that is about an element of 
the proposal that your working group is having some difficulty 
with, and they are trying very hard and working very well, and 
that is the National Capital Infrastructure Fund. Anybody who 
goes outside now, even after the District has been struggling 
on the streets, finds that the potholes have reappeared.
    I mean, this is one of the reasons why the morale of 
citizens cannot be raised. It is what you see and feel and 
touch. There has just not been enough of what you see and feel 
and touch that has changed in this city to keep people here and 
to keep their morale up so they believe something is going to 
happen.
    So, though this amount is small, it is very welcomed 
because it is an acknowledgment that the care of roads is also 
a State function or of many roads is also a State function.
    The problem here, and I understand the amount, but the 
problem here is that we are talking about only $125 million, 
and with the thought and forethought and careful craftsmanship 
that have you given every part of this proposal, you see this 
as seed money, not as money just to be spent on some roads 
during the next 5 years.
    The problem is that it has to be seed money for something, 
and you indicate something that the city council could do right 
now, and I still don't understand why it has not been done. You 
indicate one thing that could be done that was. It would be 
payment in lieu of taxes that right now the city council and 
the Mayor could, in fact, be negotiating with the multitude of 
nonprofits that are in the city. I know that the National 
Education Association stepped forward itself and said here we 
are, negotiate with us. And I still don't know if their offer 
to pay 40 percent of the tax that they would otherwise pay has 
been accepted. All I know is that they have offered it.
    You put that in your proposal, except of course it is not 
directly related to roads. So it is seed money and perhaps 
would mean that that fund would grow because that amount would, 
I take it, would come into that fund over time.
    Now, if we were a city of another type, the amount could 
grow because of a revenue function that might be connected to 
roads and bridges themselves, such as tolls for example. That, 
of course, is not going to be possible, certainly within the 
city. And I wonder whether or not you believe that an amount of 
this kind can, in fact, be leveraged sufficiently to help us 
with local roads and with capital funds as your proposal says, 
with capital funding so much less, or whether the amount is 
simply too small to ultimately be leveraged for a purpose 
beyond, for example, the 5 years.
    Mr. Raines. Well, we would be very desirous of working with 
the committee on this issue. It is--in our view it is very 
important for the Nation's Capital and for the region and for 
the city that the city's transportation infrastructure be first 
rate. And the investment in that transportation infrastructure 
has lagged over a number of years to the extent that we now 
have had to waive the local match for highway funds because the 
city otherwise would not be able to move forward on very 
important projects that affect the whole region. And we view 
this National Capital Infrastructure Fund as a first step in 
dealing with transportation issues in the city, but also ones 
that intimately affect the region.
    So many of the employees in the city come from outside the 
city that there is a tremendous reliance on this system, on the 
Federal Government for its own employees relying on it 
substantially. Metro is the heart of our regional 
transportation system and we believe we have to find ways to 
increase the investment in that infrastructure. So we believe 
that this fund is a first step in that direction.
    We have suggested that others may be interested in 
contributing to this fund because of the regional impact. There 
has been some reluctance by entities to provide funds to the 
city because they were concerned as to whether or not the funds 
would be used for anything that was relevant to their own 
interest. But because the roads and bridges and Metro are so 
clearly of interest to the employers in the city, whether they 
are for-profit or nonprofit, because it is of such importance 
to the region because if the city is unable to pay its share of 
these costs, then the Metro and other facilities would 
deteriorate to the detriment of the region as a whole, that we 
are encouraging as many thoughts as possible about how can we 
attract other funds to this fund. And how can we deal with 
regional transportation issues generally through a mechanism 
such as this and starting with the District of Columbia?
    Ms. Norton. So consistent with your plan might be a 
regional fund that would be dedicated solely to regional 
transportation issues without prejudice to one or another 
aspect of those issues? For example, when you say there should 
be a gas tax and then people say, ``No, I want it for Metro,'' 
and when you say, ``It is for Metro,'' people in other parts of 
the region say, ``I can't use Metro because of where I live, 
no, I still need roads.''
    Do you envision that this fund could be the beginning of a 
larger regional fund that could be a win-win for the entire 
region contributing to transportation needs wherever they may 
be, whether in rapid transportation or in roads?
    Mr. Raines. Well, as you know, in my role as the Budget 
Director, I have the opportunity to visit with people in the 
region about special regional needs, and the Federal Government 
has had a special relationship with this region. The most 
notable example is Metro, which has its own stream of funding 
from the Federal Government quite separate from the funding 
that is made available through the national programs. And so I, 
from time to time, hear about special regional needs, and I 
think it would be highly desirable if the region were to find a 
mechanism to deal with regional transportation concerns that 
provided capital funds on a continuing basis for these 
endeavors.
    The region has more in common than in some cases the 
suburbs in the region have with other parts of the State that 
they are in.
    So it strikes me that if the local leadership in the region 
could conceive of a means of financing capital for 
transportation, it would be indebted to the region, and, as the 
Federal budget director, I could well see how there is a 
national interest in ensuring that that mechanism worked well 
enough because of the impact on the Nation's Capital and the 
National Capital region.
    We have employees throughout the region; we have facilities 
throughout the region. If the transportation system does not 
work, then that is a problem for the Federal Government.
    Ms. Norton. This may be a very important opportunity for 
the region to get hold of some of the issues that were raised 
at the recent metro conference, where the bus system, for 
example, has broken off to such an extent that there is very 
serious concern about the future of Metro.
    I hope that the kind of imaginative thinking you have 
brought to District matters will encourage the region to bring 
the same to its own transportation matters.
    Thank you very much, Mr. Chairman.
    Mr. Davis. Thank you very much.
    Do you want to add anything in summarization of anything 
you have missed or something you would like to respond to?
    Mr. Raines. Mr. Chairman, I would just like to thank the 
committee for your interest in this proposal, your moving 
expeditiously with hearings, and the opportunity to have worked 
with the Members as we developed and presented the proposal.
    I think it bodes well for the future of the District that 
Congress has taken up this issue in such a forthright manner, 
and I look forward to working with you to see if we can get 
legislation as expeditiously as possible, so all the work that 
will be needed to move this plan into actuality in the next 
fiscal year, which begins October 1, can begin as soon as 
possible.
    Mr. Davis. I think we should be able to meet that deadline 
in working together. Today you have acquitted yourself and have 
shown that the administration has planned very well; I think, 
as is appropriate in the legislative process where we need to 
do that. I am personally energized by the attitude and 
initiative from the White House and from congressional leaders. 
We have a once-in-a-generation opportunity to make things 
happen. We have the Republicans and Democrats, Congress and the 
administration, city and suburbs, working together, recognizing 
we have some structural tasks ahead of us.
    I think the Control Board, who we did not talk about today, 
have brought about a lot of the changes. Although we read about 
bad news, a lot of this has been uncovered by the work they are 
doing. The Control Board should be working with the Mayor and 
council on the day-to-day functions. Congress should not be 
doing that. I think you have correctly focused on the larger 
structural issues that have to be addressed if the city is 
going to be successful.
    I also would just note the newly emboldened city council, 
and the fact that they are showing some initiative on this 
cannot help but make this a very satisfactory answer at the end 
of our journey. I will look forward to hearing from the Mayor 
and council in the near future, and I thank my colleagues for 
being with us today.
    The hearing is adjourned. Thank you very much.
    [Whereupon, at 11:35 a.m., the subcommittee was adjourned.]

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