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



    THE WHITE HOUSE PROPOSAL FOR DC BUSINESS AND COMMUNITY LEADERS' 
                              PERSPECTIVE

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

                                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

                               __________

                             MARCH 25, 1997

                               __________

                           Serial No. 105-23

                               __________

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


42-192              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2002
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

              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, District of 
ILEANA ROS-LEHTINEN, Florida             Columbia
STEPHEN HORN, California             THOMAS H. ALLEN, Maine

                               Ex Officio

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


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 25, 1997...................................     1
Statement of:
    Green, John L., DC Chamber of Commerce, accompanied by Kwasi 
      Holman, executive vice president of the DC Chamber; and 
      Sheldon Repp, vice president and associate general counsel 
      of Sallie Mae and chair of the Chamber's Government Affairs 
      Policy Committee; and Roger Blunt, Greater Washington Board 
      of Trade, accompanied by John Tydings, president of the 
      Board of Trade.............................................     7
    O'Cleireacain, Carol, Brookings Institute; and Steve Fuller, 
      George Mason University....................................    39
    Williams, Joslyn N., president, Metropolitan Washington 
      Council AFL-CIO; Kathryn Pearson-West, executive co-
      chairperson, Coalition for Political and Financial 
      Accountability, Inc.; Mark Thompson, president, DC Branch, 
      National Association for the Advancement of Colored People; 
      and Reverend Joseph Daniels, Washington Interfaith Council.    81
Letters, statements, etc., submitted for the record by:
    Blunt, Roger, Greater Washington Board of Trade:
        Information concerning successes of other cities.........    33
        Prepared statement of....................................    17
    Daniels, Reverend Joseph, Washington Interfaith Council, 
      prepared statement of......................................    84
    Davis, Hon. Thomas M., a Representative in Congress from the 
      State of Virginia, prepared statement of...................     2
    Fuller, Steve, George Mason University, prepared statement of    57
    Green, John L., DC Chamber of Commerce, prepared statement of    10
    Morella, Hon. Constance A., a Representative in Congress from 
      the State of Maryland, prepared statement of...............    76
    Norton, Hon. Eleanor Holmes, a Representative in Congress 
      from the District of Columbia,
        Article from Business Times, dated March 17, 1997........    74
        Prepared statement of....................................    69
    O'Cleireacain, Carol, Brookings Institute, prepared statement 
      of.........................................................    43
    Pearson-West, Kathryn, executive co-chairperson, Coalition 
      for Political and Financial Accountability, Inc., prepared 
      statement of...............................................   101
    Thompson, Mark, president, DC Branch, National Association 
      for the Advancement of Colored People, prepared statement 
      of.........................................................   110
    Williams, Joslyn N., president, Metropolitan Washington 
      Council AFL-CIO, prepared statement of.....................    92

 
    THE WHITE HOUSE PROPOSAL FOR DC BUSINESS AND COMMUNITY LEADERS' 
                              PERSPECTIVE

                              ----------                              


                        TUESDAY, MARCH 25, 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 11:10 a.m., in 
room 2154, Rayburn House Office Building, Hon. Thomas M. Davis 
(chairman of the subcommittee) presiding.
    Present: Representatives Davis, Morella and Norton.
    Staff present: Ron Hamm, staff director; Howard Denis, 
counsel; Ellen Brown, clerk; and Cedric Hendricks, minority 
professional staff member.
    Mr. Davis. Good morning. Welcome to the fourth information 
hearing on the President's National Capital Revitalization and 
Self-Improvement Plan.
    In order that we can move right ahead to the witnesses, I 
am going to ask unanimous consent that my statement go into the 
record. We look forward to hearing from many of our local 
leading business and community leaders today.
    I want to thank all of you for working with us as we 
proceed to fashion a positive and historic restructuring of the 
Nation's Capital.
    I would now yield to Delegate Norton for any opening 
statement she may wish to make.
    [The prepared statement of Hon. Thomas M. Davis follows:]

    [GRAPHIC] [TIFF OMITTED] T2192.001
    
    [GRAPHIC] [TIFF OMITTED] T2192.002
    
    [GRAPHIC] [TIFF OMITTED] T2192.003
    
    Ms. Norton. Thank you, Mr. Chairman. I would like to make 
an opening statement, an explanation of what is an unusual 
hearing for this subcommittee.
    When I asked Chairman Davis for a hearing that would 
include direct testimony from DC residents, he readily agreed, 
and I very much appreciate his willingness to provide time for 
DC residents and business representatives to testify.
    Generally, if a matter involves DC government, Congress 
looks to its elected Representatives for testimony, as we have 
done in this case. In this way, Congress observes Home Rule and 
avoids the appearance and the charge that it is going around 
the city's duly elected representatives, who alone answer to DC 
residents.
    However, because this plan, at least in some areas, would 
change the relationship between the District and the Federal 
Government, without a referendum, I believe that it is 
important to hear formally from at least some representatives 
of the local organizations. At the same time, the 
subcommittee's time is so limited that I can make no claim that 
we have been able to invite all of those we should hear from or 
that those who will testify here are entirely representative. 
However, I appreciate the deep interest that the organizations 
who will testify today have shown in the city's problems and 
their solutions.
    Today's testimony will supplement the efforts of the White 
House and my office to cast a far broader net across the entire 
city to encompass as many groups as possible. These include my 
town meeting on February 10th, where the chief architect of the 
President's plan, OMB Director Frank Raines, came and stayed to 
answer residents' questions; two city council hearings held by 
Councilmember Pro Temp Charlene Drew Jarvis and Councilmember 
Frank Smith, the record of which I will place in our record; 
and a White House meeting attended by ANC commissioners, union 
representatives, and civic organizations.
    In addition, I have personally spoken and received feedback 
at meetings concerning the plan, as has the White House liaison 
to the District, Carol Thompson Cole, and members of my own 
staff.
    I particularly value today's testimony because work on 
changes in the President's plan is in progress. Despite 
constructive criticism and my own reservations about parts of 
the plan, the response of elected officials and residents has 
been generally positive. The plan goes beyond what most 
residents expected, but not beyond what this city deserves. The 
administration has been asked to respond to the testimony 
received thus far on the President's plan.
    This subcommittee is using the President's plan as its 
working document as we decide which shape the final bill will 
take for two reasons. The first is that the plan has compelling 
conceptual underpinnings. The second is that the plan 
realistically addresses two audiences: the District, which 
needs what the plan provides and more, and the Congress, which 
this year is largely focused on deficit reduction.
    May I once again welcome today's witnesses and may I thank 
the chairman once again.
    Mr. Davis. Thank you.
    I want to make a couple of comments. It is clear to me that 
whatever legislation emerges, it must provide a real map for 
growth in the city. I think the local taxes and regulation are 
a disincentive to sustain growth and that specific relief is 
necessary in these areas. That is the best way we can add value 
to the President's very helpful proposals.
    Many of the studies that have been submitted to us, have 
made the point that in lowering taxes. It may be the only way 
to bring the District back, but it is local taxes and fees 
which are disproportionately high and encourage people and 
businesses to leave or never arrive in the District.
    It is also overregulation and dysfunctional bureaucracy 
which inhibits business formation and expansion. For example, I 
am aware it took American University 18 months to get a permit 
to replace a boiler, and I also recall that it took Delegate 
Norton more than a year to get a building permit to put a deck 
on her house. These examples reflect a culture of public 
performance that must change.
    She didn't ask me to say that, but when I found out about 
it I thought I would.
    These changes are necessary before even the best designed 
and intended economic development plan can have even a hope of 
succeeding.
    Education and public safety remain two of the most serious 
concerns in reversing the city's downward population slide. The 
Booz-Allen report shows us very clearly what we have to do to 
improve and enhance personal and public safety. Unless we are 
able to come to grips with these core municipal issues, 
anything else we have to do on a grand scale could be futile.
    These series of hearings do not exist in a vacuum. Rather, 
we are continuing the process this subcommittee started 2 years 
ago. Having lived and worked in this region most of my life, I 
know how interdependent these issues are. At the end of the 
day, all of us are stakeholders and we will ultimately succeed 
or fail.
    I want to thank all of us for working together, and at this 
point I am pleased to welcome our first panel, which will 
consist of John L. Green, president of the District of Columbia 
Chamber of Commerce, and Mr. Roger Blunt, president of the 
Essex Corp., and chairman of the Greater Washington Board of 
Trade's National Capital Task Force.
    Mr. Green will be accompanied by Mr. Kwasi Holman, 
executive vice president of the DC Chamber, and Mr. Sheldon 
Repp, vice president and associate general counsel of Sallie 
Mae and chair of the Chamber's governing board of the Policy 
Committee.
    Mr. Blunt will be accompanied by Mr. John Tydings, 
president of the Greater Washington Board of Trade.
    As you know, it is the policy of this committee that all 
witnesses be sworn before they may testify. Would you please 
rise with me and raise your right hand.
    [Witnesses sworn.]
    Mr. Davis. Thank you. Be seated.
    The subcommittee will carefully review any written 
statements you care to submit and I ask unanimous consent that 
any such statements be part of the permanent record.
    I would also ask you to limit your testimony to 5 minutes 
so that we may have sufficient time for questions and to hear 
from our other panelists.
    At this time, I would ask Mr. Green for his statement on 
behalf of the Chamber, to be followed by Mr. Blunt, on behalf 
of the Board of Trade.

     STATEMENTS OF JOHN L. GREEN, DC CHAMBER OF COMMERCE, 
ACCOMPANIED BY KWASI HOLMAN, EXECUTIVE VICE PRESIDENT OF THE DC 
CHAMBER; AND SHELDON REPP, VICE PRESIDENT AND ASSOCIATE GENERAL 
  COUNSEL OF SALLIE MAE AND CHAIR OF THE CHAMBER'S GOVERNMENT 
 AFFAIRS POLICY COMMITTEE; AND ROGER BLUNT, GREATER WASHINGTON 
 BOARD OF TRADE, ACCOMPANIED BY JOHN TYDINGS, PRESIDENT OF THE 
                         BOARD OF TRADE

    Mr. Green. Good morning, Congressman Davis, Congresswoman 
Norton and members of the House District of Columbia 
Subcommittee. My name is John L. Green and I am executive vice 
president for the Medlantic Healthcare Group, and I am here 
today in my capacity as president of the DC Chamber of 
Commerce.
    As you indicated earlier, I am accompanied by Kwasi Holman, 
who is executive director of the Chamber, and Sheldon Repp, who 
is general counsel for Sallie Mae and chair of the Government 
Affairs Policy Committee.
    The DC Chamber of Commerce has represented business 
interests in the District for almost 60 years. Founded as the 
business organization to represent black-owned businesses and 
professionals, today the Chamber's major strength is in its 
diversity of more than 800 members. We are the most racially, 
economically, geographically and gender diversified 
organization in our city. Our mission is to create an 
environment in which businesses can locate, expand, and 
flourish. We understand that in order to retain, expand, and 
attract businesses to the District, we must have a stable 
government that can function and respond with quality services 
for individuals and businesses, a city whose financial 
underpinnings are secure and whose tax structure is 
competitive.
    We are pleased that the revitalization of the District of 
Columbia is now one of the top priorities of President Clinton 
and of the Congress. We welcome the dialog that you and the 
President have started on how to correct the structural flaws 
on top of which we built Home Rule.
    Before I begin, however, I would like to note that the 
Federal City Council and the DC Agenda Project have also been 
reviewing the President's plan, and I expect that the committee 
will hear from them at the appropriate time.
    Let me first say that the DC Chamber strongly believes that 
bold action is needed on several fronts to ensure the survival 
and revival of the District. Bold action, however, does not 
mean hasty action. A unique opportunity to address the city's 
problem currently exists. We should seize this opportunity to 
craft a real solution so that we are not back here again 5, 10 
years from now confronting the same problems.
    The Chamber is committed to a careful and thoughtful review 
of the many proposals that are being brought forth to help 
resolve the structural and fiscal issues in the District. We 
welcome the President's plan. We believe it is a strong 
beginning. However, we are very concerned about the elimination 
of the Federal payment, the limited scope of the plan's 
financial incentives package, and the lack of individual and 
business tax relief. My comments will focus in these areas.
    First, the Federal payment is not a subsidy. It is 
compensation for the extraordinary costs on the city of the 
Federal presence. The final plan should assume that the city 
will be financially viable. To forego the Federal payment at 
this point is, at best, premature, and we also strongly urge 
that the final plan include the Federal payment or a payment in 
lieu of taxes.
    We have reviewed the economic development portion of the 
plan and we fully support the creation of the Economic 
Development Corp. With the city's inability to tax income at 
its source, we wholeheartedly support the credits that have 
been included for the provision of jobs for District residents.
    We also agree that economic recovery depends on small as 
well as large businesses. Economic data seems to indicate that 
smaller businesses are leaving the city for more favorable 
business climates in the suburbs. We are pleased that the 
President's plan helps address this issue. However, we would 
like to see the financial incentives for investment in the city 
expanded to the entire city and not to its most distressed 
areas alone.
    The city must be able to survive and to compete, and I 
think we must also recognize that the city is the core of a 
larger region, and I think the comments that you made earlier 
in terms of the interdependence are important. It is extremely 
important that we see this not as a plan to bail out the 
District but, rather, a plan to bring some parity to the 
District as an important component of the overall region, and 
we cannot emphasize that enough.
    A reduction in the corporate franchise tax, a reduction in 
real property taxes, tax incentives to locate in the District, 
all are ways of achieving comparability. If the President's 
plan was implemented with the Federal payment in place, perhaps 
the city could afford these reductions. There must be some 
balance in this equation. We are convinced that we must revamp 
our tax structure in order to grow our economy.
    The Chamber believes that there must be financial 
incentives to rebuild the city's tax base as well. The city 
cannot do it alone. We need your help desperately. The Chamber 
supports vigorously Congresswoman Norton's DC Economic Recovery 
Act because it addresses the issue of rebuilding our tax base 
through tax relief for individuals. Those of us in the 
community, the business community, see not only a need for the 
economic revitalization of the city and its business community, 
we also see a need for people to live in the city, who want to 
live in the city, and Congresswoman Norton's bill helps address 
that other imbalance that we see today.
    We believe this can be achieved through individual tax 
relief. In order for the District to survive and be viable, we 
must be competitive. In order for us to be competitive, we must 
be on an even playing field in terms of taxes, and the Federal 
Government must play the role of the State to the District of 
Columbia.
    We also understand that money will not solve our problems 
alone and that the business community must step up and assume 
our responsibilities in partnership with the city and the 
Chamber. We have an excellent project that we have worked 
cooperatively on with the District government that perhaps will 
help American University, and Congresswoman Norton will not 
have to wait a year and 18 months for permits.
    We have worked cooperatively with DCRA in a project that 
will bring together the tax and property records of every piece 
of property in this city, square by square, lot by lot. As a 
result of this project, this information very soon will be 
online and available to the public to assist them in obtaining 
building permits. This is a prime example of a project in which 
the private side, the Chamber, worked cooperatively with 
Government.
    There are other initiatives that we are working on to 
improve the city's business climate and competitive status. 
They are the professional and business licensing streamlining 
project and our worker's compensation legislative reform effort 
which when enacted by the council will bring business costs 
more in line with those of Maryland and Virginia.
    In closing, we urge you to think about the city as the 
unique and special place that it is; namely, the Nation's 
Capital. And I would also say that for those around the country 
who say, why do this for the District, why not do it for my 
city as well? We only have one Nation's Capital, and I think it 
is, indeed, deserving of the entire country's support.
    On behalf of the DC Chamber, I thank you for this 
opportunity to speak today. If I or any member of the Chamber 
can be of assistance to you, as you begin to sort through the 
various ideas and proposals by our city, please call on us. And 
I thank you very much.
    Mr. Davis. Thank you very much, Mr. Green.
    [The prepared statement of Mr. Green follows:]

    [GRAPHIC] [TIFF OMITTED] T2192.004
    
    [GRAPHIC] [TIFF OMITTED] T2192.005
    
    [GRAPHIC] [TIFF OMITTED] T2192.006
    
    Mr. Davis. Mr. Blunt.
    Mr. Blunt. Chairman Davis and members of the subcommittee, 
thank you for convening today's hearing on the President's plan 
to revitalize the Nation's Capital, and for the opportunity to 
testify before you today.
    My name is Roger Blunt and I am chairman and CEO of Essex 
Construction Corp., but I am here today in my capacity as co-
chair of the Greater Washington Board of Trade's newly 
established National Capital Task Force. Dr. Ed Bersoff, 
president and CEO of BTG Corp., will be co-chairing this task 
force with me. Today, however, I am joined by John Tydings, 
president of the Board of Trade.
    For those of you who may not be familiar with our 
organization, the Board of Trade is a regional chamber of 
commerce that represents more than 1,000 businesses located in 
suburban Maryland, northern Virginia, and the District of 
Columbia. For more than 100 years, the Board of Trade has been 
involved in issues affecting the governance, management, and 
economic growth of the Nation's Capital.
    Today, Chairman Davis has asked us to comment on the 
potential impact of the actions contemplated by the President's 
plan on the Nation's Capital and the region. I would like to 
begin by stating that the Board of Trade commends President 
Clinton for his commitment to redefining and improving the 
Federal Government's relationship to the Nation's Capital and 
for offering a thoughtful plan aimed at clarifying the Federal 
interest and responsibilities. However, the President's plan 
cannot be viewed in a vacuum, and I would like to share some 
thoughts about how we believe this proposal fits within a 
broader vision for revitalizing the Nation's Capital.
    The Board of Trade believes that there are at least three 
critical elements fundamental to restoring the city. They are: 
one, a functioning, accountable and efficient local government; 
two, a clearly defined partnership between the Federal and 
local governments; and, three, an emphasis on economic 
development and the availability of adequate resources.
    Efforts to create a functioning, accountable, and efficient 
local government are already well under way. Recognizing that 
the local government was no longer able to provide the most 
basic municipal services to its residents, businesses and 
visitors, the Congress, guided by Congresswoman Norton and 
Chairman Davis, established the DC Financial Responsibility and 
Management Assistance Authority, or control board. This control 
board has spent the last year helping the local government 
manage its financial crisis and is now working diligently to 
help create a functioning and efficient government, complete 
with policies that establish clear responsibility and 
accountability.
    The Board of Trade has been particularly involved with 
efforts to reform procurement and personnel policies and to 
establish an efficient and reliable financial management 
system. All of these elements are critical tools for achieving 
a functioning, accountable and efficient local government, and 
comprise the first step toward achieving financial and economic 
stability in the Nation's Capital.
    The President's plan contributes to this critical element 
by relieving the local government of certain programmatic and 
budget responsibilities that cities do not normally handle. In 
addition, by offering intermediate-term financing for the 
city's accumulated deficit, the President's plan would 
significantly reduce the amount of resources dedicated to debt 
servicing. When viewed together, these two elements of the 
President's plan should significantly reduce the city's 
financial burden, freeing millions of dollars that can be 
shifted to pay for municipal priorities aimed at improving the 
quality of life for city residents and visitors.
    I would also note that the Federal City Council and the DC 
Agenda Project, in which the Board of Trade has been a 
participant, have been examining the President's plan on other 
issues related to governance and will be providing your 
subcommittee with their views on those issues in the near 
future.
    President Clinton's plan takes the second dramatic step 
toward achieving financial and economic stability by clearly 
defining the terms of the partnership between the local and 
Federal Governments. Since the passage of the Home Rule Charter 
in December 1973, the local government has been responsible for 
State, county and municipal functions. By recognizing this 
disparity, the President's plan establishes a new partnership 
between Federal and local governments that relieves the city of 
financing and/or providing functions typically handled by 
States or counties.
    Although the plan does not relieve the city of all typical 
State responsibilities, such as mental health and aid for 
dependent children, the Board of Trade believes that the 
proposal addresses this disparity to a great extent.
    In addition, the Board of Trade believes that the 
President's plan addresses some additional concerns of the city 
and the region.
    First, the President's plan resolves the growing unfunded 
pension liability problem that was unjustly included in the 
original charter. By assuming both the assets and liabilities 
of pension plans for police, fire fighters, teachers and 
judges, the President's plan recognizes that the city should 
have never inherited a system that was already underfunded by 
$2 billion.
    Second, in addition, we believe the plan provides the 
opportunity to resolve ongoing regional concerns about the 
management and location of the Lorton correctional facility. 
While the Board of Trade has not endorsed any particular 
approach to resolving the problems at Lorton, we are pleased 
that this issue is on the table and can be included in the 
debate.
    However, with specific regard to the President's 
recommendation that the Federal payment be eliminated, we urge 
this committee to closely examine the impacts this would have 
on the city's ability to achieve financial stability. The 
Federal payment was never intended to be a gift. Rather, it was 
meant to provide compensation for a variety of the 
congressionally imposed restrictions on the local government's 
ability to raise revenues. For example, 43 percent of all land 
in the Nation's Capital is exempted from local taxes; and this 
will continue to restrict the city's access to resources far 
into the future. In that regard, the Board of Trade has spent 
the past 25 years advocating that Congress establish a 
rational, dependable formula for the Federal payment. While the 
Federal Government's assumption of many State-like functions is 
an important change, we are not yet convinced changing these 
roles warrants the elimination of the Federal payment.
    Finally, the President's plan places an emphasis on 
economic development and availability of resources. For many 
years, the Board of Trade has urged the local leaders to view 
economic development as the best means for ensuring that the 
city can have access to sustainable resources and can encourage 
job creation for residents. Had emphasis been placed on growing 
the tax base, rather than on increasing taxes and fees, the 
local government might not be experiencing such severe 
financial and economic crises.
    On a side note, I would like to congratulate you, 
Congresswoman Norton, for your flat-tax proposal which 
recognizes that stabilizing and growing the city's tax base is 
a critical part of any effort to restore financial and economic 
health to the Nation's Capital.
    Nonetheless, today's financial situation places the city in 
a ``Catch-22'' position, whereby if taxes are reduced and 
economic development incentives are offered, the revenue gap 
widens further and a balanced budget becomes that much harder 
to attain. It is for this reason that the Board of Trade is 
particularly interested in the two elements of the President's 
plan that appear to offer resources and incentives for economic 
development: the National Capital Infrastructure Fund and the 
Economic Development Corp.
    The President's plan to create a National Capital 
Infrastructure Fund recognizes that one of the most critical 
elements that supports economic development is physical 
infrastructure. Yet virtually every city that was founded more 
than 100 years ago is facing huge budgetary challenges as a 
result of aging infrastructure. The Nation's Capital is no 
different, with the exception that most other cities receive 
some level of State funding for maintaining infrastructure, 
whether that be for roads, bridges, transit or water or sewer 
systems.
    The President's initial proposal to create an 
infrastructure fund with approximately $125 million in seed 
money with the possibility of identifying other sustainable 
funding sources provides significant promise for at least 
beginning to address some of the most serious infrastructure 
needs immediately. However, we have heard little detail of 
subsequent developments on this part of the President's plan, 
and we feel strongly that any proposal that does not increase 
the current level of Federal highway funds received or that 
does not allow those dollars to be spent on local as well as 
Federal road and bridge projects will not address the 
infrastructure needs of the Nation's Capital.
    The President's plan to create the Economic Development 
Corp., and offer nearly $300 million in grants, tax incentives 
and other economic development tools will make economic 
development a priority in the Nation's Capital for the first 
time in its history. The region's suburban jurisdictions have 
been implementing aggressive economic development activities 
for years, and reaping the benefits accordingly. Yet, the city 
has never committed the staff or the resources to develop, 
promote or implement economic development initiatives. The 
creation of an Economic Development Corp., led largely by local 
private-sector business and community leaders, not only 
provides a mechanism by which an equally aggressive approach 
can be developed and maintained, but provides the resources 
necessary to back up such a commitment.
    In all cases, the Board of Trade feels strongly that 
economic development must take a city-wide approach and be led 
by the local community. Our creation of the Community Business 
Partnership reflects our commitment to that approach. By 
matching the resources, experience and expertise of the Board 
of Trade membership with developing neighborhood businesses 
identified by the Community Development Corp.'s in Marshall 
Heights and Colombia Heights, the Board of Trade has seen 
firsthand the power of and potential for neighborhood economic 
development throughout the city. It is through economic 
development that we can grow jobs and additional resources to 
sustain the Nation's Capital for the future.
    But efforts such as these can be enhanced by an Economic 
Development Corp., with tools and resources that reach out to 
all areas of the city. The President's Economic Development 
Corp. proposal offers these tools and resources, including $50 
million in Federal capital, capital credits, private activity 
bonds and jobs credits.
    The Board of Trade is particularly excited about the 
potential impacts of these two provisions. We believe that 
these provisions, the DC Jobs Credit, the additional expensing 
provisions, will provide tremendous assistance and incentives 
to people who are working to set up and expand business in 
neighborhoods.
    I realize, Chairman Davis, that the red light is on. I just 
have three or four more paragraphs of my testimony.
    Mr. Davis. That's fine. We have both read it, and we are 
ready to ask questions. Why don't we just put it in the record 
and get right to it?
    Mr. Blunt. Thank you.
    Mr. Davis. I think that both Mr. Green and your statements 
are thoughtful and reflective.
    Mr. Blunt. Thank you.
    [The prepared statement of Mr. Blunt follows:]

    [GRAPHIC] [TIFF OMITTED] T2192.007
    
    [GRAPHIC] [TIFF OMITTED] T2192.008
    
    [GRAPHIC] [TIFF OMITTED] T2192.009
    
    [GRAPHIC] [TIFF OMITTED] T2192.010
    
    [GRAPHIC] [TIFF OMITTED] T2192.011
    
    Mr. Davis. I will just tell you, I was just whispering to 
Ms. Norton that, to me, if we had a plan that we knew worked, 
that we were certain was going to work and bring it back, I am 
not sure that the cost is the major obstacle, but I think we 
get so tired of throwing a lot of resources at a situation, and 
you don't get the result that you wanted, and that's the 
difficulty we are struggling with.
    And I would like to, if I could, just address my questions 
now to you, in terms of what is going to work to bring the city 
back from a tax-based point view, expanding the tax and the 
business base. And one of the things I noted in my opening 
statement, and I want to ask each of you to react to it, is you 
can do what the President has proposed; and I think that's 
fine. I don't disagree with any of it. You can have the 
additional expensing and the DC job credit.
    But unless you make some significant changes in the 
regulatory structure and the tax structure on top of that, you 
are just not likely to have the effect that you would 
otherwise. Because it is--the city is so noncompetitive in some 
areas--in some of these areas, with the suburban areas and 
other parts of the country, that these are very piecemeal it 
seems to me.
    I would like each of you to react to that. You can agree or 
disagree.
    Mr. Blunt. John.
    Mr. Tydings. Mr. Chairman, I will take a first crack at 
that.
    I think you are absolutely right. One of the things that we 
understand about the President's plan is that there is in 
process an MOU, which in fact is supposed to deal with a number 
of the relationship issues, including some priorities and also 
some areas of emphasis. Failure to address the issues of the 
process, the regulatory reform, will be shortsighted.
    Mr. Davis. John, let me get specific for a couple minutes. 
I have met with people who are talking about how long it is 
taking just to get inspections. You bring a company or a new 
business or they want to expand--by the way, I heard the same 
thing in Fairfax when I was head of Government Affairs. It is 
never quick enough when you have got a tenant on hand, or that 
it takes an inordinate amount of time, that there is kind of a 
manana attitude that we will get to it tomorrow or in good 
time. And what would privatizing some of those inspection 
services do?
    You can go out and hire somebody that's certified. You 
would have people to inspect the inspectors to make sure that 
there wasn't abuse and fraud. But for fire inspection and 
building inspection and some of these, could that be very 
quickly moved into a competitive arena?
    I will ask each of you--let me start with Mr. Green on 
that.
    Mr. Green. Well, I think that--I mean, I think that what we 
need is really a comprehensive approach. I don't think we can 
go in and pick pieces and think that picking individual pieces 
will solve broad systemic problems. So I think that regulatory 
reform is needed.
    We have some proposals, for example, the workman's 
compensation proposal, that's with the council. That's a step.
    Mr. Davis. Yes.
    Mr. Green. I think that some of the functions----
    Mr. Davis. But, Mr. Green, if we wait for the council to 
act on this, I am just afraid--we are going to be putting a 
package together here in very short order, and I am just so 
afraid that if we go ahead and do a couple of nice things here, 
without the Mayor and the council reacting to the others in a 
very timely manner, that we are wasting our time; that you are 
not getting the bang for the dollar. And this ought to be done 
in one fell swoop by moving it through and by getting everybody 
to sign up.
    I hope--Congress shouldn't have to do the regulatory reform 
piece if you can get the Mayor and council to do it. A lot of 
these proposals are going to be unsaleable unless Members are 
seeing some major changes at the city level. It shouldn't be 
done piecemeal, so let's talk about what some of those pieces 
should be as we put it together.
    It seems to me inspections keep coming up as one major 
problem and workman's compensation. I have heard people comment 
about the Displaced Worker's Act, and suggesting moving in a 
way that's fair to workers but also in a way that allows you to 
be competitive with what's being offered in Maryland and 
Virginia. And we can go on and on.
    Mr. Green. No, I don't disagree with your view at all. I 
just simply think that we have got to make sure that the 
capacity is there to implement some of these things, and I 
think in many instances it's a capacity question. I think it is 
also fairly difficult to ask people to implement 
recommendations and solutions when they are undertrained and 
the city hasn't had the necessary training funds; underpaid. I 
mean, I think we have got to look at this, if we want----
    Mr. Davis. But privatizing some of the regulatory functions 
can change it very quickly.
    Mr. Green. Some of that could help, that is correct. But I 
would say there are some functions that could be privatized, 
and I think the local government is looking at privatizing 
several of the functions. I think developing an adequate pay 
scale for employees and expecting them to perform is key; 
revamping the procurement function. I mean, I think all of 
those things are part of it, as well as addressing the tax 
inequities.
    But my view is that, let's try to get at as much of it as 
we can, so that we have got a reasonable chance of succeeding. 
And, in the process, I think we have got to figure out, I mean, 
what's the appropriate balance between local prerogatives and 
the Federal interests, so that it does not appear that we have 
developed something that was completely top down from the 
Federal level with very little involvement from the local 
level. We have got to shoot for that balance.
    Mr. Davis. Will you elaborate on the worker's compensation 
issue you talked about, again? Then I am going to ask the Board 
of Trade representatives to respond in the same fashion.
    Mr. Repp. The Chamber, along with the Board of Trade and 
other business organizations in the city, have been studying 
the worker's comp issue in the city for almost a year now; and 
our members tell us that the high cost of worker's compensation 
insurance in the city is one of the reasons why they are 
leaving the city; and we know that there is business flight 
occurring in the city.
    As a result, the Government Affairs Committee of the DC 
Chamber of Commerce has been spearheading an effort to come up 
with a reform proposal that will help deal with this situation.
    We believe we have to start somewhere, and that's one of 
the places that we believe we can start.
    I think the inspection issue that you point to is also a 
major issue for--in the building industry; and I know that my 
corporation, for example, has been held up for quite a few 
number of days waiting for inspectors to show.
    But to speak about workers compensation, we have a number 
of proposals that we think, while preserving the safety net for 
workers, will help drive down the costs of workers' 
compensation in the city and make the--and make the costs more 
comparable to what they are in Virginia and Maryland. And 
that's our goal here, is to make the city competitive.
    Mr. Davis. To the extent we can have some specifics on that 
from you, we would be happy to put it in the record and 
consider it as we proceed.
    We are suggesting that if you could have the people who 
write the parking tickets do the inspections it would get done 
on time all the time. Thanks.
    Mr. Blunt.
    Mr. Blunt. I think I agree with many of the comments here. 
Certainly, the private sector can provide a measure of 
competition to governments who are providing services to their 
residents. Efficient, cost-effective service really is a 
function of the quality of people, the kind of resources, the 
training they have and the commitment of the political will to 
deliver those services.
    Regulatory reform is necessary, and when we think of it I 
think we should think in the context of a regional economy. 
There are many, many differences between the various 
jurisdictions here that ought to be looked at to make them more 
consistent to make it easier for businesses to cross the lines.
    Mr. Tydings. Mr. Chairman, I will add that the control 
board has asked us to, through the community development 
corporations in Marshall Heights and Columbia Heights, to work 
with some of the neighborhood businesses and identify the 
regulatory impediments; we will be giving to the board tomorrow 
a summation of each of the specific areas dealing with 
regulatory and process reform that needs to be done. I will 
forward that to you.
    Mr. Davis. John, we would like to see that.
    I may have some thoughts of my own as well as, Ms. Norton. 
But it seems to me we are probably going to get one crack here 
at this, and I hope it will be fairly comprehensive.
    This is very difficult even to get the most minor bill 
through pertaining to the District of Columbia. Ms. Norton, who 
is a veteran at this knows, how one member can come up in the 
Senate and torpedo the whole thing by standing up and objecting 
to it all night. In the House, there are a lot of different 
agendas.
    To the extent we can put together a comprehensive package 
that we think will help yield the results we want, we all want 
this city to succeed.
    Mr. Green. Mr. Chairman, I can't overemphasize the 
importance of building some capacity to implement in the 
District.
    Mr. Davis. That's fair. You can bite off more than you can 
chew.
    Mr. Green. We can come forward and the Congress can come 
forward with a bill that helps a great deal, but if the 
capacity isn't there, both on the public side and the private 
side, to implement these things, then I think we subject 
ourselves to the criticism that we took a step and we couldn't 
implement it. We have got to be sure this time around of the 
capacity.
    I think Mr. Blunt made a very important point in terms of 
capacity of the people, level of training they have received, 
pay scales. I think we have got to look at all of that when we 
think about capacity.
    Mr. Davis. But let me just throw a couple of comments out.
    First of all, on the inspection piece, if you allow private 
inspectors who have been trained--and I think the private 
sector could respond to this very quickly--you have a core 
group that checks on the inspectors to insure that there is no 
rampant fraud, which is a small percentage. You will find, 
without a huge investment from the city, that it will be much 
more efficient, you know, people will be coming at all 
different times of the night, and that doesn't cost anything. 
There's no real capacity problem there.
    And that works very quickly in terms of the Workmens' 
Compensation Act if you can get together and agree on what will 
bring you down to a competitive posture. Where is the capacity 
problem there? You change the act, and you move forward.
    Mr. Green. Some of those functions are certainly----
    Mr. Davis. Those are two critical ones.
    Mr. Green [continuing]. Are certainly amenable to 
privatization.
    But on the capacity side, you still need high-quality 
people to supervise the contracts and supervise the work.
    Mr. Davis. Well, procurement also is a little bit tougher, 
but we had Mayor Goldsmith from Indianapolis here just a few 
weeks ago who is basically running the city with a few 
procurement officers and has kept some core functions. But 
privatization, although I don't advocate it in every case and I 
think it can be overdone, is a very quick way, if you can't 
make a change in the culture of the people you have, to bring 
about those results.
    Now, I think we have to be careful about doing that. I 
think we have to be fair to the city employees who have worked 
there and, in some cases, just lack appropriate management and 
training to get the job done. I think there's a balance to be 
made. But there is a quicker way to do some of these things.
    Mr. Green. In terms of the hearing that you mentioned, I 
was struck by one of the mayors that appeared before you who 
talked about, in some instances, city employees were given an 
opportunity to bid on the work.
    Mr. Davis. They should have that opportunity.
    Mr. Green. And they were very successful in that. I mean, I 
think that that kind of approach makes a lot of sense.
    Mr. Davis. I think city employees have been pigeonholed 
into some areas where they are performing tasks that don't need 
to be performed; they are working under regulations that didn't 
have to be written, and they are filling out forms that don't 
need to be printed, and if you unleash them and move them in 
the right direction, they can be every bit as capable as 
anybody in the private sector, maybe even more.
    Mr. Green. I agree.
    Mr. Davis. That's a management issue. In some cases it is 
an information technology issue where the city is behind, and 
we want to be fair. But on the other hand, if we sit and wait 
for the city by itself to do this without some kind of impetus 
or carrot, as Ms. Norton has proposed with her tax plan, we 
need some cataclysmic things to happen, significant items.
    The only thing--I think the President's package is a 
wonderful package, and I applaud him for putting his marker 
down and showing some initiative, but in my judgment, by 
itself, you don't have the spark that is needed to ignite and 
take advantage of the incentives that they are offering.
    Mr. Green. And in my judgment, the flat tax is a spark in 
terms of residents and individuals.
    Mr. Davis. But still, even if you do the flat tax, you 
still have to make inroads in education and public safety even 
if the taxes are cheap. I really feel comfortable with the 
Booz-Allen study that showed in some deployments, in some of 
the basic blocking and tackling, the city can improve on that 
measurably. You need to have those in regulatory reform.
    If you still have laws, like you say, in workmen's comp and 
other areas, you are not going to attract business. So it is 
comprehensive. It is big, if anything, and whether it's Ms. 
Norton's plan, as she has put her marker out there to her 
credit, or it is somebody else's tax reduction, it should be a 
part of that. A city can't compete in an area where they have 
higher taxes than 49 States.
    John, do you, or you, Roger, want to add anything to that?
    Mr. Tydings. No.
    Mr. Blunt. No.
    Mr. Tydings. The privatization aspect, I think, is 
intriguing, and there is a need to do some jump-starting, and 
that may be worth some.
    Mr. Davis. How about on the procurement side, any other 
additional observatios on that front?
    Mr. Tydings. On the procurement side, the bill has now both 
passed the council, has been signed by the Mayor, and is here 
for its congressional layover period. I think it's important 
for the committee to note that from our point of view, the 
things we have--three of the four things we had hoped are in 
the bill. One dealing with the whole issue as it relates to 
competition, making it a competitive process, that's in the 
bill; second as it relates to some organization of 
standardization so each agency doesn't create its criteria is 
in the bill; and third as it relates to the whole issue, and it 
connects with what John Green has said about capacity, the 
whole issue of developing the professionalism amongst those who 
are responsible for procurement, the certification process is 
in the bill.
    And I was just asking a colleague, there's some 20 
individuals who have already gone through the--or are in the 
process of going through the certification process. So that 
bill is making progress. We would like to see it, frankly, move 
a little faster.
    There is one piece, however, that I think you need to be 
aware of, and that is taken out of the bill in the course of 
the normal give and take, and that is the whole issue about 
real estate, the acquisition and disposition of real estate. 
That is not in the bill that's here before you. The Mayor has 
indicated he will come back with a separate piece of 
legislation on this, and we are going to track that very 
closely.
    Mr. Davis. That's a very critical piece, too, given where 
we are on some of the other items.
    Do you feel confident on the procurement side that this can 
be implemented in fairly short order?
    Mr. Tydings. I think a lot of progress has been made. 
Again, it's an impatience on a lot of things. It needs to get 
done yesterday. Once it gets through--I think that it is fair 
to say that the executive branch will be ready when the bill 
completes its congressional layover.
    Mr. Davis. OK. Thank you.
    I am going to have additional questions, but I am going to, 
at this point, recognize Ms. Norton, who has some questions.
    Ms. Norton. Well, I very much appreciate the very 
thoughtful testimony of those of you who are trying to do 
business every day in a city that is not exactly business-
friendly all the time.
    I appreciate your comments on my own tax plan, especially 
because they come from people who do business in the city. And 
for the record, I want to say that it is interesting to see the 
extent to which businesses have applauded the individual part 
of my tax plan. There is a separate section that would aid 
business, but what I think it reflects is what employers tell 
me over and over again, that stimulus to the DC economy with 
the present outflow of middle-income residents has the chief 
effect of making jobs for suburbanites. And they tell me on the 
basis of their own experience that we are losing people. We 
will lose half of our working people in 6 years. Half of the 
people who work will be gone in 6 years.
    So there is an understanding on the part of business that 
they would like to hire DC residents, and the President's bill 
gives them some incentive to hire DC residents, but, of course, 
at the lower end. It would largely be at the lower end. And 
these are the people who are paying the taxes now. For 63 
percent of the people who pay taxes in the District of Columbia 
make $30,000 or less, and anybody who thinks a great city can 
survive on that needs to tell me how.
    In any case, the juncture between business and residential 
taxpayers is an important one to note and one that 
interestingly businesses have been among the first to 
understand. I appreciate that you have not simply looked at 
what, in an isolated sense, might seem good for business, which 
is part of my plan, which is very good for business, but have 
understood how all the parts of this puzzle fit together. And, 
therefore, your testimony carries some considerable weight.
    I have also supported the President's plan and now his 
economic development plan. I do so because I am very pleased to 
see the thought that's gone into what is really a traditional 
approach, but one that we all had to see is a whole lot better 
than nothing, but it's an empowerment zone approach.
    My concern with it is not that we don't need it here. It is 
that by the time anything kicks in, nobody may be left. It 
takes time to build back in this way. And, of course, I know of 
no empower-ment zone that has built back even a neighborhood, 
much less a city, so that I have to confess that for those who 
want to be the last to leave and turn off the lights, I don't 
want to be among them. And my frustration comes from the need, 
I think, to do something other than the usual thing in this 
city, if you want to see it survive.
    And so I appreciate that the business community has taken 
off whatever, its philosophical, ideological notions and looked 
to see what works. I appreciate that the chairman is trying to 
find something that works, even given the fact that these bills 
cost money and it is going to be hard to get people on both 
sides of the aisle to support one approach. This is very 
difficult.
    I want to look more closely at the economic development 
approach in the hope that whatever we do will help stimulate 
more quickly than has generally been the case. And to that end, 
I would like to ask you if you might know of examples where the 
types of incentives, such as tax credits, have had a 
significant effect on turning around parts of cities or cities.
    And the background to this, because we are trying to find 
ways to improve the Economic Development Corp. part of the bill 
to encourage people to believe that it will, in fact, have the 
effect it wants to have, and to encourage business to 
understand that it can help them and help them in more than, 
you know, 20 years' time, or however long these things tend to 
take.
    I was concerned with an article reporting on the responses 
of some businesses to the economic development plan that was in 
the Washington Times. There's a short statement from it I would 
like to read and ask as a background to my question on whether 
you think tax credits would stimulate business to stay. I want 
to give these paragraphs as background to the question because 
I was concerned with the responses that business people had.
    ``President Clinton's $300 million plan to help revitalize 
Washington, DC, drew raves from legislative and big business 
last week, but several DC entrepreneurs say the plan offers 
them little relief or incentives to expand.''
    ``In theory, this would compel me to create more jobs, but 
in reality it's not enough. I don't think the carrot he is 
offering is enough alone to make me want to hire District 
residents,'' said John Shulman, the chief executive officer of 
Onyx International, a six-person investment banking firm in the 
District. ``It's a lot of propaganda now.''
    ``Mr. Shulman was referring to a part of the President's 
plan that calls for a DC jobs credit program. It would give a 
40 percent Federal tax credit to DC employers hiring city 
residents who earn less than $28,000 a year. The break would 
apply to the first $10,000 of earned income.
    ``White House aides say the provision could generate 78,000 
jobs over 5 years, if Congress passes it.''
    Now I want your response to a figure like that.
    ``Business owners and lawmakers acknowledge that the tax 
incentive and job credits form the first Presidential proposal 
to boost DC business in decades. But small-business owners are 
critical of the overall package.
    ``There is nothing in it for me,'' said Bonnie Cain, the 
publisher of DC City Desk, an on-line newsletter about city 
politics, and an advisory neighborhood commissioner for Ward 1. 
``I would like to say the plan makes me more interesting to 
investors, but I don't see anything in the plan that does.''
    ``The Clinton proposal also would create the DC Economic 
Development Corp., a quasi-government agency that would control 
$95 million in tax credits for investors or lenders to DC 
businesses.
    I am trying to read it all to give a balance, the same 
thing that this piece gives.
    ``Business owners said other provisions in the plan, such 
as tax credits for expansion costs, would give companies a much 
needed boost, especially those poised for an upgrade.''
    ``My strategic plan calls for me to expand. This just makes 
it more attractive and more timely,'' said Donald Delandro, the 
president of Affordable Supply Co., a custodial and food 
service supply company that employs 10 in Northeast. But he 
said the plan would not be enough by itself to fuel his 
expansion.
    ``If I get the contracts, I could envision getting at least 
five more people, but that's contingent upon the contracts I am 
going after,'' he said. ``In my view, the real key is getting 
the Federal agencies to see what contracts they can give to 
businesses in the inner city. That's where the rubber meets the 
road,'' Mr. Delandro said.
    ``Despite the plan's drawbacks, some entrepreneurs say it 
is a long-awaited step in the right direction.
    ``The devil is in the details. I don't think the plan is 
all that great myself, but before there was nothing,'' said 
Caple Green, owner of a Chesapeake Bagel Bakery franchise in 
Washington. ``Now that the President has put his foot forward, 
Congress should pick it up from there and take it up another 
notch.''
    That's what the Washington Times found when it went asking 
for a response from several businesses in the city.
    I would like, therefore, to repose my question to you, 
examples of where tax credits and business investment 
incentives have led to significant stimulation of the economy 
for residents and your response to what I have just read.
    Mr. Holman. Well, if I could begin, the DC Chamber, among 
other projects, has been working with another organization, the 
DC Building Industry Association, to look at retaining, first, 
and, second, attracting businesses to the District. So 
certainly there are some employers who could benefit directly 
from the jobs incentives and were located in areas that the 
Economic Development Corp. may assist.
    But certainly some of the companies that you mentioned just 
from the description that was in the paper may not be those 
companies that will benefit. That's why we have tried to stress 
comprehensive approaches. One of the reasons that we got 
involved, for example, with reviewing 170,000 records to 
improve the availability of information by lot and square for 
city residents and businesses is because we knew that that was 
something that touched everyone who does business--does 
business or lives here.
    Certainly, the President's plan has a lot of those 
features, but it won't benefit every business. I can think, for 
example, when the industrial revenue bond program was very 
strong here, and it worked for for-profit as well as not-for-
profit businesses, that had a lot to do with electrical 
companies and certain printing companies staying in the 
District. So it really depends on the kind of business.
    But I think if you continue along this line of looking at 
comprehensive solutions, I think you will address a majority of 
the concerns of businesses. But certainly something has to be 
done to the tax structure as well as to the regulatory 
structure if you are going to keep the majority of businesses 
here.
    Ms. Norton. Thank you.
    Mr. Green. I would just add that I think one of the 
things--there is no sort of one approach fits every business in 
the city. I mean, we have got different businesses here. We 
have got a rather small for-profit base, a very large not-for-
profit base. So the solutions will vary by sector of the 
business community and also within segments. And so I think 
that we need to look at the entire business base.
    Ms. Norton. Well, the reason, you know, I would be 
interested either now or later in examples is precisely that 
this is fairly negative. And if you say, well, there are 
businesses who would profit, I want to know who they are, why 
they will. We have got to be able to show that we are not just 
shucking and jiving here.
    When we had this last hearing, it was called the Chamber of 
Commerce for DC was seen by some members of the majority as, 
you know, just another bureaucracy to throw out some tax 
credits and some loose money.
    Very frankly, I need data. I need information to show that 
things like this can have an effect because they have had an 
effect someplace else.
    Does anyone else want to say anything else about that 
question?
    Mr. Blunt. I would say one comment, Congresswoman Norton. 
From my perspective, as having worked on one policy and 
structure, tax structure and tax policy, a commission for 
another body, it occurred to me that there are regressive 
mechanisms in some of the taxing policies, and it may affect 
the District. In fact, I am concerned that the residents don't 
bear the burden of economic development.
    I also will say that businesses stay here or move not only 
on the reality of the tax impact, but sometimes the perception. 
And I think the real gold mine in this city are the people, the 
residents, who need to be retrained to get the high-tech jobs 
in a service economy that really represents our future. 
Businesses will locate and relocate here with certain tax 
credits and incentives, but they also need a good taxing policy 
with respect to their employees. And I say not just the high-
paid employees, but basically the service employees and those 
at the entry level.
    So it is a complex issue that needs a comprehensive 
approach, and from an anecdotal perspective I would say those 
cities that have been successful in keeping people in the city 
instead of moving out, those cities created policies early on 
to create incentives for businesses to stay and preclude 
development outside.
    So I am concerned about the real estate legislation that 
may come out of this whole look, because clearly we need to 
make it possible for businesses to move back to the city, to 
work with all levels of employees. But it's a comprehensive 
approach that I think will give us progress and retraining of 
people.
    Mr. Tydings. I will mention four cities that are worth 
spending some time understanding. Two are pretty obvious, 
Detroit and L.A.; but Atlanta, and I would also mention Buffalo 
as the fourth, each of whom has had experiences in different 
fashions, either with the State or with an economic development 
entity in their area that has been granted some authority as it 
relates to the ability to give tax credit.
    I will underscore that I am not really surprised by your 
reaction or by the reaction that the reporter got when they did 
the survey, probably within about a 24-hour or less time 
period, to the President's plan.
    No. 1 is, as was said, the nature of the business. If you 
are a labor intensive business, the tax credits may have some 
appeal to you from an employment point; but if you are a 
capital intensive business, I am not so sure the tax credit is 
going to have quite the appeal.
    An example in our comments this morning, the whole issue 
about the additional expensing for up to $20,000 for the 
acquisition of equipment, that's a component that I think is 
probably downplayed in terms of neighborhood businesses. It 
probably has a significant impact in terms of some of the 
businesses that are not in the downtown area but that are 
throughout the neighborhood.
    I think that there is a need to understand the reaction on 
the basis that the details are simply missing. A 
misunderstanding of the details from the memorandum of 
understanding, yet to be negotiated and released, I think might 
cause a lot of people to react the way they did. But let me 
underscore that the nature of the business is going to be the 
basis upon whether tax credits or financing or expensing is 
going to have a bearing on the longer term.
    Ms. Norton. Well, I do think it goes to the lack of 
confidence that businesses in the city have that there are 
plans out there, and so you get people you certainly will 
except being negative generally.
    Do you have evidence that tax credits or business in 
investment breaks have in fact turned around neighborhoods or 
cities of the kind you mention? I would appreciate any 
information you could get for inclusion in the record. It would 
help us out.
    Thank you very much, Mr. Chairman.
    Mr. Davis. Thank you.
    My reaction, though, to the empowerment is that I think it 
can help marginally, but that the city is so hopelessly 
noncompetitive with the rest of the surrounding region that 
unless you do some other things in addition, as Ms. Norton and 
others have suggested, the empowerment zones are not going to 
have much effect.
    Now, if you can level that playing field a little bit and 
then offer some special treatment, then you wouldn't even need 
to talk about the whole city, you could talk about scenarios 
that may be more competitive. But my judgment is that we are 
way out of it competitively at this point and that is why we 
are seeing such a huge flight of capital out of the city to the 
suburbs or in some cases out of the region.
    Do you agree with that substantially? Is that a fair 
comment?
    Mr. Blunt. Yes, yes.
    Mr. Green. Yes, absolutely.
    Mr. Davis. I am also not sure that the Memorandum of 
Understanding and these things are going to satisfy me or other 
Members of Congress. If we are to be satisfied, then we need to 
see something else. We prefer to see it initiated at the city 
level, no question. But since we are putting an omnibus package 
together anyway and we are all in a room together holding hands 
and trying to get this through, the city government and the 
Federal Government and Congress and the private sector, I think 
we need to be flexible to get the end result.
    Mr. Tydings. I would add, Mr. Chairman, that connects with 
Ms. Norton's comment. I think today this city is hemorrhaging 
as it relates to jobs and businesses. I mean, no one leaves the 
town following a brass band as they walk across and leave the 
Nation's Capital. The city is hemorrhaging. And for this city 
not to have a capacity to deal with job retention today, there 
is no capacity in the Government to have anyone meet and deal 
with businesses who are here in terms of whether they are 
nonprofit associations or for-profit organizations.
    Now, when we talk about other jurisdictions, we know fairly 
well, as I think you know, Mr. Chairman, there are 20 
jurisdictions in this region. All of them have a capacity 
within their governments to spend time, if you will, caring for 
and treating the local jobs in their marketplace. We do nothing 
in this city like that. There is a big void. I think if this 
city doesn't quickly move to deploy some resources to keep what 
it has, the hemorrhaging is going to increase, and it connects 
with the idea in terms of who is the last person out. We must 
do something about that now.
    Mr. Davis. The Economic Development Corp. can be a key part 
of that.
    Mr. Tydings. It is a small piece of it. I think it is city 
government that needs to take care of that.
    Mr. Davis. Would you contact our staff, Mr. Tydings, and 
Mr. Blunt, to help us document the successes of other cities. I 
think it would be helpful to us.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T2192.012
    
    [GRAPHIC] [TIFF OMITTED] T2192.013
    
    [GRAPHIC] [TIFF OMITTED] T2192.014
    
    [GRAPHIC] [TIFF OMITTED] T2192.015
    
    Mr. Davis. I want to ask just a couple of other questions. 
The technology revolution that is circling the beltway right 
now has created an environment in the suburbs where we can't 
fill the jobs that are available. The city is not benefiting 
from that at all, it seems to me.
    How can we get the city to help produce workers for these 
jobs and in some cases maybe to attract some of these companies 
as well? Do any of you have a strategy on that? These are 
companies that can't pay high rent. The nature of it is that 
the high rents you pay downtown make it very difficult to 
operate in most cases. I will start with Mr. Blunt.
    Mr. Blunt. Well, I see an alliance around the country 
between educational institutions and components that reach into 
the core cities to help to retrain, you know, the base. We are 
moving and have moved a long time ago from an industrial 
economy to a service and information-based economy. Those who 
aren't able to move into the educational mainstream early from 
K through 12 up to an open admission school----
    Mr. Davis. Where even the UDC could help; couldn't it?
    Mr. Blunt. UDC could help, yes. The community colleges 
feeding into other institutions can help, and access to public 
higher education is extremely important.
    I would say that that is a duty and a responsibility I 
think we have in the public to make sure that those who have 
been passed by are retrained. We live today in an environment, 
in a lifetime of learning and we train ourselves, but in the 
inner city, the residents who basically have been constrained 
by transportation policies have not been able to move to where 
the jobs are. So if a broad, comprehensive economic development 
policy creates opportunities for movement of corporations back 
into the city, they have a gold mine in terms of who will 
populate some of their businesses, and they are going out of 
the area because there isn't enough. I think we should retrain 
the people here.
    So your point is a very good one for small businesses who 
have strategically aligned themselves with larger ones. They 
are not doing it inside the city.
    Mr. Davis. Your point that they are not just leaving 
Washington, but they are leaving the region is an important one 
for my constituents in the suburbs who are seeing jobs going to 
Colorado and other high-tech areas where the city could be part 
of the solution for keeping them in the region.
    Mr. Blunt. Absolutely.
    Mr. Davis. Yes, comment?
    Mr. Holman. I just wanted to add, Mr. Chairman, that some 
of our members are working with industrial space along the New 
York Avenue corridor to bring that back on line to refurbish it 
and to provide it at lower rents than you would certainly find 
downtown. So that helps to some degree with the space issue.
    We have been working, I am on the board of the Private 
Industry Council and we have certainly been working to retrain 
our residents, and we are also working to help market the city 
and we are beginning to perhaps attract a few companies. But we 
are going to need a major push to have the kind of massive 
impact that is really going to be needed to turn our economy 
around.
    Mr. Davis. Let me ask each of you this question. I will 
conclude with this. If we do nothing else, and I am not 
advocating we do nothing else, but if we were just to do a zero 
capital gains for city residences and city businesses, what 
effect would that have?
    Ms. Norton. I will answer that, Mr. Chairman. It would 
create jobs for people in Fairfax County; if that is all you 
did, it would stimulate the economy, and according to employers 
in the District of Columbia, it would encourage them to do more 
hiring, and based on the hiring rates in place, those jobs 
would go overwhelmingly to suburbanites. That is one of the 
reasons why the President is putting his plan, something that 
would at least help low-income residents, because----
    Mr. Davis. He doesn't have the zero capital gains.
    Ms. Norton. No, he doesn't have the zero capital gains. He 
recognizes that if all you do is capital gains, you get to hire 
your constituents, because that is what we are doing now in 
this town.
    Mr. Davis. But that is not right.
    Ms. Norton. I think on the basis of talking to employers, 
who have been the first to say, ``hey, you know, fine, fine for 
us, but understand that who we are hiring and why.''
    Mr. Davis. We have 12,000 jobs in northern Virginia. We 
can't hire people, we can't find the people to work now. So I 
don't know what that means, except that we get a job growth 
maybe inside the city where people who live in the city would 
be attracted. I don't know. I am asking. We are just looking. 
It seems to me that maybe we can take that if we do that and 
use some other things to help provide jobs for people in the 
city.
    I am confused over the chicken and the egg here. Do 
businesses bring people to the city or do people in the city 
bring business? I think we could argue this ad nauseam, and 
they are probably both important. But from a political vantage 
point here at this point, doing the business side of it is 
politically palatable. The residential tax, which Ms. Norton 
also advocates and which I think has a lot of merit, looks to 
me to be a tougher sell on the Hill at this point talking to 
other Members.
    So I would throw that out and see if there are any final 
comments on that before I conclude.
    Mr. Tydings. I have a comment on your previous question.
    Mr. Davis. Please, please, John.
    Mr. Tydings. Regarding the technology sector. I think we 
ought not to lose sight that there is a connection between the 
city and the technology sector, and it simply is that to a 
degree both the professional and financial service firms are 
rooted in the District of Columbia as it relates to the 
connection in terms of the technology community. While you may 
have representatives of some of the firms physically located 
outside of the city, the roots still to a degree have their 
basis within the District of Columbia.
    No. 2 is that I leaned back to Mr. Green when he was 
leaving to say I think he is an example that people forget that 
we do have technology businesses here. Health care is an 
extraordinarily technology-focused business. You can narrowly 
view Mr. Green's firm in terms of treating the sick. But they 
are doing other things that have a significant implication off 
which you could gain leverage, and the same is true as it 
relates to the universities. There are lots of leveraging 
opportunities that could take place in this city. We simply 
don't take the time to think about them with the other issues 
that are going on.
    But I would not want us to leave here with the belief that 
the city, although not housing a great number of technology 
businesses, does have leverage opportunities to participate 
over time.
    Mr. Davis. We just need to expand the disparity in terms of 
how it is growing in the suburbs and how it is growing here. It 
just jumps out at you. Certainly the city is not devoid of 
that, and MCI and other companies here are utilizing this every 
day.
    Mr. Repp.
    Mr. Repp. As we testified, we certainly support Delegate 
Norton's bill for the residents. With respect to the business, 
I agree there is tremendous opportunity here with the combined 
Federal-State tax in the District with the 9\1/2\ percent 
franchise tax, and the District of Columbia is far in excess of 
what it is in Virginia, and I think there is tremendous 
opportunity with very little revenue loss to reduce taxes and 
stimulate business. Because the business activity is so low to 
begin with, the revenue loss would be minor.
    Mr. Davis. OK. Thank you very much. Thank you. We will go 
to our next panel.
    Mr. Davis. Next we have Mrs. Carol O'Cleireacain, director, 
Brookings Institute, and Dr. Steve Fuller, professor of public 
policy, George Mason University.
    [Witnesses sworn.]
    Mr. Davis. We will begin with Ms. O'Cleireacain.
    Ms. Norton. I think Ms. O'Cleireacain had to laugh when you 
asked her to hold up her hand and say the truth, the whole 
truth and nothing but the truth, because she is an economist.
    Mr. Davis. Economists are people who like to work with 
numbers but didn't have the personality like accountants did.

  STATEMENTS OF CAROL O'CLEIREACAIN, BROOKINGS INSTITUTE; AND 
             STEVE FULLER, GEORGE MASON UNIVERSITY

    Ms. O'Cleireacain. I don't know how you would like me to 
proceed here. I would be quite willing to take my time to 
answer questions.
    I have submitted into testimony to you what is basically 
the executive summary of the study I did, ``The Orphaned 
Capital: Adopting the Right Revenues for the District of 
Columbia.''
    The book will be coming out next Tuesday, on April 1st, 
and, apropos of the conversation you were having with the panel 
before us, it will have an entire chapter on the business 
climate and the relationship between the tax structure in the 
District--the tax rates and the tax burdens--and business 
activity. So that I think some of it can address the questions 
that Delegate Norton raised, we survey the literature on 
empowerment zones and what the impact seems to be on that. We 
look at what economists say about the impact of taxation on 
local economic activity. Actually, over the last 15 years 
economists have become quite convinced that differences in tax 
burdens affect levels of economic activity locally, in small 
enough areas.
    But the project I did at Brookings was looking at a 
sustainable revenue structure for the District of Columbia, 
based on the assumption that a sustainable revenue system is 
the key to the survival of the Nation's Capital. I recognize 
that the revenue issues were not going to be the first thing 
anybody was going to look at: that services have to improve 
dramatically here and that public officials have to show the 
District can live within its means. But, as that takes place 
and as painful management reforms are made, the District's 
residents and its employees and its leaders should expect a 
tangible tradeoff. They should expect a rational and stable 
revenue base on which the District's budget will rest.
    I did a thorough examination of the revenue side of the 
budget over time and have come to the conclusion that the 
existing revenue structure is not sustainable. It is, for sure, 
uncompetitive with the surrounding region. By my calculation, 
per capita State and local taxes are $4,168 in Washington, 
compared to $3,105 in Boston, $2,429 in Baltimore. For 
households, the tax burden, which becomes progressively higher 
as the income level rises, is, according to the District's own 
data, the highest in the surrounding area at the $100,000 
income level.
    For businesses, the District tax bill is at least 25 
percent greater than elsewhere in the region, according to 
Coopers & Lybrand's study for the Greater Washington Board of 
Trade.
    Now, that is part of the problem. It is not all of the 
problem.
    Another part of the problem with the revenue structure is 
that the tax base is severely restricted by Federal law. In 
effect, thus is an economy here where the hometown industry is 
tax-exempt, also, the tax-collecting entity is not working. The 
District's tax collection system is broken. After 9 directors 
in 20 years and staff reductions of 20 percent since 1990, the 
city's revenue department lacks the capacity to enforce and to 
fairly collect the more than 20 different taxes and 115 
different fees and charges that are now on the books.
    External audits point to serious deficiencies in the 
accuracy of the tax collection numbers and in the 
accountability for money received. Voluntary tax compliance in 
the District is languishing, evasion is significant, and 
business tax revenues derived largely from audits. This is 
neither a fair nor an efficient way to collect taxes. And 
without an internal auditor or resident Inspector General 
watching over the collections or the assessments of property, 
the possibilities for corruption need to be recognized and 
corrected.
    Given that information, what I proposed was that for a 
sustainable revenue structure for the District of Columbia and 
to make it competitive with the surrounding area, two things 
must happen. Some actions have to take place at the District's 
own level; that is, a number of taxes should be eliminated and 
the remaining taxes should be cut and dramatically simplified. 
Second, we needed to find, getting to the title of my study 
``The Orphaned Capital,'' we needed to find a parent for this 
orphan. And for cities in this country, their parents are their 
States. So we needed to find for the District a missing State, 
and I propose that that missing State must be the Federal 
Government.
    So, I proposed a revenue structure here that would be 
budget-neutral. I took the District's budget as presently 
authorized and approved by the Congress of the United States, 
and I restructured it to make it look more typically like an 
American city. I eliminated four business taxes--the corporate 
income or franchise tax; the unincorporated franchise tax; the 
personal property tax, which in the District is only a business 
tax; and the professional license fee, which would take a big 
burden off of the District's tax collectors. I proposed that 
the real property tax and the personal income tax be cut close 
to a third, each of those, and dramatically simplified.
    For the real property tax, I recommend moving from five 
categories of property to two and for rates to be dramatically 
cut for those. This actually pertains to the literature which 
shows that the most significant tax that affects local economic 
activity is the commercial property tax rate; and, I would 
change that in the District. For the income tax, I would 
simplify it to make it look pretty similar to the tax in two 
small East Coast States, Vermont and Rhode Island, which is 
just a percent of Federal liability. I would also let the 
Internal Revenue Service collect it.
    To make up for this loss in discretionary revenues, I would 
substitute a new fiscal relationship with the Federal 
Government. It would have three elements, and each would 
address a particular part of the District's revenue shortage 
that results from the unique status of being the Nation's 
Capital.
    The first is that the Federal Government should make a 
payment in lieu of taxes to fully cover the services received 
by the 41 percent of the District's tax base that is, by 
Federal determination, exempt from taxation. This would allow 
property taxes to be reduced for all property owners.
    Second, the Federal Government should provide State aid of 
an amount similar to that received from their State governments 
by cities of similar size. This would simply provide parity for 
the District compared to other American cities.
    Third, there should be a 50/50 sharing of State-type 
spending, including the State share of Medicaid and welfare. 
This would not be discretionary revenue, but this would be 
categorical aid to the District. It would partially compensate 
the District for the fact that it has no State to provide a 
range of State services, and it would provide an incentive for 
efficient service delivery.
    None of this third element would of course have to happen 
if, in its role of acting like a State, the Federal Government 
would actually provide the State service instead. But this is 
really to cover the places in which the Federal Government 
doesn't provide the service.
    The total Federal resources in my proposal which would be 
committed to this new relationship amount to about $1.2 
billion, based on present spending patterns. Some of that aid 
would be discretionary, that is, the payment in lieu of taxes 
(PILOT) and the State aid; and some would be categorical aid 
and tied in quite typical ways and only be spent on the 
services and subject to oversight.
    Based on my study then, the Federal payment at the moment 
currently falls about $535 million, or 45 percent, short of 
fully compensating the District for being the Nation's Capital. 
Increasing the resources, basing them on the logic of the 
burdens borne by the Nation's Capital and making them 
predictable, I believe, would help to provide ongoing budget 
balance for the District of Columbia. It would also, 
importantly, allow the District to simplify and lower its taxes 
on its residents and on its businesses.
    The new fiscal relationship would cost the average American 
annually about $4.50. This is the price for a capital city that 
is, in the Nation's founders intention, separate from any State 
government; and it reflects the national purpose.
    Thank you.
    Mr. Davis. Thank you very much. You finished right on time.
    [The prepared statement of Ms. O'Cleireacain follows:]

    [GRAPHIC] [TIFF OMITTED] T2192.016
    
    [GRAPHIC] [TIFF OMITTED] T2192.017
    
    [GRAPHIC] [TIFF OMITTED] T2192.018
    
    [GRAPHIC] [TIFF OMITTED] T2192.019
    
    [GRAPHIC] [TIFF OMITTED] T2192.020
    
    [GRAPHIC] [TIFF OMITTED] T2192.021
    
    [GRAPHIC] [TIFF OMITTED] T2192.022
    
    [GRAPHIC] [TIFF OMITTED] T2192.023
    
    [GRAPHIC] [TIFF OMITTED] T2192.024
    
    [GRAPHIC] [TIFF OMITTED] T2192.025
    
    [GRAPHIC] [TIFF OMITTED] T2192.026
    
    [GRAPHIC] [TIFF OMITTED] T2192.027
    
    Mr. Davis. Dr. Fuller, thank you very much for being here.
    Mr. Fuller. Good afternoon. It is a pleasure to be here.
    Over the years, I have been involved in a variety of 
studies on the District of Columbia's economy and the 
Washington area; and from that work I have drawn several 
conclusions. I will start with my conclusions and then give you 
a few comments.
    First, the District economy is substantially 
underperforming its potential. Second, the District's economic 
recovery depends, among other actions, on reducing the cost of 
living and the cost of doing business in the city by reducing 
the local tax burden and by implementing a carefully crafted 
economic development program. Third, the economic 
revitalization in the District would generate substantial 
benefits for both District and suburban economies.
    There are many reasons to explain why the District's 
economy is weak. These include a negative business image, high 
tax rates, high operating costs, high prime rates, poor quality 
infrastructure, poor quality public services, deteriorated 
physical environment, physical conditions and ineffective 
public leadership. All of these conditions, to differing 
degrees, have taken their toll on the District's economy.
    Success in building the District's economy will depend on 
reducing the counterproductive costs of doing business or of 
living in the District. Bringing the District's local tax 
burden into line with other cities is important. The 
President's proposal provides a partial solution to the 
District's uncompetitive tax environment. However, it is only a 
partial answer, as it ignores important fiscal inequities.
    The President's proposal is a significant step in the 
evolving solution. I applaud the administration for its 
recognition that the Federal Government must be a partner with 
the District's taxpayers in funding basic, State-level public 
services. The Commonwealth of Virginia is a partner of its 
cities and counties.
    I could argue with some of the funding levels proposed for 
cost-sharing, but I won't at this point. I will leave that to 
others. However, I will argue that the reasoning is flawed 
behind the proposal to trade the Federal payment for this 
Federal commitment to share in the costs of State-level public 
services. Whether it is called a Federal payment or not, the 
Federal Government's responsibility to the District extends 
beyond fulfilling its cost-sharing duties as the District's 
parent jurisdiction.
    The District is unlike any other city to the extent to 
which its property tax base is constrained as a consequence of 
hosting the Federal Government. Where in other large central 
cities tax-exempt properties account for approximately 15 
percent of the land normally subject to property taxes, in the 
District this percentage is three times greater.
    This large proportion of tax-exempt land includes not only 
land owned and occupied by Federal facilities but also 
property, international organizations, embassies and other 
properties owned by foreign governments and property owned by 
organizations granted tax-exempt status by the Congress, such 
as the National Education Association and the National 
Geographic Society. Studies have put the value of these lost 
real estate taxes in the neighborhood of $300 million annually.
    This amount could be accurately calculated each year and 
used to determine a Federal payment in lieu of taxes. This 
payment, in combination with the Federal Government's 
participation in cost-sharing in the provision of State-level 
public services as proposed under the President's plan, would 
enable the District's local tax burden to be reduced, making it 
more similar to those of other major cities. This would 
substantially increase the District's attractiveness as a place 
within which to live and to do business.
    Reducing the local tax burden, targeting tax incentives and 
establishing an administrative vehicle to initiate and manage 
an economic development program in the District are ideas that 
have substantial merit. I support them fully.
    Still, even if the playing field is leveled by a reduction 
in local tax burdens and incentives are available for business 
development, economic growth in the District will not be 
automatic. The District's competitive advantages that should be 
the basis for formulating effective economic growth strategies 
need to be fully understood.
    Formulating economic development strategies around the 
District's core businesses offers it the greatest opportunity 
for early success. Strategies that build on the District's 
inherent economic strengths will yield better and faster 
results than strategies designed to compete head to head with 
suburban economic development programs.
    My research has shown that the healthier District of 
Columbia economy will pay substantial dividends to the 
Washington area's suburban economies. Because of the strong 
interdependencies within the regional economy, economic growth 
in the District spins off benefits to the suburbs.
    While the suburban economies have performed well in recent 
years compared to the District, the suburban economies can't 
grow much faster than they are now, unless either the national 
economy performs better than is expected or unless the 
District's economy is strengthened. In fact, the easiest way 
for the suburbs to promote their own faster economic growth in 
the short term would be to find ways to accelerate the 
District's economic recovery.
    The District's economic base has inherent advantages in 
growth potentials. These must be understood and built on. Only 
then will the incentives and support proposed by the 
President's package have a chance to stimulate long-term 
economic development in the District of Columbia.
    If successful, the revitalization of the District economy 
will generate substantial benefits throughout the metropolitan 
economy.
    Thank you. I will be happy to answer questions.
    Mr. Davis. Dr. Fuller, thank you very much.
    [The prepared statement of Mr. Fuller follows:]

    [GRAPHIC] [TIFF OMITTED] T2192.028
    
    [GRAPHIC] [TIFF OMITTED] T2192.029
    
    [GRAPHIC] [TIFF OMITTED] T2192.030
    
    [GRAPHIC] [TIFF OMITTED] T2192.031
    
    [GRAPHIC] [TIFF OMITTED] T2192.032
    
    [GRAPHIC] [TIFF OMITTED] T2192.033
    
    [GRAPHIC] [TIFF OMITTED] T2192.034
    
    Ms. O'Cleireacain. You have two economists here who came in 
under time and under budget.
    Mr. Davis. And I substantially agree. I mean, there are a 
number of issues that I think you agree on.
    Dr. Fuller, you stated in your testimony that the cost of 
doing business in Washington, DC, has to be reduced by, 
``reducing the local tax burden in an economic development 
program.'' Why do you think the local tax burden is so 
important? How do you compare the importance of local to the 
Federal tax burden? Do you have any specific ideas or reactions 
to the President's economic development package, the elements 
of the President's proposal? Do you think they will work? Do 
you think they are not enough?
    I will ask Carol the same thing.
    Mr. Fuller. I focus on the local tax burden because the 
Federal tax burden is consistent, regardless of what 
jurisdiction you do business in.
    As we look at the District economy, I see it as having 
enormous growth potential. It is different than central cities 
anywhere else in the country inasmuch as the economy of this 
region is geographically tied to the central city. The core 
businesses of this region--the Federal Government, 
international business, the hospitality industry, even the 
technology industry, as we spoke earlier--all have strong 
connections physically, physically fixed to the District of 
Columbia.
    I see that efforts to make doing business in the District 
of Columbia more cost competitive with the suburbs will allow 
those businesses that would more efficiently operate in the 
District, would choose a District location, want to be in the 
District to make a decision unencumbered by this tax 
differential.
    So reducing high costs in the District and improving the 
quality of services at the same time I think go hand in glove. 
Most businesses won't complain, actually, about high costs if 
they get high-quality services in return. So it is not just 
reducing the cost of tax, it is the other costs of doing 
business in the District.
    Any of these proposals, those in the President's plan, 
which are not a complete package, or others I think need to be 
balanced very carefully against each other so that as we look 
at the revitalization efforts in the District, that all of 
the--as I call them--push factors are actually dealt with. The 
factors that attract business and people to the District are 
really quite persuasive; and, right now, they are being 
undercut by these push factors that can be easily corrected.
    Mr. Davis. Carol, do you want to respond?
    Ms. O'Cleireacain. I substantially agree with that.
    I would also cite the economics literature, frankly. That 
makes it really clear that the tax costs of doing business, as 
the other costs--I mean, the panel that came before us talked 
about unemployment costs, other insurance costs here, 
regulatory costs, whether they are direct financial costs or 
indirect. In terms of time consumption, all of those matter for 
location decisions; they matter, in terms of the smaller the 
space within which you are trying to make this decision.
    Mr. Davis. And particularly when there is no value added is 
what I gather?
    Ms. O'Cleireacain. Absolutely. The literature says that 
this stuff is important and that the most important tax rates 
in particular are the commercial property tax rates. And when 
you look at the District, those commercial property taxes are--
they are 45 percent out of line with the next highest region, 
which is a very tiny little core of Bowie; you know, part of 
one county in one surrounding area.
    So you can't look at the literature and not be warned. And 
then you look at what is happening on the ground and you talk 
to people and you see that this is basically a small, open 
economy, where location is--you can do the same business in a 
number of different locations.
    Mr. Davis. There are class A office buildings, for example, 
in the suburbs now. There weren't 25 years ago.
    Ms. O'Cleireacain. That is right. That is right. And there 
is a lot more of the work force out there, too.
    Mr. Davis. One thing that neither one of you mentioned, and 
that is transportation in and out of the city is really better 
than in most metropolitan areas, isn't it? At least with Metro 
and everything. Or how would you describe it?
    Mr. Fuller. I don't think transportation is really the 
problem in this discussion, whether it is better or not than 
other places. We know that people move long distances to seek 
jobs, and the job growth in the suburbs is definitely 
attracting residents from the District who live in the District 
and now work in the suburbs and vice versa. This is what makes 
economic development opportunities within the District quite 
attractive, that they can attract the resource base necessary 
to support them.
    I have written in my longer statement that, in fact, the 
suburban work force that works in the District is actually 
quite an asset for the District. It provides labor resources 
that supports and helps grow this economy. The idea of only 
trying to create jobs in the District for District residents 
would actually be counterproductive.
    I think the sooner we begin to think of this economy as a 
regional economy and that the benefits are shared around the 
Beltway and among and between jurisdictions, the easier it will 
be to sell the idea that this is a good investment, building up 
the District's economic capacity.
    Ms. O'Cleireacain. And that is true. As an economist, I 
know that is true.
    But it seems that when you look at the political reality 
that the District faces, you are talking about an entity that 
is small compared to the region. You are talking about an 
entity that doesn't have a State government to protect it.
    When you look, for example, at the economic development 
programs in the State of Maryland, the entire strategy is set 
by the State. It is a biotech, a health-sector, strategy. The 
State of Maryland bears half of the cost of property tax 
incentives that localities in Maryland give for businesses to 
locate.
    You don't have a State to do that for the District.
    Mr. Davis. Although Virginia is little bit different, I 
know Fairfax spends more in economic development than the State 
of Virginia itself.
    Ms. O'Cleireacain. Right. But it is a two-tier system. I 
mean, there are Virginia incentives and then there are local 
incentives. Here in the District, it all has to come out of the 
same pocket.
    Mr. Davis. Right. Although now with the Board of Trade they 
do have a regional group that Fairfax contributes to, so there 
is a recognition. I agree with you in terms of it being a 
regional economy and being interdependent.
    Let me just ask a couple of other questions. Which comes 
first, the business growth or the residential growth? If you 
attract more businesses, does this bring residents in? Any 
thoughts on that?
    Mr. Fuller. If I were organizing economic development 
strategy, I would approach both. We need more residents because 
they support the retail base. They support the local-based 
economy, which is different than the kind of economic actors 
that we attract through business incentives and through a well-
heeled economic development program.
    Employees in the District, whether they live here or just 
work here, also constitute a market. So we have to buildup the 
market base that supports local businesses. I think doing one 
without the other will not be successful.
    Ms. O'Cleireacain. I would also like to point out that I 
think he is absolutely right. Much of what I dealt with in my 
tax proposal gets at that, because it gets at both households 
and also small business. It seems to me this is a very tough 
town for small business.
    I also think, coming from New York, and this is just my way 
of looking at it, but I was also raised in Chicago, that this 
is a central city that because of the way it has been planned 
and the structure of its buildings and the height of its 
buildings, this is not a terribly dense central city. It does 
not have the level of density that other central cities have, 
so that a lot of both the negatives and the positives of 
central city location are not as vigorous here.
    Mr. Davis. OK. Let me ask, what could zero capital gains do 
for the city if you were to bring that down for both business 
and residents?
    Mr. Fuller. Do you want to start on that one?
    Ms. O'Cleireacain. No. I don't have a clue.
    Mr. Fuller. I don't think that is where to start in helping 
the city. I don't think it would have much effect at all.
    Mr. Davis. Where would you start? If you could outline it 
just at different tiers, if you could work on a program to 
bring the city back on a tax-incentive basis, recognizing that 
regulations are part of that?
    Mr. Fuller. Well, to say it needs to be a comprehensive 
solution sounds oversimplistic, but I can't point to one area 
that will achieve the results. There are many things that have 
to be done. Most important, as an economic development agency 
comes into being, if that is what happens, they need to 
understand the strengths of the District economy so they go 
with that strength rather than trying to look at what other 
jurisdictions are doing and copying them, or trying to go head 
to head with what sounds popular at the time.
    The District is fortunate that it has a substantial 
economic base to build off of, and in large part it has ignored 
it, because it is either old hat, or it isn't as sort of 
attractive as high technology. Technology may not be--I don't 
think it is the District's future. I don't think the economy 
should be built around that, not that it can't be a part. But 
it is losing its economy to the suburbs by default, and I think 
it can work to retain and grow some of its inherent strengths 
and then start looking for new activities or different sectors 
to stimulate.
    Ms. O'Cleireacain. Representative Davis, let me support 
something that the previous panel said. Here I am going to put 
on my hat as somebody who spent 4 years in New York City 
government.
    Of all of the things that I said to you about what is 
broken in the Department of Finance and Revenue, you could say 
double that for economic development in the District of 
Columbia. There isn't an entity, there isn't a focus; there is 
a tool box of policies, but there is no strategy to which that 
policy is addressed. So as somebody who has been in government, 
I come here and I look and I listen to what business people are 
saying, and I can see it, and it is a place where they simply 
have abdicated policy.
    Mr. Davis. This is not brain surgery then, is it? This is 
just basic blocking and tackling and executing the 
fundamentals.
    Ms. O'Cleireacain. Absolutely.
    Mr. Davis. And it is not happening, is it?
    Ms. O'Cleireacain. It is not noticeable.
    Mr. Davis. But the irony is that the city is doing 
reasonably well in spite of--it shows the underlying strength 
of the city.
    Mr. Fuller. That is why I am so hopeful. The District 
economy is actually doing quite well in spite of all of the 
negatives. So with a little bit of help, it is bound to start 
growing and, in fact, picking up, helping to boost the entire 
region and the national economy.
    Ms. O'Cleireacain. But not its tax base, because you have 
to have a phenomenal amount of growth to get something out of 
the tax base, because it is severely limited. You can't run a 
local government without a tax base. It is derivative of the 
private sector.
    Mr. Davis. OK. Ms. Norton.
    Ms. Norton. Mr. Chairman, I don't have any questions for 
these witnesses. I would like to thank them for very thoughtful 
testimony and for the time that they have given to studying the 
problems of the District of Columbia.
    If I could say to Dr. Fuller, I know a straw man when I see 
one. Your notion that only trying to create jobs for DC 
residents doesn't make a lot of sense is astonishing in its 
lack of generosity. The fact is that employers tell me that 8 
and 9 jobs out of every 10 go to suburban residents.
    We are not trying, and we have never tried, to exclude 
suburban residents from jobs here. I spend a lot of my time 
trying to keep Federal jobs in this city, and those jobs 
overwhelmingly go to the suburban residents.
    This city has shown no hostility to the suburbs, but we do 
think that the turnover in residency is a disaster for this 
city, and we do think we are within our rights to try to create 
some jobs, at least of the jobs that go here, for DC residents.
    So do understand that nobody here is advocating that those 
of you who live in Virginia and Maryland not get any jobs; you 
already have the lion's share of jobs in the DC government, and 
certainly in the economy. We are not advocating, and I resent 
the notion that the point was only trying to create jobs for DC 
residents. We are saying DC residents surely deserve some of 
the jobs that the economy produces in this city. The economy is 
going well, and you know what? Unemployment in this city is 
going up. The economy is going very well, but it is not 
profiting the people who live here. It is not profiting the 
people who pay for the services that residents of Virginia and 
Maryland use. It is not profiting the people who pay the 
highest taxes, combined Federal and local, in the country.
    So yes, you are going to find that we want to make some 
jobs for residents of the District of Columbia, and we are not 
advocating that those jobs only go to residents of the District 
of Columbia. It is so lopsided the other way, we should think 
that the region would want also to stand up and say, help these 
folks who live in this city to get some jobs, because we are 
getting our share.
    I can't say that we are getting our share in Fairfax and 
Montgomery, however. I appreciate that the chairman understands 
that there are jobs out there to be gotten, and keeps talking 
about ways like UDC to help match those jobs out there with the 
skills needed for those jobs.
    Ms. O'Cleireacain is an old friend. Occasionally we 
disagree. I note that she has a few paragraphs on my tax plan 
that were gratuitously added to her own study. I want to note 
for the record that those paragraphs look like they track the 
work of Citizens for Tax Justice, and I don't think it was her 
intention to do a study of my own plan. This does not involve 
an independent study of our plan, but since she has seen fit to 
toss in a few paragraphs against my plan, I ask permission to 
put into the record a rebuttal of what is there, because it is 
a rebuttal I have already done in relation to the Citizens for 
Tax Justice.
    Mr. Davis. Without objection.
    [The prepared statement of Hon. Eleanor Holmes Norton 
follows:]

[GRAPHIC] [TIFF OMITTED] T2192.035

[GRAPHIC] [TIFF OMITTED] T2192.036

[GRAPHIC] [TIFF OMITTED] T2192.037

[GRAPHIC] [TIFF OMITTED] T2192.038

    Ms. Norton. Mr. Chairman, I ask for permission to place 
into the record the Washington Times article from which I 
quoted for the last panel.
    Mr. Davis. Without objection.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T2192.039
    
    Mr. Davis. Just a couple of other questions. First of all, 
Carol, if we could get that book as soon as possible, we would 
be very eager to look at that.
    Ms. O'Cleireacain. It would be my pleasure.
    Mr. Davis. Second, I think we can fall very quickly into 
going in the wrong direction as we take a look at the 
unemployment rate in this city versus the suburbs of trying to 
do things. Where the city can benefit is appropriate training 
and education for its people for jobs that are here and to 
adjust an economic development strategy.
    For example, on the tourism side with the MCI Arena and the 
new convention center coming down, the city can adjust to that. 
We just need to be smart about a strategy. That can increase--
the city can be the greatest beneficiary of the jobs that are 
created into hospitality industry, it seems to me. What I like 
about both of you, is your straightforwardness. We may not 
agree on every single piece of the plan, but you have been, I 
think, very straightforward, laying out the facts as you see 
them, some economic realities here regarding where the 
marketplace is, where we are likely to score gains and where we 
aren't.
    I think that if we handle this correctly, and we look at 
the city in a couple of years, we are going to see some 
significant progress. If we go back the other way, though, and 
overreact to this and try to structure jobs and try to 
structure an economic development program that doesn't fit the 
cloth of the marketplace, we will be wasting time with another 
generation not benefiting from that.
    So I appreciate very much each of your comments, and the 
ability to put those markers out here for us to follow. I hope 
that we will benefit from them and take them accordingly.
    Ms. O'Cleireacain. We will be happy to help in any way that 
we can.
    Mr. Davis. I appreciate that. Thank you both very much.
    Mr. Fuller. Thank you.
    I see the vice chairman of the subcommittee has just 
arrived, our Representative from Maryland, Mrs. Morella. We are 
happy to have you. Would you like to make an opening statement?
    Mrs. Morella. Mr. Chairman, in the interest of time, I 
would like to submit an opening statement for the record.
    Mr. Davis. Without objection, it will be submitted for the 
record.
    [The prepared statement of Hon. Constance A. Morella 
follows:]

[GRAPHIC] [TIFF OMITTED] T2192.040

[GRAPHIC] [TIFF OMITTED] T2192.041

[GRAPHIC] [TIFF OMITTED] T2192.042

[GRAPHIC] [TIFF OMITTED] T2192.043

[GRAPHIC] [TIFF OMITTED] T2192.044

    Mr. Davis. We move now to our last panel. I appreciate 
those on our last panel for bearing with us. We have been 
looking forward to your comments and to taking questions.
    We have Joslyn Williams, president, Metropolitan Washington 
Council AFL-CIO; Ms. Kathryn Pearson-West, executive co-
chairperson, Coalition for Political and Financial 
Accountability, Inc.; and Joseph Daniels, Washington Interfaith 
Council.
    We look forward to your comments today.
    [Witnesses sworn.]
    Mr. Davis. We will go in this order, just the way I 
scripted. Mr. Daniels, why don't we start with you and go 
straight down the row, unless the four of you have agreed to 
something else.
    Mr. Daniels. No. That is fine.
    Mr. Davis. Try to stay to 5 minutes. We want to get into 
the questions as much as possible. Thank you for being here.

   STATEMENTS OF JOSLYN N. WILLIAMS, PRESIDENT, METROPOLITAN 
WASHINGTON COUNCIL AFL-CIO; KATHRYN PEARSON-WEST, EXECUTIVE CO-
      CHAIRPERSON, COALITION FOR POLITICAL AND FINANCIAL 
  ACCOUNTABILITY, INC.; MARK THOMPSON, PRESIDENT, DC BRANCH, 
NATIONAL ASSOCIATION FOR THE ADVANCEMENT OF COLORED PEOPLE; AND 
     REVEREND JOSEPH DANIELS, WASHINGTON INTERFAITH COUNCIL

    Reverend Daniels. Sure.
    My name is Joseph Daniels, and I am the pastor of Emory 
United Methodist Church on Georgia Avenue in Northwest 
Washington, and I am a member of the strategy team of the 
Washington Interfaith Network. We are an organization of 50 
congregations of all denominations created with the assistance 
of the Industrial Areas Foundation.
    I know the purpose of this hearing is to solicit reactions 
to the President's proposals for the fiscal restructuring of 
the District. I thank the committee, Chairman Davis and 
Representative Eleanor Holmes Norton for the opportunity to 
speak on behalf of the Washington Interfaith Network.
    Let me begin by saying that the President's proposals, 
along with the proposals and initiatives suggested by the 
Financial Control Board, the Brookings Institution, and 
Representative Norton, provide a wide array of responses to the 
current fiscal and structural mess that the District finds 
itself in.
    We in WIN are encouraged that so many powerful institutions 
and impressive minds are grappling with these matters. We 
believe that constructive change in this area of the city's 
life is critical. The best thing that we can do is to encourage 
you to see our representative as a reliable and knowledgeable 
player in these negotiations, someone whom we will count on to 
sort out the wheat from the chaff and present to the city the 
best options that emerge.
    A few words of warning, however, from the Washington 
Interfaith Network.
    First of all, we ask that you be like the best of doctors 
and do no harm. Even the most powerful institutions and supple 
intellects can create damaging policy, like the recent welfare 
reform bill.
    And please don't use your distaste for an individual or 
several individuals as a reason to delay or derail constructive 
change. Imagine the overwhelming majority of decent citizens 
who make up this city and region. I invite you to come to my 
church this Sunday or any WIN congregation this Sunday to get a 
healthy picture of the city in your mind's eye. We ask that you 
make policy for the whole of the city.
    As important as the fiscal restructuring of the city is, it 
is necessary, but not sufficient, to transform this city. There 
are two other kinds of change that must also take place. The 
second kind is the long-term and incremental improvement of the 
city's public schools. And the third kind is the shorter-term, 
visible and tangible gains in the construction of affordable 
homes, the lowering of the rates of crime, and the upgrading of 
streets, parks and other recreational facilities.
    WIN applauds the action of the Financial Control Board in 
taking charge of the public schools and installing a new 
leadership team. Our opening assembly of 2,200 delegates on May 
28 last year committed itself to participating in a long-term 
effort to change and improve the culture within the city's 
public schools. WIN has already started one after-school 
effort, funded privately by the Fannie Mae Foundation, in J.O. 
Wilson Elementary School, which is in Northeast Washington, and 
intends to begin at least nine more over the next several 
years. The purpose of these efforts is, of course, to provide 
quality extended-day activity to as many as 2,000 youngsters in 
our city. Equally important to WIN is the goal of training and 
developing parent leaders in each of these schools--parents 
capable of addressing the issues that affect their children's 
education and other issues that destroy the quality of life in 
the communities surrounding these schools.
    A third kind of change, shorter-term, dramatic, and highly 
visible, must take place in the District, we believe. To that 
end, WIN has raised $2.5 million in church financing to serve 
as a revolving construction fund for the construction of more 
than 1,000 new, affordable, Nehemiah townhomes in the District. 
Washington, DC, has the lowest homeownership rate of any city 
of its size in the Nation, it is 38 percent, and one of the 
highest rates of population loss at the same time. These two 
facts are connected. Decent working families who wish to remain 
in the city or move to the city have very little in the way of 
quality affordable housing to buy. WIN will build critical 
masses of 250 to 300 such homes on any sizable site in the 
city. After 9 long months of negotiation, Mayor Barry has 
recently signed an agreement with WIN that will lead to the 
construction of the first 250 homes on the Fort Lincoln site in 
Northeast. The city needs to be rebuilt, on a large scale, with 
great impact, in a number of locations, and WIN is ready to do 
what its sister organizations in Brooklyn, NY, and Baltimore, 
MD, have already done.
    Another tangible gain can be registered in the reduction of 
the rate of crime. We believe that the Financial Control Board 
did only half the job when it intervened in the issue of police 
management. The Board, we believe, should have removed Chief 
Soulsby and replaced him with a top-flight, proven police 
manager from another city. We know from New York that drastic 
reductions in crime require professional leadership, tight 
accountability, and effective community participation. WIN 
stands ready to hold up its end, as soon as the right 
leadership is in place.
    Other physical improvements, in streets, parks, recreation 
centers, are critical. They signal to those already here and 
those who are considering following their job to the city that 
the city is on the mend. The money set aside in the President's 
plan for improved infrastructure could prove very useful.
    None of these more immediate changes are easily 
accomplished. We in WIN deal daily with a political culture 
that features bureaucratic obstructionism, gross incompetence, 
low-level thuggery, and occasional corruption. These features 
are not unique to Washington, although at times they seem 
present in a more distilled form. We are ready to confront 
these conditions, and, like the Old Testament leader Nehemiah, 
we will rebuild the old charred walls of our great city with a 
trowel in one hand and a sword in the other.
    But to do this tough work, we must count on you, ladies and 
gentlemen, to handle your part of the rebuilding project. Work 
closely with our representative, we ask, and come to a fair and 
responsible conclusion, and then reinforce WIN and all of the 
other good citizens of Washington, DC, in the two campaigns 
that we suggest that are already now underway. Thank you very 
much.
    Mrs. Morella [presiding]. Thank you, Reverend Daniels.
    [The prepared statement of Reverend Daniels follows:]

    [GRAPHIC] [TIFF OMITTED] T2192.045
    
    [GRAPHIC] [TIFF OMITTED] T2192.046
    
    [GRAPHIC] [TIFF OMITTED] T2192.047
    
    [GRAPHIC] [TIFF OMITTED] T2192.048
    
    [GRAPHIC] [TIFF OMITTED] T2192.049
    
    Mrs. Morella. Now I would like to recognize a good friend, 
Mr. Williams, for his statement.
    Mr. Williams. Thank you very much, Congresswoman.
    Let me say at the outset, my comments are not the complete 
comments of this organization, and unfortunately, we did not 
receive our invitation until yesterday. So I am going to--in 
the great tradition of the Congress, I am going to ask the 
chairman's permission to revise and extend my remarks prior to 
the close of the record.
    Mrs. Morella. Without objection, that will be the case, Mr. 
Williams. The record will be open also for 10 days.
    Mr. Williams. Thank you very much.
    Members of the subcommittee, my name is Joslyn Williams, 
and I am president of the Metropolitan Washington Council, AFL-
CIO, which is made up of 175 local unions with 150,000 union 
members. I am happy to be here representing the working people 
of the District of Columbia and the Maryland suburbs of 
Montgomery, Prince George's, Charles, Calvert and St. Mary's 
Counties. Our members in both jurisdictions, as well as working 
families in northern Virginia, have been impacted by the 
financial decline of the Nation's Capital and will stand to 
benefit by its resurrection as a model capital city.
    We believe the President's plan in general is a good one. 
It focuses on the key causes of the District's current 
financial problems; namely, the basic structural defects built 
into the District by Congress. These defects have unduly 
restricted the District's revenue-raising abilities thereby 
undermining its tax base, have saddled it with an enormous pre-
home rule pension liability, and have overburdened it with city 
and State functions without providing it with a State.
    Study after study looking into the District's financial 
crisis has identified the same structural defects. The Rivlin 
Commission, of which I was a member, the McKinsey report to the 
Federal City Council, a report by the Appleseed Foundation, and 
the recent Brookings Institution Policy Brief for the DC 
Control Board, have all laid the District's basic problems at 
the feet of structural defects.
    The President's plan addresses two of these three defects. 
Relative to the unfunded pension liability, which was accrued 
prior to home rule when Congress was in charge, it is only 
fitting and proper that Congress should reshoulder this burden. 
Two of our affiliated unions represent workers affected under 
this pension plan and, therefore, we would be interested in 
ensuring that upon closure of the current plan, future workers 
would not find themselves in an inferior plan. We look forward 
to labor participation in the development of any new plan.
    The second structural defect addressed in the President's 
plan is the District's lack of a State. Takeover of certain 
functions which are normally under the purview of States, or 
fuller Federal funding for these functions, is key to helping 
the District stabilize its financial situation. As the 
Brookings Institution Policy Brief points out, other comparable 
cities like Boston, Memphis, and Baltimore receive 28 to 38 
percent of general revenues from State aid. The current Federal 
payment represents only 19 percent of the District's revenues, 
leaving a shrinking tax base, which is restricted by Federal 
law, to make up the difference. It hasn't.
    Medicaid is clearly an area where the District has suffered 
through lack of a State. The District has been paying 50 
percent of costs while cities in like circumstances have been 
paying 25 percent with the State and Federal Government 
together picking up the remainder. When the large percentage of 
DC residents below the poverty line is factored in, it is not 
hard to see why social services expenditures have been one of 
the biggest culprits in busting the District's budgets.
    There is a part of the President's plan with which we take 
exception, and that is the wholesale elimination of the Federal 
payment. This payment has not been made to the District to take 
the place of a State nor has it been a gift from the Congress 
to the District. It represents lost revenue due to the 41 
percent of District land that is unavailable for property taxes 
due to the presence of the Federal Government. It also 
represents payment for the additional expenses the city has had 
to bear because of the Federal presence.
    The AFL-CIO has taken the position the Federal payment has 
been inadequate as it is. It has not kept pace with inflation, 
nor has it represented realistically the revenue lost to the 
District.
    Our belief is that the Federal payment should be viewed 
separately. The District needs a rational and stable revenue 
base and the Federal payment should be a part of that base. The 
Brookings Institution estimates that this payment in lieu of 
taxes, which should be nonnegotiable and based on property 
assessments and the commercial property tax rate, would 
currently be about $382 million.
    Additionally, to help stabilize the revenue base, we feel 
that the President's plan should make it clear that there is a 
preference for the location of the Federal Government in the 
District. We cite the recent study by George Mason University.
    Notwithstanding the tremendous job being done by our 
current incumbent in the House of Representatives, the 
District's lack of representation in the Congress undermines 
its ability to make its case regarding efficiencies, impact on 
the community, and other cases cited by Congresspersons for 
relocation.
    The President's economic development component is rather 
vague but is a key ingredient to the future success of the 
District financially. No District revenue issues are addressed, 
save the takeover of tax collection by the IRS. Unless the 
District's tax structure is streamlined, even the IRS may have 
trouble administering it. Collections and enforcement have 
clearly been a severe problem. While the District of Columbia's 
Tax Revision Commission, on which I serve, will be looking at 
recommending a tax overhaul, this in itself does not stimulate 
economic development.
    Congresswoman Norton's Economic Recovery Act, which we 
support, addresses another required segment of a stable tax 
base, and that is individual taxpayers. In addition to jobs 
fleeing, individuals have fled to the suburbs, taking with them 
their incomes and their revenue-generating potential. Middle 
and upper class taxpayers must be lured back, and this bill 
will help do that.
    In summary, we support most of the President's plan. Its 
focus in addressing some of the structural deficiencies created 
by Congress is correct. Its requirement that the District 
manage itself acceptably is correct. It is not, however, 
complete in its approach, as we have outlined.
    As representatives of many of the workers to be affected by 
the Federal takeover of several agencies, we have one final 
concern and that is the potential displacement of a large 
number of workers. The prison takeover, for example, requires 
all employees to reapply for their positions. We requested the 
plan addressing this potential displacement be developed with 
the input and involvement of labor representatives.
    Thank you for your consideration of labor's position. We 
look forward to working with the committee, especially 
Congresswomen Morella and Norton and Congressman Davis, more 
closely as you work on plans to revise our Nation's Capital. 
Clearly, the interests of your respective constituencies are 
also at stake. With Professor Fuller pointing out that for 
every $1 of additional economic activity generated in DC, the 
suburbs realize $1.50 in new growth, it is clear that our 
region must work together for the benefit of all. Thank you.
    [The prepared statement of Mr. Williams follows:]

    [GRAPHIC] [TIFF OMITTED] T2192.050
    
    [GRAPHIC] [TIFF OMITTED] T2192.051
    
    [GRAPHIC] [TIFF OMITTED] T2192.052
    
    [GRAPHIC] [TIFF OMITTED] T2192.053
    
    [GRAPHIC] [TIFF OMITTED] T2192.054
    
    Mrs. Morella. Thank you, Mr. Williams.
    We will now hear from Ms. Pearson-West.
    Might I ask you, Ms. Pearson-West, if you could summarize. 
Your written testimony in its entirety will be in the record.
    Ms. Pearson-West. Good afternoon. I'm Kathryn Pearson-West, 
executive co-chair for the Coalition for Political and 
Financial Accountability. I have summarized, made some points, 
and I would like to enter my testimony into the record.
    Mrs. Morella. Without objection, it will be entered.
    Ms. Pearson-West. I'm so disappointed that Mr. Davis had to 
leave because I especially wanted him to hear some of the 
concerns of some of our citizens in the Nation's Capital. But I 
am glad to have you here.
    Mrs. Morella. He will be right back. We will make sure that 
he hears them.
    Ms. Pearson-West. Thank you very much.
    The Coalition had written to Congressman Davis because we 
were quite concerned that DC residents were not being heard on 
this plan, so that is why I am especially pleased that this 
hearing is being held today, so in bullet fashion, I will just 
highlight some of my points.
    DC is unique and takes on burdens that other cities don't 
have. We have $19 billion going out of this city every day by 
commuters returning to the suburbs whose income we cannot tax. 
$730 million could be raised through taxing income of commuters 
at 2 percent. As it stands, 48 States are actually subsidizing 
Maryland and Virginia. The first call must be for a commuter 
tax or for an adjusted annual Federal payment that adequately 
compensates for that loss of income.
    DC is home to over half a million people. The city is more 
than just the Federal enclave. This is a place for people who 
reside in well-established communities. There are taxpayers 
here and families and any proposals must address those issues.
    We also have a large contingent of poor people whose 
interests must be addressed as well. There are some people that 
must count on government. We can support the President's plan 
with some modifications and clarifications as long as it does 
not amount to government rearranging our lives and priorities 
without our involvement.
    Therefore, we have to take this discussion and others all 
the way to the grass-roots level where we can include elected 
advisory neighborhood commissioners, civic associations, other 
community residents, and definitely our council members. And I 
see our Shadow Representative is in the audience as well. We 
need people like that involved.
    We support the continuation of the annual Federal payment; 
that is a must and that has been described enough today. We 
must recognize that there is nothing that need be done 
autocratically that cannot be done democratically. We call upon 
Congress to adhere to the democratic principles. We understand 
that the status quo is not working and we are committed to 
change. However, it is imperative that those who will be 
affected by that change be involved.
    Thus far, most proposals and ideas have been imposed upon 
us. In fact, we tend to be treated like an urban laboratory. 
There has been a loss of power within the unions and efforts 
appear to be union busting. Unions have played a great part in 
this country and they are needed more today than ever.
    There was an article in the paper today that I found most 
distressing. Union participation is essential in negotiating 
any proposals in DC. But unions must really represent their 
workers. Americans don't know what is being done to the 
citizens of Washington, DC. Americans don't know that we are 
being disenfranchised. Some of us wonder whether people in 
other States are electing their Representatives just to come to 
the Nation's Capital to disenfranchise us.
    Another bullet. It is important that before this summer we 
begin to restore a sense of accountability and stability and a 
sense of involvement. At this point, all DC residents can do is 
sit on the sidelines and watch various forms of government 
arrange our lives. Racial tensions are being exacerbated. Many 
of us recognize that we are losing control of our city.
    In Communist countries or dictatorships, the Communists 
take over education and then the media. The military is also 
taken over. We know that we have lost the media which 
relentlessly describes the negative about DC. We have recently 
seen the takeover of the schools. The police force is the 
equivalent of the military, and we are fighting desperately to 
hang on to the police and avoid another hostile takeover.
    I hope the President will give more funds and Congress will 
give more funds to our police instead of any attempts to take 
it over. I hope that the Board of Education wins its lawsuit. 
That case is desperately needed to remind us of the validity of 
our vote, and I think it is important that education and 
democracy can coexist. The struggles by our forefathers and 
mothers to achieve the vote has been lost as home rule and 
democracy are diminished in the Nation's Capital. That 
particular case might need to go to the Supreme Court, but it 
is one that we must win. There must be as much support and 
involvement in the formulation and implementation of public and 
social policy. Democracy is not an observers' sport.
    We need to focus more on education. Our school board must 
be restored so that we can have the necessary input to guide 
our young people. Just think about this new emergency board of 
controllers, they are closing schools like McKinley High School 
and Taft when a better approach would be to talk to citizens 
and look at possibly a school like a Banneker or a 
communications school or another magnet school, but instead we 
have closed door meetings.
    This is where my own Congressman gets a little annoyed with 
me on this. We have disagreements with the flat tax. There 
should be other types of tax incentives. I do understand what 
she is trying to achieve, but I think we need to be clear about 
the ramifications of this type of tax. Would the flat tax, 
coupled with the possible loss of rent control and other 
things, accelerate the exodus of lower middle class and low-
income people? And we need another approach to maintaining and 
attracting residents and businesses. A better focus might be to 
improve schools and make the streets safer.
    The Economic Development Corp. should consist mostly of DC 
residents and must assist small minorities' and disadvantaged 
businesses. There must be an aggressive effort to target and 
improve New York Avenue, Georgia Avenue, Rhode Island Avenue, 
Ivy-City Trinidad and Anacostia. At the same time these areas 
are improved, we cannot force out the people that have made 
those areas their homes or current places of business. Before 
we drastically change welfare in DC, we had better get some 
jobs or crime is going to increase as well as the pain and 
suffering on our young people.
    We must also avoid displacement of people and social 
dislocation and alienation, and we must be careful about 
establishing super agencies out of the reach of local 
government and taxpayers and voters.
    While the Federal Government is to assume the financial 
role of assuming some State functions, the control and 
implementation of policy must remain with the DC government and 
local residents, at least with certain functions. In that 
light, the Federal Government needs to give more financial 
assistance to the University of the District of Columbia in 
order to make it a flagship institution and not a community 
college. There also needs to be money for the schools to make 
them state-of-the-art facilities and to construct new schools.
    We support the efforts to reduce DC's Medicaid payments. We 
are happy to see DC will be relieved of the unfunded pension 
liability. There is much too much talk of mismanagement in DC, 
as if Congress had no part. That has to stop. The DC bashing 
must stop, and we must move on to accomplish our goals.
    The President and Congress must join in helping to promote 
the positive aspects of DC. I invite you all to come to North 
Michigan Park and Lamond Riggs, which a lot of people refer to 
as Precinct 66, where Ms. Norton has really been a friend to 
us, so that you can see that people believe in civic 
responsibility and they maintain their homes and they send 
their children to school. We in DC have dreams and aspirations 
just like those in other jurisdictions.
    I am coming to an end.
    We should not try to privatize all of government because 
once we downsize we still have people looking for jobs. We have 
to create jobs. DC should be able to restructure and refinance 
its debt. It should not be required to balance its budget early 
because Congress and the Federal Government have yet to balance 
the Nation's debt, and we figure we should at least get the 
same amount of time. The infrastructure fund must look at 
residential communities and not just the thoroughfares to the 
suburbs.
    The President's plan should not be viewed as a bailout. It 
is still inadequate to truly transform this city to its 
intended greatness. A bailout is what we have given to other 
countries throughout history, and is what we gave to Russia. We 
don't seem to have that much interest in our own cities. Cities 
across the Nation for many years have needed help in 
revitalization and the failings of DC are not an isolated 
phenomenon. Fortunately, help is beginning to go to cities, and 
I am glad there is attention focused on the Nation's Capital. 
The President's plan should include an extension of Metro to 
connect Georgetown with Fort Lincoln and New York Avenue.
    Finally, the President's plan should address full voting 
representation and empowerment of the citizens. Our vote has 
been nullified with the existence of the control board and the 
citizens got a slap in the face when the school board was 
rendered powerless on Election Day.
    The President in concert with Congress should call for the 
repeal of Public Law 104-8, which created the control board and 
robbed DC residents of the power of a vote. We need votes in 
the House and the Senate, not this dictatorship that dictates 
public policy and ignores the will of the people. This plan 
should have been presented long ago and there would have been 
no need for a control board. This plan is going to help give us 
a level playing field.
    It is important to note, and I am glad to see that there 
was no imposition on DC residents on the type of governance. 
The President did not address that. In my opinion, we need to 
maintain the strong mayor form of governance but that choice 
should remain with the people, and just wanted to let you know 
that since there has been a discussion on DC governments, the 
DC Democracy Initiative, which is a nonbiased group but which I 
attend, will look at the various forms of government and DC 
financial issues, and it will be held on Saturday, April 5, 
from 10 to 2 at Martin Luther King Memorial Library.
    Thank you for the opportunity to speak this afternoon.
    Mrs. Morella. I thank you. You almost covered it all.
    Ms. Pearson-West. I tried.
    Mrs. Morella. Thank you, Ms. Pearson-West.
    [The prepared statement of Ms. Pearson-West follows:]

    [GRAPHIC] [TIFF OMITTED] T2192.055
    
    [GRAPHIC] [TIFF OMITTED] T2192.056
    
    [GRAPHIC] [TIFF OMITTED] T2192.057
    
    [GRAPHIC] [TIFF OMITTED] T2192.058
    
    [GRAPHIC] [TIFF OMITTED] T2192.059
    
    [GRAPHIC] [TIFF OMITTED] T2192.060
    
    [GRAPHIC] [TIFF OMITTED] T2192.061
    
    Mrs. Morella. It is a pleasure now to recognize Mr. Mark 
Thompson.
    Mr. Thompson. Thank you. To Congresswoman Norton, 
Congresswoman Morella and the staffs and to our Congresswoman 
seated in the audience, Congresswoman Sojourner, it is an honor 
to be here with you. I am literally pinch hitting for the 
president of our branch, Reverend Morris Shearin, who was 
unavoidably called to another meeting, hence the brevity of my 
written and submitted statement. I would ask the same 
indulgence of our elder statesman, Mr. Williams, that I submit 
further comments.
    Mr. Williams. As a point of service, not age.
    Mr. Thompson. Of course, certainly. I did not mean that 
chronologically. That I would submit further comments within 
the 10-day period and also I may depart and very briefly extend 
my comments here now.
    Mrs. Morella. Indeed, without objection, you may do so and 
submit extended comments for the record.
    Mr. Thompson. Thank you.
    The NAACP welcomes the initiative taken by President 
Clinton. However, we have some very specific concerns about 
several provisions within the President's plan. First of all, 
we believe that the criminal law and the sentencing code should 
remain in local control. Consistent with the Home Rule Act and 
the long-standing independence in the nature of District law, 
the DC Criminal Code should not be required to comply with 
Federal standards. Any changes in District law should come from 
DC voters and should emanate as well from elected officials.
    We also feel that District prisoners should be kept close 
to home. As it is according to the President's plan, District 
prisoners will be held in the Federal prison system and they 
are then subject to assignment anywhere in the country.
    This can be addressed by keeping our prisoners within a 
certain radius of the District of Columbia, but this is 
important because if we are talking about any kind of 
rehabilitation or any kind of transition back into normal life 
hopefully once prisoners are released, it is important that 
they maintain some family relationships. Those family 
relationships and community ties for that reintegration cannot 
take place if people are spread out all over the country.
    Also, it is high time in the District of Columbia that we 
look at alternative sanctions for nonviolent offenders. Many 
nonserious or nonviolent offenders can be sentenced to 
intermediate sanctions without imperiling public safety. The 
District should be free to expand pretrial diversion, 
probation, drug treatment centers, halfway houses, and other 
sanctions. The President's plan, as it currently exists, 
restricts such options at exactly the time when they should be 
expanded.
    We do not support the removal of the Federal payment in 
exchange for the resolution of the unfunded pension liability. 
Both the resolution of the unfunded pension liability and the 
Federal payment are owed to the District. The Federal payment 
is wholly inadequate, but it is some form of payment in lieu of 
what we lose when almost 70 cents on every dollar earned in 
income in the District daily leaves the city and the $2 billion 
cost of the Federal presence annually. The unfunded pension 
liability is owed. It is time that that be taken care of. By 
the year 2000, the amount of money that the District budget has 
paid to the unfunded pension liability will have quadrupled 
since the year 1980.
    Also, we feel that there is a need for more local 
representation on the new Economic Development Corp. Some of 
the President's plans with this corporation are, indeed, 
visionary but we want to ensure that there is more local 
representation there.
    Also, we would like to see the President's plan reflective 
of an interest in the maintenance of the University of the 
District of Columbia, our only urban land grant institution.
    Last, any changes to the governing structure, whether 
proposed by the President or the Congress, should not be 
enacted without ratification through a ballot initiative or 
referendum. It is no secret that there are many discussions 
about changing the governing structure in Washington DC, 
whether that is through a city manager or moving the council to 
a more advisory role. We say that any changes should not take 
place without first being placed on the ballot so that the 
voters themselves might ratify those changes directly, any 
changes in the governing structure.
    I know I do not need to recite the history of the NAACP to 
this panel, but we feel that these recommendations are 
consistent with our long history of social justice. We would 
hope that the panel will reflect some of our concerns and would 
also uphold that spirit. I thank you very much.
    [The prepared statement of Mr. Thompson follows:]

    [GRAPHIC] [TIFF OMITTED] T2192.062
    
    Mr. Davis [presiding]. Thank you very much. Thank you all 
for your testimony. We will open it for questions at this 
point.
    Ms. Norton, would you like to start?
    Ms. Norton. Yes, I would, Mr. Chairman; and I appreciate 
that these witnesses have testified today. It is very important 
testimony.
    May I acknowledge what two of the witnesses referred to, 
our Statehood representative, Sabrina Sojourner, is here and 
who I know would support particularly what Mr. Thompson had to 
say; and there are other activists from the DC community who 
are here. I would like to ask the chairman if he would leave 
the record open for 30 days so that we might insert testimony 
from other groups and leaders and residents in the city.
    Mr. Davis. Without objection, it is so ordered; and their 
statements will be part of the permanent record.
    Ms. Norton. Thank you.
    To these four witnesses I have--I do have one question; but 
I do want you to know, Mr. Chairman, that this is a very 
diverse representation of residents from the District.
    I want to commend Reverend Daniels for what you have done 
in this city in a very short time. This is a city where, too 
often, there is a lot of talk and very little action. A lot of 
folks are walking around with a microphone or even without one, 
frankly. And what the Washington Interfaith Network has done is 
unprecedented in my time, to see some folks coming into this 
town, then do an extraordinary grass-roots job. I don't know if 
people were in that church on two occasions but to see that 
this was not top down. When they talk about $2.5 million, is 
it?
    Reverend Daniels. Yes.
    Ms. Norton. The reason that the folks on top of the 
religious hierarchy came up with that money is that the 
organizational work had been done in the congregations, and it 
was a sight to behold. It has attracted the attention of the 
First Lady, of Mr. Cisneros, and now you have gotten, after a 
long struggle, the appropriate land from the city so we're 
going to see houses built in this city for people of moderate 
income, the very people who cannot possibly afford to live in 
this city anymore. Sixty-three percent of the taxes are paid by 
people making $30,000 a year or less; and they are the ones 
fleeing the fastest because there is so little housing, because 
the cost of living is so high.
    I know, Reverend Daniels, that you will accept from me the 
notion that your concern to have the police department shook 
up, as it has been, and the schools shook up need not involve 
the control board or can be done by the city. The city could 
have, and the school board agreed to turn over its power to Mr. 
Becton to allow him to do what had to be done.
    And shame on the control board for insisting that it be 
done the way it has been done. I will never forgive them for 
it. Because the school board was willing to do the right thing 
the right way.
    As to the police department, the Control Board did that one 
the right way. They did a memorandum of understanding that 
involved the Police Chief, the Mayor, the City Council; and 
everybody agreed to the changes that are being made in the 
police department. So I think we have demonstrated there are 
ways to do what has to be done in this city consistent with 
home rule.
    Mr. Williams, I just want to note what has happened to DC 
workers. We have a very sophisticated trade union movement in 
this town that knows how to sit down and bargain, and I think 
the workers in this city have been put to needless suffering--
absolutely needless. You don't take people and go for 5 years, 
and not only don't give them a raise but insist upon give-backs 
each of those 5 years and then complain that your work force is 
not productive. That's not the way it's been done in other 
places.
    Now we have people coming forward, saying, we will give a 
raise to the police department and to the teachers. Yeah, give 
them a raise, but sit down and figure out how to do your 
reductions so that everybody gets some raise.
    How are you going to have a work force where you 
selectively give raises? Who ever heard of such a thing? 
Unknown in the history of mankind.
    There is a way to sit down and do it the way every business 
does it and the way every city has done it. If you have to do 
your layoffs, you do your layoffs. Then you begin to give 
increases to your workers, and you do it across the board. 
Maybe some get more than others. But you won't say, ``You field 
Negroes, you're not going to get nothing; but you people who we 
need, we're going to give raises.''
    I'm opposed to that. Because I think there's a way to do it 
for everybody, so the workers begin to know that they will be 
rewarded for the productivity we are asking from them.
    All I can say about this labor movement is I know them and 
I know them well, and I know they know how to sit down and 
bargain. They are tough bargainers, and they are as 
sophisticated labor leaders as there are anywhere in this 
country. I just regret the way this has been done, because I 
regret needless suffering. There is a lot of suffering we all 
have to do. This was unnecessary and continues to be 
unnecessary.
    Ms. Kathryn Pearson-West, who always offers constructive 
and principled criticism, you have done so again today; and I 
salute you for it.
    I do want to correct for the record that my progressive 
flat tax involves no loss of rent control. I stood up here by 
myself on rent control, and I think the Congress got----
    Mr. Davis. She is right about that.
    Ms. Norton. I think the Congress got the message. You're 
not going to lose rent control.
    I do want to say for the record what many Washingtonians 
may not realize, even though my bill has overwhelming support 
in this city, that the bill contains many protections against 
increases, unnatural increases in the cost-of-living or 
justification; and I worked on that part at least as hard as I 
worked on the tax cut part. I do know where I come from, and 
where I come from is wanting a broad tax base. I'm not putting 
a tax cut in to chase out the very people I'm trying to help.
    Finally, Mr. Thompson, first may I put on the record that 
the Court of Appeals of the District of Columbia has overturned 
your conviction for standing up for statehood, and I 
congratulate you for standing up. We entered an amicus brief in 
your behalf in the Court of Appeals as well, but I'm not sure 
we anticipated what has happened. You have served time in jail, 
so I'm not sure what it does when they overturn it after you've 
done your time. What it will remind us of is your leadership on 
statehood and your unbending principle that this city not be 
reformed at the cost of home rule.
    Only in America and only for the District of Columbia would 
anybody dare claim there is a tradeoff of democracy for 
efficiency. I would daresay that 95 percent of the governments 
in the world are inefficient; and if that is a standard we are 
going to apply, there's not going to be a lot of democracy 
left.
    I commend you for standing tall and standing up for it and 
not letting people forget, that just because we're in trouble, 
that we're pulling ourselves out. We're not about to give up 
anything that any other American has.
    We do have to keep reminding people, because people are so 
glad to see that a little bit of efficiency happens here or 
there. And it is a little bit, not a lot. It's certainly not a 
lot so that we want to give up anything for it.
    There seem to be whole groups of Washingtonians that are 
willing to trade in their God-given rights. Well, I'm not 
trading in mine. If y'all want to trade in yours, go do it, but 
they're going to have to roll over me to get to mine.
    That is why I want to commend the people who came up here 
to see Senator Faircloth; because when they came up here to see 
him, he listened. You don't have to sit down there and let 
people say anything they want to say up here or do anything 
they want to do to you up here, and you don't have to tradeoff 
anything you're entitled to. And you are entitled to a whole 
lot more than you have gotten in terms of democratic rights in 
this country.
    I want to ask you a question now that I have said that. I 
want to ask you a question about what for you--just for the 
record, given the fact that you come from different 
perspectives, if you can say so--what for you would be the most 
important part of the President's plan to be enacted. I would 
just like each of you in whatever order it occurs to you to 
indicate your views on that.
    Ms. Pearson-West. If I may?
    Ms. Norton. Go right ahead, Ms. Pearson-West.
    Ms. Pearson-West. I didn't get out of my place, did I, 
Congresswoman?
    I like the fact that the President is going to take over 
financial responsibility of these State functions. I think 
that's going to help the District of Columbia quite a bit.
    My only concern is what role will the Federal Government 
play once they have assumed the finances of these functions. I 
know they're taking over Medicaid, Lorton. I am just concerned 
overall. There are State functions, and they will be taking 
over the financial aspects, but I would still like to see the 
District government still maintain some control over some of 
these.
    Ms. Norton. The District is going to continue to run 
everything except Lorton.
    Ms. Pearson-West. I wanted to make sure that was clear.
    Thank you.
    Ms. Norton. Is there any other part of the plan that 
particularly appeals to any of the rest of you?
    Mr. Davis. Excuse me, but with regard to the Lorton issue, 
we're trying to work a way where the city will still have a say 
over sentencing and those kind of issues. We're very sensitive 
to that. That has come through loud and clear from Ms. Norton 
and city residents.
    Ms. Pearson-West. Are we going to get any money when they 
take over Lorton? Are they going to sell Lorton or something 
like that?
    Mr. Davis. Let me just say there is a huge cost avoidance 
right now where the city should have been putting money into 
infrastructure, that in my judgment has not been put in. You 
lose; you won't have to put that money in now. Hopefully, we'll 
be able to come up with savings through each of these. I don't 
know what it will be yet, there are a lot of negotiations, but 
if I have my way, there will be a little bit there for you.
    Reverend Daniels. For our network, we're happy with the 
infrastructure funding that will hopefully help our streets, 
our parks, our rec centers. Our kids have nowhere to play. Lord 
knows we know the pothole problem in DC. The street leaving our 
congregation is full of potholes. We have tried to get it 
refilled on numerous occasions, only to be unsuccessful.
    However, I would hope that somewhere in the President's 
plan there would really be a strong commitment to the issue of 
critical mass housing in the city. The fact that we are the 
Nation's Capital yet have the lowest home ownership rate just 
to me does not make any sense at all. And the way you really 
rebuild a city and bring families back into the city is that 
you have affordable places for them to live. It all begins with 
the family and the family having a place where they feel good 
and comfortable and responsible and accountable to live in. My 
hope is that there will be significant attention somewhere 
within the plan given to that reality.
    Ms. Norton. Mr. Williams.
    Mr. Williams. Congresswoman, the thing that strikes me 
about the President's proposal is the clear recognition that 
there is a relationship between this city and the Federal 
Government as that of a city and a State. And, finally, the 
Federal Government is recognizing and assuming many of those 
responsibilities that a State assumes elsewhere which the 
Federal Government should have assumed some time ago.
    Particularly, of course, I think the relief of the unfunded 
pension liability is a key factor. It is the most burdensome 
and has been the most burdensome part on the District 
government and one which was not of the District's making. 
There is, I think, in the proposal a clear recognition that 
this was not of the District's making. It is the Federal's 
responsibility. It is a burden that was imposed on the city by 
the Federal Government. It did not ask the city whether it 
wanted to take it over or not.
    That recognition, to me, is a very, very significant one. I 
just hope, without any disrespect to the Reverend to my right, 
I would court someone and say that, of course, the devil is in 
the details. We have not seen the details yet of the proposal. 
I would certainly hope that as details are worked out there is 
a clear recognition that workers in this city need to be at the 
table when those details have been worked out and not be asked 
for comments after the fact.
    Mr. Thompson. Congresswoman Norton, thank you for your 
compliments; and thank you for your own eternal vigilance.
    There are three aspects that I find--or two, rather--that I 
would highlight as being positive in the President's plan. 
However, they do have asterisks beside them.
    First of all, the unfunded pension liability. It is about 
time for Congress to take that over. However, much of the 
context in which we have discussed this unfunded pension 
liability is as though it is some kind of a tradeoff with the 
Federal payment; and that is the only reason I place an 
asterisk there. I think one is an apple and the other one is an 
orange. However, an orange that is somewhat spoiled. The 
Federal payment must continue. The unfunded pension liability 
must not. I would hope that this Congress would be firm on 
seeing to it that one does not necessarily have a relationship 
with the other.
    The new Economic Development Corp. as well is quite 
intriguing. I think that in Washington, DC, it is high time 
that there be economic development; and even in the President's 
plan there is an emphasis on developing those areas that have 
not been heretofore developed. There has been a lot of 
attention on downtown K street, et cetera, but there is some 
indication of interest in other areas. An asterisk is there 
only to ensure that that kind of attention is given to other 
areas of our community. There should be a broader local 
representation on that NEDC.
    I know I said two, but actually three. The admission of the 
Federal Government that there is some need for a greater role 
since we do not have a State is fine; but I'm certain I speak 
on behalf of a number of my colleagues who have been vigorously 
involved in the statehood movement, which we have not 
surrendered by any means, that there is some trepidation.
    Let me just put those of you on notice that just because 
there will be some financial takeover of some State-like 
functions, we by no means see this as any argument whatsoever 
for us to surrender our cause for full self-determination for 
District residents in the form of statehood.
    With all due respect to you, Chairman Davis, and 
Congresswoman Morella, it will come the time very, very soon 
where some generation of this House will have to admit that the 
District can no longer afford to subsidize Virginia and 
Maryland. That is only addressed through us having our full 
autonomy and our right to work out some kind of reciprocal 
arrangement that we lose with that relationship and with that 
subsidy.
    Thank you.
    Ms. Norton. Thank you very much, Mr. Chairman.
    Mr. Davis. Thank you.
    Kathryn Pearson-West, I apologize for being out when you 
testified. I had two groups of kids to get photographs with. It 
was the only time I could meet with them; but I have read your 
whole statement.
    Ms. Pearson-West. Maybe we'll get another opportunity to 
talk.
    Mr. Davis. I would be happy to.
    Let me just say to all of you--and I have read everybody's 
statements that have been submitted. I appreciate you being 
here today. You are stakeholders in this city. You and the 
groups that you represent are going to have to live with 
whatever comes out of this Congress as we work together with 
the administration. I am hopeful to keep you and the elected 
city leaders involved as we move through this process.
    As I look at you out there--I don't consider you part of 
the problem--I consider you part of the solution. So I'm 
interested in what you say, although I have to tell you there 
are some things I disagree with that you're saying that come 
from my perspective. But it's important for me and other 
Members to hear your perspective and to weigh that in the mix.
    I think if we keep looking for people to blame for this 
city's plight, nobody is going to be left standing at the end 
of this. There's plenty of blame to go around. There's no 
question about that. We can all share some of that.
    This Congress is certainly close to the top of that list, 
in my judgment, not just in regard to the Home Rule Act but for 
failing to exercise appropriate oversight over the last 20 
years and to instill in the city leaders a culture of 
accountability for decisionmaking. We make it harder to do that 
when decisions the city makes are not final, where they are 
constantly questioned by Congress and overturned in 
appropriation bills or by other threats out there. It makes it 
harder for city leaders to get up and make tough decisions when 
they are subjected to that.
    I think that was one of the reasons that we didn't want the 
Federal payment to be part of the President's plan. So we try 
to make it up by relieving the city of certain services that 
they now have to provide under the Home Rule Charter.
    But, regardless of that, we are at a historic moment where 
we have the President, city leaders and Republicans and 
Democrats in Congress engaged in the issue and focusing and 
recognizing that the city needs a new deal, that the one that 
was fostered in the early 1970's of statehood really no longer 
applies, given what has transpired in the meantime.
    And the unfunded pension liability is just the tip of that 
iceberg. Each of you alluded to some of the other areas. I just 
hope you will continue to work with us, meet with us, and be 
involved.
    Ms. Norton and I also talked about rent controls. I'm 
philosophically opposed to rent controls; but I also recognize 
the city is entitled to make its own decisions and, in some 
cases, make its own mistakes as is Congress and everybody else; 
we need to respect those rights as we work forward with this.
    So if we can continue the dialog, recognize we are at a 
historic time, and work with what the President, Ms. Norton, 
and others have put on the table. We can do nothing but improve 
the city's plight over the next few years.
    I yield now to Mrs. Morella.
    I would be happy to let you respond, of course.
    Ms. Pearson-West. Mr. Davis, could you at least try to come 
out and meet with more of the residents, and could you take it 
upon yourself to call for a vote for Ms. Norton? She has worked 
so hard, she really deserves it, and this city deserves it.
    Mr. Davis. She's tougher than a lot of members up here who 
have the full vote. I think she ought to have the full vote and 
I have called for it. Again, getting it through the conference 
and everything else is a little more complicated. We've talked 
about that. But I support that, I think Mrs. Morella does, and 
I think the Speaker does. It's a question of how you move that 
through at this point in an appropriate fashion. I look forward 
to working with you and her to do that.
    Mrs. Morella.
    Mrs. Morella. We are all here on this subcommittee for the 
betterment of the District of Columbia. As you have all 
mentioned in your statement, it helps the entire region.
    I did notice that nobody truly talked about job retraining. 
I would guess, Mr. Williams, as you read the Williams v. 
Williams article in today's paper, that we would be looking to 
the role of unions in the revitalization. But I guess you would 
all agree that retraining has got to be an important part of 
filling those jobs that are available and to lure more 
companies into the District.
    Ms. Pearson-West, in your statement you talk about school 
renovation and having the schools wired for state-of-the-art 
computer telecommunications and Internet technology. I just 
want to make sure that you are aware that the FCC is going to 
be coming up with a decision on May 8, which will deal with 
affordable access to the Internet for all schools and 
libraries. We think the District of Columbia would be eligible 
for that if they are ready for it, and I think they will be. So 
it is something to consider.
    Ms. Pearson-West. I'm so glad to hear that, because our 
children need so much, and they are really our future. If we're 
going to stop crime and make this a positive city, we've got to 
concentrate on the schools.
    Mrs. Morella. I could not agree with you more.
    Reverend Daniels. Could I just address the job retraining, 
please?
    Yes, job retraining is necessary. One of the concerns that 
we really have, and this extends into Maryland as well, is what 
is taking place with the whole welfare reform bill. Yes, 
something had to be done about welfare, but what has been done 
has brought on, we are seeing--has brought on worse problems 
than before.
    What we are seeing happening is that, particularly in 
Maryland, but we know the District is going to need to address 
this issue, too, is that people making a livable wage are being 
pitted against welfare-to-work persons. You have got the poor 
pitted against the poor. Then you also have the middle class 
pitted against the middle class when it comes to bidding for 
contracts, and those middle-class small-business owners and 
other business owners who have a moral sense and believe that 
their employees ought to have a livable wage are losing out 
contracts to other middle-class businesses who hire welfare-to-
work people.
    This is an issue that is really going to need to be 
addressed. The churches are saying that we are not going to 
participate in a third-party situation. So that is something, 
not only job retraining, but that whole issue of subsidizing 
corporations so that welfare-to-work people can be hired, and 
there are not enough jobs to fill needs to be addressed.
    Mrs. Morella [presiding]. I appreciate your mentioning 
that, and I know that you sense it through WIN, obviously. You 
really do get the people who are in search of guidance. But I 
submit from the jobs we know are available, and if you read the 
paper you will find on top of that companies that have many 
jobs available, but they can't find the people. It may take a 
while, but I think this is where the challenge of retraining, 
we can do it. We have to rise above it. I just think we can do 
that.
    We also did not mention, as an aside, something that I 
think we will have to look at on this subcommittee, and that is 
the University of the District of Columbia as well as St. 
Elizabeth's. These are two situations, one is mental health and 
education, that we're going to have to find some resolution.
    I don't really have any questions. I just appreciated your 
testimony. Stay tuned. I know you will.
    Mr. Williams. Mrs. Morella, I cannot let the opportunity 
go. I am sorry that Congressman Davis is not here.
    Mrs. Morella. He always seems to go out at the right time.
    Mr. Williams. You were not here earlier this morning, 
Congresswoman Norton was, when the Board of Trade and the 
Chamber of Commerce testified. Some of your comments, I think, 
also is reflective of something that I think I see wrong with 
our approach here, and that is that there seems to be a rush to 
try and solve these things by piecemeal approaches. Everybody 
seems to have a solution to one little piece. It seems to me we 
need to take a look at the whole problem and come up with a 
comprehensive approach rather than piecemeal.
    This morning the business community took the opportunity to 
come up, to do a little piecemeal legislation on unemployment 
compensation, workers' compensation, the problem with 
inspection, the problem with licensing. These are all little 
pieces of the puzzle. By merely putting all these little pieces 
on the table, and by getting them addressed, we're not going to 
solve the larger piece of the puzzle.
    I just wanted to go on record, and I hope that Congressman 
Davis ultimately reads this, and I know that I can count on 
Congresswoman Norton to certainly reflect our views, is that by 
merely talking to public workers, you are not solving the 
problem, and you are not doing our government any service. 
There seems to be an attempt around here on the part of 
politicians, on the part of several people, to blame District 
workers and their, quote/unquote, inefficiency as part of the 
problem that we have here. I just wanted the record to indicate 
that we believe that the District workers are some of the best 
that we have anywhere around, and we are certainly proud of the 
work that they do around here. If there is a problem with 
inspection, if there is a problem with licensing, it is not the 
rank-and-file workers who are on the front line every day that 
you should be blaming. It is that there is something 
structurally wrong with our system and that what we ought to be 
doing is addressing the problem and not looking for scapegoats, 
as many politicians and sometimes business leaders seem to want 
to do.
    I am glad that Congressman Davis has just arrived back in, 
because I hope that he gets a chance to look up the record and 
read what I have just indicated here. I do not want this record 
to reflect that our silence, the silence of the AFL-CIO, is in 
any way an agreement with the attacks that seem to be made upon 
District workers and people who work for the District of 
Columbia.
    Mrs. Morella. This subcommittee is not making any attack on 
the District workers.
    Mr. Davis [presiding]. Which attacks are we talking about?
    Mrs. Morella. Just in response to something the city had 
mentioned, Mr. Davis. I just want you to know that we are 
hoping to not do patchwork quilt, but to look at the various 
facets of the plan, to listen to everybody, and then to craft 
one piece that we think addresses most of the situation.
    Mr. Williams. Congresswoman, when politicians complain 
about the fact that it takes so long to get a license or it 
takes so long for inspectors to come across, what you have done 
is you leave the impression that the problem rests with the 
workers, and I do not think that it is fair. If one is going to 
complain about how long it may take for someone to get a 
license to do a repair, if it takes a year for a Congressperson 
to get it, if it takes a while for someone to do it, it is not 
necessarily the fault of those employees who are out there 
working and working very, very hard. What we have seen here is 
a takeoff and an attack upon workers, but it is the ones who 
provided the licensing and the inspection who are at fault 
because it takes so long to get a license to do repair work.
    Ms. Norton. Mr. Chairman, I know you may want to respond, 
but I wonder if you would excuse Mrs. Morella and me, who are 
due at the House press gallery.
    I just want to say one thing. What was said about workers, 
I'm sure the chairman agrees with actually, because of his 
concern for management and operational problems in the 
District. What you have said--what you have spoken is the 
truth, and I know it up close. When I came to the EEOC, every 
worker was being castigated. It is because there was a system 
in place that did not allow people to process cases in a timely 
fashion. The same workers, given a new system, then processed 
cases in one-third of the time it had taken.
    There is no question that these are management problems, 
these are operational problems that start at the top. Workers 
don't come to work and say, let me do this job. They come to 
work and they are supervised and managed. That is the problem, 
and I know that is the view of the chairman.
    I do want to go on record as saying, among the several 
things you have said, it needs to be reiterated that the 
District of Columbia must retain a 4-year university if there 
is to be any hope that what the chairman has spoken about, that 
these excess jobs out in Fairfax and elsewhere in the region 
can be filled. You will really keep that from happening if we 
end up with less than a 4-year college where many of our 
students must get their education or find no place to get an 
education.
    I would ask the chairman if he would excuse Mrs. Morella 
and myself.
    Mr. Davis. I will be happy to.
    I will sum up quickly two things.
    Ms. Norton. First may I acknowledge that in the back row 
there are a number of DC residents who had come today in order 
to visit their Capitol and their Congresswoman, and may I thank 
you for coming and apologize that I was in the hearing. After 
you go to visit the Capitol, perhaps you can stop back and I 
can have a few words with you.
    Mr. Davis. Thank you all for being here.
    Let me say two things. I think that a 4-year university 
with the right mission makes a lot of sense. The problem is 
that in so many cases, for the city, as we heard from Dr. 
Fuller and other economists, it is the wrong mission. We have a 
lot of city employees, as I said earlier, Mr. Williams, that 
are working hard every day, but in some cases they are 
performing tasks that don't need to be performed, working under 
regulations that shouldn't have been written, and filling out 
forms that shouldn't have been printed. That's not the workers' 
fault. Nobody's accusing the workers of that. I don't know why 
you're so sensitive about that. But the reality in some of 
these cases is that they are not focused on the appropriate 
mission, and that is a management and political leadership 
responsibility that has to be changed. I have said that.
    If you sat through the hearings earlier, I wasn't trying to 
snub you in any way by leaving the hearing. I have been at this 
hearing as long as anybody. However, the reality at the end of 
the day is that over time the city has made some management 
decisions that have not been in the interest of workers. You 
have been silent during some of those times; during some other 
times you have spoken out; and as a result of that, we are at 
the situation today where Congress is now sitting with the 
President trying to help the city recover. It didn't have to be 
this way. I think if a lot of us had earlier on tried to engage 
in this process, maybe we could have intercepted this before we 
are where we are today.
    My point is, let's quit putting the blame on workers or 
managers or Congress or city leaders. Let's focus. We have an 
opportunity with the President and with Members of both parties 
of good will engaged in this process to move ahead and try to 
solve it. We welcome you as part of this solution. You 
represent a lot of people from a very important perspective to 
the city because the city voters, the city residents, are the 
stakeholders who need to be involved in this. We don't want to 
dictate this from outside. It's not going to work without some 
buy-in.
    We appreciate all of you being here today. Without 
objection all written statements are ordered to be included in 
the record. As Ms. Norton noted earlier, we have 30 days for 
opening the record for other comments that you or other groups 
may want to supplement.
    Ms. Pearson-West. A point of information. After you've made 
changes, do you come back to the community? Or is it a done 
deal after Congress has gone over the President's plan and made 
the recommendations?
    Mr. Davis. What do you mean?
    Ms. Pearson-West. You've asked us our comments. Then you're 
going to, I guess, do some revisions or alterations to have a 
chance to add to the plan. Then do you come back and say to the 
DC residents, this is what we have on the table, is this OK?
    Mr. Davis. I don't think we've determined exactly how we're 
going to proceed at this point, Kathryn, but you can stay in 
touch with our office and Ms. Norton's. This is not a secret 
what we're trying to do here. But, we're not going to go 
through a lengthy public hearing process after we have the key 
political leaders agreeing to it. We'll never get anything done 
that way. But we will welcome your comments at any time in the 
process.
    Ms. Pearson-West. I would love to stay involved. Thank you.
    Mr. Davis. The meeting is adjourned.
    [Whereupon, at 2:10 p.m., the subcommittee was adjourned.]

