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



 
 THE ECONOMIC DEVELOPMENT SECTION OF THE PRESIDENT'S NATIONAL CAPITAL 
          REVITALIZATION AND SELF-GOVERNMENT IMPROVEMENT PLAN
=======================================================================




                                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

                               __________

                              MAY 22, 1997

                               __________

                           Serial No. 105-27

                               __________

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











                       U. S. GOVERNMENT PRINTING OFFICE
42-429                          WASHINGTON : 1997
___________________________________________________________________________
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              COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

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












                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 22, 1997.....................................     1
Statement of:
    Barr, Michael S., Deputy Assistant Secretary, Community 
      Development Policy, U.S. Treasury..........................    52
    Barry, Marion S., Mayor, District of Columbia; Linda Cropp, 
      chairwoman pro tem, District of Columbia City Council; and 
      Charlene Drew Jarvis, member, District of Columbia City 
      Council....................................................    98
    Blunt, Roger, chairman, Greater Washington Board of Trade; 
      John L. Green, president, DC Chamber of Commerce; and Craig 
      Schelter, executive vice president, Philadelphia Industrial 
      Development Corp...........................................   150
    Kies, Kenneth, staff director, Joint Committee on Taxation...    69
Letters, statements, etc., submitted for the record by:
    Barr, Michael S., Deputy Assistant Secretary, Community 
      Development Policy, U.S. Treasury, prepared statement of...    55
    Barry, Marion S., Mayor, District of Columbia:
        Document entitled, ``Creating an Economic Development 
          Strategy for the District of Columbia''................   100
        Prepared statement of....................................   123
    Blunt, Roger, chairman, Greater Washington Board of Trade, 
      prepared statement of......................................   153
    Cropp, Linda, chairwoman pro tem, District of Columbia City 
      Council, prepared statement of.............................   134
    Davis, Hon. Thomas M., a Representative in Congress from the 
      State of Virginia:
        Memorandum of Understanding, and Council Resolution 12-
          116....................................................     3
        Prepared statement of....................................    39
    Green, John L., president, DC Chamber of Commerce, prepared 
      statement of...............................................   174
    Jarvis, Charlene Drew, member, District of Columbia City 
      Council, prepared statement of.............................   138
    Kies, Kenneth, staff director, Joint Committee on Taxation, 
      prepared statement of......................................    72
    Moran, Hon. James P., a Representative in Congress from the 
      State of Virginia, prepared statement of...................    49
    Schelter, Craig, executive vice president, Philadelphia 
      Industrial Development Corp., prepared statement of........   182













 THE ECONOMIC DEVELOPMENT SECTION OF THE PRESIDENT'S NATIONAL CAPITAL 
          REVITALIZATION AND SELF-GOVERNMENT IMPROVEMENT PLAN

                              ----------                              


                         THURSDAY, MAY 22, 1997

                  House of Representatives,
          Subcommittee on the District of Columbia,
              Committee on Government Reform and Oversight,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:40 a.m., in 
room 2154, Rayburn House Office Building, Hon. Tom Davis 
(chairman of the subcommittee) presiding.
    Present: Representatives Davis, Morella, Horn, and Norton.
    Also present: Representative Moran.
    Staff present: Ron Hamm, staff director; Howard Denis, 
counsel; Anne Mack and Roland Gunn, professional staff members; 
Ellen Brown, clerk; Cedric Hendricks, minority counsel; and Ron 
Stroman, minority professional staff member.
    Mr. Davis. Good morning and welcome.
    This is the sixth hearing of our subcommittee as we 
continue to review the administration's National Capital 
Revitalization and Self-Government Plan. Now that the 
administration and the District government have signed a 
Memorandum of Understanding, we can proceed with our 
congressional review in an orderly manner.
    I am pleased to welcome my friend and colleague from 
northern Virginia, Jim Moran, a member of the Appropriations 
Subcommittee for the District, to sit with us on the dais and 
participate in this hearing. The economic revitalization of the 
city is something that I know Representative Moran has had a 
strong interest in since he came to Congress.
    I know that the signing of the MOU was preceded by hard 
negotiating on both sides. All involved should be proud of 
their diligence. Any underlying legislative language will not 
be rubber-stamped by the Congress. The MOU is essentially the 
first step in a process that will hopefully lead to a bill to 
be signed by the President. But clearly, you can't get to 
second base until you touch first base. With the MOU signed, 
this subcommittee and Congress will move forward as rapidly as 
possible. But all concerned, we must realize that the window of 
opportunity is very narrow, and we have to move ahead promptly 
or be overtaken by the congressional calendar.
    With that in mind, I ask unanimous consent that the MOU be 
made part of the permanent record, along with Council 
Resolution 12-116. Hearing no objection, so ordered.
    [The information referred to follows:] 



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    Mr. Davis. Today, we will examine a subject that is 
critical to the short-term and long-term health of the District 
of Columbia, the creation and retention of jobs and employers.
    As is true of any municipality, the ability of the District 
of Columbia to fund the ongoing and growing needs of its 
community is dependent upon an expanding tax base. It is this 
base which can generate the revenues necessary for the city to 
fulfill its mission.
    As a former local elected official, I am keenly aware of 
just how important it is for a community to be in a competitive 
position to attract and retain jobs. The tax and regulatory 
climate in a jurisdiction is critical to decisionmakers who 
continually review the cost-effectiveness and competitiveness 
of their business location and its corresponding inventory of 
jobs. Access to an educated and trained labor supply is also a 
critical factor.
    The flight of jobs and residents from the District to other 
areas where bottom-line costs can be dramatically improved is 
well known. This trend can and must be reversed.
    Economies are increasingly influenced by knowledge-based 
industries. Communities must be able to respond to the needs 
represented by these new and rapidly growing businesses, 
including access to capital and a sufficient supply of 
qualified labor prospects. Additionally, the presence of the 
Federal Government provides enormous opportunities to attract 
and retain employers, provided any offsetting disincentives are 
not so profound that they force decisionmakers to consider 
locations elsewhere.
    While I believe that there are measures in the 
administration's proposal that merit strong consideration, I 
question whether some of the provisions will achieve the stated 
goal. Our objective is to provide the District with additional 
tools to encourage business investment, both downtown and in 
distressed communities. This must be done through coordinated 
development that connects the District's businesses and people 
to the fast-growing Washington region and enables the District 
to be a vibrant participant in the growth.
    I remain troubled by approaches that may seek to socially 
engineer the outcome. I prefer an approach that identifies 
opportunities to promote the assets of the community, an 
approach that presents an attractive tax and regulatory 
climate. I also prefer an approach that connects the education 
system to the needs of the business community by ensuring a 
qualified pool of employment prospects and an approach that 
stimulates business investment by providing incentives that 
result in measurable outcomes.
    In that way, we can tell the world about the positive 
educational, cultural, recreational, and entertainment assets 
that exist in this community and about the community itself.
    Today, I look forward to hearing from an outstanding group 
of witnesses about their thoughts, ideas, criticisms, and 
overall views regarding the proposed Economic Development 
Corp., along with the tax and financing measures of the 
President's plan. Working together, we have the potential to 
provide both short-term and long-term stability to the 
District's economy.
    I would now yield to Delegate Norton for an opening 
statement.
    [The prepared statement of Hon. Thomas M. Davis follows:] 
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    Ms. Norton. Thank you, Mr. Chairman.
    My appreciation to Chairman Tom Davis for holding the sixth 
hearing today on the President's Revitalization Plan for the 
District of Columbia, this time on the economic development 
provision. To his credit, Chairman Davis has committed to 
holding a hearing on each major section of the President's 
plan. There is some concern at the White House, however, 
because we must have a bill through both Houses and signed by 
September 30.
    Consideration of the plan now appears to be back on track, 
following the recent signing of the Memorandum of Understanding 
by all the parties. The administration is to be commended for 
its idea of an MOU to buttress the chances for passage of the 
President's plan by demonstrating that the District is 
committed to responsible implementation and improved 
management. It is now up to the Congress to address the very 
legitimate underlying concerns expressed by Mayor Barry and the 
Council about the plan itself, as we draw bill language.
    The chairman and I share much of that concern. As we have 
always indicated, it is our intention to address these concerns 
with vigor and determination, while recognizing the challenge 
of proceeding so as to assure that we attract the votes 
necessary for passage.
    An Economic Development Corp., for the District, the 
subject of today's hearing, if given ample time, can help in 
the work of reviving both the District and its neighborhoods. 
Downtown revival has a head start, thanks to private business, 
which is putting up most of the money for arena and the 
convention center, because the private sector understands the 
District's very considerable unused economic potential.
    I am pleased that a representative from the Philadelphia 
Industrial Development Corp., Philadelphia's Economic 
Development Corp., will be testifying today. Philadelphia's 
skill at inducing its recovery from insolvency is instructive. 
Philadelphia's revival has been rapid, innovative, solid, and 
lasting. I look forward not only to hearing about the 
Philadelphia experience, but also to hearing from city 
officials, business representatives, and our Federal witnesses.
    Thank you, Mr. Chairman.
    Mr. Davis. Thank you.
    Mr. Horn, do you want to make an opening statement?
    Mr. Horn. Thank you, Mr. Chairman.
    I'm delighted you are holding this series of hearings. It's 
tremendously important to talk about the infrastructure, the 
fiscal management, and economic development. And I look forward 
to hearing how, when that economic development occurs, that it 
meets the zoning of this city to preserve and not overshadow 
the historic buildings of the Government.
    I would also add that all of the good deeds we might do in 
authorizing a sound economic development program and bringing 
around some fiscal reform will be for nought if we do not have 
a professional, talented, incorruptible public service. If we 
don't face up to that, all of the rest of this is down a rat 
hole, and we'll be back where we started with this city.
    So I would hope, Mr. Chairman, we will face up to that 
sometime this year, because otherwise we're kidding ourselves.
    Mr. Davis. Thank you very much.
    Now, I would like to ask our colleague from the 
Appropriations Subcommittee, Mr. Moran.
    Mr. Moran. Thank you very much, Mr. Chairman.
    I share your belief that a strong urban core is essential 
to the overall health of the entire region. It is heartening to 
see the importance that the White House and individual Members 
of Congress have placed on revitalizing the District's economy.
    I particularly want to applaud President Clinton for the 
bold proposals that he has made to pull the District out of its 
financial morass, and Delegate Norton for her numerous and 
creative efforts to improve the District. I wanted to make sure 
she heard that before I said anything else.
    Mr. Chairman, I want you to hear this phrase, because I 
thought this was a good encapsulation. I am concerned that a 
lot of these proposals, however, may become the fiscal 
equivalent of Michael Jackson's moonwalking, giving the 
impression of moving forward while, in fact, it's standing 
still.
    For example, the proposal to reduce Federal taxes for DC 
residents to 15 percent, I do applaud Ms. Norton for her work 
on this bill, and I know that she has the very best intentions 
in mind and is determined to stem the hemorrhaging of DC's 
population, but I don't believe that individual residents are 
leaving the District solely because they are overtaxed or even 
primarily because they are overtaxed.
    In fact, the individual tax burden on DC residents is less 
than that borne by those living in Prince George's County, 
which is the most popular destination of former DC residents. 
Reducing the Federal tax burden will make it less expensive to 
live in the District, and it may help stem the tide, but it is 
certainly not going to reverse the flow of migration out of the 
city over the last several decades.
    The administration's proposal is also a noble effort to 
encourage greater investment in the District and to stimulate 
the District's economy, but this plan also appears to be more 
suitable for spurring development in a disadvantaged area than 
rebuilding the District's economy.
    The District is a natural magnet for high-paying jobs. It 
is both the center of Government and the core of one of the 
wealthiest regions in the country. Rather than trying to create 
an artificial attraction, as this plan may be perceived as 
doing, we should instead unleash the District's economic 
potential by removing the policies that sap its financial 
strength.
    To do so, we have to address and reform the 
incomprehensible and often punitive DC Tax Code. This is the 
catalyst that is driving businesses out of the District and 
into the suburbs. A recent study found that the total tax 
burden for small businesses in the District of Columbia is at 
least 25 percent greater than in the next highest jurisdiction 
in the region.
    The corporate income tax rate in the District is 10 
percent--9.975 percent--10 percent compared to 6 percent in 
Virginia and 7 percent in Maryland. A typical information 
technology company would pay more than $22,000 in income tax in 
the District. In Virginia, that same firm would pay $13,280. 
They both have the same Federal income taxes, but in the 
District they would pay almost twice as much as they would pay 
in Virginia. And in Maryland, they would pay $18,500.
    The DC corporate property tax rate, the corporate property 
tax rate, is an average of $2.15. That is more than twice what 
it is in surrounding jurisdictions. Now, the residential rate 
is $.96, half of what the corporate rate is. But you can't have 
a corporate property tax rate that is twice as much as other 
regions and think that businesses are going to act contrary to 
their own self-interest and move into a district with that kind 
of a tax structure.
    It is not a competitive tax structure. It is a tax 
structure that penalizes businesses for locating and for 
staying in the District of Columbia. If DC is to retain the 
businesses that are now located here and attract new 
businesses, it has to stop chasing business away.
    This will not be done solely through a reduction in Federal 
taxes or a package of economic stimulants like the White House 
has proposed. It must be done through a fundamental and 
complete restructuring of the District's own tax rates.
    The Brookings study and all the followup analysis that was 
conducted by Carol O'Cleireacain provides good recommendations 
for doing that. It proposes eliminating four taxes on 
businesses, including the personal property tax rate, the 
professional license fee, the corporate franchise income tax, 
and the unincorporated franchise income tax. It also recommends 
changes to other taxes, including the real property tax.
    To make up for the resulting shortfall in revenues, the 
study proposes changing the relationship between DC and the 
Federal Government, with the District relieved of many of its 
current functions that most cities don't have to shoulder 
alone, such as Medicaid and welfare. Many of those proposals 
are currently part of the Clinton administration's recovery 
package, and I would support those.
    Carol O'Cleireacain's work has been augmented by Stephen 
Fuller's work. Steve Fuller is with the Greater Washington 
Research Center. He has been doing a continuing analysis of the 
region. Together they make the strongest argument that changes 
must be made within the District to revitalize the city and to 
provide true economic development.
    Those recommendations are promising, and further study and 
discussion of them and of others is required if we are to put 
the District's economy back on the right track. But we have to 
have more than cosmetic changes or experimental proposals, 
prized more for their novelty than for their practicality.
    With so much local, regional, and national attention now 
concentrated on the District, we have to seize this opportunity 
to make meaningful changes that will ensure the future health 
of America's Capital City.
    So I appreciate your having this hearing, Mr. Chairman, and 
I know that you don't disagree with a lot of what I've said. I 
certainly respect Mr. Horn's judgment. I wouldn't be surprised 
if Mr. Horn is not thinking along the same lines.
    I would hope that we can put a package together that both 
Appropriations and the authorizing committee, the principal 
committee of jurisdiction, knows is going to be a truly 
constructive and long-term, profound improvement to the 
District of Columbia economy.
    With that, thanks for letting me participate in this, and 
thanks for all your good work on this.
    [The prepared statement of Hon. James P. Moran follows:] 
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    Mr. Davis. Mr. Moran, thank you very much. Let me just add 
that you were mayor of Alexandria. You have a great 
appreciation for the region and the complexities involved, and 
you are going to make a very substantial contribution as we 
move forward in the next 3 weeks to getting this bill ready to 
go.
    I appreciate your comments today and agree with a large 
part of them.
    Ms. Norton. Since the gentleman chose to attack my tax 
bill.
    Mr. Moran. You were listening.
    Ms. Norton. I was trying to give you a pass.
    Mr. Davis. Ms. Norton, we're not having a debate here, but 
I will allow you to certainly respond, briefly, before we hear 
from Mr. Barr.
    Ms. Norton. I thank you, Mr. Chairman.
    I'm sorry, I didn't hear most of it. We have a serious 
problem or something that might happen with regard to our 
supplemental, which is my immediate concern.
    I support the President's plan. Let me say that we're quite 
aware that people don't move to Virginia because they prefer to 
live there. We understand that they move out of the District.
    Mr. Moran. All right.
    Mr. Davis. Let me just say, I don't know who the ``we'' is. 
Maybe that's your understanding.
    Ms. Norton. We are aware that they move out of the District 
because of its service problems and because it has the problems 
of large cities. The purpose of the Federal tax cut is not to 
lower taxes, it's to give people an incentive for remaining in 
the District.
    It is, as well, sir, an alternative to the commuter tax 
that you and other Members have unjustly denied the people of 
the District of Columbia, who subsidize your much more affluent 
constituency with our services. So you have your nerve 
attacking us for trying to get what we deserve. We are looking 
for alternatives. I am certainly willing to put a commuter tax 
bill in, because that is certainly what we deserve.
    We have no representation in the Senate of the United 
States as you do, and we do not have complete representation 
here. And yet the residents of the District of Columbia, sir, 
are second per capita in Federal income taxes. We make no 
apologies for seeking a reduction in our income taxes, 
particularly when four territories which have full Home Rule 
pay no taxes whatsoever.
    We need your help, that is what we need from the region.
    Thank you, Mr. Chairman.
    Mr. Davis. Ms. Norton, thank you very much.
    Now we are going to hear from Mr. Barr.
    Let me just add, I think all of us want to work together on 
these issues. We have different ideas as to how to get there. 
We are going to hear the administration's ideas. Regardless of 
the fact that the administration has a concept, the Federal 
City Council has a concept, Dr. O'Cleireacain has one, as does 
Ms. Norton, we're going to sit down and work these issues out. 
And there is, I think, one goal here, that is, the city's taxes 
have to be reduced; the regulatory burden has to be reduced.
    Mr. Barr, let me ask you to stand. It is the committee's 
tradition to swear in. If you would just stand and raise your 
right hand.
    [Witness sworn.]
    Mr. Davis. I would ask unanimous consent that any written 
statement be made part of the permanent record. Please limit 
your oral statements to no more than 5 minutes, then we will 
get right into the questions.
    We appreciate your being here today, and most of all, we 
appreciate the administration being proactive, and coming up 
with a plan. Anytime you put a plan on the table, somebody's 
going to have a difference of opinion, but at least we've got 
something to work from and we have the engagement of the 
President of the United States. That allows us a lot of 
possibilities for people to talk about these, and that's what 
we're about.
    So thank you for being here. Proceed.

   STATEMENT OF MICHAEL S. BARR, DEPUTY ASSISTANT SECRETARY, 
          COMMUNITY DEVELOPMENT POLICY, U.S. TREASURY

    Mr. Barr. Thank you, Mr. Chairman and distinguished 
Members.
    Thank you for the invitation to discuss the President's 
plan to revitalize our Nation's Capital. I will focus today on 
one of its key elements, how the President's plan will help 
spur economic development in the District.
    The plan is a first step, not a panacea. The District's 
government and financial authority will have to continue to do 
the hard work necessary to create a city where streets are 
safe, where children enjoy the quality education they deserve, 
and where every resident has a chance to succeed.
    The plan is also not a bailout. The plan will require the 
District to submit a balanced budget for 1998, and for each 
year thereafter, to continue to comply with the requirements of 
the financial authority, and to take a number of specific 
reform steps in each area of the President's plan.
    Last week, the DC City Council and the Mayor took an 
important first step in signing a Memorandum of Understanding 
with the administration, committing the District government to 
fulfill these requirements, including, with respect to economic 
development, a requirement to implement timely and effective 
zoning, permitting, and licensing processes by the end of the 
next fiscal year.
    Let me talk briefly about the President's plan overall. 
First, the President's plan would take on major financial and 
managerial responsibilities that are beyond DC's current 
capacity. Second, the Federal Government will invest in the 
city's transportation infrastructure. Third, the Federal 
Government will provide technical expertise. And fourth, the 
plan will spur economic development in the Nation's Capital 
through new Federal tax incentives and a new Economic 
Development Corp.
    I will be focusing the remainder of this testimony on the 
economic development component, but I would emphasize that 
spurring economic growth in the District is not limited to this 
component of the President's plan. All of the plan's elements, 
taken as a whole, will help provide the District with a climate 
more conducive to economic growth.
    In-depth assessments of the economic development efforts of 
the District were undertaken by Treasury and OMB, as well as by 
private sector organizations, such as the DC Agenda Project. 
These assessments came to the same conclusion: A key missing 
link in the Capital's ability to advance economically is a 
private sector-driven Economic Development Corp. to bring the 
city together behind an economic development strategy and to 
push that strategy to completion.
    This Economic Development Corp. would provide a focal point 
for development. Its mission would be to bring together the 
private sector, civic leaders, and government to develop, 
market, and promote an economic development strategy for the 
District; to facilitate longer-term and regional approaches to 
economic growth; to help develop major projects to revitalize 
the capital; and to link the District, including its distressed 
areas, to local and regional growth opportunities.
    Under the proposal, the Economic Development Corp. will be 
governed by a nine-member board of directors. The President 
would appoint five board members in consultation with the 
Congress, of which four will be selected from private sector 
businesses, and one will be selected from community-based 
organizations. The Mayor, with the approval of the City 
Council, will appoint an additional member, and there will be 
three voting ex officio members, one each selected by the 
President, the Mayor, and the City Council.
    This corporation will be run by a CEO and served by a 
professional staff. The EDC will be given the authority to spur 
development with Federal tax credits for loans and investments 
in DC businesses, and to issue project revenue bonds, including 
tax-exempt private activity bonds. Under the plan, Congress 
would authorize the capitalization of the development 
corporation, with an initial investment of $50 million in 
fiscal year 1998.
    The EDC will also have a number of other important powers, 
including the power of eminent domain and the ability to seek 
expedited consideration by the District government of necessary 
permits, requests for land transfers, and the like.
    Let me spend a few minutes on the Federal tax incentives. 
The President's plan provides for $250 million in Federal tax 
incentives to encourage business investment in the District and 
to foster job growth for District residents. A DC capital 
credit and new private activity bond would flow through the EDC 
to businesses. A new DC jobs credit and small business 
expensing would be available directly to DC businesses.
    Taken together, these Federal incentives are designed to 
spur job creation and economic growth across the full range of 
sectors, from retail to biomedical, and across the full range 
of jobs, from entry level to high tech jobs. Prudently used, 
these tax incentives could leverage over $1 billion in private 
sector investment in DC businesses.
    Let me also say that we are very encouraged that Speaker 
Gingrich and Senate Majority Leader Lott have agreed to seek to 
include in balanced budget legislation the administration's 
proposals for tax incentives designed to spur economic growth 
in DC.
    Let me tell you a little bit more detail about each of 
these four incentives: The DC capital credit. Under the plan, 
the EDC would be authorized to allocate $95 million in Federal 
tax credits for investors in or lenders to DC businesses; these 
tax credits would be worth up to 25 percent of the amount 
invested or loaned. This incentive would be available for 
businesses located throughout the District.
    Private activity bonds. The plan provides for the 
development corporation to issue a new category of tax-exempt, 
private activity bonds to finance commercial and retail 
development projects in areas of the District with poverty 
rates of 15 percent or more. Some 45 percent of the District's 
population and 37 percent of its land area are included in such 
areas.
    Third, a DC jobs tax credit. The plan provides for a DC 
jobs credit, a 40 percent tax credit on the first $10,000 of 
eligible wages in the first year of employment. The credit 
would be available to businesses that hire DC residents earning 
up to $28,500 a year, who live in the census tracts I have 
described, in areas with 15 percent poverty or greater.
    Over the next 5 years, 78,000 workers could be expected to 
benefit from higher wages or new jobs because of this DC jobs 
credit. It will help create jobs for DC residents, increase the 
tax base, reduce dependency on public assistance, and lower the 
costs of labor to the full range of DC firms.
    Finally, additional small business expensing will be made 
available. These tax deductions will be able to encourage the 
creation or expansion of small businesses in economically 
distressed neighborhoods of the District.
    Mr. Chairman, that concludes my description of the economic 
development component of the President's plan. I would be happy 
to take any questions you might have.
    [The prepared statement of Mr. Barr follows:] 
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    Mr. Davis. Mr. Barr, thank you. Thank you very much.
    I'm going to start the questioning with my colleague from 
California, Mr. Horn.
    Mr. Horn. Thank you, Mr. Chairman.
    I mentioned in my opening remarks the problems of zoning. 
Would the jurisdiction of this corporation intrude in any way 
on assuring that the great vistas of this Capital and the great 
historic buildings are not intruded upon by a developer that 
wants to make a fast buck and suddenly build a 100-story tower 
here, or something? How are we handling that?
    Mr. Barr. Under the proposal, Mr. Horn, the existing 
mechanisms for zoning and for dealing with historic 
preservation are kept intact. There's a provision that permits 
the corporation to seek expedited review, but that does not 
change any of the substantive standards.
    Mr. Horn. I'll tell you what worries me. I saw what 
happened at L'Enfant Plaza. They had the beautiful HUD building 
there, and suddenly everything else is crammed around it. And 
it does block access and views of the Capitol from the Virginia 
side, depending on where you are. And it just seems to me we 
don't need fast buck artists wrecking the historic nature of 
this city.
    Mr. Barr. I would fully agree.
    Mr. Horn. So I hope we have an absolute veto on some of 
that, if they get out of hand.
    Mr. Barr. The existing mechanisms would all remain in 
place.
    Mr. Horn. Well, apparently it didn't work at L'Enfant 
Plaza, and I worry about that, and we'll pursue that more 
later.
    I think one of the key questions here is, would it be 
useful and appropriate for the EDC to take over the economic 
development operations of the District's government and the 
RLA? And the point is, obviously, that the District's efforts 
have not succeeded, and consideration should therefore be given 
to at least including them in the EDC.
    It seems to me you would get more bang for the buck by 
combining these operations or getting rid of the other 
operations. You certainly don't want these agencies competing 
with each other and not cooperating. So let's have your 
thinking in that area.
    Mr. Barr. Our thinking is, we did take a look at existing 
development organizations in the course of coming up with a 
plan for the Economic Development Corp. What we found is that, 
in most areas of the country where Economic Development Corp.'s 
are successful, there's a division of labor between that entity 
and other entities operating in the area. We would expect a 
similar type of division of labor in this instance.
    I think the development corporation is going to have a lot 
on its hands as it begins to perform its five core missions. So 
one might be cautious about giving it other duties, as well.
    Mr. Horn. I happened to, in a past incarnation, be one of 
the several founders of the Long Beach, CA, Economic 
Development Corp. What we ran into with that corporation--and, 
granted, this is much more of a government one than that one 
was--was that we were sued right and left by people that didn't 
want us to change, run over, clean up what was, in essence, a 
slum landlord situation, where small, little firms did exist 
and violated every single city zoning code I could think of.
    And we were tied up in court forever. And finally, we 
folded the whole works into the city government. Unfortunately, 
the city agreed that they wouldn't do anything by eminent 
domain; they would simply wait them out. Well, that could take 
80 years in some of those. When you look at what has not even 
been turned around since the riots of the late 1960's, you can 
see some of the problems that are here, obviously, under our 
nose.
    How do you suggest we deal with that?
    Mr. Barr. I think that you are correct, that is an 
important area of concern. The way that that is treated in the 
proposal is that there are limitations on the time in which 
suit may be brought against this entity, which is somewhat of a 
check against the kind of problems you have described.
    Mr. Horn. So you are saying it is not a complete ``Tort 
Lawyers Relief Act of 1997.''
    Mr. Barr. I do not believe so, sir, no.
    Mr. Horn. It seems to me we have to think through just how 
much do we permit that kind of nonsense from going on, where 
they are trying to blackmail the city, blackmail the people, 
and all the rest of it. So I think we need to ask a few more 
questions on that.
    Thank you, Mr. Chairman. Those are my main concerns.
    Mr. Davis. Thank you.
    I now recognize our ranking member, Ms. Norton.
    Ms. Norton. Thank you, Mr. Chairman.
    When the administration released its document, March 11, 
included in the package along with all the other items was a 
one-time, $50-million investment. We looked at the recently 
signed MOU, and this language is found there: ``The 
administration will seek an authorization of appropriations in 
fiscal year 1998 to carry out economic development in the 
District of Columbia.''
    Why is there no mention of the $50-million investment which 
was supposed to already be in the package? Is it in the 
package? Is the $50 million in the package or not?
    Mr. Barr. Yes, it is.
    Ms. Norton. What is the authorization about? That means 
when the package is authorized, it ought to be authorized?
    Mr. Barr. That's correct. I don't have the precise MOU 
language in front of me, but in the legislative bill that we 
would propose, there is a $50-million authorization for the 
development corporation in fiscal year 1998. And that is what 
we would be seeking.
    Ms. Norton. Now, the major part of this package consists of 
tax credits. Virtually all of it is tax credits, $250 million.
    Mr. Barr. Right.
    Ms. Norton. The experience of the District in the use of 
tax credits has produced only limited results. And that's kind. 
That's a kind way to state what has happened. How does what you 
are offering differ, and why do you believe it will produce 
better results than has been the case with such tax credits in 
the past, in the city?
    Mr. Barr. We believe that there are two main reasons. One 
is that the tax credits that we have developed are part of a 
broader plan to revitalize the District. I think the evidence 
is that tax credits, on their own, without a broader plan 
around them, are usually not enough. And the broader plan is 
really one reason why we are more confident in that.
    The second is that, in developing these incentives, we've 
really tried to learn the lessons of other tax incentives, both 
at the Federal level and at the State and local level around 
the country, that have been used. And the DC capital credit 
that we have proposed is a quite flexible tool that we think we 
will be able to use much more rapidly, for instance, than bond 
financing generally is. And the labor incentive really builds 
on the lessons learned from prior incentives and from the work 
opportunity tax credit.
    Ms. Norton. The District got the least favored treatment 
from the administration when it came forward with its 
empowerment zones. I think we were 1 of 66 things called 
``enterprise communities,'' which was consolation prizes to 
people who essentially got no money, like Baltimore and 
Detroit, who got $100 million.
    I wish you would compare what was in the empowerment zone, 
what our neighboring city, Baltimore, what Detroit, what a 
number of other cities got, I wish you would compare the 
elements of those empowerment zone packages to this package.
    Mr. Barr. The incentives that are on the table in this 
package are quite robust. I would have to go city by city to 
compare how they are used, because there is flexibility in the 
empowerment zone situation. But here $250 million in tax 
incentives and $50 million in grants are put on the table for 
the city. Depending on how those are used, those would be 
significant leverage in comparison with similar tax incentives 
offered in the empowerment zone program.
    Ms. Norton. My question was to compare them.
    Mr. Barr. Under the empowerment zone proposal, there is a 
tax-exempt bond finance provision, with certain limitations on 
the use of tax-exempt bond financing that are not present here. 
So in the bond finance area, this is a more flexible package.
    In the area of wage incentives, the empowerment zone wage 
incentives are available not just for hiring but for existing 
jobs. This, in the DC context, is a hiring incentive. In the 
empowerment zone context, that wage incentive is limited to a 
small area, whereas here it covers 37 percent of the District.
    The additional allocated tax credit for capital investment 
is not available in the empowerment zones but is available in 
the District.
    Ms. Norton. Mr. Barr, just let me say, I want to say once 
again how well thought out I think the administration's plan 
was. And I say that as someone who has some clear disagreements 
with sections of it. But I do want to say for the record that 
the District didn't expect anything like the President's plan.
    And for all of the fuss that was heard, which kind of 
megaphoned some of the problems that all of us had with it--and 
I must say, not to the great benefit of our being able to get 
it through here--the fact is, the District did not expect an 
empowerment zone, and I'm not sure the District expected much 
beyond trying to do something with pensions.
    Not that that would have begun to do it, but the fact is 
that what the administration deserves credit for is trying to 
think through ahead of time what it would take, 
comprehensively, for a total revival of the District.
    It's the only thing that I have seen from the District or 
from the Congress that is truly visionary, that says, what 
would you need? And then they go through the big ones: 
Medicaid, no city can pay that. Pensions, ours not theirs, 
can't possibly revive without that. Prisons, no city would be 
left standing. Those were on the wish list. And then, of 
course, there are four or five other elements of this plan.
    I do not know that all of the elements of this plan will 
survive, very frankly, particularly since we are pressing, as 
well, for the Federal payment. I do know this, there is no free 
lunch up here. The District may get some Federal payment, but 
we're going to have a hard time piling on, as we would like to. 
And the kind of criticism you heard from Mr. Moran, much of 
which was valid, you will find all across the Congress.
    The Economic Development Corp. was perhaps the least 
expected. It is a very creative, good way to try to move the 
District. We have problems with it, because it does not have, 
even as the Council has been able to move the numbers forward, 
a majority of appointments from DC.
    I have to tell you that I do not know what the fate of the 
Economic Development Corp. is over here. It has been subject to 
a lot of criticism in the House and in the Senate, even though 
these corporations generally enjoy support from Republicans and 
Democrats. I do not know what the fate is. I do not know 
whether this is the highest and best use for economic 
development in the District.
    Now, I do know that, if it done right, at least over a 
period of years you would begin to see some improvement. And 
the reason I think it has particular potential is because the 
private sector has already begun to do what is necessary. They 
are the leaders. And when you have an Economic Development 
Corp. coming in behind a private sector willing to take its own 
risks, it seems to me you do have something going for you.
    So I'm going to certainly try my best, not only because I 
think it is a good idea, but because, for all of the whipping 
that the administration took over something that had almost 
nothing to do with this bill--which is, was the District 
prepared to do what it's supposed to do, essentially--for all 
it took, the fact is that the bill does look at every part of 
the District where there is weakness, sits down and tries to 
figure it out.
    It does not always come up with something all of us can 
agree upon, but I really want to commend the approach that the 
administration took, the big picture, then saying, what is 
doable, what can pass, what can we do to buttress what can 
pass, which is what the MOU is about. It wasn't supposed to 
start a big fight. It was simply to wave a piece of paper at 
the bulls up here and say, that's all right, we've got 
something.
    The approach is to be commended, and I hope you all will 
forgive me and the chairman as we go at parts of this plan 
which we think must be revised. And I hope that we will see the 
kind of flexibility, on the part of the administration, that we 
saw when we began.
    The rigidity that got built in when you were negotiating 
with the Council was very unfortunate. Some of what they did is 
what elected officials do. The response of the administration 
to suddenly become very inflexible did harm to the bill up 
here, got people who wouldn't have been for us anyway, being 
more against us.
    So I hope that the kind of flexibility that you all have 
always showed, except for that period, and the visionary way 
you have approached this, and the very pragmatic approach that 
is also built into the way you have gone at this, and all of 
that, will come again on the table, so that we can get this 
through in short order. We recognize that the time is passing 
very quickly.
    Mr. Davis. Thank you. The gentlelady's time has expired.
    Let me just ask a few questions. Mr. Barr, this is a 
philosophical question: If you are going to use money for 
breaks in taxation for the city, it looks like the 
administration's proposal is--you've got an Economic 
Development Corp--we're going to use these and sprinkle these 
to certain companies that meet a certain criteria.
    Aren't you better off reducing the regulatory burden on 
everybody, tax and regulatory burden on everybody, and letting 
the market pick winners and losers, as opposed to letting 
Government pick winners and losers, which is basically what 
you're doing when you allow one group to get a tax break and 
maybe another group that's here won't qualify?
    Mr. Barr. That's an excellent question. I think our belief 
is that the private sector is the engine of growth in any 
community.
    Yes, it's important to reduce regulatory and other burdens. 
What we really tried to focus on was, what additional targeted 
tools could the Federal Government bring to the table to 
address particular aspects of economic development that were 
necessary for the District, that were missing in the District, 
and to focus on, for example, parts of the labor market that do 
not function as well. The low end of the labor market is much 
less efficient right now than the other end of the labor 
market.
    So we really believed, given the limited resources 
available, that we should focus in a targeted way on the 
additional elements that the Federal Government could bring to 
the table. The other elements, I think you're right, the DC 
government really needs to look at its current regulatory and 
tax structures.
    Mr. Davis. Do you agree that those structures need to be 
reduced, in addition to what you are providing?
    Mr. Barr. I agree that the District should take a careful 
look at its existing regulatory and tax structures. We would be 
happy to provide any technical assistance to you or to them in 
doing so.
    Mr. Davis. I mean, it seems evident to me, in talking to 
people who do and used to do business in the city, that it's 
expensive to do business in the District. Rents and parking are 
higher. When you add to that a tax and regulatory burden in the 
city that you don't find in surrounding areas, you have to ask 
why would anybody want to be in the city.
    If you can bring those tax and regulatory burdens down, it 
makes it a little more palatable for everybody. Then you could 
fashion special tax breaks, as Maryland and Virginia employ. 
I'm not a great fan of them but everybody's doing it, so it's 
the kind of issue where to stay competitive tax breaks become 
bidding wars for individual industries.
    So I think I want to look at it in that vein. Unless you 
reduce the tax and regulatory burden for everybody across the 
board, I think that the sprinkling of these special benefits to 
a given company are just not going to be as successful as they 
might in combination with bringing taxes and regulatory burdens 
down. We will be working with you as we draft this, to try to 
allow the city's tax base to expand.
    What about the residential tax base? What's the vision for 
having that expand at this point? Ms. Norton's bill at least 
focuses on the fact that it's a high tax burden for residents. 
You can argue, well, it's a city; the Federal tax burden is 
even across the lot, and the city has an artificially high 
burden.
    But coupled with poor service levels, that high tax burden 
helps to move the middle class out of the city. This proposal 
doesn't really address the residential component, except in 
trying to focus on service levels by relieving the city of some 
services they are currently providing, which would free up 
funds to others. Is that fair?
    Mr. Barr. Representative Davis, I think you have the last 
point exactly on, which is that the plan really does try and 
improve the District government's ability to provide the basic 
services that will make the city attractive for the middle 
class. The city needs to improve its provision of public 
services, improve public safety, better the schools. And I 
think, until it does that, the middle class will continue to 
leave.
    Mr. Davis. I really appreciate the administration coming up 
with a plan, and having the guts to put it on the table. I 
mean, people have been talking about these things for years in 
a theoretical sense. A lot of pieces make a lot of sense.
    I think we want to add some value to that along the lines 
I've talked about and Mr. Moran has talked about, Ms. Norton, 
Mr. Horn, and others. But we look forward to the dialog and 
working with you and just appreciate the attitude that we're 
getting from the President in addressing these issues. 
Hopefully, in short order, we can move this at least through 
the House, and move on from there.
    I am going to now yield--we have three other panels--to my 
friend from Virginia, Mr. Moran.
    Mr. Moran. Thank you very much, friend and chairman.
    First of all, let me make--I am not surprised. I am very 
glad to see that we are thinking exactly along the same lines 
here. It will help to have both authorizing and appropriations 
thinking in the same direction.
    Mr. Horn, let me make a comment about the very important 
point that you made with regard to zoning. All of us want to 
protect both the visual clearance of all of our national 
monuments and the physical, immediate surroundings of them, as 
well.
    But, you know, we don't do that to any other city. And if 
we're going to do it to DC, then we've got to somehow 
compensate them for that kind of additional aesthetic 
imposition upon their economic development capacity. Again, 
this is another point that can be raised legitimately in 
justifying a Federal payment.
    I should mention, though, that it is not the private 
developers who are trying to make a killing off a high-rise 
building that make some parts of the District look like 
schlock, it's the Federal Government. If we want to find the 
problem, we can look right in the mirror, in the larger sense. 
I don't mean you.
    But, I mean, GSA has built some of the schlockiest looking 
buildings that most private developers never would have thought 
of. When you look at DOT and HUD, and you go down Independence 
Avenue, that stuff is junk. The developers and the architects, 
particularly, ought to be ashamed of themselves. Then you see 
some of the beautiful buildings.
    Mr. Davis. Why don't you tell it the way it is here.
    Mr. Moran. I'm going to try. It's a shame. You know, when 
you look at what the Federal Government is capable of doing, 
the Old Executive Office Building, and there are a few 
buildings that are just gorgeous, but recently, in the last 30, 
35 years, everything they put up is just so mundane and 
uncreative. There are some exceptions.
    I feel very strongly, Mr. Barr, as does Mr. Davis and Ms. 
Norton, and I know Mr. Horn, as well, that the White House 
deserves a lot of credit.
    Mr. Barr. Thank you.
    Mr. Moran. You gave us a good plan, and you led with it. 
You know, you showed some leadership. That's terrific. But it 
is inadequate. If we want to do it right, we're going to have 
to do more than that, more than the Economic Development Corp., 
more than taking over a number of obvious functions that are 
State-oriented.
    We can't expect any municipality, particularly a 
municipality like DC that has lost so much of its tax base, to 
maintain not only the local share but the State share of 
Medicaid, AFDC, and the like. Medicaid, we may even want to 
think about the rate that New York State provides, which, 
combined with the Federal payment, is 75 percent.
    Given those State functions, which we agree on, given the 
Economic Development Corp. initiatives, which, for the most 
part, I think we agree on, although some of them are more 
geared toward a city with very little growth capacity, so that 
you're trying to subsidize employment, and so on, I'm not 
sure--this is what Mr. Davis was saying--that we really need to 
do that.
    If we bring in the businesses, we don't need to pick and 
choose which businesses. They will provide the jobs. And if we 
bring in the right businesses, we don't need to supplement them 
with $4,000 per employee, as long as those employees have a 
basic education and some skills with them.
    But in addition to that, we're not going to be able to drop 
the Federal payment, I don't think. I think we're going to have 
to have a Federal payment that is exactly in lieu of taxes, 
which comes to about $382 million today, and it would go up 
with the increased value of property.
    And we have to reform these local taxes and fee structures 
that are mitigating so strongly against local economic 
development within the District. If you pull in a number of the 
employers that Tom and I represent and ask them, why wouldn't 
you move to the District, they might at first say, well, it's 
so obvious.
    But then you pin them down, and they will start talking 
about a commercial property tax rate that is more than twice 
what it is in Virginia, $2.15; ours is about $1.07. So it's 
exactly twice. Your residential base is 96 cents. We don't 
split the residential from the commercial base. They are going 
to talk about these workmen's comp. laws that are unbelievable, 
to think you have to pay three times as much for workmen's 
comp. That kind of thing has to be reformed.
    One of the things they are going to say is, the labor 
structure is impossible to work with in some of these 
industries. That's going to have to be addressed. It's vastly 
different in the suburbs, obviously. They are going to talk 
about some of the fees and permits and the responsiveness of 
the Government to even getting those fees and permits. A whole 
long list of things.
    Those are things I think are the first things they are 
going to talk about. I never hear them talking about, well, you 
know, if I could get a $4,000 rebate on my low-income 
employees, that would convince me to move to the District. It 
might convince a few construction firms. I doubt it. They don't 
mention any of the subsidies, the incentives that you're 
talking about. They mention basic, profound, structural 
problems. So I think we need to look at those in addition to 
what you have suggested.
    What you have suggested is kind of the traditional 
Government response, to subsidize lower income workers. Well, I 
won't argue whether it's traditional government, but I think, 
in many ways, it's assuming that we're starting from a pretty 
low base here and somehow we've got to subsidize businesses for 
coming into the District.
    I'm not sure we need to subsidize businesses. I think we 
just need to create an equal playing field with the suburbs in 
order to entice them, and particularly to entice the businesses 
that are growing, that have high profit margins, that are 
employing those 50,000 unfilled jobs that you can see in the 
classified pages every single Sunday, 19,000 high-tech jobs.
    Those are the jobs that are growing. Those are the jobs 
that will pick it up and carry the economic ball without the 
need for any subsidies. I'm not sure that this directly 
addresses that.
    I thank the chairman. I've used up my time. I thank him for 
giving me the time.
    Mr. Davis. Thank you, Mr. Moran.
    Mrs. Morella, do you want to ask any questions?
    Mrs. Morella. No.
    Mr. Davis. Mr. Barr, thank you for being here. We will have 
some followup questions we might want to send you on a written 
basis, but more importantly, we just look forward to sitting 
with you across the table as we try to construct something that 
will work for the city.
    You have heard a wide variety of views here, and I'm not 
sure that any of us are disagreeing with anybody's views. It's 
a question of how do we best use them with limited priorities 
and tax incentives? We're going to have to sit down and try to 
hopefully come up with something that works.
    We appreciate, again, your being here today, your 
testimony, and look forward to working with you. Thank you.
    Mr. Barr. Thank you very much, Mr. Chairman.
    Mr. Davis. I call our next witness, Mr. Kenneth Kies, the 
staff director of the Joint Committee on Taxation.
    Ken, as you know, it's the policy of this committee that 
all witnesses be sworn before they testify. Would you just 
raise your right hand with me?
    [Witness sworn.]
    Mr. Davis. Thank you very much. You may be seated.
    The subcommittee will carefully review any written 
statements you care to submit, and I ask unanimous consent that 
any such statement be made part of the permanent record.
    As I requested of the previous witness, I would ask you to 
limit your oral testimony to 5 minutes so that we may have 
sufficient time for questions and subsequent panels.
    Thank you.

 STATEMENT OF KENNETH KIES, STAFF DIRECTOR, JOINT COMMITTEE ON 
                            TAXATION

    Mr. Kies. Thank you, Mr. Chairman.
    My name is Ken Kies. I'm the chief of staff of the Joint 
Committee. It is my pleasure to present the testimony of the 
Joint Committee at this hearing, concerning the 
administration's proposals for the District of Columbia.
    The administration has proposed a package of tax and nontax 
initiatives to revitalize the District's economy. I will 
briefly describe the administration's proposals, which your 
prior witness already summarized.
    The first proposal would establish a new District of 
Columbia Economic Development Corp. to develop and oversee a 
comprehensive economic development strategy for the District.
    Second, the proposal would provide four new tax incentives 
for businesses conducting business activities in the District: 
a new employment credit; extension of the proposed ``welfare-
to-work'' credit; additional expensing under section 179 and 
expanded tax-exempt development bonds; and finally, tax credits 
for certain equity investment in or loans to District of 
Columbia businesses.
    It is acknowledged that the District faces two key 
problems: residents migrating from the District and 
insufficient economic development activity. The 
administration's proposals directly address the second of these 
problems but would not have a direct effect on stemming 
migration of District residents.
    In any event, the efficacy of tax incentives to address one 
or both problems is severely limited, absent fundamental 
structural reform of the District's government and economy. 
Many of these issues would be addressed by other aspects of the 
administration's proposals.
    Let me just address some of the compliance and 
administrative issues that will be raised by the proposed tax 
incentives. These issues arise primarily because of slightly 
differing residency and work location tests applied to 
determine a taxpayer's eligibility for each tax incentive.
    For example, for an employer to claim the proposed 
employment credit with respect to an employee, three tests must 
be satisfied: the residence test, the work location test, and 
an income test. To satisfy the residence test, the employee 
must live in the District throughout the entire first year of 
employment. If the employee moves out of the District at any 
point during the year, they become ineligible for the entire 
credit.
    To satisfy the income test, the employee must either be a 
member of a targeted group for purposes of the work opportunity 
tax credit, or the employee must live in a census tract in the 
District that has a poverty rate of 15 percent or more, and 
reasonably expect to be paid less than $28,500 for the year.
    Finally, to satisfy the work location test, substantially 
all the services provided by the employee must be in the 
District, or the employer's principal place of business must be 
located in the District.
    Each of these tests requires extensive recordkeeping and 
verification procedures throughout the period the credit is 
earned. The difficulties inherent in collecting and maintaining 
necessary information to ascertain credit eligibility mean that 
there is a high probability of noncompliance, intentional as 
well as unintentional.
    Similar complexity in compliance issues arise with respect 
to each of the other proposed tax incentives, all of which 
incorporate slightly different requirements with respect to 
employee residency or the location of business activities.
    In addition, because the complex eligibility tests are not 
based on one-time determinations, but rather must be satisfied 
on a year-long basis, business owners would have to speculate 
at the time of employment or when an investment decision is 
made as to whether they would be able to claim the special tax 
incentives at the end of the year. Thus, the incentive effect 
of the proposals would be limited.
    My written testimony does raise one constitutional issue 
which the committee and the Congress will have to consider as 
they act on this legislation. It specifically relates to the 
uniformity clause. In particular, as this legislation is 
developed, a more detailed record as to the basis for the 
classifications chosen would be highly recommended in order to 
avoid a potential uniformity clause problem.
    Finally, the staff of the Joint Committee estimates that 
the proposals would reduce Federal budget receipts by just over 
$300 million in the 10-year budget period from fiscal 1998 to 
fiscal year 2007. The proposed tax incentives attempt to 
encourage the startup and retention of business in the District 
and the hiring of lower income District residents.
    In general, the proposed incentives are sufficiently modest 
in scope so that it is not anticipated that they will result in 
any major increase in the growth of the economy of the District 
metropolitan area as a whole. However, concentrated allocation 
of the capital incentives by the Economic Development Corp. 
could result in significant revitalization of targeted areas 
within the District.
    In addition, the removal of current obstacles that inhibit 
the District's ability to issue debt and the creation of a new 
category of private activity bonds should enable the District 
to make substantial use of its private activity bond volume cap 
within 4 or 5 years. These private activity bonds will provide 
a cheaper source of funds for both startup businesses and 
business expansions within the District, as will the startup 
capital generated by the tax credits.
    Finally, the revenue estimate also assumes that there is 
likely to be some confusion about the exact boundaries of 
eligible areas and the residency of particular employees that 
will result in some ineligible businesses claiming the 
expensing and or wage credits.
    The issues I have touched on this morning are discussed in 
more detail in my written testimony. I will be happy to answer 
any questions that you have, Mr. Chairman, or members of the 
committee.
    [The prepared statement of Mr. Kies follows:] 
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    Mr. Davis. Ken, thank you very much.
    What has been the experience with enterprise zones, in your 
judgment, around the country? Are they showing more success? I 
mean, a couple of years ago, I looked at it, when I was head of 
the county government in Fairfax, and really there was very 
limited success because, generally, the areas that were 
targeted had so many other problems that tax incentives alone 
couldn't make up, if you will, the investment deficit that 
would cause people to put private capital into them.
    Mr. Kies. Mr. Chairman, the recent experience with the 
empowerment zones, which provide the most significant tax 
benefits, and in particular the key tax benefit that is 
provided in the case of empowerment zones is a permanent wage 
credit that goes to all employees located within the 
empowerment zone--and it does not only go to the first year of 
wages, but rather it applies to each year that the business 
employs people within the empowerment zone area--has proven, at 
least in recent experience, to be rather effective at getting 
new investment.
    For example, in the city of Detroit, in the empowerment 
zone created there, Chrysler chose to build a plant in that 
empowerment zone, and that decision was largely a consequence 
of the wage credit.
    Mr. Davis. A wage credit, basically, to a company means 
you're paying less dollars in wages than you would have to pay 
otherwise.
    Mr. Kies. That's exactly correct. And the distinction 
between the wage credit in the empowerment zone proposals 
versus the one in the proposal of the administration for the 
District is that that wage credit applies each year, to each 
employee, as compared to the District proposal, which would 
only apply to an employee for the first year of employment. And 
that's a significant distinction.
    Mr. Davis. When you're making a long-term capital 
investment, it doesn't really help.
    Mr. Kies. Exactly.
    Mr. Davis. I appreciate it. Let me ask you this: For the 
amount of money that is called for in the administration's 
package for economic development, do you think there are better 
ways--and I gather from your testimony that you think it can be 
done more efficiently and that there is a way you can get more 
economic bang for the dollar.
    Mr. Kies. Well, Mr. Chairman, I would say that the $95 
million of credits that the development corporation will have 
the ability to distribute, those credits, assuming that the 
development corporation exercises good judgment in how those 
are allocated, could produce some fairly significant results, 
because they could be targeted and given to entities that are 
going to put other capital in.
    So that probably offers the greatest potential for a good 
return, in terms of the tax dollars invested.
    Mr. Davis. But the key is, how is that allocated; is it 
done on a favored basis?
    Mr. Kies. The Economic Development Corp. has a series of 
criteria that they are supposed to take into account in 
exercising that judgment.
    The wage credit is the one that we probably would identify 
as raising probably some serious problems, in terms of its 
efficacy, because of the fact that, for example, it's only for 
1 year, but in addition, the employer, when they hire the 
individuals, will not know whether any of the wages paid will 
qualify for the credit until the entire first year of 
employment is completed.
    Mr. Davis. So how would you make a decision?
    Mr. Kies. That's the problem. Because if the individual 
violates the residency test at any time during the year, they 
lose the entire credit. That's, I think, a problem that really 
needs to be looked at carefully.
    Mr. Davis. Have you looked at the Southeast Federal Center 
or the area around the Navy Yard at all? Are you familiar with 
that at all?
    Mr. Kies. I'm familiar, generally, with the area.
    Mr. Davis. It would seem to me, with the additional 
governmental expenditure that will be going there, with new 
offices and so on, that some creative urban planners could look 
at that and provide appropriate incentives, to make that 
attractive. It seems to me, if there was ever the opportunity 
for an empowerment zone to work, it's right there where you 
have a critical mass to begin with. Any thoughts on that?
    Mr. Kies. Well, that's certainly correct, Mr. Chairman. The 
Economic Development Corp., in choosing how to allocate its tax 
credits, should probably take those kinds of criteria into 
account. The probability of success is certainly going to be 
related to what is already there, in terms of the investments 
that they help to incentivize through how they hand out the tax 
credits.
    Mr. Davis. Finally, on a philosophical basis, are you 
better off with empowerment zones, or are you just better off 
essentially picking areas, picking business winners and losers 
ahead of time by who qualifies for a special tax credit; in 
other words, Government picking winners?
    Or are you better off letting the marketplace pick them and 
using those dollars to lower the economic, tax, and regulatory 
burden for everybody?
    Mr. Kies. Mr. Chairman, I think you have correctly 
identified it as a philosophical question on which there is 
great debate. The tradeoffs are that the more targeted the 
delivery of the incentive, the greater the ability to try and 
pick the projects that have the greatest probability of 
success. On the other hand, that is picking winners and losers.
    Mr. Davis. It's also assuming that Government somehow knows 
more than the marketplace in picking those, and the track 
record is very mixed on that, I would submit.
    Mr. Kies. That is clearly one of the concerns that people 
try and wrestle with in choosing which of these two directions 
to go in.
    Mr. Davis. I understand. And I think there is merit on both 
sides. With the economy in this region as complex as it is, 
government-driven in some cases, building and development-
driven in others, technology-driven, and telecommunications-
driven, particularly in the suburbs, where the city's niche is 
with its employment base, it's more complex. What the tourism 
business can bring, international business; what is the mix? 
What is the city's role in that?
    There is, I think, an honest debate over what is the best 
way to go. I have studied this and talked to experts. If we 
bring down the regulatory burden, allowing the market to pick 
that, sometimes we learn things that we wouldn't know just 
trying to analyze the data.
    Mr. Kies. Mr. Chairman, I would just say that one of the 
points we made in our written testimony is that these tax 
incentives alone, on their own, would probably not do much, 
that it has to really be part of a much bigger picture, 
including many of the things the administration already has in 
their proposal. I think the regulatory burden is a very 
significant component of that.
    Mr. Davis. Well, thank you. I would just say, as with Mr. 
Barr, we look forward to working with you. We appreciate your 
being here. I know of the Speaker's interest. I know of 
Chairman Archer's interest in this. We know that there is a 
reservation in the budget agreement for some tax incentives. We 
just want to make sure since these are taxpayer dollars, 
essentially, and it has an impact on the budget that we're 
getting the most bang for the dollar that we can for it.
    Thank you very much.
    I now recognize my vice chairman of this subcommittee, Mrs. 
Morella.
    Mrs. Morella. Thank you.
    Thank you for your analysis, too. I may want to get back to 
you at some point later, after I digest more of the 
ramifications with regard to questioning.
    One of the serious disincentives that appears in the 
District of Columbia to business is the regulatory nightmare 
that has been put in place over the last 20 years, and the fact 
that many of the personnel in these agencies appear to be 
undertrained or simply not qualified for the job in some way.
    I just wonder, do you see a role for Congress in trying to 
remedy both the regulatory nightmare and to make sure that 
there is training which brings about efficiency and 
streamlining?
    Mr. Kies. Well, as I understand part of the overall project 
to do a complete revitalization project for the District, one 
of the areas that will be focused on is how do these regulatory 
burdens get eased so businesses can more efficiently operate in 
the District.
    I would think that, particularly your committee, as you 
would put together your overall plan, that's a key area that 
Congress ought to try and see what can be done to try and ease 
that, because that apparently is a substantial concern of 
businesses trying to come into the District.
    Mrs. Morella. Would it be considered micromanaging if we 
looked at, like, performance measures or standards? Is that the 
role of Congress, as you see it, in terms of bringing about 
this desirable result?
    Mr. Kies. Well, I mean, I think those are the kinds of 
tradeoffs you're going to have to think about. The bottom line 
is that I think you're going to want to ensure as much 
regulatory flexibility as possible so businesses have a better 
environment.
    Mrs. Morella. At any rate, even though you say this is not 
really your jurisdiction, you do see this as a major problem?
    Mr. Kies. I see it as a major problem, because tax 
incentives won't work if there are these regulatory burdens.
    Mrs. Morella. Absolutely. Absolutely. And if we're not 
using people power, you know, adequately.
    You had a brief discussion about the enterprise zone and 
the EDC. The enterprise zone is something that is spotty. I 
mean, an area is chosen for that. The EDC would cover 
everything and would set up a board for that.
    Mr. Kies. Correct. And that's why the EDC perhaps offers 
the greatest potential for producing some significant economic 
development in the District, because they do have the 
flexibility as to how they use these tax credits.
    And one of the requirements is that, for every dollar of 
tax credit that is provided to an investor in the District, 
there has to be a substantial amount of money also being put up 
by the investor. So it has a multiple effect to it, in terms of 
the potential for economic investment, almost as much as $400 
million worth that could occur through the use of these 
credits.
    Mrs. Morella. From your point of view and perspective, and 
as an expert, do you think that these tax benefits in the 
President's plan can enhance the District's competitive 
position in retaining and attracting jobs across the economic 
spectrum?
    Mr. Kies. I think we believe that the credits that the 
development corporation has offer a good potential there. I 
think the wage credit has some significant problems associated 
with it because of its temporary nature and some of the 
complexities associated with qualifying for it. So I think 
that's an area where the Congress is going to want to look 
carefully in maybe trying to shape that, if that's going to be 
part of the tax package that is provided to the District.
    Mrs. Morella. I want to thank you very much, Mr. Kies.
    Thank you, Mr. Chairman. I yield back.
    Mr. Davis. Mr. Kies, thank you very much. We look forward 
to working with you.
    Mr. Kies. Thank you, Mr. Chairman.
    Mr. Davis. I now call our next panel which will consist of 
Mayor Marion Barry, Council Chair Pro Tem Linda Cropp, and 
Councilmember Charlene Drew Jarvis.
    As you know, it's the policy of the committee that all 
witnesses be sworn before they may testify.
    Linda, congratulations on your new position.
    Charlene, good to have you back again.
    If you would all just join with me and raise your right 
hands.
    [Witnesses sworn.]
    Mr. Davis. I am going to ask unanimous consent that any 
written statements be made part of the permanent record. As I 
have requested of the previous witnesses, if you would limit 
your oral statements to no more than 5 minutes, in order to 
leave time for questions.
    I am going to ask the Mayor to testify first, followed by 
Council Chair Pro Tem Cropp, and then Councilmember Jarvis.
    Mayor, thank you, and welcome.
    Mr. Barry. Good morning, Mr. Chairman and Mrs. Morella.
    Mr. Davis. Let me just announce that we have visiting 
second and third-grade students from the Owl School, a private 
school, here in the District of Columbia, studying citizenship. 
We welcome you all today. As you look around here you will see 
the city leadership, the Mayor, the Council Chairman, and 
Charlene Drew Jarvis, a member of the District of Columbia City 
Council. We welcome your being with us today.
    Mrs. Morella. And as you know, Mr. Chairman, the owls are 
wise young people.
    Mr. Davis. And they give a hoot; right? OK. [Laughter.]
    Mr. Barry. Everybody is sharp this morning.

  STATEMENTS OF MARION S. BARRY, MAYOR, DISTRICT OF COLUMBIA; 
  LINDA CROPP, CHAIRWOMAN PRO TEM, DISTRICT OF COLUMBIA CITY 
COUNCIL; AND CHARLENE DREW JARVIS, MEMBER, DISTRICT OF COLUMBIA 
                          CITY COUNCIL

    Mr. Barry. Thank you, Mr. Chairman.
    I was talking with some of the young people. One young man 
asked me, ``What are you all doing in here?'' I said, ``We're 
discussing President Clinton's plan to help the District.'' He 
said, ``Oh. Will it work?''
    Mr. Chairman, let me express, I am pleased to appear before 
you today to offer comments on the Economic Development Section 
of President Clinton's National Capital Revitalization Plan. I 
would like to ask that my entire statement be entered into the 
record. I have some other documents I want to enter at the 
proper time.
    Mr. Chairman, in early 1995, when we were wrestling with 
the financial crisis of our city, it was generally agreed that 
we ought to take a three-pronged approach, that we ought to 
drastically restructure and downsize the city government, make 
the government more efficient, more effective, more responsive 
to our citizens, our visitors, and to our business people.
    The second leg of that was that we should seek to transfer 
certain State functions to the Federal Government. 
Additionally, we also talked about increased Federal payment. 
The third part of that was to improve the District's services, 
but that we would figure out ways to assist in economic growth 
for the District.
    Quite frankly, what has happened over the last 2\1/2\ years 
has been an obsession with just the first area: How do you 
reduce the size of the DC government? How do you make it more 
responsive, et cetera? Until President Clinton submitted his 
plan to transfer certain State functions, there was no 
discussion about that by the Congress or by the control board.
    And there was virtually nothing done in the third area. The 
District's budget didn't reflect any extra money for economic 
growth, in terms of job training, or business retention, or 
business attraction, et cetera. So I am glad that we finally 
have decided to discuss the second point and the third, and 
President Clinton's proposal deals with the second.
    Also, Mr. Chairman, I think we have done our share of 
trying to restructure the DC government, reducing expenditures, 
reducing the size of the work force. Anytime a municipality or 
a State or county can reduce its work force by almost 20, 25 
percent in a year and a half, it's phenomenal. From 47,000 FTEs 
down to 33,000 in a year and a half is phenomenal.
    In fact, I was talking to Mayor Rendell, he couldn't 
believe it. He thought it was just incredible that we have been 
able to do that, and restructure our government, and establish 
a privatization plan which has saved us money in our 
correctional facilities, Oak Hill, et cetera.
    If you look at my statement, we could go right on down the 
line as to the kinds of sacrifices and the kinds of commitments 
the DC government has made, its Council and its Mayor, to make 
the government more efficient, to make it more effective.
    And we have suffered--I have suffered the political 
consequences of that, because I've had to make some very 
unpopular decisions, which means that people not only didn't 
like the message, they didn't like the messenger. But we've 
done that in order to take the first part of this. I would urge 
you to look at all the kinds of things that we have done.
    And then we know what the other parts of the President's 
plan are; they have been discussed. But let me discuss, Mr. 
Chairman, a little bit about the District of Columbia, 
economically.
    I would like to enter into the record a document which 
says, ``Creating an Economic Development Strategy for the 
District of Columbia.'' This was done by McKinsey and Co. for 
the DC Agenda. I would like to ask that this be entered into 
the record.
    Mr. Davis. Without objection, that will be entered in the 
record.
    [The information referred to follows:] 
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    Mr. Barry. Let's talk about our city. We are landlocked. 
Unlike Charlotte, unlike Nashville and Memphis, we cannot annex 
property, which means that, in some cities, when people flee 
from the city into the suburbs, the cities merely annex that 
part of the suburbs and therefore equalize the situation. But 
Baltimore and Philadelphia and New York, and other cities, are 
suffering the same plight, losing population. We're not unique 
in that regard, but we cannot annex.
    Second, we have a situation where 56 percent of the land is 
owned by someone else besides the DC taxpayers; 41 percent by 
the Federal Government, the other by nonprofit organizations 
and parks, et cetera, which means, from a taxing perspective, 
we can only tax, either through residents or businesses, 41 
percent of the land. Now, that's a disadvantage.
    Third, the District is noncompetitive with our neighbors. 
We're not competitive because our commercial property taxes are 
higher than the neighbors. Our unemployment insurance, our 
Workers' Compensation, our utilities, and our business 
corporation taxes are higher.
    Why are they higher? They are higher for several reasons. 
First of all, because we can't tax income at its source, we're 
subsidizing Maryland and Virginia by $700 million.
    We also don't have a fair Federal payment. Even though the 
Federal Government owns 41 percent of the land, we get about 
one-third of what we ought to get in lieu of taxes. If we could 
get our fair share of Federal payment, about $2 billion, and 
get our share of income tax here, we would have the lowest 
commercial tax rate in the region. So part of the plan has to 
be a continued Federal payment.
    My own view is that, if we pass the dollar amount of the 
President's plan--it may have a different structure, 
particularly in criminal justice--and give us at least almost 
$400 million of Federal payment, the city government could 
begin to drastically reduce our commercial property taxes, 
reduce our business taxes, and other related activities that 
would make us more competitive.
    The Council and the Mayor are in the process now of getting 
legislation through the Council that will lower the 
unemployment compensation tax, that will lower the Workers' 
Comp. comparable to the surrounding areas.
    Then there is the area of business reform and regulatory 
reform. We talk about that, but when you look at the reality, 
if you look at the MCI Center, it was easy to move in here, to 
get the necessary permits, and to build this in record time.
    The only basic requirement of a business coming into 
Washington is to file your corporation tax, give a business 
tax, and that's it. If you talk to developers, they will tell 
you that it is easier to develop a building in Washington than 
it is in the suburbs, in terms of regulations.
    Now, we need to look at it again, but I don't think 
regulatory reform is a major impediment when you really talk to 
people, Congressman Davis, one-on-one, about, what do you mean 
by that? They are not responsible for a certificate of 
occupancy. Now, lawyers have to get a business license. Doctors 
have to get a business license, and others, but that's not true 
all over.
    So I think we need to focus on the Federal payment. We need 
to focus on the Economic Development Corp. You know what it's 
all about. I'm not going to spend a lot of time doing that. But 
that's not enough.
    If you look at the McKinsey study, the McKinsey study says 
that we ought to have a five-pronged approach: We should 
attract and retain businesses through government action; that 
is, taxes, lowering taxes, streamlining the regulatory 
processes, review land use.
    Work force development. We need to put more money into 
skills development, because our schools have not done a good 
job, and therefore we have to make up for what they did.
    Neighborhood revitalization. We put very little money in 
neighborhood revitalization, either through the Council's 
budget, the Mayor's budget, or the controller's budget. We have 
not promoted industry.
    The other one is, how do you attract and retain residents? 
You have to reduce taxes on those of us who are taxed to death 
in Washington. And we are taxed at the high rate that we are 
because we are subsidizing the Federal Government and Maryland 
and Virginia. I support Ms. Norton's approach, the 15 percent 
flat tax. That's one way you begin to do that.
    Also, improve services. Let me say that we are working 
every day to make our services more efficient, make our 
government more responsive, and you're seeing results. This 
time last year, because of our budget problem, our trash trucks 
were broken down, and we couldn't pick up trash on time. We 
need 40 trucks every day; we had 29 or 30. We now have 45 
trucks every day. Trash is being picked up on time, and our 
city is looking cleaner and looking better.
    We have put police officers on the streets, some 400 of 
those. We have seen a reduction in crime, 30 percent; in March, 
the lowest homicide rate in 10 years, for the first quarter. 
And so we are improving services. Things are getting better, in 
terms of delivery of services.
    The other one is to engage the business leadership. If you 
go to Baltimore or Fairfax County or other places, you find the 
business community more involved with the local government than 
here. Somehow or another, it's been very difficult to get the 
business community fully engaged. They have been engaged, but 
not ``fully engaged.'' The Washington Board of Trade has been 
engaged but not fully engaged. The Chamber of Commerce has been 
more engaged, because it is more of a local operation.
    So I think, with all of that, with the President's plan, 
Ms. Norton's flat tax, with the DC government improving its 
delivery of services, which we are doing every day, with 
neighborhood development being financed and funded, both 
through the President's plan and the DC government, through 
work force development training--and finally, Mr. Chairman, one 
thing that the Federal Government can do and the private sector 
can do that will give us an immediate shot in the arm, in terms 
of economic growth, and that is to hire DC residents.
    The McKinsey study indicates here that for every 100 DC 
residents that are hired in existing jobs, as they become 
vacant, in both Washington and the suburbs, the District 
government receives about $350,000 of revenue, which means, out 
of those 60,000 unemployed DC residents, if for next year we 
could convince the Federal Government--190,000 jobs here--and 
convince the private sector to put focus on qualified DC 
residents and hire up to 10,000 residents, that's $35 million 
of new tax revenue for the District government.
    The other part of what makes our taxes so high is that we 
have a disproportionate share of the region's poor. We are 8 
percent of the population; 44 percent of the poor, eating up 
Medicaid, AFDC, food stamps, $800 million in Medicaid.
    So my formula for success is to focus on the second part of 
the President's plan, transferring State functions, and 
economic development, Ms. Norton's plan, neighborhood 
revitalization, and hiring DC residents. The Congress can 
contribute, starting tomorrow, by asking the architect of the 
Capitol, whoever makes decisions about hiring around here, to 
start hiring DC residents. That's a good shot right there.
    [The prepared statement of Mr. Barry follows:] 
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    Mr. Davis. Well, Mr. Mayor, I will address that in the 
question and answer period. I think we want to hire qualified 
people that can get the job done.
    Mr. Barry. I said qualified DC residents, ``qualified.''
    Mr. Davis. Exactly.
    Ms. Norton. That includes DC residents.
    Mr. Davis. Of course it does. Of course it does.
    Mr. Barry. Qualified, Mr. Chairman. We have some very, very 
qualified DC residents who are out of work.
    Mr. Davis. Well, we'll talk about that, Mr. Mayor.
    Ms. Cropp, thank you very much. Thanks for being here 
today.
    Ms. Cropp. Thank you very much.
    Mr. Davis, Ms. Norton, Mrs. Morella, good afternoon. I am 
very pleased to be with you today to discuss the economic 
development component of the President's plan to revitalize 
Washington, DC.
    Few cities across the Nation would have survived if they 
performed the State functions that we do in the District of 
Columbia. As you may know, the Council feels strongly that a 
Federal payment should remain as part of the budget. Mr. 
Chairman, we look forward to working with you to keep the 
Federal payment as a part of the budget.
    We have the resolve to correct the management problems. we 
need your help to correct the structural problems within the 
District of Columbia. A successful economic development program 
could be the cornerstone on which to recast Washington as a 
vibrant and flourishing urban center.
    The District of Columbia Economic Development Corp., as 
proposed in the President's plan, would be substantially 
capitalized and substantially empowered to help revitalize the 
District's economy. We thank the President for recognizing a 
need with regard to the economic development in the District, 
and we look forward to working with Congress to craft the final 
details of enacting the legislation.
    With me today is Councilmember Charlene Drew Jarvis, who is 
the chair of the Committee on Economic Development of the 
Council of the District of Columbia, and she will be presenting 
the Council's position on the President's economic plan.
    [The prepared statement of Ms. Cropp follows:] 
    [GRAPHIC] [TIFF OMITTED] 42429.102
    
    Mr. Davis. Thank you very much.
    Charlene, welcome.
    Ms. Jarvis. Thank you very much, Congressman Davis. I am 
delighted to join my chair and the Mayor this morning, and to 
say good morning to Ms. Norton and to Mrs. Morella.
    On behalf of the District of Columbia, I am very pleased to 
have this opportunity to testify at today's hearing on the 
President's National Capital Revitalization and Self-Government 
Improvement Plan.
    The elected officials who represent the residents of the 
District continue to embrace this historic opportunity to 
address the city's financial condition and the fundamental 
inequities that have long existed in the relationship between 
the District and the Federal Government.
    We have done this by signing the Memorandum of 
Understanding with the Office of Management and Budget and the 
District Executive. And now we welcome the opportunity to 
engage members of this subcommittee and other Members of 
Congress in a continuing dialog about various aspects of 
municipal partnership.
    I have been asked to testify today on the portion of the 
plan in which the President proposes a federally funded 
commitment to help capitalize a new, non-Federal public-private 
partnership called the District of Columbia Economic 
Development Corp.
    The Council supports the establishment of what I will refer 
to as the EDC, which would have broad authority to spur private 
development, including the use of Federal tax credits, both for 
hiring District residents and business loans and investments. 
The EDC would be able to use tax-exempt private activity and 
revenue bonds and use limited authority to acquire property by 
eminent domain in furtherance of its statutory objectives.
    The Council requests that the Economic Development Corp. 
provide for considerable local participation and input, in 
order to guide and direct development opportunities throughout 
the city. This would be accomplished through increased local 
representation on the board of directors.
    In order to leverage private sector development projects 
throughout the city, the corporation would be capitalized, in 
part, with Federal and District funds, land grants, and 
property development rights.
    I believe that economic turnaround in the District depends 
upon the private sector, and that government can provide the 
catalyst for this development. Examples of the recently 
successful public-private partnership include the MCI Center, 
the Opera, and the planned convention center.
    An Economic Development Corp. operating citywide would 
address both community development and business improvement 
needs. An Economic Development Corp. would provide the District 
with necessary tools and resources to improve the prospects for 
Home Rule to succeed, while concurrently addressing the 
concerns respecting DC's unique position and additional 
responsibilities as the capital city.
    An EDC with the mission of promoting investment in the 
District would be created, in partnership with the Federal 
Government and the private community. The challenge will be to 
responsibly undertake useful economic development projects and 
assist the District in all aspects of revitalization.
    Likewise, the Council also strongly supports the Memorandum 
of Understanding's endorsement of amendments to the Home Rule 
Act which would help improve the institutional and fiscal 
capacity of our government by providing for the same legal 
capacity to finance economic development projects as in other 
jurisdictions.
    Thus, the District would no longer be competitively 
disadvantaged, because the amendments would clarify the 
District's authority to use taxable and tax-exempt bonds for 
business development and job creation purposes, to the same 
extent permitted other State and local governments. We would be 
able to promote quick, 60-day settlement through expedited 
approval of revenue bond transactions that do not involve the 
pledge of District revenues or assets.
    These transactions would assist in financing public and 
private, nonprofit, elementary, secondary, vocational, and 
charter schools, and other private and governmental capital 
projects that enhance economic and employment opportunities in 
the District.
    We would also be able to pledge special fund revenues, 
including tax increments, fees, and payments in lieu of taxes, 
to secure the costs of municipal parking facilities and public 
infrastructure redevelopment for utilities, streetscape 
improvements, and park enhancement projects cosponsored by 
neighborhood associations, including business improvement 
districts. These measures are as critical to ensuring the 
financial success of major revitalization projects as is the 
EDC to the success of project implementation.
    Toward this end, the Council requests Federal assistance to 
complete the financing of the planned new convention center. We 
ask this particularly because the Council recognizes the 
substantial economic benefit to the District and the region of 
a new and larger convention center in the Nation's Capital.
    History has proven that most of the Nation's convention 
centers have needed external support to develop these 
facilities. We want to be proud of our new national convention 
center and attract people with a world-class facility design 
and the ability to market to groups of all sizes.
    Mr. Chairman, may I also, if you would permit me, indicate 
that I think that one of the most important reasons for the 
establishment of the Economic Development Corp. is to have a 
single, focused activity and a push for the kind of creative 
development that is critical in the District. The economic 
development structure within the government has its people and 
its resources spread so thinly as not to be able to focus on 
the issue of economic growth and economic development to the 
extent that ought to occur.
    The Business Services and Economic Development Agency has, 
as a part of its responsibility, the Department of Consumer and 
Regulatory Affairs. Those issues are critical to business 
development, and they must be focused on, as well. But if the 
same people are to do the business regulatory reform as are to 
do the development, then we have what we have had in the past, 
which is without that single, major focus on the activity that 
produces jobs in the District of Columbia.
    The Business Regulatory Commission, Mrs. Morella, will be 
making its report within 60 days, and that goes to your 
question of the District's ability to regulatory reform.
    The Tax Revision Commission will be reporting within 60 
days, and a tax incentive package is going to be produced 
through legislation which the Mayor is sending to the Council, 
as a result of having had an outside firm do a study of such 
tax incentives. And that is in response to repeated concerns 
that I hear this morning about restructuring of the tax system 
for the District.
    Thank you.
    [The prepared statement of Ms. Jarvis follows:] 
    [GRAPHIC] [TIFF OMITTED] 42429.103
    
     [GRAPHIC] [TIFF OMITTED] 42429.104
    
    Mr. Davis. Thank you very much.
    Let me start the questioning. I am going to address the 
issue you brought up about the hiring of residents. What it 
tells me, Mr. Mayor, is that you still don't understand and 
don't get what's happening in the economy in this region. That 
you don't understand why you have an outflow of jobs from the 
city to the suburbs.
    It is taxes, and you mentioned taxes. I'm going to do 
everything I can to reduce the tax burden, whether it's through 
Ms. Norton's bill or Mr. Moran's requirements or whoever's, 
because I think the tax burden has to come down. But you've got 
to reduce regulation, as well.
    And every time you pass a bill that may get points out 
there with some constituency group, but you hinder the market 
process, you, in essence, are putting more regulation on 
business, requirements on business that lead people not only to 
not want to invest but who end up voting with their feet by 
leaving to go elsewhere, creating greater inefficiencies.
    Take for example, your proposal, that your contractors for 
the city have to hire city residents. One of the leading 
procurement people we had in Fairfax County was a District 
resident who was a very capable person. I wouldn't have 
required him to move. He headed up our computer operations in 
the county. He was the best qualified person we could have. We 
felt, when the taxpayers are paying dollars, they ought to get 
the best people, wherever they live.
    For people coming in, whether they are experts or the 
lowest ranking jobs, you certainly want to make sure that that 
District labor pool is included in that, and that you can find 
as many jobs. But that kind of requirement is rebuffed by 
people who have to invest the money and put their capital at 
stake.
    So many decisions the city has made, however well-
intentioned and well-sounding they may be, have the effect of 
chasing capital out of the city instead of attracting capital 
and investment into the city.
    I just want to read one of the local comments about your 
plan. ``The Mayor said that he didn't talk with business people 
before he sent the legislation to the council, and it was 
immediately rebuffed by the Board of Trade and other business 
organizations.'' You need to work and form a partnership with 
the business community.
    The way Cleveland came out of their doldrums was, the 
leadership in that city worked with the business community. The 
way that Philadelphia and Mayor Ed Rendell have moved ahead is, 
the city formed a partnership with the business community. The 
way New York City came out of the doldrums is, they formed 
partnerships with the business community, not constantly 
putting a stick in their eye and talking about other things.
    That's what the city needs to do, and they need to reduce 
the regulatory burdens and form a partnership working with it. 
And frankly, in the plan here, I don't see that. In fact, I see 
this as another indication of not trying to understand the 
marketplace, or trying to work with the marketplace.
    The plan sounds so 1960's to me, and it's not really where 
you need to go to move in the 21st century. This city has so 
many great opportunities ahead of it over the next decade. The 
high technology boom in the suburbs right now, 18,000 jobs we 
can't fill in northern Virginia.
    I know the consortium of universities has come up with a 
proposal--I'm going to ask you how you have responded to that, 
but I understand it hasn't been as proactive as they would have 
liked--to start training people and have UDC move their 
curriculum to train people for some of the jobs available now 
in the region. We'd love to have them out in the suburbs.
    We'll take anybody we can find right now, because these 
jobs are going to India, they are going to the Pacific Rim, or 
offshore, and to other parts of the country, because we can't 
find qualified people here. We have systems where the city 
ought to be able to add value to those equations.
    The Southeast Development Center, the Navy Yard where we're 
going to have a huge Federal presence, hopefully, in the very 
near future, is a great opportunity for the city. I know Ms. 
Jarvis has been active in trying to make sure that we have a 
zoning envelope and maybe a regulatory envelope down there that 
can be attractive to private sector investment around there, 
and do the kinds of things that Crystal City and Rosslyn and 
other areas have done, in northern Virginia, to attract private 
capital.
    But to rely on government to manipulate this and move it is 
not what the city needs. It needs to be more entrepreneurial, 
in my judgment. If you take a look at the models of cities that 
have succeeded, that's what they have done. Unfortunately, I 
don't think this proposal passes that test, and I think it's a 
step backward.
    I will give you a chance to respond. I would be happy to 
hear Ms. Jarvis. Otherwise, let's work together. We can reduce 
the tax and regulatory burden in this city, and we can continue 
to make this a great city. We have a great opportunity ahead of 
us.
    The economy in this region is very healthy, and the growth 
in some of these segments is such that the city can grow with 
some proactive movement on the tax and regulatory front, and 
some targets that the Economic Development Corp. can bring.
    Also, the MCI Center, if we can ever get the city to get 
its act together--and it is a city problem at this point, not a 
Federal problem--in terms of moving the convention center 
forward, offers job opportunities to people in the hospitality 
industry, downtown, who don't have to even have a high school 
education. We can increase tourism and get that going.
    So we have some great possibilities ahead of us. All we 
need is the right blend of leadership and vision to move 
forward. We are ready here to add to the equation. But I don't 
think this proposal, frankly, passes the laugh test.
    Mr. Barry. What proposal are you talking about, Mr. 
Chairman?
    Mr. Davis. This is the one about contractors just hiring 
city residents and all.
    Mr. Barry. Mr. Chairman, let me say that no other city in 
America is burdened with the inability to tax income. Our 
income tax in the District of Columbia, and in the Federal 
Government, and in State governments, is our largest single 
source of income.
    New York City has regulations and requirements that when 
you do business in New York City, you have to, first of all, in 
some instances, have your corporation located in the city.
    And second, there are 24,000 businesses in the District of 
Columbia. The DC government does business with less than 2,000 
businesses. We have not found any road construction contractor 
who said, ``I don't want to hire qualified DC residents.'' This 
law has been on the books since 1984. A number of companies are 
using that law. They use it at the Department of Employment 
Services.
    If you were to give us the authority to tax income in 
Washington, at its source, I would withdraw that proposal, 
because there would be no need for it. Wherever you lived, if 
you worked in the District of Columbia, you would then be able 
to get that income. You can't downplay that.
    Second, in terms of hiring DC residents, you imply that we 
don't have qualified people in Washington.
    Mr. Davis. Well, that is absolutely wrong.
    Mr. Barry. I said you implied it.
    Mr. Davis. I started my statement by talking about the head 
of the computer systems in Fairfax, who is a DC resident, and 
how talented he was. I don't think that talent has any 
residential bounds. So I will just--don't turn that around on 
me. I didn't say that. I didn't imply it, and I don't mean it.
    Mr. Barry. Well, Eleanor leaned over and told you something 
about that. Anyway, that's another story.
    Mr. Davis. No, she didn't lean over. She said it publicly, 
and I agree with her.
    My time is up. I'm going to pass the baton now to Ms. 
Norton. If she wants to get up and defend you, I'll allow her, 
under her 5 minutes.
    Ms. Norton.
    Ms. Norton. Well, the chairman clarified that he did not 
mean to say that there weren't qualified people in the 
District, so I accept that. I know that that's what he meant.
    But the Mayor's frustration is well placed. You know, you 
hear Jim Moran sit up here and say, ``Don't lower their income 
taxes,'' and also, ``Don't tax commuters from my 
jurisdiction.'' You will see frustration on the part of the 
District residents, who, after all, are Stateless and have very 
limited places from which to get new revenue.
    I believe it was Ms. Jarvis who testified that the Tax 
Revision Commission report would be coming forward; is that 60 
days from today?
    Ms. Jarvis. Yes. Sorry, it's the Business Regulatory 
Commission that will be within 60 days. It's the Tax Revision 
Commission in December.
    Ms. Norton. I applauded when the Tax Revision Commission 
was appointed. I know how difficult it is to get through taxes 
and to come up with--this is very complicated stuff. The same 
should be said of the Regulatory Commission.
    But I believe that the city may be overtaken on taxes, in 
one way or the other, if we are waiting until December. I may 
want, as we get close to finality on this bill--remember, we're 
aiming--if we're going to get it, we've got to get it through 
before September 30.
    I may have to ask you all to come in and talk with me, 
because some of the proposals go to lowering business taxes, 
certainly, and there is some talk here, frankly, about putting 
things in the bill that we pass that would have an effect on 
regulations in the District. You know what I say on that stuff, 
that I oppose anything happening from up here.
    One of the things I would like each of you to think about 
is, if we have to go on a fast track, how we might do so. One 
of the ways I'm usually able to get people up here from 
sticking things into bills is to indicate that action will be 
taken in the District. I do not believe I will be able, if this 
talk continues, to do so on the basis of a study that is 
underway.
    So, to the extent that you have a sense of what the major 
features are, it would help me to keep people up here from 
deciding that the President's plan is a vehicle for doing that. 
I will continue to oppose that.
    I want to commend you for having gotten ahead of the game 
on this, because I know that the studies that you have underway 
do require time. Under ordinary circumstances, I don't think it 
would be a question, and I don't think it should be one now.
    And I think we can do it. I think we can work together, but 
I want you to begin to think about what major changes in taxes 
and regulations you, yourself, desire, because you know this as 
none of the rest of us know it.
    Mr. Davis. Would the gentlelady yield just on that point, 
briefly?
    I think we're going to have to move quickly on legislation. 
As Ms. Norton indicated, we may not have time for you to do it, 
so we'll have you at the table advising us, and have you 
provide as much information as you can. We clearly are going to 
need your great assistance and support as we write this 
legislation, but it may come faster than time allows. It's not 
under our control; it has to do with the whole budget 
reconciliation process.
    So just stay on call. We need you.
    Ms. Cropp. Mr. Chairman, we would encourage you to keep us 
informed. And we would love to work, Ms. Norton, with you on 
it. We would like to be an active participant and at the table 
with regard to any discussion on the District, any changes.
    Mr. Barry. Plus, Ms. Norton, most of this tax reform will 
probably not be revenue-neutral; it would be a loss of revenue. 
So if we're going to get money above what the President's plan 
is, if it's $300 million or $400 million, I think we could very 
quickly figure out what category of taxes we want to reduce.
    Ms. Norton. You say, if we get what? I'm sorry.
    Mr. Barry. I'm saying that most of this tax reform is not 
revenue-neutral; it's a loss of revenue. And if we knew whether 
a pot of money was available, say, if the Federal payment was 
$400 million, giving us $400 million above what the President's 
plan is, we could very quickly put together a series of options 
as to what taxes we would reduce.
    The Business Regulatory Commission has done some 
preliminary work already. Most of that does not require 
additional moneys; they require different laws and changes that 
would make it easier for people to do business here.
    Ms. Norton. Well, one of the reasons that this is being 
discussed now is precisely what you have pointed to, that there 
would be some adjustments within the President's plan.
    I have encouraged everybody to understand that I'm going to 
have a hard time keeping what we've got in here. I do that in 
order to encourage you all to begin thinking, in case they slip 
something away from us in this plan, what your preferences are 
for keeping. Because the notion of, you know, $400 million on 
top of that is less likely than I would like.
    There is a separate tax package that the District is in. It 
is not configured at the moment, and there are lots of 
differences over what it should say. There are some people who 
are for elements of my package. There are some people for 
lowering taxes in the District. You are perfectly right, Mr. 
Mayor, that would mean you would have to make up for it in 
revenue.
    None of that will be done without complete and total 
consultation with the District. I regard that matter, as I do 
anything affecting the District, as a Home Rule matter. But 
what I want to encourage you to do is to think dynamically 
about what happens if something gets pushed off the table, and 
where your preference would lie.
    I certainly am not asking you to do that now, but I want to 
encourage it, because I think I would do a disservice if I 
said, ``Now let's talk about what we want on top of what the 
President's package is.''
    You had a concern about eminent domain powers that are in 
the Economic Development Corp. I can certainly understand it. 
The interesting thing is, when I was initially briefed by the 
administration, the eminent domain powers were not in there. 
They were put in there at the request of the business 
community.
    They wanted land in there. They wanted to make sure that 
they did not have to go through, I guess, the hurdles that one 
would have to go through in the District. On the other hand, 
your concern is perfectly understandable, as well.
    Were you able to clarify that with the administration, and 
could I know where you now stand on the issue?
    Mr. Barry. It's still--it's barely clarified, Congresswoman 
Norton. It has ``limited eminent domain,'' and we still are 
discussing with them, even to this morning, as to what means, 
more specifically. I think they have conceded that, obviously, 
any eminent domain has to comply with the local District zoning 
laws, but it's still not quite as clear as it needs to be.
    Ms. Norton. I think that that probably could be assisted by 
some understanding with them about a streamlined way to get 
eminent domain. I mean, since they were people who obviously 
are your allies who wanted the eminent domain, they weren't 
trying to undercut Home Rule, but obviously, if they could just 
go in and do whatever they wanted to, they have.
    I think the reason they came forward is they thought it 
would take them a long time to get access to land to complete 
their plan. I guess my question is, is there a way to 
streamline that, whether for everybody or not, at least for 
them, so that we could straighten out--and that part wouldn't 
be a matter of contention.
    Mr. Barry. Someone suggested that--I'm not saying that this 
is a solution--that any proposed taking of land that was in the 
private sector would have to be approved by resolution of the 
city council. Someone suggested that may be one way of check 
and balance.
    Ms. Jarvis. We did not actually include that proposal in 
the recommended language. What we did say is that there ought 
to be limited eminent domain powers consistent with the scope 
of the corporation's mission and consistent with local zoning 
and regulatory provisions.
    The term ``limited eminent domain'' was incorporated in the 
MOU, ``limited eminent domain authority,'' with the hope that 
there could be some further structuring of the language within 
the act itself over here on the Hill. So that is something that 
we desire to do and are continuing to try to do.
    The important point about eminent domain authority and 
about the Economic Development Corp. itself, Ms. Norton, I 
think, is that the corporation becomes a singular focus for an 
entity which does not now exist; that is, there is not a 
single-minded focus on economic development in the District 
because of the many levels of responsibility of the person who 
sits as the head of that agency. And that is really the 
predicament that we face.
    Ms. Norton. I think you have described exactly why they 
piled these powers in this one entity, were trying to do that. 
They weren't trying to undercut your authority. In the process, 
they have done so.
    You would help me a lot if you would begin to think about, 
the three of you would being to think about bill language that 
fed off of what you just said, Ms. Jarvis, but allowed for the 
fact of the existing independent jurisdiction. And in order for 
it to be effective, for me to be able to sell it up here, it 
would have to bypass a lot of the regulatory points.
    Something like the Mayor said just now, or if you wanted to 
have more steps, so few steps that you're talking a kind of 30-
day thing as opposed to the longer kind of period, it would 
help.
    Mr. Barry. Ms. Norton, another approach would be possibly 
requiring a simple majority. That would give local officials a 
greater say in this. This process works with the airport 
authority where the budget has to be approved by a simple 
majority. The District only has three votes, which means that 
one vote could make the simple majority, which gives you a 
chance to negotiate any differences by either locally appointed 
officials or people appointed by local people.
    I think that ought to be looked at.
    Ms. Cropp. Ms. Norton, that's what I was just getting ready 
to say. The simple majority is one way in which it could be 
handled. There is another possibility, and that is that 
anything dealing with the eminent domain issue would have to 
have the approval of the Mayor and the chair, who would be 
members of that.
    Then, in doing that, it would also protect the interests of 
the District of Columbia citizens as a whole. And I think there 
are precedents established for that type of provision, also.
    Ms. Norton. So it does look like there are shortcuts here 
that you are already thinking about.
    Thank you very much.
    Mr. Davis. Thank you.
    Mrs. Morella.
    Mrs. Morella. Thank you. I appreciate your being willing to 
testify again before this subcommittee.
    I want to look at the education point of view and issue. 
The District, no doubt, has many well-educated residents, but 
also a very high number of undereducated persons, who are 
untrained, unskilled, and unable to meet the expanding needs of 
the technological workplace.
    I know the chairman has alluded to that. I just think that 
it's important that we look ahead, in terms of what we're going 
to do about that. Is there anything in the President's plan 
that you feel will address this problem?
    I would address it to all of you.
    Mr. Barry. In terms of the President's plan, in the 
Economic Development Corp. there is $20 million that would be 
set aside for nonprofit organizations to train people in skill 
development, as well as just lifestyles, you know, how you come 
to work on time.
    Unfortunately, the DC public school system is suffering 
from some of the same needs of other major cities. How do you 
reform this system? How do you make it work for the great 
majority of our students? That's General Becton's greatest 
challenge, I think, outside of getting books on time, et 
cetera. How do you get a larger number of young people 
graduating from our high schools with skills in the workplace?
    I'm in the process of developing a proposal which I'm going 
to send to the schools; that is, that the DC school system 
ought to establish a specialized school of science and 
technology, similar to our Duke Ellington School for the Arts 
or Banneker Academic School.
    There again, that's not going to give us any short-term 
solutions, but it seems to me that if we had a school that was 
in tune and in touch with the reality of technology 
development, we could train young people in the District who 
could take a number of those jobs that are vacant in Fairfax 
County and in Montgomery County.
    But our schools need great reform. I don't have much 
control over that except to make commentary about it and urge 
them to do it, because the Control Board has set up this super 
board of trustees that has absolute control over the schools.
    But that's a serious problem, Congresswoman. It is tragic 
that too many of our young people are not graduating from our 
high schools, 40 percent not graduating, and then even some of 
those who graduate don't have the skills to go to northern 
Virginia and other places to get these high-tech jobs that are 
out there.
    Ms. Jarvis. Mrs. Morella, the Economic Development Corp.'s 
criteria for projects could include, as do our local criteria, 
that there be a training component of the development project.
    For example, when we've done industrial revenue bond 
financing, the financing requirement is that there be a 
training program; when we did NPR, for example, that young 
people be trained in the area of audio technology; when we 
financed the AAAS, American Association for the Advancement of 
Science, a requirement that there be an internship program that 
would give young people access to science and science training.
    It would be my recommendation that the corporation 
incorporate those kinds of training components in their 
criteria when evaluating the projects. The President's proposal 
does not specifically speak to that, but it certainly would be 
an authority of the corporation to make sure that that happens.
    Ms. Cropp. Mrs. Morella, as we look at the President's 
plan, we have to also be careful that we don't look at it in 
isolation of everything else that we need to do in the District 
of Columbia.
    When you talk about education and economy, we probably need 
to say the two E's. If we want a strong economy, then it means 
also that we must have a strong educational program, and they 
must go together, and it must be an integration of the two.
    When you look at the reasons why businesses locate in 
certain jurisdictions, they look at who is graduating from the 
school system. And what that means is that there has to be a 
marriage of the two: economy and education. We need to have our 
business group, our economic group, to play a more integral 
part with our school system, to make sure that we are 
graduating students who will meet the needs of the work force, 
so that we can supply graduates to fill that particular work 
force.
    So, while the President's plan has one component, as Ms. 
Jarvis was saying, with the training part of it, we must not 
take it in isolation of what we do with the rest of the city 
with education, we must start merging the two together, if we 
truly want to be successful, not only for the short term, but 
in the long term also.
    Mrs. Morella. I couldn't agree with you more. I do agree a 
training component is critically important, but I also agree 
with the concept of a partnership, and maybe we will hear this 
from the Board of Trade in the next panel. You've got to pull 
your business community in to help you make these decisions, in 
terms of what they need, how they can help, and other community 
groups, too.
    It isn't that we need rocket scientists, we need an awful 
lot of technicians, just plain technicians, to be trained and 
to know that this is a job that's going to have promise in the 
future.
    Mr. Barry. Mrs. Morella, we have a larger problem, and that 
is, our experience, or my experience, has been, it is difficult 
to get a significant number of DC residents to apply for and 
take these jobs in the suburbs. I don't know whether it's 
transportation that's a problem or whether it's just a cultural 
difference.
    I don't know what it is, but we've found that, even when we 
have gotten people trained in some areas and have gotten them 
potential jobs in northern Virginia or in Montgomery County, 
they don't make it very long. They can do the work, but they 
just decide that, for some reason or other, it's--we've got to 
figure out how to deal with that.
    Mrs. Morella. Well, we want to do both things. We want to 
demonstrate that we continue to support the Metro and it 
reaches out to the high-tech community, but we also want to 
make sure that there are jobs in the District of Columbia, too. 
And there are, I mean, there are, where these skills are 
needed. So they don't have to exit the District of Columbia for 
employment, they should be able to also find it in the 
District.
    Could I ask just more question?
    Mr. Davis. Sure. Let me just add to that.
    Mrs. Morella. Yes.
    Mr. Davis. We have a group of business leaders in northern 
Virginia prepared to step up any way they can to work, if 
transportation is the issue, to get qualified workers. It is a 
lot cheaper to worry about getting people out there than it is 
to have to move those jobs somewhere else. We can work through 
that as we go through.
    A lot of these high technology businesses aren't on Metro 
lines at all. As you know, Mr. Bursoff of the Board of Trade, 
and others, have been working with you to try to get you a high 
technology school. I think you need more magnets to keep 
qualified people in the public school system and attract them 
back in. I think that is needed. So we will work with you.
    Mr. Barry. We'd like to get the names of the people, 
Congressman, so we can get busy, today, working on putting that 
coalition together and figuring out how to solve this problem.
    Mr. Davis. Sure. We'll put it together. I'm meeting with 
the group.
    Mrs. Morella. Listen, there's just no way you should leave 
out Montgomery County. We have a Suburban Maryland High 
Technology Council that is exquisite. But I also wanted to 
point out simply that we're not talking about people leaving 
the District of Columbia. We hope there will also be a 
presence--we know there is--where there are some of these jobs.
    Mr. Barry. We would welcome the same kind of information, 
Mrs. Morella. We will work diligently to get these groups 
together and begin to try to get something done.
    Ms. Cropp. Mrs. Morella, I think it begs the question, 
also, that with over half of the District's children living 
below the poverty level, there's a great need for us to have 
early childhood development programs, and we encourage the 
Federal Government to continue funding the early childhood 
development programs. We have found that when our children 
start at an early age learning the outcome, it's so much more 
positive, and I think we will also see that impact the economy.
    Mrs. Morella. Just no doubt about it. No doubt about it.
    Just one brief question. Actually, the Council passed the 
Business Improvement District legislation, and I just wondered 
what this legislation does and how it can be utilized with the 
President's plan.
    Ms. Jarvis. Mrs. Morella, the Business Improvement District 
legislation authorizes the establishment of self-taxing 
business districts. Those districts create a pool of money 
which then stays within the confines of that geographical 
business improvement district, and those dollars are used to 
create an additional security force, or they are used to create 
an additional cleaning force for the area.
    They are remarkably effective because they do what is 
critical in commercial areas, which is to create an environment 
which is clean and safe. People in brightly colored jackets are 
seen sweeping the streets. People in brightly colored jackets, 
with two-way walkie-talkies are seen communicating with one 
another and with the Police Department. They are walking 
customers to their cars or to the parking lot, and creating a 
sense of safety and cleanliness.
    There are 1,000 business improvement districts in 700 
cities throughout the United States, which have been remarkable 
in their ability to attract a customer base. We are very 
fortunate in the District that Bob Peck, at GSA, has now 
indicated a willingness for GSA to participate in the business 
improvement districts, at least for those buildings where GSA 
has tenants. They can then pass through the taxes that are 
imposed on those tenants, through to the business improvement 
district, and that will really augment the ability of downtown 
business districts to thrive.
    We are expecting to see the first such bid just before the 
opening of the arena, so that when 20,000 people come to 
Washington or come from other places within the city to see 
those games, they will see those brightly colored security 
forces and cleanup crews, and there will be a sense of safety 
and cleanliness that will be, in fact, occurring.
    Mrs. Morella. Thank you. Thank you very much.
    Mr. Davis. I would just add, that with the area around the 
Navy Yard, you could have a critical mass down there, because 
of the Federal Government. You know what Virginia has done to 
Crystal City when they had that kind of mass there.
    Appropriate planning and zoning will be critical because 
there's going to be a lot of neighborhood complaints. People 
are not going to understand the changes coming in, or they may 
sometimes resent the changes, but from a citywide perspective, 
if you're talking about an information technology private 
sector base, you have a great opportunity there.
    Ms. Jarvis. And you put your finger, Mr. Chairman, on the 
real reason that this corporation is so vital, because the 
corporation then can assemble the property, get through all the 
regulatory hurdles, and keep a singular focus on getting that 
kind of assembly going.
    And you mention a very important area of the city, because, 
first of all, there's water, and the waterfront can be 
developed. Second of all, that area of the city has been 
identified by NCPC as a focus for its monumental core plan, and 
would be one of the first steps in getting the monumental core 
plan off of the ground.
    It would be a wonderful first step for this corporation to 
focus just on that area, because there is opportunity for 
commercial, retail, housing, and entertainment complexes in 
that area, which would bring a whole new destination for 
visitors and for our own regional visitors to go to that 
center. So it would create a whole new destination for us.
    Mr. Davis. And a new destiny for that area.
    Mr. Barry. Mr. Chairman, David Watts, who is the deputy 
city administrator, chairs an action task force now that is 
looking at the Navy Yard, the Federal Southeast Center, from 
North Capitol over to 11th Street, and from M Street down to 
the waterfront.
    I am going to ask him to extend their work from the freeway 
on over to M Street, because if you go down in Southeast from 
South Capitol to 11th Street, you find a lot of abandoned 
buildings there. So we ought to do area planning, not just for 
the Federal portion of that.
    Mr. Davis. I agree. I agree.
    Mr. Barry. This task force would have both Federal, private 
sector, and government people on it, to come up with a 
comprehensive plan and direction.
    Mr. Davis. But talk is cheap. I mean, these are hard 
decisions, and there is going to be opposition to it, because 
people are going to see their neighborhoods changing. We've 
been through this. These are royal battles in the suburbs. But 
this is a great test for the city, because it's a great 
economic development opportunity for the city to open up a 
whole new quarter for quality economic development, job growth, 
tax base, all the things that go with it.
    Charlene, I know you're on top of this. I've heard good 
things about some of the work you all are doing there, but we 
need to stay with it. This corporation, like you know, can give 
it the appropriate focus. So it's up to all of us.
    Ms. Jarvis. And it gives the insulation. Mr. Chairman, you 
recognize the problems in development.
    Mr. Davis. I've been there.
    Ms. Jarvis. There has to be a good balance between 
insulation and input from the public, in order to get 
development done. And it's a hard thing to do.
    Mr. Davis. I understand.
    Well, I thank all of you. I appreciate you all being here.
    Mr. Barry. Also, Mr. Chairman, I would like to share, when 
we get the reports for the Business Regulatory Commission, 
share that with you, so you can see exactly.
    Mr. Davis. I would be happy to do that. And we're going to 
sit down, Mr. Mayor, you and me, over some of this legislation, 
as we talked about yesterday, over the next few days.
    Mr. Barry. I'm sorry we got into this tiff about residents.
    Mr. Davis. Well, we don't agree on everything. At least we 
can talk about it, and we keep talking. Right?
    Mr. Barry. All right.
    Mr. Davis. We'll work it out. We want the same end, and I 
think that's important.
    We have a vote on the floor.
    Mrs. Morella, if you want to go over and vote now, I can 
keep the hearing going. And then you can come right back, and 
then I will go. Do you want to try that?
    Let's hold our next panel. We call up Roger Blunt, chairman 
of the Greater Washington Board of Trade; John Green, the 
president of the District of Columbia Chamber of Commerce; and 
Craig Schelter, the executive vice president of the 
Philadelphia Industrial Development Corp. We appreciate 
everybody being here.
    If you would rise with me, I have to swear you in.
    [Witnesses sworn.]
    Mr. Davis. Thank you very much.
    I ask unanimous consent that any written statements be made 
part of the permanent record. As I have requested of the 
previous witnesses, please limit your oral statements to no 
more than 5 minutes in order to leave time for questions.
    At this time, I would ask Mr. Blunt to testify, followed by 
Mr. Green, and then Mr. Schelter. We appreciate you all being 
here.
    Roger.

 STATEMENTS OF ROGER BLUNT, CHAIRMAN, GREATER WASHINGTON BOARD 
OF TRADE; JOHN L. GREEN, PRESIDENT, DC CHAMBER OF COMMERCE; AND 
    CRAIG SCHELTER, EXECUTIVE VICE PRESIDENT, PHILADELPHIA 
                  INDUSTRIAL DEVELOPMENT CORP.

    Mr. Blunt. Thank you.
    Chairman Davis and members of the subcommittee, thank you 
for convening today's hearing on the President's proposals to 
promote economic development in the Nation's Capital and for 
the opportunity to testify before you.
    For the record, my name is Roger Blunt, and I am chairman 
and CEO of Essex Construction Corp. I am here today in my 
capacity as co-chair of the National Capital Task Force of the 
Greater Washington Board of Trade.
    Today, you have asked us to comment on the potential 
effectiveness of the President's proposals to promote economic 
development in the District, placing special emphasis on the 
proposal to create an Economic Development Corp. I will base my 
comments today on the plan as it has been articulated in the 
final Memorandum of Understanding.
    When I last appeared before the subcommittee, I testified 
that the Board of Trade believes there must be three 
fundamental elements in place if we are to restore the city. 
The first was a functioning, accountable, and efficient local 
government; the second, a clearly defined partnership between 
the Federal and local governments; and third, an emphasis on 
economic development and the availability of adequate 
resources.
    The Board of Trade believes the economic development 
portions of the President's plan to help revitalize the 
Nation's Capital are critical to the overall effort to restore 
financial stability and economic viability. Let me start by 
painting a picture of the landscape as we see it.
    There are several efforts to address economic development 
already underway. Some efforts are being led by the District 
government and some by the private sector, but there is no 
overall coordination of these initiatives. With this background 
in mind, we have three concerns about the establishment of an 
Economic Development Corp.
    First, the mission of the Economic Development Corp. must 
be clearly defined, so as to maximize its effectiveness by 
appropriately collaborating with current efforts to address 
economic development needs within the local government.
    The Economic Development Corp. will come into existence 
while several other groups are already at work. Its mission in 
relation to the other groups is not clear. Will it be 
responsible for physical development? Will it develop the plans 
and then let a contract for the actual development? Or will the 
Economic Development Corp. be the catalyst for projects of 
scale, projects which are outside of the traditional 
capabilities of the District government or other locally based 
organizations?
    Second, the composition of the board of directors of the 
Economic Development Corp. should represent neighborhood 
businesses as well as larger corporate interests, and it should 
not preclude the inclusion of local talent and resources.
    We recommend that some thought should be given to having 
representation from a wide array of businesses as they relate 
to the size of the corporation, the industry, and that all 
members have citywide interests.
    Further, we feel that, by definition, some good people may 
not be eligible to serve on this board, and that the Economic 
Development Corp. would miss an opportunity to benefit from 
regional talent and resources. Here we would hope that owners 
of non-District businesses, who may not be District residents, 
could be considered for appointment to the board.
    As an aside, I would point out that, while it's stated on 
occasion that private enterprises are not fully engaged in the 
District, I would point out that for several years we've been 
absolutely engaged. In fact, we have several initiatives 
already underway.
    The 1,100 businesses in the private sector, members of the 
Board of Trade, come from Virginia and Maryland, principally. 
And I would point out that they are very concerned that the 
core of this region has to be healthy if we as a region are to 
survive.
    Third, the authority to exercise the power of eminent 
domain must be clearly defined, providing appropriate checks 
and balances to prevent the arbitrary use of this tool in 
establishing procedural timelines for the decisionmaking 
process. Conscious as we are of the Economic Development 
Corp.'s need to be able to exercise the powers of eminent 
domain, we generally support the concept, with some caveats.
    First, the process for exercising this power must be 
clearly defined. Second, there must be some checks and 
balances.
    Ms. Norton. Mr. Chairman. Mr. Chairman.
    Could I beg your indulgence?
    Mr. Blunt. Surely.
    Ms. Norton. I am due someplace by car that I can't possibly 
get to by 12 noon. I wanted to apologize to this panel, which I 
had so looked forward to hearing, because I think their part in 
the Economic Development Corp. is absolutely critical. I want 
to personally apologize to the three of you that there is no 
way for me to wait any longer. That has nothing to do with you; 
it has to do with us and our questions.
    I want to ask leave of the chairman if I may submit 
questions beyond what may already be clarified in the 
testimony.
    So ordered. [Laughter.]
    Mr. Davis. If she says it, it must be.
    So ordered.
    Mr. Blunt. Knowing that the testimony is in the record, 
this concludes my remarks.
    [The prepared statement of Mr. Blunt follows:] 
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    Mr. Davis. Roger, thank you very much.
    Mr. Green.
    I'm going to leave in 5 minutes to go over to vote, and 
Mrs. Morella will come back. And then I will be back after 
that. That's how we rotate the voting back and forth.
    Everything is in the record, and we appreciate your being 
here.
    Mr. Schelter, we appreciate your coming down from 
Philadelphia.
    Mr. Green. Well, I will be very brief.
    Good morning, Congressman Davis and members of the House 
District of Columbia Subcommittee. My name is John L. Green. I 
am executive vice president of the Medlantic Health Care Group, 
and I am here today in my role as president of the DC Chamber 
of Commerce.
    Before I begin, I would like to thank you for inviting me 
to testify on what we believe is an opportunity for the 
District of Columbia to realize its potential to be a world 
class capital for government, for business, and hopefully, for 
residential life.
    Since we testified before you in February, we understand 
that there have been well over 100 hours of meetings and 
negotiations between representatives of the executive branch, 
the Council, the DC Control Board, the Mayor, and the Congress 
in developing the MOU.
    While we do not completely agree with the MOU, we 
understand its value as a foundation upon which we can build. 
We want to underscore our earlier testimony and emphasize that 
we believe that the District of Columbia must be a good value 
in order to attract residents and businesses. It's the core of 
the region.
    However, in addition to commenting on the economic 
development portion of the President's plan, I would like to 
take a couple minutes and just comment on what we believe to be 
important as an environment and a context for economic 
development. The President's plan does not address some of 
these areas.
    For example, there is no revenue strategy, tax relief, or a 
Federal payment, and we think that they are going to be 
important in terms of creating an environment for economic 
development. The DC Chamber supports tax relief for businesses 
and individuals, such as that offered by Congresswoman Norton's 
DC Economic Recovery Act. That would jump-start the DC economy 
and rebuild our tax base.
    The President's plan, as I said earlier, does not contain a 
reference to a Federal payment. The DC Chamber of Commerce 
believes that this is a shortcoming that the Congress can and 
should address. We do not believe that the Economic Development 
Corp. will move forward fast enough in order to accommodate 
that period of time in which the District would be without a 
sound revenue source.
    The DC Chamber of Commerce fully supports the creation of 
the Economic Development Corp., the core of the city's economic 
recovery. The EDC provides an infrastructure to support 
businesses that might otherwise leave the city and a mechanism 
to attract new businesses to the city.
    We are pleased that the six appointed board members of the 
EDC will either be persons who maintain a primary residence or 
have a primary place of business in the District.
    I am going to short-circuit my testimony--it is in the 
record--and indicate that we are supportive of the concept of 
the Economic Development Corp. There are questions that must be 
answered. However, we also believe that there is a need for a 
comprehensive plan for the District. Economic development 
alone, without the right regulatory environment, tax relief, 
and ease of doing business in the District, all of those are 
needed along with some form or shape of the Federal payment.
    [The prepared statement of Mr. Green follows:] 
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    Mr. Davis. Thank you.
    Mr. Schelter, before you testify, I am going to recess. 
Mrs. Morella is on her way back, and she can start it when she 
comes. I want to hear you, because I've got some questions to 
ask you. And I appreciate your being here.
    Mr. Schelter. OK. That's fine.
    Mr. Davis. So what I'm going to do is recess the meeting 
for no more than 10 minutes, and we'll hear your testimony, 
then take questions.
    The committee is in recess.
    [Recess.]
    Mrs. Morella [presiding]. I think I'm going to take the 
prerogative to take the Chair and see if we can pick up until 
Tom Davis, the chairman, comes back, which should be soon.
    Was it Mr. Green, was he involved in his testimony at that 
time?
    I tell you, may we go on to Mr. Schelter, who is the 
executive vice president of the Philadelphia Industrial 
Development Corp?
    I appreciate your being here. Thank you very much. I would 
love to have you proceed with your testimony. Any written 
testimony will, in its entirety, be included in the record.
    Mr. Schelter. Thank you. Good afternoon, Madam Chairman.
    My name is Craig Schelter. I am executive vice president 
and chief operating officer of the Philadelphia Industrial 
Development Corp., called PIDC, the designated economic 
development agency of the city of Philadelphia. I have been 
with PIDC since 1983. Prior to that time, I spent 15 years at 
the City Planning Commission, including 4 years as executive 
director.
    I am honored to be invited to testify here this morning. My 
comments will focus on just one aspect of the President's plan, 
and that is the creation of a new Economic Development Corp. 
for the city of Washington.
    While I have not been privy to the discussions on how you 
propose to structure the new entity in DC, I can perhaps 
provide some historic perspective and observations about those 
common elements which are integral to a local Economic 
Development Corp., if it is to be enduring, successful, and 
responsive to the local area.
    Just a word of history about PIDC. Over the years, the 
Philadelphia Industrial Development Corp., a private, nonprofit 
corporation chartered under State law, has been an outstanding 
example of how an Economic Development Corp. evolves, changes, 
and innovates, based on the needs of community and on market 
forces.
    Next year, we will celebrate 40 years of a unique public-
private partnership between local government and the business 
community of Philadelphia. PIDC was founded in 1958, a joint 
creation of the city of Philadelphia and the Greater 
Philadelphia Chamber of Commerce. We have a dedicated 
professional staff of 65 people and an operating budget of $6 
million.
    Since 1958 through the first quarter of this year, we have 
completed more than 3,300 transactions, totaling almost $4.4 
billion. In the process, we have retained 166,000 existing jobs 
and created 126,000 new jobs, for a total job impact of 292,000 
jobs in the city of Philadelphia, and that's against a total 
payroll of about 676,000 jobs.
    I point out on the last page of my testimony, which I can 
go to later, I included how transactions have increased over 
those 40 years, mainly with an eye toward pointing out that you 
have to look at a long-term perspective. If you look at how 
that $4.3 billion is made up, in the first 10 years, we did 
about $200 million; in the next 10 years, about $800 million; 
and then, in the 1980's, we exploded with $2.4 billion; and in 
the 1990's, we're getting close to $1 billion.
    A number of factors are worth considering to create a long-
term, viable economic development entity. One, make the 
organization a true public-private partnership. This must be 
true at the board and policymaking level. In our case, a 
governing board of 30 members approves the budget and sets 
broad policy for the corporation, in close coordination with 
city government.
    The regular business of the corporation is conducted by a 
15-member executive committee, 8 of whom are named directly by 
the president of the Chamber of Commerce. The other 7 are the 7 
highest elected and appointed officials in the city government. 
They are the mayor, the president of the city council, the 
members of the mayor's cabinet, the commerce director, finance 
director, managing director, city solicitor, and chairman of 
the city planning commission.
    The remaining 15 members are jointly appointed by the 
president of the Chamber of Commerce and the city commerce 
director. This structure has ensured a strong business 
continuity within the context of changing mayoralty 
administrations. Furthermore, it has brought broad expertise in 
finance, law, labor, business, community development, design, 
and real estate development to the board.
    Two, maintain close relationships with existing executive 
and legislative branches of local government. The importance of 
a clear, consistent economic development agenda is critical to 
the business perception of a metropolitan area that things can 
and do get done.
    Key to this effort, in the last 6 years in Philadelphia, 
has been the city's participating directly in the lending 
business, using city tax-supported dollars. This initiative was 
developed under the inspired leadership of Mayor Edward G. 
Rendell and his administration, working closely with City 
Council President John Street. This initiative provides 
flexibility and speed without the encumbrance of certain other 
Federal and State programs.
    We also manage the assets and transact all the business of 
the Philadelphia Authority for Industrial Development, where we 
do all manner of real estate, land transfer transactions, 
including tax-exempt financing. Here again, it is a five-member 
board that serves at the pleasure of the mayor.
    Whether the concern is neighborhood development, loan 
guarantees for hotel and convention facilities, expanding 
industrial parks, providing tax-exempt financing, or providing 
the ability to negotiate directly a development transaction 
using city assets, a key relationship must exist between the 
local development corporation and the city administration.
    Three, create a professional culture that generates and 
manages programs that are based on sound planning and financing 
guidelines. We have created a loan committee from among private 
sector members of our board of directors. The committee is a 
key component, which not only ensures that appropriate credit 
underwriting standards are used, but provides an institutional 
memory and continuity critical to success.
    The results speak for themselves. We have managed to 
nurture a financial base of the corporation currently 
consisting of 500 outstanding loans, and we have a default rate 
of only 2 percent, comparable to the rate of a solid private 
lending institution.
    We are currently marketing nationwide a portfolio 
management system that provides greater loan portfolio 
oversight, allows local Economic Development Corp.'s to manage 
assets more effectively, and increases productivity, especially 
with regard to tracking requirements associated with Federal 
dollars.
    Four, be entrepreneurial in development of new programs. In 
the early 1980's, when the first signs of limits on tax-exempt 
financing appeared, we developed direct lending programs using 
revolved Federal dollars. This foresight enabled us to stay in 
business when other IDCs around the country folded. Also, in 
the 1980's, it became clear that venture capital was lacking in 
Philadelphia, so we started a small venture fund. The PIDC/Penn 
Venture Fund was the first municipal venture fund in the 
country.
    In 1992, we expanded our lending capacity to a new market, 
and we created a nationally recognized $100-million HUD 108 
lending program. Half of the fund is available for major hotel 
development. The other half is a loan pool which is available 
for manufacturing and other transactions, citywide.
    The innovative aspect is that HUD accepted our process and 
lending criteria for a loan pool, such that each project did 
not have to be approved individually, thereby creating a 
flexible pool of Federal money to be used at the local level.
    Just this past year, to expand available capital, we 
successfully securitized an additional portion of our loan 
portfolio, adding $5 million to assist new business. We also 
pioneered, in Philadelphia, the use of a novel, if complex, 
financing tool, tax increment financing. TIFs, as they are 
called, enable us to close financing gaps, providing access to 
capital for projects that otherwise would not happen.
    Five, be prepared to mix and match the best elements of 
Federal, State, and local programs. Currently, we have 23 
different lending programs. The most successful are those that 
provide long-term consistency of approach. Taking 1995 and 1996 
as an example, we used 19 different programs: 21 percent local, 
24 percent State, and 36 percent Federal.
    The public dollars funnelled through these programs totaled 
$237 million, which, in turn, leveraged $100 million in outside 
financing and $63 million in owner equity, for $400 million in 
total project costs. I would also point out that one of the 
programs, the use of Federal dollars, the leverage factor, is 
about seven to one.
    Focus on core businesses. In our case, our emphasis is on 
financing small businesses, developing the city's industrial 
land resources in six industrial parks, providing development 
management services on major projects, and facilitating defense 
conversion.
    Developing an overall mission statement and strategic plan 
for your core businesses will be critical. Also, the management 
of certain high-profile projects can bring added credibility to 
the new corporation. In our case, having leadership roles in 
the development of our convention center, professional sports 
facilities, major medical complexes, and our central waterfront 
afforded us that opportunity.
    Seven, attract and maintain a professional staff. There is 
a need for an entrepreneurial spirit grounded with a sound 
public policy core. The breadth of issues facing Economic 
Development Corp.'s requires extensive knowledge of all private 
development skills, skills born of extensive experience and 
substantial practical knowledge in specialized areas of 
planning, private and public finance, and real estate 
development.
    Eight, do not underestimate the value of developer services 
and expedited permit processing. PIDC innovated and now manages 
a developer services process on most projects with major job or 
construction aspects in the city. As part of the process, 
representatives of every city department that is involved in 
the permitting process, as well as the public utilities, meet 
to discuss a project's needs and mesh them with permitting and 
other public requirements.
    I would add, parenthetically, to date we have processed 
about $4-million worth of projects through this program.
    This effectively puts every project on a department radar 
screen for approval. While no substitute for detailed review by 
individual departments, it does highlight issues in a timely 
way, as well as give face-to-face contact to the individuals 
responsible for ultimate permit approvals.
    What I have given you here, briefly, is a snapshot. I would 
be happy to answer any questions you would have. In the end, I 
think you need to assume a long-term commitment. As the chart I 
have included illustrates and my comments support, things do 
not happen overnight. We have learned a lot over 40 years.
    I believe successful urban economic development comes down 
to local initiative and control, with appropriate Federal 
resources. It comes down to balancing public and private 
resources that, in turn, creates business trust. It comes down 
to a solid, business-like approach, without losing the focus 
for making economic activity happen across the community.
    Without getting into a public policy debate about the 
adequacy of the funds for this new corporation, it is clear to 
us that innovation and authority must focus on the local level 
and be paramount. This can be shared by the government and by 
the business community, and creates the most hope in balanced 
strategy in the long run.
    Thank you.
    [The prepared statement of Mr. Schelter follows:] 
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    Mr. Davis [presiding]. Thank you very much.
    Ted Trabue, is Ted here?
    Ted, let me swear you in and you can answer some questions.
    [Witness sworn.]
    Mr. Davis. Mr. Schelter, let me ask you, does the city of 
Philadelphia have a requirement in its contracting out of 
having city residents?
    Mr. Schelter. No, we do not.
    Mr. Davis. OK. The city of Philadelphia I think has been a 
model, in many cases. You have a lot of the tough problems that 
just don't go away, given demographics, aging infrastructure, 
and the like. Yet, under Mayor Rendell--and I just single him 
out--he has been very proactive in, instead of complaining 
about it, dealing with it, dealing with the unions, dealing 
with some legislative structures that aren't necessarily 
conducive to economic development.
    But would you agree that one of the key components is 
working in partnership with the business community? Isn't that 
what you've really done here?
    Mr. Schelter. Yes, he has been an unbelievable cheerleader 
for the city and for the business community. At the drop of a 
hat, he will get on a plane and fly to the West Coast for a 
potential investor or developer in the city. And he has done 
this largely in concert with our corporation, and has turned to 
us, then, to implement a lot of his initiatives.
    Mr. Davis. Leadership can make a big difference. You know, 
I will tell you, in Fairfax, we literally brought companies 
in--because when I was the head of the county government, we 
were proactive and went out and recruited them, and we made 
commitments.
    You made a note about timing, getting the permits and 
plans, and how quickly it can happen. That is critical. And if 
you make a commitment, you've got to adhere to it. But to do 
that, you have to have a team of inspectors that work well. 
You've got to have information technology and logistics work 
out. How have you been able to deliver on those kinds of 
things?
    Mr. Schelter. Well, the Developer Services Committee, which 
I mentioned in my testimony, is convened on behalf of the 
city's commerce director, who is one of the mayor's cabinet. We 
staff that function. We have a former head of the Department of 
Licenses and Inspections in the city that is a consultant to 
us. And we have our Special Projects Division staff that.
    On every project, whether it's a major job component or 
major capital investment, at the time the schematic plans are 
set, we convene a group of about 18 people around a table. It's 
at a deputy commissioner level among the Departments of 
Planning, Streets, Water, Fire, managing director, LNI, and we 
go over those plans.
    Everybody gets a chance, one, to raise what their issues 
are. And that developer or that business leaves with not only 
the business card of the person, they have met them face-to-
face, they know what the issues are, they know what the timing 
is on the permit. And the Commerce Department then rides herd 
to make sure that comments get back to the developer in a 
timely manner.
    And that has been a very successful thing. Again, it's more 
the predictability of the way business is done. It doesn't 
substitute for individual departments doing their thing and 
doing their review, but it puts them on notice that this is a 
project that is supported by the administration at the highest 
level and where there is an expectation of a timely review 
process.
    Mr. Davis. It's focus. Just a lot of it is focus and 
follow-through, which is tough, day-to-day, when you are 
bombarded with so many things and limited staff.
    Mr. Schelter. May I go back?
    Mr. Davis. Yes.
    Mr. Schelter. I answered your first question too quickly, 
I'm afraid. You asked if there was a focus on hiring locally. 
While we do not have a specific requirement of the businesses 
that we lend to to do that, we clearly do encourage them in 
that regard.
    Mr. Davis. Absolutely.
    Mr. Schelter. And also, among the consultants that we hire, 
generally, our board, the first question they are going to ask, 
if they see it's a consultant from outside of the city, is why 
it was necessary to go to a consultant from outside the city, 
given the fact that we've got lots of talent in the city.
    So while we will never back off from hiring someone from 
outside if they have a particular expertise, we try to keep 
business local.
    Mr. Davis. Absolutely. And I don't know a jurisdiction in 
the country that doesn't do that. That's just good home-grown, 
hometown bias that we ought to have. If you can't get it in 
your hometown, where can you get it? But it's the difference 
between a requirement, where you start actually, in some cases, 
lowering the bar, and then that raises a whole host of other 
issues that I think don't recognize the changing dynamics of 
the marketplace.
    Let me just ask my friends from the Chamber and the Board 
of Trade. Do you agree that an Economic Development Corp. would 
give the kind of focus that is needed to the city?
    Mr. Green. I think it's extremely important. We support it 
strongly. But, again, Mr. Chairman, I go back to what I have 
said consistently and I think I've heard you all say, and that 
is that there have to be some other things, as well, expediting 
permitting, all those other things.
    Mr. Davis. Absolutely. And let me just say, I think, as 
part of what we do here, I hope we can do that. And I think we 
could all sit around, but those make such great sense and there 
is such a consensus on those kinds of things.
    Mr. Green. We at the Chamber have been very involved with 
the Department of Consumer and Regulatory Affairs on a 
permitting project that is nearing fruition and is up and 
running. And that has been initiated out of the DC Chamber of 
Commerce.
    Mr. Davis. Also, bringing down taxes and regulation, in 
general. You've got to lower the burden structure. I've talked 
to a lot of my businesses. Why aren't you in DC anymore? Why 
are you doing this? And they just say it got so bad, you know. 
The question is, it got so expensive. And that doesn't help 
anybody. So people vote with their feet. And a lot of people 
would like to be in the city.
    Mr. Green. The emphasis I keep coming back to is, the 
Economic Development Corp. plus those other programs and 
services around the corporation will create the right kind of 
environment. One of the bills that we are pushing is the 
reduction in Workers' Compensation taxes.
    Mr. Davis. I even heard the mayor say good things. But, you 
know, talking about it and getting it done are two different 
things.
    Mr. Green. Or the Council. And we're pushing it very hard.
    Mr. Davis. Exactly. And we want these decisions to be made 
at the local level, to the extent they can. I think it's 
instructive for the local level to understand what it takes to 
build and maintain a tax base. These are not automatic. You 
can't bully businesses into staying and giving things anymore.
    Business wants to give. I mean, they are the employer. They 
are the contributors to the charities. They drive the tax base 
that has you pay for education and human service and all these 
other things. But the bottom line is, they have to answer to a 
group of shareholders, and if they can't substantiate a profit, 
they are going to move on.
    Unfortunately, over the last decade and a half, we have 
seen a marked exodus from the city. Now we're stuck where, 
despite the best intentions of some of the rules that were 
passed, they end up being very anticompetitive and burdensome.
    We all want the same things.
    Mr. Trabue, do you want to say anything? I got you up here, 
and I want to put you on the record here. Is this your first 
congressional hearing?
    Mr. Trabue. Yes, it is. Thank you very much, Mr. Chairman.
    Mr. Davis. Well, I want you to say something.
    Mr. Trabue. Thank you for inviting me to appear before you 
today. I would agree with Mr. Green's comments. We believe, at 
the Board of Trade, that the regulatory environment in town and 
the taxing climate must be coordinated and must be improved.
    The Economic Development Corp. is a primary source of an 
area where we can bring some focus to these efforts and really 
realize some true economic development in our region.
    Mr. Davis. Thank you. Thank you very much.
    Were you here for Mr. Moran's comments earlier in the day?
    Mr. Trabue. Yes, we were.
    Mr. Davis. I've got to believe you liked them. Jim, I 
think, is right on target. And I'm not trying to put him 
against Ms. Norton's plan. You have to look at, with a given 
amount of dollars, what's the best thing we can do. But 
bringing down those local business taxes is just absolutely 
critical.
    Mr. Trabue. I support that wholeheartedly. The only issue I 
raise is that, as we bring them down, we've got to be sure that 
the city is stable and has some revenue stream during that 
period of time that the economic engine begins to be energized. 
So that's the only issue, how do you get that revenue stream at 
the same time that you're bringing down the taxes?
    Mr. Moran. We're going to have to close up anyway, but the 
idea would be that we would have to substitute the loss of DC 
revenue. Because, presumably, when you fix it, there is some 
reduction of revenue. I'm not sure how much. I'm not sure 
anybody knows how much.
    Mr. Davis. Short-term anyway.
    Mr. Trabue. That's what I'm saying, short-term.
    Mr. Moran. In the long run, it's going to bring a lot more 
revenue in, and it's going to be private revenue.
    And I can understand why the business community prefers the 
15 percent flat tax, because that's a loss of Federal revenue; 
it's not a loss of local revenue. Presumably, we can better 
afford it than DC.
    Having talked with Tom and from what he is saying now, I 
don't think there is any disagreement, and apparently there's 
no disagreement with you. And this is the best opportunity. 
Let's fix the local tax structure and make it sensible, but 
also make it competitive with the metropolitan region.
    And then we've got to figure out a way to replace any lost 
revenue. Maybe that's from an exact pilot, an exact payment in 
lieu of taxes, which Brookings estimates at about $382 million.
    But, anyway, Mr. Chairman, thanks for having the hearing. 
Thanks for doing all that you're doing. And thanks for getting 
good people like this as witnesses. We will look forward to 
working with you.
    Thanks.
    Mr. Davis. Thank you very much.
    Mr. Trabue. Thank you very much.
    Mr. Davis. Mr. Green, thank you for being here.
    Mr. Trabue, thank you, on your debut here. Probably the 
first of many hearings, but we appreciate having you here.
    And Mr. Schelter, special thanks to you for coming down 
from Philadelphia.
    Mr. Schelter. My pleasure.
    Mr. Davis. You have been, in many ways--when you do 
something right--not everything you've done right--but, I mean, 
by and large, you've done it right, and you can be a model for 
other places to copy, to look after, to emulate. Again, our 
congratulations to your mayor, who I think is really one of the 
outstanding mayors in the United States. Give him our best.
    Mr. Schelter. Thank you. I'll tell him.
    Mr. Davis. Thank you very much.
    Without objection, the record will remain open for 10 days.
    Without objection, I ask that any written statements from 
witnesses or Members be made part of the permanent record.
    The subcommittee will continue to work with all interested 
parties in an ongoing effort to continue the progress that has 
been made.
    These proceedings are closed.
    [Whereupon, at 12:30 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:] 
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