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



         THE WHITE HOUSE PROPOSAL FOR THE DISTRICT OF COLUMBIA

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

                             JOINT HEARING

                               before the

                SUBCOMMITTEE ON THE DISTRICT OF COLUMBIA

                                 of the

                        COMMITTEE ON GOVERNMENT
                          REFORM AND OVERSIGHT
                        HOUSE OF REPRESENTATIVES

                                and the

                SUBCOMMITTEE ON OVERSIGHT OF GOVERNMENT
                   MANAGEMENT, RESTRUCTURING AND THE
                          DISTRICT OF COLUMBIA

                                 of the

                   COMMITTEE ON GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 13, 1997

                               __________

                           Serial No. 105-24

                               __________

  Printed for the use of the House Committee on Government Reform and 
       Oversight and the Senate Committee on Governmental Affairs



42-281              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 1997
____________________________________________________________________________
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              COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

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

                Subcommittee on the District of Columbia

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

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
                        Ron Hamm, Staff Director
                  Anne Mack, Professional Staff Member
                           Ellen Brown, Clerk
          Cedric Hendricks, Minority Professional Staff Member
                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware       JOHN GLENN, Ohio
TED STEVENS, Alaska                  CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine              JOSEPH I. LIEBERMAN, Connecticut
SAM BROWNBACK, Kansas                DANIEL K. AKAKA, Hawaii
PETE V. DOMENICI, New Mexico         RICHARD J. DURBIN, Illinois
THAD COCHRAN, Mississippi            ROBERT G. TORRICELLI, New Jersey
DON NICKLES, Oklahoma                MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania
             Hannah S. Sistare, Staff Director and Counsel
                 Leonard Weiss, Minority Staff Director
                    Michal Sue Prosser, Chief Clerk

                                 ------                                

 SUBCOMMITTEE ON OVERSIGHT OF GOVERNMENT MANAGEMENT, RESTRUCTURING AND 
                        THE DISTRICT OF COLUMBIA

                    SAM BROWNBACK, Kansas, Chairman
WILLIAM V. ROTH, Jr., Delaware       JOSEPH I. LIEBERMAN, Connecticut
ARLEN SPECTER, Pennsylvania          MAX CLELAND, Georgia
                        Ron Utt, Staff Director
      Laurie Rubenstein, Minority Staff Director and Chief Counsel
                      Esmeralda Amos, Chief Clerk


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 13, 1997...................................     1
Statement of:
    Barry, Marion, Jr., Mayor, Washington, DC; and Charlene Drew 
      Jarvis, chairwoman, Pro Tempore, Washington, DC City 
      Council....................................................    12
    Brimmer, Andrew, chairman, District of Columbia Financial 
      Responsibility Management and Assistance Authority; and 
      Anthony Williams, chief financial officer, Washington, DC..   150
Letters, statements, etc., submitted for the record by:
    Barry, Marion, Jr., Mayor, Washington, DC:
        Information concerning State functions...................   137
        Prepared statement of....................................    65
        Two year budget analysis.................................    16
    Brimmer, Andrew, chairman, District of Columbia Financial 
      Responsibility Management and Assistance Authority, 
      prepared statement of......................................   155
    Jarvis, Charlene Drew, chairwoman, Pro Tempore, Washington, 
      DC City Council:
        Article entitled, ``The Orphaned Capital'', and P.R. 12-
          109, chartered resolution..............................    97
        Prepared statement of....................................    89
    Lieberman, Hon. Joseph, a U.S. Senator in Congress from the 
      State of Connecticut, prepared statement of................     9
    Rogers, Michael, city administrator, cost savings initiatives 
      and transformation progress................................   126
    Williams, Anthony, chief financial officer, Washington, DC, 
      prepared statement of......................................   182

 
         THE WHITE HOUSE PROPOSAL FOR THE DISTRICT OF COLUMBIA

                              ----------                              


                        THURSDAY, MARCH 13, 1997

        House of Representatives, Subcommittee on the 
            District of Columbia, Committee on Government 
            Reform and Oversight, joint with the U.S. 
            Senate, Subcommittee on Oversight of Government 
            Management, Restructuring and the District of 
            Columbia, Committee on Governmental Affairs,
                                                    Washington, DC.
    The subcommittees met, pursuant to notice, at 10:10 a.m., 
in room 2154, Rayburn House Office Building, Hon. Tom Davis 
(chairman of the House Subcommittee on the District of 
Columbia) and Hon. Sam Brownback (chairman of the Senate 
Subcommittee on Government Management, Restructuring and the 
District of Columbia) presiding.
    Present from the Subcommittee on the District of Columbia: 
Representatives Davis, Morella, Horn, and Norton.
    Present from the Subcommittee on Oversight of Government 
Management, Restructuring and the District of Columbia: 
Senators Brownback and Lieberman.
    Staff present from the House Subcommittee on the District 
of Columbia: Ron Hamm, staff director; Howard Denis, counsel; 
Anne Mack, professional staff member; Ellen Brown, clerk; and 
Cedric Hendricks, minority professional staff member.
    Mr. Davis. Good morning. Welcome to this joint information 
hearing on the Pesident's National Capital Revitalization and 
Self-Government Improvement Plan.
    I am particularly pleased today to share the dais with my 
good friend and colleague, Senator Brownback, who chairs the 
Senate Subcommittee on Oversight of Government Management, 
Restructuring and the District of Columbia. As chairmen of the 
two authorizing subcommittees, we share legislative 
jurisdiction for our Nation's Capital.
    I am always cognizant, and I know Senator Brownback is as 
well, that our actions have a direct and immediate impact not 
only on the District of Columbia, but on the entire Washington 
metropolitan region. That is why we must continue to exercise 
our leadership with such special diligence and care. For we 
have a constitutional oversight for an entire city and its 
region, not just a department or agency.
    Two years ago, the District of Columbia faced a spending 
and management challenge of epic proportions. We began in this 
subcommittee a critically important process to address serious 
issues in a truly bipartisan manner. I am always happy to 
reiterate my gratitude to Delegate Eleanor Holmes Norton for 
working with me in such a constructive way.
    Two years ago, we got on the right track. Today, we 
continue our efforts to get the train moving toward the next 
stop. With patience and perseverance, the control board we 
created is having the intended effect. The control board has 
instilled much needed fiscal discipline into the city's budget 
process. The city's return to the private financial markets is 
solid evidence that what Congress did is finally producing 
credible numbers and better performance.
    Without the control board, the President's proposals are 
unlikely to have been made. I commend President Clinton for 
stepping up to the plate and for directing his administration 
to work with Congress as we move into the next phase of our 
quest to revitalize the Nation's Capital. The President's 
announcement just 2 days ago adds even greater weight to the 
momentum which has been established. His proposal for an 
Economic Development Corp., is a significant addition to our 
deliberations.
    I would also like to commend Speaker Gingrich for the 
extraordinary leadership, time, and attention he has given the 
District of Columbia. Clearly, the stars appear to be aligning 
for a truly historic breakthrough in the relationship between 
the Nation's Capital and the Federal Government. There is a 
rare opportunity right now to establish a new relationship, to 
enhance better delivery of essential local services, and to 
more substantially involve the private sector. We are all 
stakeholders in the Nation's Capital.
    I know that some have expressed legitimate interest in the 
creation of a city manager form of government here in the 
District of Columbia. With the greatest respect, based on my 
own experience as chairman of the Board of Supervisors in 
Fairfax County, I am not persuaded that we should be moving in 
that direction at this time.
    I was struck by something that Philadelphia Mayor Ed 
Rendell shared with us just a couple of days ago. Mayor 
Rendell, whose city we studied so carefully in setting up the 
control board 2 years ago, spoke about quality of life issues. 
He said that these issues, such as education and public safety, 
are the most important ones to focus on in attempting to 
reverse a downward trend in a big city and restoring health and 
optimism. Mayor Rendell helped to turn Philadelphia around. He 
did it in significant part by working with the local control 
board. I am optimistic that with the same degree of cooperation 
and bipartisanship, that we can do the same here in Washington.
    And let me invite some of our guests here, if you would 
like to sit down on the floor in the front, we would be happy 
to do that as well. We welcome our class here. Just come in and 
make yourself comfortable. I am pleased to have you here.
    Today, we look forward to hearing from many of our leading 
local officials and learning of their reaction to the 
President's proposals. I have worked with Mayor Marion Barry 
and Council Chair Pro Tem Charlene Drew Jarvis for 2 years now 
and look forward to their input and strong leadership.
    It is our bill that created the positions that Dr. Andrew 
Brimmer and Chief Financial Officer Tony Williams hold today, 
and I look forward to working with them further as we continue 
to address the challenges underlying the District's distress.
    I thank all of you for working with us as we proceed to 
fashion a positive and historic restructuring of the Nation's 
Capital we all share.
    I would like to yield now to my friend, my former House 
colleague and a member who in the House last year who shared a 
great interest in what was going on in the District.
    I remember many different discussions with him, and I think 
at that point he never dreamed he would be a U.S. Senator this 
early, at least, in his career and have the responsibility that 
he does in the Senate. We are very pleased to welcome Senator 
Sam Brownback back to the House side. Welcome, Senator.
    Senator Brownback. Thanks, Tom. I appreciate that, and it 
is a pleasure to co-chair this committee hearing, this hearing 
on the District of Columbia. I am delighted to work with you as 
we craft together proposals to again return the District of 
Columbia to a shining city and a Nation's Capital worthy of a 
great Nation. This is my objective as we hold hearings and as 
we move forward in the legislation on the Senate side.
    I am delighted to have all of our witnesses here today, the 
Mayor, a number of the council members, control board members. 
And I am particularly tickled and pleased to have the children 
here, because, to me, that is all of why we are serving, 
really, it is for the kids and for their future and making this 
place a better place for them. I have got three myself. One 
just turned 9 last week, and I am anxious to get home and see 
them.
    It is going to be a good hearing today on the President's 
proposals, the first one that he put forward on his plan for 
revitalizing the District, and the second one that came out the 
day before yesterday. I am looking forward to the witnesses' 
comments about those. I am very pleased that the President 
stepped forward and put forward proposals of how we would 
revitalize the District of Columbia.
    I do not know that I agree with all of them, and I have 
some problems, as I have expressed already, with those, but it 
does seem to be, Tom, as you pointed out, we have got a moment 
here where things seem to be lining up that we can actually do 
something and do something constructive and something positive 
for the District of Columbia.
    We have an old saying in Kansas that you make hay when the 
sun is out, meaning that when things line up and are set to do 
something, you move forward, and I think we have got a chance 
to move forward in a very positive, very caring, and a very 
appropriate fashion for the District of Columbia.
    I am going to be very interested in the witnesses' 
perspective regarding the President's proposal, which seems to 
me to be transferring a number of things that used to be in the 
Federal Government that went to the District of Columbia back 
to the Federal Government, and I question whether we have not 
already been there, done that; but let's see and let's hear 
what you have to say and whether or not the Federal Government 
can manage it any better than what the city has managed.
    We held a hearing last week on Delegate Eleanor Holmes 
Norton, tax proposal of a progressive, flat tax, if I could put 
it that way, and zero capital gains in the District of 
Columbia. It has broad, wide support as an incentive and a tool 
to move forward with stimulating growth and economic 
opportunity in the District of Columbia, and I am going to be 
asking witnesses whether they think that would be a more 
valuable tool than an Economic Development Corp., or do they 
think the Economic Development Corp., model of control and 
incentivizing is a better way to go.
    I hope that in the end we can craft together a set of 
incentive-based policies that could help in the stimulation of 
the city to begin again to be Eleanor Holmes Norton's city, 
because she said this is not her city now. It is not the one 
she remembers, and it is not the one that is going to be there 
in the future. It is going to be better, and that is why we 
want this all. That is what we are all about, to try to get 
this done.
    So, I hope you will critically examine these proposals and 
say what you really think will work and what you do not think 
will work as we move forward to craft something together that 
really can help and make a difference in the District of 
Columbia. I look forward to working with you. Thank you, Mr. 
Chairman.
    Mr. Davis. Senator Brownback, thank you very much. I now 
would like to recognize our ranking member, the delegate from 
the District of Columbia, Ms. Norton.
    Ms. Norton. Thank you very much, Mr. Chairman. And before I 
welcome our witnesses, may I welcome elected officials who are 
here this morning, Council Member Frank Smith, Council Member 
Jack Evans, and Council Member Carol Schwartz? I will welcome 
our witnesses shortly.
    May I also welcome the third grade class from Bunker Hill 
Elementary School? I have met with them upstairs, but I thought 
that they might want to hear just a few minutes of a hearing 
about their city. I told them to watch out, it is going to get 
boring real fast, but that they might want to see their elected 
officials come up.
    They have responded to a program that I have initiated 
called ``DC Students at the Capitol,'' or ``DCSC.'' As a 
fourth-generation Washingtonian, I cannot remember being 
brought to the Capitol, but I think there was a reason. We 
could not even vote for President of the United States. We had 
no government of our own, and so our wonderful teachers, and 
they were extraordinary, never brought us here, because this 
was not our Capitol; this was their Capitol. In essence, we 
were excluded from the Capitol because we were not represented 
in the Capitol, and we were not even represented in the city.
    Well, we are represented, so to speak, both places now, and 
I have a program that says that every school child should get 
to visit the Capitol before graduating from high school, that 
if they were to visit California or New York, one of the first 
things they would be asked is, ``Tell us about the Capitol,'' 
and if they had not even been to the Capitol, they would 
probably be embarrassed.
    So I am particularly pleased to welcome the third grade 
class from Bunker Hill Elementary School and to thank Ms. Carol 
King, Ms. Eviva Boyd, and Ms. Sohanna Smith and the other 
parents and teachers for bringing these bright youngsters here 
today.
    I certainly want to thank Chairman Tom Davis and Chairman 
Sam Brownback for convening this hearing. I appreciate that you 
are working together to try to keep the several parts of the 
President's bill from spinning off to so many committees and 
subcommittees that the bill may never be seen again.
    I hope that you succeed. Without the centralizing mechanism 
that Chairman Tom Davis used for the Financial Authority bill 
and that your committees provide, it will be difficult to pass 
any bill this session.
    I also want to welcome Mayor Barry, Council Chair Pro Tem 
Jarvis, Financial Authority Chair Brimmer, and Chief Financial 
Officer Williams, who will be testifying on the President's 
plan today. I want to thank city officials and Authority 
members for their hard work over the past months.
    We all know that the city has not revived as much or as 
quickly as city officials and the Authority desire. Part of the 
reason is that the District has had to carry the burden of 
recovery alone, without assistance from the only sources that 
can help the city: the Congress and the Federal Government. The 
Congress has given no assistance of the kind that Philadelphia, 
New York, and Cleveland received at the time that their States 
imposed tough discipline.
    The Congress has been all sticks and no carrots, even with 
the presence of the strongest control board in the country and 
one that has shown that it knows how to see that carrots are 
not wasted. The sole contribution of the Congress, enacting the 
Financial Authority legislation, was necessary but hardly 
sufficient to ensure recovery.
    Recently, however, the President has put forward a plan to 
assume the cost of congressionally accumulated pension 
liability and the cost of some, but not all, State functions. 
District officials and the Financial Authority have responded 
with helpful suggestions and criticisms that the Congress needs 
to hear, even recognizing the difficulty of enacting spending 
bills this year.
    At the same time, the President, in designing his plan, has 
listened very closely to District officials and the Financial 
Authority. City officials and the Authority have emphasized the 
cost of pensions and Medicaid, and the President's plan 
responds directly. He also has included some other State costs 
that were not anticipated. What was most unanticipated and most 
troublesome, however, was the elimination of the Federal 
payment, on the theory that the District would come out ahead.
    While appreciating that this tradeoff was meant to help 
meet the requirement that the bill be paid for, the elimination 
of the Federal payment raises questions of both cash-flow and 
collateral that I hope we will hear discussed in detail today 
by our witnesses.
    Our disagreements notwithstanding, the administration 
deserves credit for being innovative and flexible. I appreciate 
the responsiveness and give-and-take of Attorney General Reno, 
Treasury Secretary Rubin, and OMB Director Raines, in 
particular. Where disagreements have arisen, they have shown a 
willingness to work with us to resolve them. I believe that 
this bodes well for achieving a bill acceptable to all 
concerned.
    An example of the problem-solving approach we are using is 
apparent in the work that has already begun to bear fruit on 
the original proposal in the President's plan to impose the 
irrationally harsh Federal sentencing guidelines that even the 
Federal Sentencing Commission has said should be changed. We 
now have agreed that, instead, the District will draw its own 
sentencing guidelines.
    Although considerable work has yet to be done on the 
criminal justice section, my own meetings with the Attorney 
General and with U.S. Attorney Holder lead me to believe that 
matters of concern can be resolved. We especially need the best 
thinking of the Mayor and the city council on the criminal 
justice provisions.
    Finally, let me thank Chairman Brownback for initiating a 
hearing on my bill, the District of Columbia Economic Recovery 
Act, last week and Chairman Davis for holding a similar hearing 
during the 104th Congress.
    This week, the President filled in some of the details in 
his own previously announced empowerment zone approach to 
economic development assistance. I welcome the President's 
thoughtful work. I remain appreciative of the bipartisan 
support my bill has received, especially from the leadership of 
the House and Senate. I will work to see that the best ideas 
from both proposals are on the table as we work here to design 
a suitable bill that all can support.
    I look forward to the testimony of the city and the 
Authority today as we continue our vital work on the 
President's plan. Thank you very much, Mr. Chairman.
    Mr. Davis. Ms. Norton, thank you very much. Let me 
recognize Representative Horn who is member of this 
subcommittee, and ask if he has a statement? I know he has to 
go somewhere else, and he has a staff here to monitor the 
hearing.
    Mr. Horn. Thank you, Mr. Chairman. I am delighted you 
called this hearing. I have to leave for a hearing two 
buildings away, where my principal witness is the Honorable 
Rudolph Guliani, mayor of the city of New York, so this is the 
day to hear about local problems.
    But what we are doing in that hearing is what my 
Subcommittee on Government Management, Information, and 
Technology has stressed for 2 years, which is results-oriented 
government. We only have one State in the United States where 
we have that: Oregon. There are only two countries in the world 
that are leaders in this area: New Zealand and Australia.
    As we try to make the Nation's Capital a model city, we 
should be thinking about results-oriented government, not just 
adding to budgets because somebody said, ``Gee, if you give us 
more money, we will solve the problem.'' We have to have the 
solutions to solve the problem.
    My initial inclination is to support the President's plan. 
I want to hear testimony on it, but the District of Columbia 
needs to be innovative in terms of tax policies which will 
attract people back to the District of Columbia and the 
businesses and the services that we need in this city. Those of 
us on Capitol Hill go 14 blocks to find a chain grocery store, 
and that is true all over the city, for the average citizen.
    And I think we also have to break the cycle of bad 
education in our schools and turn that around. We cannot afford 
to see thousands of young African-Americans getting out of a 
school system where they cannot read; and if we do not face up 
to that, shame on us.
    Now, Mr. Chairman, I thank you for letting me say those 
words, and I have to leave to open my own hearing. Thank you.
    Mr. Davis. Thank you very much, Mr. Horn. I now recognize 
the ranking minority member on the Senate side, Senator 
Lieberman. No stranger to this committee. He came here, Ms. 
Norton, last year on behalf of your tax proposal. He has been a 
strong advocate for the city.
    Senator Lieberman. Thank you, Mr. Chairman. I am glad to be 
back. Let me begin by congratulating you and my chairman, Mr. 
Brownback, for helping to return to the top of Congress's 
agenda this year both the problems of the District of Columbia 
and what we can and must do to help solve them. I am also 
pleased to join in welcoming Mayor Barry and Chairwoman Jarvis 
and Chairman Brimmer and Chief Financial Officer Williams.
    I have some residual--I do not want to say ``paternal,'' to 
make myself older--interest in the career of Anthony Williams, 
because I knew him when he was a callow youth at college in my 
home town of New Haven, CT. I do not know whether I am going to 
hurt his credibility here, but he then went on to be a highly 
successful member of the New Haven board of aldermen and then 
deputy comptroller of the State of Connecticut before he came 
to Washington, so I have a high regard for his ability, and it 
is a pleasure to have the opportunity to work with him again.
    Mr. Chairman, I have, as you indicated in your remarks, 
joined Delegate Norton now for the second consecutive Congress 
and am proud to do so in offering what we think is one 
innovative and very comprehensive response to the District's 
financial crisis, which is to say tax relief that we are 
confident would not only bring more business investment to the 
District and create more jobs, but uniquely would create a 
powerful tax incentive to bring people back to the District, to 
stop the flow of population outward in which people are 
essentially speaking with their feet about the problems and tax 
burdens of the District.
    The President's plan that we are going to be discussing 
today, I believe, offers a good complement to Delegate Norton's 
proposal by addressing some of the structural and management 
problems now facing the District. Alone among cities in our 
Nation, the District of Columbia has had to assume and 
administer functions that elsewhere are borne largely by State 
governments. That is a fundamental reality, and it is 
fundamentally unfair.
    At the same time, and also alone among our Nation's cities, 
the large Federal presence and the fact that the District 
cannot collect a commuter tax has left its government unable to 
provide adequately for the functions it must perform. These 
very important, inherent structural deficiencies have been 
compounded over the years by mismanagement of many aspects of 
the District's government, mismanagement that I think we in 
Congress must acknowledge has been made more likely by the lack 
of District autonomy over and responsibility for many aspects 
of its own governance.
    By proposing to have the Federal Government assume 
responsibility for many traditional State functions and invest 
the District with greater responsibility for those functions 
that the District will retain, I think the administration's 
plan will go a long way toward remedying the problems of our 
great Nation's Capital--our great Nation's great Capital, I 
would say.
    The administration plan, as has been indicated, is not 
perfect, and I have some of my own ideas about things we might 
want to do to make it better. But it is a strong start, and, 
most importantly, I am glad--in fact, proud--to say that we 
finally seem to have agreement that are Nation's Capital should 
be our Nation's priority. Even better, I might add, our 
Nation's bipartisan priority, and that is witnessed by the 
leadership and interest in both Houses of Congress and both 
parties. It gives us some pause for hope that we actually will 
take some critical steps in this session to make the District's 
situation better.
    I look forward to hearing today the reactions to the 
President's plan from some of the people who are in the best 
position to know about what faces the District, which is to say 
those blessed men and women who must deal with the District's 
problems everyday. Thank you, Mr. Chairman.
    [The prepared statement of Hon. Joseph Lieberman follows:]

    [GRAPHIC] [TIFF OMITTED] T2281.001
    
    [GRAPHIC] [TIFF OMITTED] T2281.002
    
    Mr. Davis. Thank you very much. Now, I would like to 
recognize the vice chairman of my committee, the gentlelady 
from Montgomery County, MD, Mrs. Morella.
    Mrs. Morella. Thank you. Thank you, Chairman Davis. 
Chairman Davis and Chairman Brownback--Senator Chairman Brown-
back, good to have you back over here working with us, and it 
is always good to have Senator Lieberman over on this side--I 
want to thank you for holding this important hearing.
    Since one of the goals of the White House proposal is to 
improve prospects for Home Rule to succeed, I quote, it is 
essential that we take into consideration the views of our 
local officials. Mayor Barry, Chairwoman Jarvis, Chairman 
Brimmer, Mr. Williams, I welcome your participation in this 
hearing. I want to also acknowledge Councilwoman Schwartz, who 
is here, and Frank Smith, Jack Evans. Thank you all for being 
here.
    Certainly, I plan to be listening very intently to your 
analysis of the President's plan. You are the defenders of Home 
Rule. You are the advocates of a better quality of life for the 
500,000-plus citizens who live in the District of Columbia and 
the children who are here assembled.
    There are many critics who blame the District government 
for the city's financial crisis. There are District supporters, 
however, who place much of the blame for the city's problems on 
Congress. These same District advocates accuse Federal 
lawmakers of meddling too much in local affairs, ranging from 
taxicab rates to the death penalty.
    The President's plan would increase the role of the Federal 
Government in the District's business. It would eliminate the 
Federal payment meant to compensate the District for lost 
revenue. Instead of the Federal payment, the Federal Government 
would relieve the District of certain expenses, among them the 
growing unfunded pension liability, which was incurred by the 
Federal Government for District employees that were part of the 
Federal work force before Home Rule.
    The Federal Government also would assume a larger share of 
the Medicaid costs and take over the operation of the prison 
system. According to a Brookings Institution study called ``The 
Orphaned Capital,'' the District assumes responsibilities which 
in all other jurisdictions are handled by the State. These 
responsibilities include Medicaid payments, mental health 
facilities, infrastructure, prison systems, and higher 
education.
    The President's plan would allow the Federal Government to 
fund the District government much in the same way that State 
governments support their cities. There is little doubt that 
our discussions must reflect the uniqueness of the District and 
that the relationship between the District and the Federal 
Government must be reshaped and redefined.
    Does the form of government make a difference in the 
District? I believe it does. Congress passed the Home Rule Act 
in 1973 because citizens fought for the right to participate in 
government, but I believe that District residents must be 
better educated about home rule and how to govern their city.
    Every day in the local newspapers we all read stories about 
mismanagement in the District government. Yesterday, there was 
a story about overpayments to an HMO that had a contract with 
the city. The Duke Ellington School was closed because of fire 
hazards, and students had to be temporarily relocated.
    This morning, there was an article about the poor condition 
of the school buses. A little boy with cerebral palsy has to 
ride several hours on a rickety bus to his school, which is 
just a few blocks from his home. The city has hired temporary 
bus drivers who get paid much more than full-time District 
employees.
    And I recall the American Psychological Association's 
Commission on Youth and Children a few years ago studied first- 
and second-graders, 6- and 7-year-olds in the District of 
Columbia, and discovered 45 percent of them had seen somebody 
mugged, 31 percent had seen someone shot, and 39 percent had 
seen dead bodies. Some city children play a game called 
``Funeral,'' where they pick out the color of their caskets, 
the colors of their clothes, and the names of those to be 
invited to the service.
    What have we done to our children? We must do better. I 
look forward to hearing from our distinguished panel today to 
gain insights into a brighter future for our Nation's Capital. 
Thank you, Mr. Chairman.
    Mr. Davis. Thank you. Thank you very much. I think we have 
concluded our opening statements.
    I now would like to welcome our first panel, and this will 
consist of the Mayor of the District of Columbia, Marion Barry, 
and the Council Chair Pro Tem, Charlene Drew Jarvis.
    If you would please come forward. You have both testified 
here many times. I thank you for joining us again. Ms. Jarvis, 
I believe this is the first time you will be testifying before 
us in your present capacity.
    We are all saddened by council chairman Dave Clarke's 
illness. We wish him and his family God speed, and our hopes 
and prayers are with him and his family.
    The city is, indeed, fortunate to have someone of your 
experience and dedication, to step up to the plate at this 
particular time.
    As you know, it is the policy of the committee that 
witnesses be sworn in before they may testify. Would you rise 
with me and raise your right hand.
    [Witnesses sworn.]
    Mr. Davis. Thank you. You may be seated. The subcommittee 
will carefully review any written statements you care to 
submit. I will first start with Mayor Barry and ask him for his 
statement and then Councilwoman Jarvis.

  STATEMENTS OF MARION BARRY, JR., MAYOR, WASHINGTON, DC; AND 
 CHARLENE DREW JARVIS, CHAIRWOMAN, PRO TEMPORE, WASHINGTON, DC 
                          CITY COUNCIL

    Mr. Barry. Good morning, Senator Brownback, Congressman 
Davis, Morella, and Norton, and other members of the subcommit- 
tee. I am pleased to appear before you today at this joint 
hearing on President Clinton's National Capital Revitalization 
and Self-Government Improvement Plan for the District of 
Columbia. I am also delighted to see these young people here 
who attend one of our public schools. They are very bright-eyed 
and energetic and eager to learn. I just hope that our system 
reforms itself to the point where that eagerness and that 
bright-eyedness and that energy remains with you until you 
graduate. So I am glad that you all are here from one of our 
fine public schools.
    Mr. Chairman and members of the committee, my statement is 
going to be rather extensive, because this is a very serious 
matter, and I want to take the time to put all of this in the 
proper context.
    The White House proposal comes as the weather gets very 
pleasant here in Washington, and I hope that the long and hard 
winter of our experience is facing a new spring. For me, Mr. 
Chairman, this spring did not just start this year.
    Let me also say, Mr. Chairman, you hear complaints, and 
some of them rightly so and some of them not so, about the 
social conditions which exist here in Washington, DC, and the 
environment of violence and killings and other kind of things.
    This is no different than the environment of New York City 
or Richmond or Baltimore or Los Angeles or Chicago. That does 
not mean we like this environment, but this type of environment 
where you have too many murders on our streets, too many kids 
not being educated, too many negative things happening to the 
lives of our citizens is something that is prevalent in all of 
our urban areas, so we should not just make it appear that 
these horrible conditions are just here in the District of 
Columbia.
    We want to do all we can to change the social conditions, 
to change the causes of poverty, to change the violent nature 
of some of our people, and to improve the quality of life for 
everyone who lives here and who visits here.
    Let me also put why we are here in context. I took office 
on January 2, 1995, and I was confronted with a major deficit 
of disproportionate size. After balancing our budget for 11 of 
the previous 14 years, the District government overspent its 
1994 budget by $335 million, an unacceptable and disgraceful 
performance. On the other hand, when we examine the nature of 
that deficit, a lot of it had to do with these State functions.
    The Medicaid budget was growing by 10 and 15 percent while 
the revenues were growing by 2 or 3 percent. The pension 
payments were growing by 3 and 4 and 5 percent. The prison 
population was growing by 4 and 5 percent.
    In taking office after discovering this deficit, we made it 
public. We did not run from it. We, in fact, indicated a $722 
million shortfall, and in the remaining months of 1995, we 
moved to avert this calamity. And I am putting this in the 
context of the State functions in this hearing because there 
are too many simplistic statements made, too many frivolous 
statements made about what the District has done, is doing, and 
will do.
    The record shows that in 1995, the actual spending was 
reduced from 1994 by $151 million. That is quite an achievement 
in 1995, to spend less money than you did in 1994. If you look 
at every State government, the Federal Government, you will not 
find anyplace where the State governments or the Federal 
Government in a year afterward spent less money than in the 
year before. And so this is a feat of historical proportions, 
this event.
    The sins of the prior administration precipitated, as we 
know, this control board. If we had not had this deficit and 
could not go to the bond market, we would not have had a 
control board, would not be sitting here talking about a 
control board.
    If the naysayers and finger pointers who use the District 
as a convenient door mat for the next sound bite would simply 
examine the record, they would know that we have been the 
leadership for trying to transform this government. This mayor 
presented a well-thought-out transformation strategy that would 
form the basis for the governmentwide restructuring that is 
occurring as we speak.
    The constant comment from our arm-chair quarterbacks 
demeans and misconstrues our work. It is ridiculous, and it is 
harmful, and ought to stop.
    We have made great strides and great progress in reducing 
the size of the government. Just look at the facts. The fiscal 
year 1995 budget reflected 47,000 FTEs in the city, county, and 
State functions, and the 1997 allocation stands at 36,000, Mr. 
Chairman and members of the committee, a decrease of 10,000 
position and people since 1995. No other city, no other State 
in America can say that that has happened.
    In New York City, they did not lay off anybody. Over a 4-
year period, they reduced their budget and their work force by 
15 percent. Philadelphia did not lay off anyone and has not 
reduced its work force by any significant amount.
    And I am saying that we have taken the tough decisions. We 
have made it possible for us to reduce the size of government. 
In fact, as of February 26 of this year, we were down to 33,000 
people, almost 12, 13,000 in less than a year and a half.
    Also, there have been a lot of discussions about we are not 
privatizing, we are not outsourcing, we are not being creative 
as they have been in other cities. That is not the case. We 
have done more outsourcing, more privatization than any other 
city in America. If you look at Indianapolis, you look at New 
York, you look at Philadelphia, you look at Los Angeles, you 
look at Detroit, you will not find the amount of public/private 
partnership that we have established here in Washington.
    And my statement goes through a whole range of those 
privatizations, from the privatization of the correctional 
treatment facility in Southeast Washington to the fine, police 
clinic. We have closed DC Village and placed residents in other 
places.
    Check the record. We have done all this during this last 2 
years.
    The Barry administration has established a package of 
comprehensive health services. Again, we have done something 
that has not been done in any other State in the last 14 years: 
created a Department of Health to better focus and administer 
services to our public.
    We reduced Medicaid, Mr. Chairman, by $80 million. In 1 
year, we have cut the Medicaid cost without reducing the 
quality of services, but by tightening up our system, by $80 
million. No other State in America has done that. No other city 
that has Medicaid functions has done that. We have saved DC 
General.
    And we could go on and on about the kinds of things that 
have happened that demonstrate that this Mayor and this 
administration and this city council have made very tough and 
painful decisions.
    I would like to enter into the record the 2-year budget 
analysis of the Department of Human Services and urge you all 
to read it, because it shows the pain and suffering that our 
people have suffered in the last year and a half because of the 
tough, yet compassionate, decisions that this Mayor has made.
    Mr. Davis. Without objection, that will be entered into the 
record.
    [The information referred to follows:]

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    Mr. Barry. We have closed half a dozen health clinics. We 
have closed emergency assistance programs. We have closed 
almost a thousand slots for drug treatment facilities. Mr. 
Chairman, when it gets to the point where this government does 
not even offer burial expenses for those who pass and do not 
have any income to bury their dead, we really have come to the 
end of the road in terms of how we have managed to make these 
very tough and difficult decisions.
    If you do not think we made those difficult decisions, ask 
the 700 older citizens who do not get chore aides to come to 
their homes 4 hours a day, 4 or 5 days. If you do not think we 
have made tough decisions, ask the DC government employees who 
have not had a raise in the last 3 years, many of whom have had 
cuts. Ask the 1,000 DC government employees who have been fired 
from their jobs, if we have not made tough decisions about 
trying to create a more efficient, a better-managed, and a 
better-run DC government.
    We also have moved programmatically to make our city safer. 
We all talk about the quality of life. We know that Ms. 
Norton's plan, in and of itself, the President's plan, in and 
of itself, will not change the very nature of our city until we 
change some of the quality-of-life issues here. We know we must 
do more to make our streets safer for those who walk on them 
and businesses who do business here, and we are making great 
and steady progress in doing that.
    We are investing more in community policing now by 
restructuring police beats to take into account neighborhood 
boundaries, developing greater linkages between police teams. 
That is working. We have had a reduction in homicides by some 
20-some percent. Not enough for me, but certainly any reduction 
in any murder is something to be proud of.
    We have had a 14-percent reduction in stolen automobiles, a 
9-percent reduction in robberies, so we are working as hard as 
we can with our citizens to make public safety a high priority 
and make our streets safe.
    Even though it is not in my statement, we are working with 
General Becton to do all we can to reform our public schools. 
Our public schools need reform. I have a son who is in 11th 
grade in one of our public schools, so I know as a parent 
firsthand what we need to do to improve the quality of our 
educational system.
    On the other hand, this educational system is facing the 
same pressures, the same challenges as Baltimore, which has 
asked the State to assist it in its efforts, the same as in 
Richmond or Chicago or New York and all over.
    In terms of, again, the kind of progress we are making to 
make sure that we are an accountable government, we are 
developing a comprehensive performance-measurement system for 
the District. I agree with Congressman Horn, we need a results-
oriented government. That is my desire. That is my philosophy. 
That is what we are beginning to do.
    The DC government is operating much more efficiently now 
than ever before. Our trash is being picked up more 
efficiently. A number of other things are happening, but this 
performance evaluation system will allow us to measure 
outcomes, to measure what people are doing, and so we are 
building a culture of accomplishment, agency by agency.
    Also, Mr. Chairman, a couple of days ago, you heard 
testimony from several of my colleagues from around the 
country. First of all, I regret that you did not invite this 
Mayor to come to be part of that discussion, but we will get 
over that. But most of these officials were Republicans who 
have not the faintest idea of what we are trying to achieve 
here in the District.
    None of them had to lay off as many employees as I have. 
None of them have had these State responsibilities to fulfill 
that I have. None have implemented to the degree that I have a 
massive transformation and city-wide restructuring.
    I hope in the future you invite persons who not only can 
give an analysis of what they have done, but are more involved 
and knowledgeable about the steady and persistent progress the 
District has made to make our government better managed and 
more efficient.
    Now, to the President's plan. Mr. Chairman, let me state 
that the last 2 months have been momentous occasions for the 
District of Columbia's residents. For a long time, many of us, 
including Ms. Norton and others, have advocated a transfer of 
these State functions over a period of time. I was among those 
in 1973, who lobbied the Congress, who worked awfully hard to 
try to get this measure of self-government.
    We were so eager to get it, we did not look at the details 
of it. We did not look at the burdens of the future that may be 
placed upon us. For instance, in 1973, when we took over--1975, 
when we took over the city government in terms of Mayor and 
city council, we were spending about $17 million on our 
Medicaid program, both local and Federal, $17 million; yet, in 
1996, this government spent over $800 million in Medicaid 
payments, $400 of our own local money and $400 of the Federal 
Government's. It had nothing to do with mismanagement. Medicaid 
all over America was growing by 10 and 15 percent, and ours was 
no exception.
    The same thing was true in our prisons. We were spending 
$32 million in 1975, for the upkeep and custody and care of our 
sentenced prisoners, and yet, in 1996, we spent over $240 
million of our own local money to do that.
    The point I am making here is that the President has 
initiated a bold, new push to right the economic and structural 
deficiencies of America's first city. The President's plan is 
both welcome and long overdue. It is a good first step. It 
recognizes that Federal Government's responsibility and 
Congress's complicity in perpetuating the District's 
longstanding structural constraints, constraints that have 
hamstrung our collapsing fiscal infrastructure.
    Just to go back again to the Federal Government's role in 
the past, when we took over the government in 1975, the Federal 
Government left us in a deficit of $279 million and has not 
paid its bills yet. So if you all want to do something to right 
these wrongs, they ought to at least put this in the plan, to 
pay our $279 million that was left with us when we took over 
the government.
    Also, the government, the National Government arbitrarily 
left us with an unfunded pension plan, with laws passed by the 
National Government that made police and fire pensions the most 
generous in America: 20 years, and no age for retirement, a 
liability that is still unfunded today of some $5 billion.
    But the tragedy of that is that the DC taxpayers are paying 
for that unfunded pension system, not the firefighters or 
police officers or the judges or teachers who are in it. We are 
paying over $300 million this year as our contribution to that 
unfunded pension plan left over from the Federal Government.
    Mr. Chairman, the Federal Government has prohibited us from 
taxing income earned here in the District. This is not a 
frivolous argument. This is a very serious discussion about not 
being able to tax the $19 billion earned here in Washington. 
Seventy percent of all the work force, 400,000 of the 600,000-
odd jobs in the District, are held by non-DC residents.
    In Baltimore, if one lives outside of Baltimore and moves 
into or works in Howard County or Baltimore County or Prince 
George's or Montgomery County, the State captures that income 
and redistributes it back to Baltimore. The same is true with 
Richmond or New York City.
    If I lived in Camden, NJ and worked in Philadelphia, where 
Mayor Rendell is the mayor, I would have to pay a 4 percent 
wage tax and take that off my income taxes in New Jersey. And 
so what happens here is that because we cannot collect that 
tax, some $750 million if we tax it at the Philadelphia rate, 
we now sit before you.
    If we could tax nonresident income, I do not believe we 
would be asking for many of these State functions to be taken 
over by the Federal Government because we will have the State 
authority to raise revenue to maintain those State functions.
    The only area we would probably be asking you to take over 
would be the unfunded pension liabilities because that is 
outside of anybody's purview. We would be unable to do that, 
because we cannot tax this income, because we cannot raise this 
$750 million. Our corporate income tax is the highest in the 
region, over 9 percent, our personal income tax is over 9 
percent, and our commercial property taxes are higher. This 
means if we could tax these residents, we could lower our 
property taxes, lower our income taxes, lower our business 
taxes, and as the ``Orphan Child'' analysis stated, we could 
become more competitive in this region.
    So this is not just a discussion about philosophy, whether 
you ought to tax people, should tax people or not. Moreover, we 
have over 300,000 cars coming into Washington, using our 
streets and our roads, not paying any taxes, not 1 cent to fix 
these potholes. In fact, they create a lot of these potholes.
    And so all of this has to be taken into context about why 
we need the transfer of these States' functions, why we need 
and why I continue, in spite of the political odds against it, 
taxing income at its source, because it is so critical. Not 
only are these cars coming into Washington, Ms. Jarvis, but 
when you have to get up in the morning to move your cars by 7 
o'clock so commuters can come in, it is inconveniencing our 
local citizens. So this is a very serious problem.
    Also, Mr. Chairman and members of the committee, the 
Federal Government assigned significant State-level functions 
to the local government without the appropriate resources.
    Mr. Chairman, when you were a member of the board of 
supervisors of Fairfax County, you did not have any 
responsibility for State prisons or for welfare, as I do, or 
for food stamps or for Medicaid or for State mental 
institutions.
    Mr. Davis. Actually, we did in some of those areas.
    Mr. Barry. Not much.
    Mr. Davis. Fairfax was the only government in the State 
that----
    Mr. Barry. Most did not.
    Mr. Davis [continuing]. We did have some of this.
    Mr. Barry. Right. I think you get the point, though. And so 
every morning I wake up, I have to worry about 46 percent of 
our functions being State functions. I am not complaining, but 
explaining. I would like to enter into the record a detailed 
analysis of our budget for 1996--I mean, 1997.
    We had a budget of $5,108,000,000; 32,787 people working, 
and you will find that $2.4 billion of this money was spent on 
State functions, 47 percent. You can go through it line item by 
line item. It is good work. You can see that no other city in 
America is burdened with these responsibilities without the 
appropriate financing mechanism.
    I would like to ask that this chart be entered into the 
record.
    Mr. Davis. Without objection, it will be entered into the 
record.
    Mr. Barry. And so for the President to suggest that our 
unfunded pension liability be transferred is supported 
unequivocally. It should have happened a long time ago, but it 
is finally being proposed. And we believe that the entire 
unfunded pension, the entire pension plan should be taken over 
by the Federal Government. It is about $360 million 
contemplated for 1998, with an additional 60-some-million-
dollars in contributions from our employees.
    Also, I support the takeover of the criminal justice 
system. On the other hand, there are some serious reservations 
about some parts of it. We are beginning to work out the 
sentencing guidelines that would be acceptable to the council 
and the Mayor, but most of us in Washington oppose the 
inequities of the sentencing guidelines in the Federal 
Government as it applies to drug use, drug possession.
    In the Federal guidelines, if you are arrested with 5 grams 
of crack cocaine, you receive a mandatory 5 years in jail, but 
yet it takes 500 grams of powdered cocaine to get you those 
same 5 years. Of those arrested for crack cocaine, 95 percent 
are African-American and Hispanics, and 95 percent of those who 
are arrested for powdered cocaine are non-African-American, 
non-Hispanics; and so that inequity, we could never accept.
    In the District of Columbia, we are working on that. Most 
of us in the District are opposed to a general death penalty 
for those who would kill people. Now, some of us are beginning 
to look at a different sentencing for those who kill police 
officers, but, again, we would never be able to accept that, 
and there are some others. But we are working on those 
guidelines.
    We support the takeover of our Lorton facilities, which 
house almost 7,000 sentenced prisoners. We support the taking 
over of the courts system. The judges are now appointed by the 
President, confirmed by the Senate. We do not have any say 
about that.
    The U.S. attorney prosecutes our local crime. In no other 
place in America does that happen, so it is logical if you are 
going to have control of the appointment of judges and the 
control of the appointment of the U.S. attorney, in the 
judicial philosophy, you ought to pay for that, so we support 
that.
    The present proposal to increase the Federal Government's 
share of Medicaid--long overdue. We are the only city in 
America that pays 50 percent of this payment. There are some 
States where the Federal Government reimburses them up to 80 
percent, 75 percent. I would like for this to have been 80 
percent, but certainly 70 percent is a step in the right 
direction. It would save us about $162 million in 1998.
    Senator Brownback. Mayor, if I could break in for just a 
moment?
    Mr. Barry. Yes.
    Senator Brownback. We appreciate your statement and your 
thoughts on this, and we would like to, if we could, let's hone 
them in on some of the specific points. We have a number of 
people we have got----
    Mr. Barry. I see.
    Senator Brownback [continuing]. To get testifying, and I 
think there will be some questions up here as well, so if you 
could, we will certainly enter all of that into the record, 
then, as well.
    Mr. Barry. Well, I was speaking about the President's plan, 
so I will just support the income tax collections. The 
infrastructure investments are very important. The new Economic 
Development Corp.; we do not know enough about all what it 
would do, but it appears to be headed in the right direction in 
terms of the Economic Development Corp.
    But let me just say, Mr. Chairman and members of the 
committee, that this Economic Development Corp., is no 
substitute for Ms. Norton's plan. This Economic Development 
Corp., obviously can assist in developing opportunities for 
development in our neighborhoods, for housing, and for office 
buildings, and other commercial ventures, but it gives no 
relief to the average DC citizens who are overburdened and 
overtaxed.
    We need Ms. Norton's plan with the 15-percent flat tax. We 
need the capital gains, zero capital gains not only just for 
Washington; I mentioned in your hearing, Mr. Brownback, that we 
ought to look at how you extend that to the Nation so we do not 
limit investments and investment opportunity for the people who 
live in the District of Columbia.
    Early on, Senator, you indicated some concern about whether 
or not the Federal Government could operate these entities. The 
Federal Government has never operated our felony prison system. 
All crimes prior to 1970 were tried in Federal court, so, 
therefore, people went to Federal institutions.
    I think the Federal Bureau of Prisons can operate our 
prisons. It is a big industry. It is a big part of the Federal 
Government's budget, and they have good experience in doing 
that.
    For Medicaid; it is just a matter of formula change, so 
there is no problem with that. The pensions are certainly easy 
to do. The Federal Government operates Civil Service pensions, 
Social Security, and a whole range of other retirement funds, 
and so I do not think that we are going back to the past in 
terms of been there, done that; we are going to the future in 
terms of the Federal Government being able to take this over.
    They ought to take over our mental institutions, too. St. 
Elizabeth's Hospital is a State institution. We are spending 
$190 million there. They ought to take that over. No other 
mayor has that responsibility.
    They also ought to support UDC. UDC is our State 
university. We cannot seem to get the local support that we 
need, but it is a State university. It ought to be put into the 
President's plan for 1998, some support financially for our 
State institutions.
    And, finally, Mr. Chairman, let me speak about the Federal 
payment. It is our view that the Federal payment is not a gift. 
It is not a stipend. It is not a handout. Of all the land in 
the District, 56 percent is tax exempt, 56 percent; 41 percent 
of that is federally owned land; the other of these foreign 
governments, though we certainly welcome them here, and our own 
nonprofit organizations.
    Then you have got the incredible situation where over 30 
organizations in the District, including the National 
Geographic and the National Education Association and others, 
that do not contribute anything to the life of Washington, are 
exempted from taxes by the Congress. Ms. Norton has introduced 
a bill to right that wrong.
    In conclusion, we believe that the Federal payment ought to 
be part of this package. Ms. O'Cleireacain, in her analysis, 
said it should remain as part of this package--maybe not $660, 
but certainly $382, as a part of it.
    I have been rather long, Mr. Chairman. I ask your tolerance 
of this, but this is a very serious subject, and very rarely do 
I have an opportunity to put it all in perspective in the way 
that we are doing here. Thank you very much.
    [The prepared statement of Mr. Barry follows:]

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    Mr. Davis. Thank you very much, Mr. Mayor.
    Chairwoman Jarvis, welcome.
    Ms. Jarvis. Good morning, Mr. Chairman. Thank you for the 
opportunity to testify. Good morning to Senator Brownback, 
Senator Lieberman, Mrs. Morella, Congresswoman Norton, our 
fighter on the Hill.
    I am pleased that my colleagues, Council Members Schwartz, 
Smith, and Evans, were able to join us this morning, along with 
young people from the District of Columbia.
    I feel that I am looking into the faces of people who care 
about the Nation's Capital, and I am pleased to be here this 
morning.
    The President's proposal provides a historic opportunity to 
address the city's financial crisis in a way that begins to 
address fundamental inequities that have long existed in the 
relationship between the District government and the Federal 
Government. We who represent the residents of the District 
embrace this effort that is both enticing and problematic.
    As we continue to make difficult but steady progress to 
improve the accountability of the District government for 
improved delivery of public services and improved financial 
management, and I might add that we are determined to balance 
the District's budget in fiscal 1998, for the first time in 
years and 1 year ahead of the schedule envisioned by the 
control board legislation. We are pleased to be at the table to 
ensure that all of the political and financial inequities which 
exist in the relationship between the District and the Federal 
Government and which exist in the relationship between the 
District and its surrounding jurisdictions are at least raised 
and discussed, even if they are not all addressed at this time.
    Although the District, under the 1973 Home Rule Charter, 
has attempted to perform State functions and to provide State-
like services, we have done so without the revenue base of a 
State, which has been constrained severely and primarily by the 
Federal presence or by congressionally imposed restrictions.
    Recognizing the status of the District as the Nation's 
Capital and recognizing the financial constraints uniquely 
applied to the District, the President has proposed that the 
Federal Government increase its budgetary responsibility, and 
sometimes management responsibility, for some very costly 
District operations which are either State-like functions which 
virtually no other city in the Nation performs or which are 
burdens which the Federal Government itself created and 
unfairly transferred to the District as a part of home rule.
    We agree with you, Congressman Davis, when you noted at 
your hearing last month that the President's proposal is an 
excellent foundation upon which we can build and to which we 
hope to add value. Several aspects of the proposal are enticing 
because they will clearly have a positive effect on the fiscal 
health of the city. However, other aspects of the proposal are 
quite problematic because they will further isolate local 
citizens from the process by which their voices can be heard at 
decisionmaking levels of the government.
    With that overall framework, I would like to express 
comments or concerns about each of the individual components of 
the President's proposal. I will also specify additional 
elements which we think would add value to the President's 
proposal.
    On the unfunded liability, no financial difficulty faced by 
the District is more serious than this mushrooming $5 billion, 
unfunded liability. We enthusiastically support adoption of the 
framework of the President's pension proposal and want to 
ensure that the Federal Government reassumes the entire, 
unfunded pension liability that it created. It is important to 
remember that DC taxpayers spent $1.9 billion to pay for 
pensioneers who earned those benefits under the Federal system 
prior to Home Rule. If that inequity, along with the unfunded 
liability, were to be righted, I could stop my testimony now 
and go home.
    The bottom line of the pension problem is this: If the 
District is to be responsible for any future costs associated 
with the past unfunded liability, we must make sure that enough 
of the District's assets are left in the District's pension 
fund so that we can afford to pay off such costs over time.
    On Medicaid, the council also supports an increase in the 
Federal share of Medicaid costs from the current level of 50 to 
at least 70 percent, but as you know, no city currently pays 
more than 25 percent. The U.S. Department of Health and Human 
Services has offered to provide more intensive technical 
assistance to help the District improve management of our 
Medicaid program, and we look forward to that assistance.
    The council believes that the Federal Government should 
also provide increased budgetary support for other State-like 
health and human services provided by the District. In the case 
of the Temporary Assistance for Needy Families, TANF program, 
the same considerations that underlie the proposed change in 
the Medicaid match would warrant review of the TANF block grant 
to allow for a larger Federal contribution.
    It should also be noted, the District's unique status as a 
city without a State will make it more difficult to meet the 
work requirement contained in the new welfare reform 
legislation, which provides additional justification for 
reconsidering the calculation of this block grant for the 
District.
    In the case of St. Elizabeth's Hospital, the Federal 
Government unfairly transferred responsibility for the 
operations of this State-like function, a State-like facility 
10 years ago without providing the $56 million promised by the 
Feds for infrastructure repairs, and we hope that there would 
be a reassumption of that.
    On the accumulated deficit, the council supports the 
President's plan for the $400 to $500 million U.S. Treasury 
borrowing, with a 10- to 15-year term to finance the District's 
accumulated deficit, because without such financing, it will be 
extremely difficult to solve our cash-flow problems.
    When figuring out the overall, net benefit of the 
President's proposal, OMB must recognize that there are future 
annual costs associated with this financing. We want to ensure: 
(1), that the District maintains sufficient liquidity to 
operate; and, (2), that any financing must not impair the 
District's ability to finance its future capital needs.
    Economic development; the council strongly supports the 
establishment of an Economic Development Corp., with 
considerable local participation. Broad authority would be 
given to spur economic development, the use of tax credits for 
hiring District residents, and for business loans and 
investments, and including the use of tax-exempt, revenue 
bonds.
    The economic turnaround of the District depends upon the 
private sector, to a great extent, and the government can 
provide the catalyst for this redevelopment. If we are really 
serious about revitalizing our Nation's Capital, we must 
reverse the hemorrhaging of jobs and residents from the 
economic core. We believe Ms. Norton's bill can help to do that 
and enthusiastically support it.
    Transportation infrastructure investment; the council 
supports the President's proposal to establish a National 
Capital Infrastructure Fund, with $125 million in Federal seed 
money in fiscal 1998 for capital projects only if it can be 
spent primarily for our badly deteriorating local roads and 
bridges. We do not need this separate entity if it is going to 
be directed toward the 7 percent--that is only 75 miles--of our 
roads that are part of the well-funded Federal Highway System 
and not toward the 665 miles of local roads that had been 
traditionally underfunded and are among the District's worst 
roads.
    In addition to the $125 million in Federal seed money, the 
council supports the redirection of much of the $200 million in 
Federal dollars previously authorized for the Barney Circle 
project if there is a final decision at the local level about 
that, again, to be used primarily for local infrastructure 
projects, including the new convention center's infrastructure.
    The council is working with OMB to ensure that any 
independent authority that might be established to administer 
this fund would have sufficient District representation so that 
local priorities are properly reflected in the selection of 
capital improvement projects.
    The council also would like the Federal seed money in the 
fund to be able to be used to leverage additional negative, an 
important point which we have put to Frank Raines. But I want 
to re-emphasize here that if that money, $125 million, could be 
used for the repayment of bond holders and used as leverage to 
issue further bonds, then we remarkably augment our capacity to 
do local road and bridge repairs.
    Finally, the council is working to encourage the 
negotiation of pilot agreements with tax-exempt organizations 
so that contributions by these organizations can be deposited 
into the infrastructure fund or, and this is another 
interesting alternative, these pilots could be made a 
contribution to the Economic Development Corp. So you have two 
options there.
    And if it turns out that the infrastructure fund, that $125 
million is not going to be made available for local funds, it 
seems to me we do not need it as much as we need to put the 
pilots in the Economic Development Corp., and let the Federal 
Government continue to do its road repair in the way it has in 
the past if those dollars are not made available for local 
roads.
    On the courts, the council supports Federal assumption of 
the responsibility for the cost of the judicial system, which 
is another function typically borne by States in other 
jurisdictions. However, the council believes that there needs 
to be continued local involvement in the courts programs, 
including pretrial services, probation, and parole.
    In light of the recognition in the President's proposal 
that the courts are run well currently, we are working with OMB 
to ensure that innovative and effective sentencing alternatives 
to incarceration are still available, such as the drug court, 
the multidoor dispute resolution program, the boot camp 
program, and the new domestic violence calendar.
    As an added value item, the council would like the Federal 
budgetary responsibility for the courts in the President's 
proposal to be expanded beyond operations to include financial 
support for capital improvements as well.
    Prisons; we support Federal assumption of the budgetary and 
management responsibility for the District's prison operations 
that are typically State functions. As you know, no other city 
in the country operates a prison with felony inmates. The 
council suggests that Lorton be phased out over a 5-year 
period, during which time the District will develop an 
independent capacity to handle the non-State prisoners, that 
is, those convicted of misdemeanors.
    At the same time, the council asks that: (1), the District 
be given the ability to sell the lease it holds on the land at 
Lorton; (2), that compensation be given for the improvements 
made by the District on buildings at Lorton to enable the 
District to pay off the general obligation bonds associated 
with these improvements; (3), that the location of Federal 
prisons to which District inmates may be relocated be limited 
to a certain radius; and (4), that the District be compensated 
if it ends up housing any class of felons under the President's 
proposal.
    In supporting Federal assumption of the State prison 
system, the council at this time has serious concerns about the 
condition associated with this element of the President's 
proposal, i.e., that the District must adopt sentencing 
standards that are comparable to Federal sentencing standards. 
Such a condition would infringe upon the sentencing discretion 
of experienced DC Superior Court judges who are Presidentially 
appointed and upon the legislative authority of the council to 
enact criminal sanctions.
    Such a condition does nothing to revitalize the National 
Capital, and it runs totally counter to the goal of the 
President's proposal to improve the prospects for Home Rule to 
succeed.
    We frankly do not understand the need for requiring the 
application of Federal sentencing standards by local courts as 
a prerequisite to Federal assumption of responsibility for the 
prison system. OMB Director Frank Raines testified before your 
committee last month that this requirement was necessary 
because the Bureau of Prisons had management concerns about 
housing criminals convicted of identical crimes with different 
sentences in the same prison.
    However, since the beginning of Home Rule, large numbers of 
District prisoners, as many as 2,500 District inmates, have 
been housed in the Federal prison system with different 
sentences and subject to local laws regarding parole 
eligibility without any apparent management problem.
    Moreover, there are thousands of District prisoners 
currently in the system who were sentenced under current law 
and who will not be released for decades. Thus, even if the 
goal is to have a single-sentencing structure for all prisoners 
in Federal penal systems, achievement of this goal is so 
remote, it is very remote.
    It also should be remembered that the Congress already has 
the ability to reject any legislation passed by the council 
and, in fact, has a longer review period, 60 days, for criminal 
code enactments. For the locally elected legislator to cede 
forever our limited authority over criminal sanctions to the 
Congress, especially when District residents continue to have 
no voting representation in the House on the floor or the 
Senate, would be a further diminution of the Democratic rights 
of our citizenry, which may not be worth the benefit of Federal 
budgetary and management support of our criminal justice 
system.
    Tax administration and other technical assistance. The 
President's proposal provides that the IRS would assume 
responsibility from the District for the collection of local, 
individual income and payroll taxes. Although we would like 
assistance from the IRS in the area of compliance with the 
payment of local taxes, the council is concerned that IRS 
collection of local taxes might cause a delay in the District's 
cash receipts, thereby further exacerbating our liquidity and 
our cash-flow problems.
    We are working with OMB to address this issue, but we 
suggest that the question of IRS collection of local taxes be 
deferred until after the council has an opportunity to consider 
forthcoming recommendations of our local tax revision 
commission. In general, we appreciate the availability of 
technical assistance in the District which is normally a part 
of Federal/State programs.
    As the leading employer in the city, the Federal Government 
has the additional responsibility, exercised in other cities by 
their major employers, to provide assistance and support to the 
local government. Moreover, the Federal Government needs to 
reverse the flight of its agencies from the Nation's Capital 
and to restore the historic relative distribution of Federal 
employment between the District and elsewhere in the region in 
order to strengthen the core.
    Capital investment in schools--another added value. In 
addition to capital investments identified in the President's 
proposal for economic development and transportation 
infrastructure, school construction is another area which, if 
not 100 percent a State function, is usually subsidized by the 
States. As another of our requested added-value items, the 
council is seeking Federal assistance for new school 
construction and reconstruction of existing schools.
    And last, but not least, the Federal payment. You are 
familiar with the mantra, but let me repeat it once more. The 
annual Federal payment to the District represents compensation 
for services rendered to the Federal Government and 
compensation for restrictions on our revenue-raising options by 
the Federal Government. We are restricted in our ability to tax 
Federal properties and the many federally chartered entities 
and other nonprofits. We are restricted by our height 
limitation on buildings. We are restricted in our ability to 
have reciprocal taxation upon income at its source.
    In addition, elimination of the Federal payment will create 
significant cash-flow problems for the District, but I should 
note that OMB is working with us to identify alternative, 
short-term financing vehicles to provide the collateral or 
liquidity that has been traditionally provided by the Federal 
payment.
    Furthermore, and this is extremely important and pointed 
out to us by the treasurer, the Federal payment is part of the 
District's revenue and, as such, is a component of how the 
District's debt ceiling is calculated. The debt ceiling, as you 
are aware, is the amount of debt repayment which the District 
can legally carry in any fiscal year and is capped at 14 
percent of our revenues. Elimination of the Federal payment 
will reduce our financing ability that has already been 
severely reduced.
    OMB is working with us on possible solutions to this 
problem as well, including a possible amendment to the Home 
Rule Act to raise the debt limit.
    In summary, unless Congress removes restrictions on the 
District's revenue-raising capability, we on the council 
strongly believe that the Federal payment must be maintained.
    Further, we believe that consideration should be given to 
either increasing the Federal payment to reflect the actual 
costs of revenue restricted and services provided, which two 
recent, independent studies by Brookings & Appleseed each 
estimated to be $1.2 billion, not $660 million, or more 
realistically, adding value to the package of State-like 
functions to which the Federal Government could provide 
financial assistance to the District.
    Chairman Davis, Chairman Brownback, Ms. Norton, and others, 
thank you again for this opportunity to testify and to work 
with your committees and the administration on this historic 
restructuring.
    [The prepared statement of Ms. Jarvis follows:]

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    Ms. Jarvis. Mr. Chairman, if I could, I would like to make 
available for the record the testimony at a public roundtable 
which the council held on Tuesday, February 25, 1997, which is 
testimony about the President's package at which local and 
Federal officials, as well as community leaders and experts, 
testified. I'd like to make that a part of the record, Mr. 
Chairman.
    Mr. Davis. Without objection, so ordered.
    [Note.--The information referred to can be found in 
subcommittee files.]
    Ms. Jarvis. I would like to also make as a part of the 
record, the DC Appleseed Center Report on the District of 
Columbia's pension dilemma, ``An Immediate and Lasting 
Solution,'' of June 26, 1996. I would like to make a part of 
the record, the DC Appleseed Center for Law and Justice's 
study, ``The Case for more Fair and Predictable Federal Payment 
for the District'' of November 2, 1995.
    Mr. Davis. Without objection, it will be entered into the 
record.
    [Note.--The information referred to can be found in 
subcommittee files.]
    Ms. Jarvis. I'd like to make available for the record a 
document which I know you have because it was mentioned this 
morning, ``The Orphaned Capital,'' the Brookings Institution, 
Carol O'Cleireacain. I would like to make available to the 
record a resolution, P.R. 12-109, the Charter Review Sense of 
the Council Resolution that was introduced into the council on 
which a hearing was held by Council Member Schwartz yesterday.
    [The information referred to follows:]

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    Mr. Davis. Chairwoman Jarvis, without objection, they will 
be entered into the record. It is important to have them in the 
record so the committee can work from them, and I thank you 
very much for including them.
    Ms. Jarvis. Thank you, Mr. Chairman.
    Mr. Davis. OK. Thank you very much. Let me start the 
questioning on the Senate side with Senator Brownback, and then 
Senator Lieberman. Senator Brownback.
    Senator Brownback. You are awful kind. I will make sure 
that my clock gets started here so that we can tie things down.
    Thank you both very much, first off. I know you are 
struggling with a tough set of problems, and you identified 
those, and you articulated those, and I know your heart and 
your soul is in the right place, to try to get something done, 
as is ours as we wrestle with it. But I want to thank you, 
first off, for stepping up to deal with the problems, because 
that is very important and it is tough and I appreciate you 
doing it.
    I want to focus in on phase two of the President's plan 
that was announced a couple of days ago, in particular. And you 
both spoke about it a little bit, but particularly, Ms. Jarvis, 
if I can ask you about this. The President is saying to 
redevelop economically the District of Columbia, we should 
start an Economic Development Corp., basically with tax 
incentives; and as I read it, this would be a nine-member 
board, seven of which would be picked by the President.
    So it would be a department of commerce for DC. It looks to 
me that this is him laying out seven people to have an Economic 
Development Corp., and they would then pick businesses and 
areas to give tax breaks and subsidies to. Is that correct?
    Ms. Jarvis. Senator, it would be a nine-member commission, 
seven of whose members would be selected by----
    Senator Brownback. Controlled by the President.
    Ms. Jarvis. Yes, and we have some concern about the 
majority representation as appointees of the President, but let 
me also say, Senator, that if the substantial resources of the 
Federal Government are going to be made available, if some 
substantial resources of the Federal Government are going to be 
made available for this corporation--i.e., land, capitalization 
of the corporation, the tax benefits that are Federal tax 
benefits which can be used judiciously to create some real 
economic activity, it seems to me--that I am personally less 
concerned about who is appointed than I am about where the 
resources of the Federal Government are going to be brought to 
bear.
    Clearly, I would rather have higher representation of local 
appointees. Let me make that clear.
    Senator Brownback. And I am just trying to make clear that 
this would be an Economic Development Corp., controlled by the 
President that would decide where these tax subsidies would be 
going in the District of Columbia.
    But I am juxtaposing this compared to Delegate Norton's 
proposal, and I want to frame you in on which do you think 
would do more to develop the economy of the District of 
Columbia, whether it would be a zero capital-gains tax on 
tangible property or this Economic Development Corp.
    Ms. Jarvis. Well, I think Ms. Norton's entire proposal is 
better, very frankly, for the growth of the economy because it 
provides a stimulus package to reattract residents as well as 
businesses, and the President's package, welcome as it is, does 
not include an income-tax stimulus incentive for people who 
would move back into the District of Columbia.
    Senator Brownback. And don't you think that would do more, 
indeed, much, much more, to grow the District of Columbia and 
provide the tools than a Presidential-controlled, tax-subsidy 
direction?
    Ms. Jarvis. I think Ms. Norton's plan has the potential for 
providing more economic growth to the District of Columbia. I 
think that the President's plan is a good plan which could 
easily have added to it as a complement the plan that Ms. 
Norton has for income tax relief for residents. I think they 
both complement one another.
    Senator Brownback. But if you go with the zero capital 
gains on tangible property, you do not need an Economic 
Development Corp., targeting your tax subsidy of business 
development or blighted areas, do you?
    Ms. Jarvis. Senator, I think that the capital gains 
provision would be a very significant stimulus.
    Senator Brownback. The reason I am picking on this is I 
want to get one piece that we have looked at, at least from the 
Senate side, and I just--I do not think the President's plan 
does it to provide the stimulus to grow the District of 
Columbia, and I think it is more centralized planning on you in 
the District of Columbia. I mean, it is a department of 
commerce for the District of Columbia run by the Federal 
Government.
    I have real problems with us telling you what to do, when I 
would much more like to see us give a broad-based set of 
incentives, and you figure out what to do.
    Mr. Barry. Mr. Chairman, could I speak to that?
    Senator Brownback. Yes, please.
    Mr. Barry. Obviously, part of the difficulty of the economy 
of the District is that we are almost a paper-thin economy. The 
Federal Government is the base of our economy, not 
manufacturing, not steel, or anything else, so we have to find 
ways where individual investments can help grow the District of 
Columbia, and I think Ms. Norton's plan does that--well, the 
President's plan does not deal with that issue of individual 
tax relief with capital gains reduction and income taxes for 
those who live here. That has to be part of the centerpiece.
    I think we need both. I am concerned about the composition 
of this corporation. It will be a DC-chartered corporation. It 
will not be a federally chartered corporation. My own view is 
that it ought to be five DC residents and four from the Federal 
Government because we best know how to take this money--it 
almost goes back to--I hate to use this word, but States 
rights--I really do. I really do because it had such a negative 
impact when I was growing up in Memphis about segregation.
    But the Federal Government for a long time had been taking 
power to itself, funding things to itself, and now the move is 
to do block grants and to put money back into the community, 
put tax credits back in the community controlled by the 
community, so I would advocate a five-and-four composition, but 
the main thrust ought to be with Ms. Norton's plan, this would 
be a good supplement.
    And the other part of this is the Economic Development 
Corp., which would deal with housing, too. I do not think that 
you are going to get as much housing development with a capital 
gains, zero tax as you would--you may--as you would with 
business development, but you may get both.
    So I guess in summary, we need both, but the focus ought to 
be to get the President and the Democrats, the Democratic 
leadership to buy into Ms. Norton's plan, to stop ducking it.
    Senator Brownback. Thank you.
    Mr. Davis. Thank you very much. Senator Lieberman.
    Senator Lieberman. Thank you, Mr. Chairman, and thanks, 
Mayor and Chairwoman. My questions really follow the questions 
of Senator Brownback. In fact, he asked a couple of them that I 
wanted to ask, and this all goes to this reality. We do think 
that we have an opportunity here with interest from the 
President and the Republican leadership of the Congress and the 
Democratic leadership to do something tangible and constructive 
for the District, to maybe put the District back on a real 
positive course for the long term. This is not just a band-aid. 
Hopefully, we are going to do something structural here that 
will deal fundamentally with the problems the District has had.
    The leaders of both parties here are appointing people to a 
working group or task force on the District, and the 
administration will do the same. And as you probably know, I am 
sure you do, when the leadership got together with the 
President, they chose five areas where they thought there was 
enough bipartisan interest and common ground that they wanted 
to actually work on it, and one of them was the District of 
Columbia.
    But like everything else in the world, well, like 
everything else in life, but certainly in government, our 
choices are going to be limited, and our resources are going to 
be limited. So we are going to have to make some choices here 
between the alternatives given to us. Speaking roughly, we have 
the President's plan, we have Delegate Norton's plan, which I 
should declare, as I did earlier, my self-interest in because I 
am a co-sponsor of it, and now we have the appeal that you both 
have made to continue the existing financial payments to the 
city, which are basically payments in lieu of taxes that are 
lost because of the tax-exemption of Federal property here.
    That happens in a lot of States, including my own, as you 
said, chairwoman, where the State makes payments to communities 
in lieu of taxes that are lost because of State-imposed, 
property-tax exemptions.
    So begin the process of helping us--and I am going to be on 
that working group, as others up here are--to make some 
choices. Knowing that we are not going to be able to do it all, 
what are your priorities? Maybe I ought to ask the general 
question here. And I know we would all like to do it all, but 
we are probably not going to have it happen.
    In terms of those three rough choices, what are your 
priorities, or would you pick and choose from among them, and 
if you would, what would you choose?
    Ms. Jarvis. Senator, I would say that the aspect of the 
President's plan which is really critical for the future fiscal 
health of the District of Columbia is the pension, the 
assumption of the pension system, and that really is righting a 
wrong, as far as we see it. We have paid into the pension 
system, District taxpayers, $1.9 billion of our own locally 
generated funds to pay for pensioneers who were in the Federal 
system before they became employees of the District of Columbia 
government. So there is a terrible inequity created there.
    So in the President's plan, the pension system is really, I 
think, the most critical aspect of it.
    Senator Lieberman. OK.
    Ms. Jarvis. And if I were asked for my druthers, I would 
say the pension assumption, Ms. Norton's bill, and the Federal 
payment, and then I think we could go home.
    Senator Lieberman. Very interesting. OK. Mayor, do you have 
any guidance for us on what the sense--acknowledging, as you 
said eloquently in your statement, but if you had to list 
priorities, what would be your priorities? You are acting like 
a Senator now.
    Mr. Barry. We need a vote in the Senate, and you support 
that, I know.
    Senator Lieberman. Thank you.
    Mr. Barry. Senator, I really find it difficult within the 
constraints here to limit our discussion. We are going to have 
to recognize that from the economics of it, the $660 million 
Federal payment, the $770-some-million transfer of State 
functions really ought to be expanded by another $3 or $400 
million in terms of just budget discussions here.
    We ought to expand this discussion to look at what the 
Brookings study talked about, $382 million, so we would expand 
the discussion by $382 million, and in my view, I know that is 
a lot of money, but really when you look at the Federal, 
trillion-dollar budget, it is not. And so I would say that Ms. 
Jarvis is correct in the sense of if we are going to keep the 
Federal payment at $660, we want to assume the pension 
payments--that is about a $306 million situation--and Ms. 
Norton's plan, and that would be my direction here.
    So however we state it, whether Ms. Jarvis states it her 
way or my way, we are still talking about an additional amount 
of budget output from the National Government. I think we have 
to think that way. We do not want to just temporarily fix this 
situation; we want to have it fixed for generations to come, so 
when, you know, another 25 or 30 years we look at this, we will 
say the District is now economically stable, it is doing 
things, and----
    Senator Lieberman. You are absolutely right. Again, this is 
an opportunity to create a partnership and structural change 
that puts us on a long-term, upward course for the District.
    Mr. Barry. While we are in the ball game, we ought to hit a 
home run rather than try to hit a single or a double.
    Senator Lieberman. Absolutely right. A timely comment as we 
approach opening day.
    Mr. Barry. Right.
    Senator Lieberman. Let me ask this question. My time is 
going. One of the unique features, and perhaps the most unique 
feature, of Ms. Norton's plan is the reduction of the Federal 
income tax, which has the clearly stated objective of bringing 
people back to the District. How critical is that, and let me 
ask you again to make some tough choices, and probably these 
are not real choices, but if you had to choose between that and 
the tax incentives for business development, what would you 
choose?
    Mr. Barry. I would choose the Norton plan.
    Senator Lieberman. Thank you, Mayor.
    Ms. Jarvis. I think that in order to produce an economic 
growth in the District, you must have a middle-class tax base 
and a business base. You cannot do one without the other. One 
supports the other.
    Senator Lieberman. That is right.
    Ms. Jarvis. And I do not think you can really isolate those 
two. Residents support the businesses, and both support the 
revenue base of the District. What we really are looking for is 
not to be given the fish, but the opportunity for the----
    Senator Lieberman. Right.
    Ms. Jarvis [continuing]. Technology and the incentives that 
provide a long and deep well of fish for the future.
    Senator Lieberman. Right. You want a high-tech fishing rod.
    Ms. Jarvis. Yes.
    Mr. Barry. Yes.
    Senator Lieberman. Thank you both very much. Thank you, Mr. 
Chairman.
    Senator Brownback. Thanks, Senator Lieberman. Delegate 
Norton?
    Ms. Norton. Thank you very much, Chairman Brownback. I 
appreciate the ways in which both you, Mr. Chairman, and Mr. 
Lieberman have sought to clarify and to structure what the 
outcomes of these various approaches would be because I can 
understand that these are difficult choices. It is not as if we 
can pick apples from a tree here and get whatever we want, but 
it is important to get that clarification.
    This notion of whether or not we want or would profit most 
from attracting middle-income taxpayers or attracting business 
is an important question. Let me just indicate who supports the 
District of Columbia, however, at the moment. The District of 
Columbia has never had a true business tax base. We need to get 
one now, particularly with the downsizing of the Federal 
Government, but it has never been supported that way, and we 
were almost up to 900,000 people when I was a child.
    Downtown business and employers tell me this, that without 
a middle-income tax base, stimulus of the DC economy for jobs 
that pay what we want them to pay go overwhelmingly to 
suburbanites. And I just want everybody to understand, business 
does not come back to a city because of tax breaks. They look 
for an educated pool, and they come where they are, and, of 
course, they look for the conditions in the city and the taxes 
in the city.
    So I am very worried about stimulus that assumes that just 
because there are some jobs, District residents get them. Even 
the President's plan has had to have something in there that 
says, you know, the jobs and the job credit will have to go to, 
but who is it going to go to? Low- and moderate-income people. 
You know what? Low- and moderate-income people today pay 65 
percent of the tax filers. They are crying out for more people 
up the scale to help them out because they simply cannot do it.
    We do not have a tax base, and if you look at people in the 
middle, we have about half the average of people in the middle 
of the national average; and that is why we will continue, with 
the help of my good colleagues here, to press for some relief 
for the folks that for as long as there has been a District of 
Columbia have been the major support for the District of 
Columbia with their property tax, with their sales tax, and 
with their income tax.
    The President's plan, I very much support and believe that 
we can reach some accommodation somehow. But I do not intend to 
let income tax relief for District residents slide off the 
table because of a traditional empowerment approach, which, in 
the long run, sometime up God knows when, may kick in and have 
some effect on the District.
    Our city is going down now, and if we do not do something 
to make sure middle-income people remain here, what is most 
tragic is that the hard work of the city and the control board 
will just go to naught because you keep working, and yet the 
tax base keeps going down, so you keep being in deficit, which 
leads me to my first question.
    You are working very hard to bring us into deficit a year 
ahead of time. Most people do not understand that when we have 
talked about the DC deficit for the last couple of years, we 
have been talking about an annual deficit. We have not even 
been talking about the unfunded deficit that we are carrying 
over from year to year.
    The very good, strategically good idea to bring us into 
balance a year ahead of time leads me to ask you, particularly 
in light of some of the testimony that you may not have read 
yet--I will be asking him about it, but in light of some of the 
testimony of Dr. Brimmer, whether you believe, given everything 
as it now is, that we could come into balance in 1998 and stay 
into balance, or whether we might be like the Chicago 
Educational Authority, which came into balance and then went 
out of balance in the next and ensuing years. That happened, I 
think, sometime in the 1980's.
    I mean, are we chasing the wind here, or do you foresee--
now, with the President's plan, now, I am assuming at least the 
parts of the President's plan--leave aside the economic 
development part, which would not kick in in any case--I am 
assuming the other parts of the President's plan--do you think 
that we could come in balance by 1988 and stay in balance for--
well, for the Financial Authority to recede, it would have to 
be 4 years, I guess. But I'd like your comments on whether we 
could stay in balance for any period of time except the time 
that you would come into balance for in 1998.
    Mr. Barry. Ms. Norton, we have made some tremendous 
sacrifices to bring this deficit down, structurally down--not 
gimmicks, not window dressing, not a flash in the pan, but 
real, substantial progress in cutting out or reducing certain 
services, certain programs. Our FTE count is real in terms of 
how many people have left the DC government's payroll. We are 
suffering the consequences of some of that every day in terms 
of income maintenance. Case loads are going up. Clinics are 
being closed.
    And so my proposal for 1998 would bring us into balance, a 
real balance, and would keep us in balance because it is not 
based on any gimmicks or any accounting mechanism; these are 
real cuts with real people being affected by that. And also our 
proposal will propose a balanced budget in 1999, 2000, and 
2001.
    Of course, if there is some unforeseen economic downturn, 
we will have to make those tough decisions to cut the budget 
even further, but when you see this, which we released to the 
control board on Tuesday and to the council and to you all, 
these are real, real balanced budget. And it has taken, and 
people do not want to appreciate this, Ms. Norton, a tremendous 
amount of sacrifice to come in 1 year early.
    When we had this outstanding structural budget problem, to 
come in 1 year early meant cutting some programs, cutting some 
reductions in agencies, and so the answer is, yes, I believe--
in fact, I am confident that this budget--and the control 
board, in sending the budget back--and that is another story 
when we are talking about how that process does not work that 
well--acknowledged that we did, in fact, have a balanced 
budget.
    We may differ on some program priorities of where you spend 
money here and not spend money there, but in their submission 
back to us, said the budget was balanced by generally accepted 
accounting methods, and we are going to keep it----
    Ms. Norton. If you restructured, that included your $50 
million in----
    Mr. Barry. That was out. We did not use that.
    Ms. Norton. So you were balanced without that? You were 
balanced without that?
    Mr. Barry. I sent amendments to the budget over on February 
28, that did not use restructuring the debt. And this was a 
valid restructuring discussion; we just had a different 
philosophy about it. It was balanced without the $50 million 
restructuring.
    Ms. Norton. Ms. Jarvis.
    Ms. Jarvis. Ms. Norton, I believe that we can have a 
balanced budget in 1998. Whether we can remain in balance for 
the future depends critically on the ability to stimulate 
growth in the District. If there is no stimulation of growth in 
the District, if there is no increase in the revenue base of 
the District of Columbia, then there will not be in the out 
years an ability to balance this budget.
    With respect to the issue of management and mismanagement 
that we are often faced with, I have given this analogy. In a 
city where rents are $800 and my rent is $400 and I have $200, 
that is all I have, and if I mismanage $50 of that $200, I have 
a management problem, and I have a cash problem. I mismanaged 
that $50, but I do not have the other $200 to pay my rent, and 
that is the position that the District is in: We do not have, 
for the foreseeable future, a growth in our revenue base which 
is going to enable us to balance our budgets in the out years.
    Yes, we can do it this year. In 1999, we can try to hold 
the line, but in the out years, if there is not growth, we will 
continue to reduce the budget of the District of Columbia and 
to cut into those essential services. This is a point that is--
--
    Senator Brownback. This will be the last question, if we 
could.
    Ms. Norton. Well, Mr. Brownback, I need another round of 
questions.
    Senator Brownback. OK. We may do that, and I will come 
back, but let's see if we can--I am trying to be fair on time 
with everybody.
    Ms. Norton. All right. The point that is missed about the 
stagnation in growth or the stagnation in the economy of the 
District of Columbia, where we are going down every year, is 
that the cost of living goes up every year, no matter what you 
do. You have to pay more for goods. I would not say more for 
services, since our employees have not gotten a raise in so 
long, but obviously for some services you are also paying more.
    So this point about whether we are fooling ourselves by 
going into balance is an important one because if we do not 
signal that now, the Congress will come down on the District 
like a ton of bricks because it will look as though we had 
promised to, in fact, balance the budget. Mr. Chairman----
    Mr. Barry. Ms. Norton, on that score, let me just say that 
our approach to this is that for--and the pain is tremendous--
we are assuming in 1999, 2000, and 2001 that our personal 
services costs remain steady, which means that are employees 
are going to take it on the chin in order to bring this into 
balance. It means that no pay increases. It also means further 
reduction in the work force, and also it means reduction in the 
nonpersonal service areas. That is what it means. It means 
making further sacrifices and suffering more pain in terms of 
the lack of service delivery.
    On the other hand, that service which is delivered will 
become increasingly efficient because we are just getting 
better at doing it. I agree with Ms. Jarvis in general about 
the out years, but we have put together a model which shows 
that if we keep personal services steady, we are going to have 
to probably--what we have done is assume minimum growth in 
Medicaid and in debt service and in the pension area. Those are 
the three big, heavy hitters.
    Senator Brownback. I am glad to have Chairman Davis back. I 
am afraid I am going to have to go on to another set of 
meetings. Thank you all very much, and I will hope to catch 
some of the written testimony from some of the other 
presenters.
    Mr. Davis. Senator Brownback, thank you for being here.
    Senator Brownback. Thank you.
    Mr. Barry. Let me thank Senator Brownback for your immense 
and intense interest in the District. We have now met several 
times. We are going to do some things together, and we 
certainly appreciate your involvement here. Thank you.
    Senator Brownback. Thank you.
    Ms. Jarvis. Thank you very much, Senator.
    Mr. Davis. I did not get to hear all the responses to 
Senator Lieberman's question, with regard to setting priorities 
where we have a limited ability to act. It seems from my 
perspective that we need to do several things. First of all, we 
have got to get better management control of the city which we 
are starting to do.
    Mr. Mayor, I agree with you in terms of some of the things 
that have started between you and the control board and the 
revisions. I am excited about this Booz-Allen study of the 
police department where they talk about redeploying personnel; 
the Water and Sewer Authority that was established last year 
was a giant step forward. However, it is going to take time 
because we do not have the information technology available to 
make real-time decisions. It takes time to train and retrain 
managers and key personnel, but once we start turning the 
corner on computer technology, education, and public safety all 
will be beneficial.
    The administration's plan then talks about the relationship 
between the city and the Federal Government. I would be the 
first to say that all these comparisons with Washington and all 
these other cities are apples and oranges. The city is very 
unique. It is envisioned that way in the Constitution. But, it 
is also unique in terms of its current structure and 
relationship with the Federal Government, its taxing authority, 
and its authority to deliver services.
    For the record, we invited seven Republican and six 
Democratic mayors, and we heard from Mayor Rendell and several 
Republicans who were not overly critical of the city. Mayor 
Rendell, for example, talked about some of the issues he, as 
mayor, had to go through in Philadelphia, a city which is very 
much like this city in terms of the urban cycle that it has 
undergone.
    I think we can look at Ed Rendell as one of the premiere 
mayors in the country and learn from some of the things that he 
has done. It was in that context that he was asked to testify. 
Cities like San Diego, which do not have a commuter tax, were 
here as well. It just varies across the country, because every 
relationship is unique in terms of what the taxing authority 
is, the services they deliver, the relationship to schools, and 
the State government. So, it is very, very difficult to make 
direct comparisons.
    There is no question in my mind that the current 
relationship the city has with the Federal Government needs to 
be revisited. I think we have all been vocal on that. The 
unfunded Federal payment, which I understand you said is one of 
the priorities, is a huge problem down the road.
    Today, it is a bit of a problem, but in about 6 or 7 years, 
it will become 15 percent of the city's budget, so we need to 
address the issue. Now, we have resistance to that from some of 
the Civil Service Committee members and others, but I think we 
can structure this in a way that hopefully we can take that off 
the plate. I think that is critical. I applaud the President 
for addressing that issue.
    I think on the Federal payment, we continue to work through 
that and recognize that you have cash-flow needs. I also 
believe that some sort of tax reduction is going to be very 
important to bring the city back. Given the tax burden that you 
have and the services that you have to deliver and the limited 
tax base you have, particularly being from the suburbs, I think 
it would be extremely selfish to say there should not be some 
form of tax relief we can look for for some Federal help. And 
how that evolved, I do not know at this point.
    Ms. Norton has put forth, I think, a very bold plan that 
has won the support of some very key members, but it also has 
some opposition from some key members, but it certainly brings 
the tax burden down, and that is what makes the city 
competitive. Bringing the tax and regulatory down will help 
make the city competitive, both from a commercial side and from 
the residential side as well. And I hope that what we come up 
with in the final analysis will have some elements of that and 
we can all sit down and get something accomplished.
    I like the Economic Development Corp., concept. It is not a 
panacea; it is a piece of a large puzzle, that has some 
outstanding attributes, but we have to talk about the makeup of 
it, as was asked in some of the other questions, to make it 
work; I applaud the President for that as well.
    I have got a few questions now I want to go to. You have 
given that as a preliminary from my perspective, and we have 
heard your perspectives. Let me, first of all, talk about the 
transition, Mr. Mayor, the transition team support when you 
came into office. They were talking about doing things like 
turning the heat down a few degrees, joining the FTS-2000, 
which you are specifically allowed to do; and with a new 
procurement coming up, I think there will be greater savings 
for users of that; using different types of light bulbs. Do you 
know how many of these items have been completed at this point?
    Mr. Barry. Mr. Chairman, let me speak, but before I do 
that, let me say what upsets me about this discussion and the 
comparison to other cities. And Mayor Rendell are good 
political friends----
    Mr. Davis. Well, let me get to that first. First of all, if 
you could tell me where we are----
    Mr. Barry. I am going to do that.
    Mr. Davis [continuing]. On some of these concepts.
    Mr. Barry. I am going to do that. It will not take but a 
minute to say this. We have done far more restructuring and far 
more efficiencies than any of these cities, and in that regard, 
we are on track with our transformation plan. We have a number 
of initiatives that have been taken to restructure the city 
government to bring about savings in energy, savings in lease 
negotiations, but also the thrust of my transformation was to 
become more efficient in the delivery of city services, and 
that is what the thrust has to be, and we are doing that.
    Our trash pickup has improved tremendously. You know, we 
got beat up last year, rightly so, about our snow preparation. 
We are ready now. So the short answer is that we are on track. 
The only area of the transformation that we are not really on 
track with has been our negotiations with our labor unions. We 
had intended to reduce certain costs by $25 million by 
eliminating certain benefits. We were told by one of our boards 
that we could not do that, but the rest of the transformation 
is either on schedule or ahead of schedule in terms of 
restructuring the various departments.
    We have had dialog with Ms. Jarvis about the business 
economic part of it. We are going to try to work that out, but 
the answer is, yes, we have reduced energy costs, I think, by 
$4 or $5 million--in fact, in our 1998 budget, we are going to 
do it by another $3 or $5 million.
    Mr. Davis. But transformation is not really on track. You 
have met with some setbacks, haven't you, in terms of the 
timing of this? My understanding of the budgets that we looked 
at is there was going to be tremendous savings, and we have not 
achieved those savings on the transformation side.
    Mr. Barry. That is not true.
    Mr. Davis. OK.
    Mr. Barry. Our budget--I will give you an example. We have 
an FTE goal as part of our transformation. We are on track with 
that. We had savings in certain departments. I could give you 
some of those. We are on track with that. And I do not know 
about the information you have, but if you look at the 
information----
    Mr. Davis. I am not trying to be critical. We are just 
trying to share information here.
    Mr. Barry. I am not saying it is.
    Mr. Davis. Well, have you joined FTS-2000?
    Mr. Barry. I do not know.
    Mr. Rogers. Mr. Chairman, Michael Rogers, city 
administrator.
    Mr. Davis. Hi, Michael.
    Mr. Rogers. You pointed out a number of items that were 
recommended by the various transition committees of the Mayor, 
and a number of those recommendations were taken; some were 
not. But with respect to----
    Mr. Davis. Could we supplement the record--we do not need 
to do it today.
    Mr. Rogers. Sure.
    Mr. Davis [continuing]. Try to show us what was in the 
original recommendation, what you have done and the status of 
others, including maybe not approving it. That is fine.
    Mr. Rogers. Well, with respect to FTS-2000, we went another 
step. We have adopted a plan for saving telecommunications 
costs by moving to an ISDN platform in the District, and we are 
working with our contractor to do that, so we are saving--are 
projected to save once fully installed, $4 million a year in 
telecommunications costs.
    With respect to energy, there are energy savings. There is 
an energy audit in progress, and there are savings there. With 
respect to the overall mass transformation plan, there are 
hundreds of projects that are tracked by the city, and those 
are interfaced with the budget, and there are a number of--
there is a lot of progress.
    Where there is slippage and projects cannot be accomplished 
either because congressional action decides to change the 
project or go another direction or council decides that they do 
not agree with the project or we run into some other roadblock, 
then we look for ways to supplement that project or change that 
project and still produce the revenue.
    We will be very pleased to submit to you a full report on 
the cost savings initiatives and the transformation progress.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T2281.090
    
    Mr. Davis. Thank you. More than a year ago, you received a 
report on real estate savings that you could achieve. Are these 
changes in savings still in process and being developed, or 
have they been implemented? What is the status of that?
    Mr. Rogers. Yes. We did receive the strategic real estate 
plan. That plan is being implemented. We have initiated audits 
of some of the many month-to-month leases. I think to date six 
audits have been done. We have entered into contracts to do 
audits at a faster rate, so that project is moving forward.
    Mr. Davis. What is the status of the Tax Revision 
Commission? Do you know when you expect that group to report?
    Mr. Barry. Ms. Jarvis.
    Mr. Davis. Ms. Jarvis, do you know?
    Ms. Jarvis. By the end of the year.
    Mr. Barry. By the end of the year. As I understand, they 
are going to make some interim recommendations as they get to 
them.
    Mr. Davis. OK. I gather from the context of the comments, 
that you would be willing to consider even more tax elimination 
and tax reduction if that action could be held harmless 
regarding DC revenues. Is that fair to say?
    Ms. Jarvis. I was listening to my colleague. I am sorry, 
Mr. Chairman.
    Mr. Barry. Do you mean in terms of tax reductions and new 
business?
    Mr. Davis. Reduce taxes further if it could be harmless in 
terms of the revenue loss and it was made up by increased 
Federal payment or something else?
    Mr. Barry. Yes.
    Ms. Jarvis. A very affirmative yes.
    Mr. Barry. Yes.
    Mr. Davis. How about the Regulatory Reform Commission? When 
did you anticipate a report from them?
    Mr. Rogers. We will get a report from the Regulatory Reform 
Commission in June. It was given a 1-year life. That commission 
is moving along, and it will conclude its work June 1, I 
believe.
    Mr. Davis. Could each of you comment on your reaction to 
the possibility of putting surplus District land, including 
closed schools and other District economic development programs 
like the RLA, into the proposed Economic Development Corp?
    Mr. Barry. We support that, at least speaking for the 
executive, we support all the resources that are available, 
whether it is Federal land or District land, including schools 
that have been closed or even parks that may not be as useful 
as they once were as part of the overall pot that we could put 
this into.
    Ms. Jarvis. Mr. Chairman, I do not support putting surplus 
land, RLA land and schools into the Economic Development Corp., 
until there is a Federal contribution of land. We already 
dispose of those lands. If there is not to be a Federal 
contribution to the Economic Development Corp., of substantial 
amounts of Federal land with the capitalization, we would just 
as soon retain the ability to dispose of our own land.
    Mr. Barry. I want to identify with Ms. Jarvis's amended 
position.
    Mr. Davis. Should the Economic Development Corp., be 
limited to certain neighborhoods, or should its jurisdiction be 
the whole city with specific goals and targets for particular 
distressed areas? Do you have any thoughts on that?
    Ms. Jarvis. Yes. The contemplation of the corporation is 
that it is a holding company that has various subsidiaries, 
each of which has a target, so that a couple of subsidiaries, 
one of which could do the development around the Navy Yard 
where the Southeast Federal Center would have been, another 
subsidiary could do Metro stops, could do Minnesota and 
Benning, could do Georgia Avenue, New Hampshire Avenue, could 
do sites in the Ward 8 community.
    So I think there needs to be initially a push to assemble a 
great chunk of Federal, local, and private sector land, for 
example, around the Navy Yard area, where there could be a 
substantial massing of activity that really creates an economic 
driver in that area, and then there should be other 
subsidiaries that address communities in our various respective 
wards.
    Mr. Davis. Ms. Jarvis, I understand that you talk about 
reprogramming some of the money from the Barney Circle Freeway 
into the Convention Center and arena area.
    Ms. Jarvis. Yes.
    Mr. Davis. I would support that.
    Ms. Jarvis. The infrastructure.
    Mr. Davis. And I will work with Ms. Norton and you to do 
that. I think that makes a lot of sense, from an economic 
development perspective.
    Ms. Jarvis. Yes.
    Mr. Davis. I just wanted to put that on the record as well.
    Ms. Jarvis. Good.
    Mr. Davis. Can either of you tell me what the status is of 
the Memorandum of Understanding right now with the 
administration? Ms. Jarvis, you can go first.
    Ms. Jarvis. Well, Mr. Chairman, we do not know an actual 
date, but I will tell you that I am very encouraged that for 
each of the areas of the President's plan there has been a 
working group with OMB local officials and other officials 
looking at the issues that are critical. And so while I believe 
that Mr. Raines hoped that the, and believed that the MOU could 
be available to us last week, in the interim we have solved 
some problems with the pension system.
    In the interim we have solved some problems with the courts 
and the prison system. In the interim we have solves some of 
our concerns about the debt refinancing, and we then have had 
an opportunity to weigh in on these issues, and that has really 
delayed having a document before you, but it has been a 
substantial contribution that we have been able to make.
    Mr. Davis. I would just add, on the prisons you talked 
about, that we have discussed with the city alternatives to 
having a Federal takeover, which raises a lot of issues the 
city is uncomfortable with and we are uncomfortable with, at 
least this member. In terms of looking at some of the 
privatization options and the like, we will continue to work 
with you on that, and as you approach the Memorandum of 
Understanding, if you will keep that option in mind as well, I 
am sure that will be appreciated from this corner.
    Mr. Mayor, did you want to comment?
    Mr. Barry. Mr. Chairman, I think we are probably 10, 14 
days away from a final draft that we will be looking at. We 
still have some concerns in the critical justice area, some of 
the concerns that you have raised about how this actually 
operates as of October 1.
    The Federal Government wants a transition period before the 
Federal Bureau of Prisons takes this over. We are not 
comfortable with how they want to structure that, but we have 
met once this week already. We will meet again I hope the next 
day or so to see how far we have made--what progress we have 
made.
    I get the impression that in the other areas there has been 
substantial progress to the point where there are very few 
major objections from the city to those areas. I think critical 
justice is the last remaining area, because it is complicated, 
very complicated, both philosophically and programmatically, 
but we are making great--so I would say 10 or 14 days when I 
can gather.
    Mr. Davis. OK. Do you think we could make more progress 
more quickly if we had greater cooperation between you and the 
control board?
    Mr. Barry. We have excellent cooperation now. I mean, I do 
not understand that, these myths out here. What happens from 
time to time, on a budget item, the control board may say, we 
are not to put this money in this pot but put it over here. 
That is not noncooperation; that means that we just disagree on 
a philosophy.
    But on the major thrust of this city, if you talk to Dr. 
Brimmer and the other four members, talk to myself and others, 
you will find that we are in communication with each other, but 
there may be some philosophical and program differences because 
I was elected, and I have a certain constituency that I have 
to, as you were, listen to promises made during the campaign.
    We may have some slight differences on priorities, but that 
does not mean we do not cooperate, not at all, and we ought to 
just stop that notion. That is not happening. We do cooperate. 
We do talk with each other. The staff met yesterday on the 
fiscal year 1998 budget to make sure we are on track about what 
was required for the budget. So that is just a myth that ought 
to stop.
    Mr. Davis. Ms. Jarvis, let me ask you, has the control 
board been helpful to the council while you look at the 
cooperation at this point between the control board and 
council?
    Ms. Jarvis. I think that the cooperation with the control 
board on the council side is critical for a number of reasons. 
First of all, when they go away, we would like some of their 
authority.
    Second of all, we believe that the control board's staff 
could help us in the same way that a congressional budget 
office helps the Congress and that what the control board has 
brought is an analytical capacity that we do not have locally 
because just of the size of--the absence of something like the 
Congressional Budget Office, that what the control board has 
done is produce some quantitative data that take us to the next 
step in our planning and for that reason has been very 
important.
    We have indicated on the council side that we would like to 
meet more often with the control board, and we will be doing 
that this afternoon, because we believe that the analyses that 
they have done are critical for us as we are making day-to-day 
decisions in conjunction with the Mayor.
    So we just want more of their information, very frankly. We 
wish there were a greater flow of information that would help 
us make some of the critical decisions that we have to make. We 
think that our recommendations would be stronger with the 
advantage of all of their information.
    Mr. Davis. Thank you. Let me just add, I think particularly 
with the President's proposal and other proposals that are to 
be floated up here, you, Ms. Jarvis, you put some in the 
record, Carol O'Cleireacain's report and some other 
recommendations, and Ms. Norton's proposal.
    To the extent we can get the control board, the council, 
and the Mayor on the same sheet of paper saying we all agree on 
this, that helps up here. It helps us sort it out. But this is 
the beginning of a long process, and we are going to keep all 
of you involved as we go forward.
    Mr. Barry. Mr. Chairman, I think on the President's plan 
and the overall focus, in listening to Ms. Jarvis and my own 
statement and Dr. Brimmer's statement, you will find that I 
think we are 98, 99 percent on the same page with this.
    But let me also reiterate again, just because I may differ 
programmatically with a member of the council or the control 
board does not mean cooperation; that is democracy.
    Mr. Davis. Absolutely. Thank you, and I appreciate that.
    Mr. Barry. It is democracy.
    Mr. Davis. Mr. Mayor, let me just ask you, since I saw this 
on the news last night. I was originally going to stick to the 
script, but since you have wandered all over in your opening 
statement.
    Mr. Barry. Mr. Chairman, ``wander.'' That is not a good 
word.
    Mr. Davis. Yesterday----
    Mr. Barry. Comprehensive.
    Mr. Davis. Thank you. You gave a very comprehensive 
overview.
    Continuing on, we received a report in the news last night 
about two cars that were being stopped for illegal u-turns, and 
both were from out of town. One was given a ticket. The other 
had an expired license and was going to be ticketed. As the 
story came to me, and we have confirmed it this morning, 
evidently a call was made from one of the cars, and the chief 
of police, Chief Soulsby, was on the other line speaking 
directly to the officer. You were not involved with that, were 
you?
    Mr. Barry. No, I was not.
    Mr. Davis. OK. I just wanted to clarify that.
    Mr. Barry. Absolutely not.
    Mr. Davis. Finally, let me just add that I think you 
realize that Congress is not merely going to rubber stamp the 
President's proposal, although we are very impressed and 
delighted at his interest in this--it is unprecedented. As I 
said, the stars are aligned for all of us to work together, but 
most provisions are going to undergo probably some change. 
Hopefully, we will be adding value to some of the others, as 
you have suggested, and that is what the legislative process is 
all about.
    I just hope that we can work with you for the city's 
benefit as we add value to this and work in a very cooperative 
manner. We have a great opportunity here working together on 
these issues, and I am very excited about the possibilities 
that this time period holds for the city.
    So, thank you both. Mrs. Morella had a couple of questions. 
I now recognize the gentlelady.
    Mrs. Morella. Thank you very much, Mr. Chairman. I want to 
thank the Mayor and councilwoman for their presentations, and 
it is indeed true that Councilwoman Jarvis did put a lot of 
material into that record, which is going to be voluminous but 
very informative.
    My question to you both is, let's do a dollar sign on all 
these plans that we have in terms of what we want, because I 
hear about the fact that we like the President's revitalization 
plan. We want to add to it; we do not want to eliminate the 
Federal payment. We want to include St. Elizabeth's. We like 
Congresswoman Norton's plan.
    We have to sell whatever plan this committee comes up with. 
We have to sell it to the Appropriations Committee, and then we 
have to sell it to our colleagues, and I want you to be mindful 
of that, because I would like to ask you if you have any idea 
of what the cost would be of the plan that you would like to 
put together with all the pieces out there that would best move 
the District of Columbia into a healthy state and what it would 
cost in the short run and maybe what it ultimately would cost 
in the long run.
    Mr. Barry. Congresswoman, I think we ought to approach this 
a little bit differently in the sense that it is going to be 
expensive to right the wrongs of the past. I know that does not 
sound very practical. I have not yet had a chance to add this 
all up, but if you took the President's plan, which is about 
$700-and-some million, keep the Federal payment, that is 
another $660; that is $1.3; and if we added St. Elizabeth's to 
the plan, that is another $190 million. Ms. Norton's plan, I 
think, is about $7--how much is it--$8, $900 million? What is 
it, Ms. Norton; $700 million? So you are talking about----
    Ms. Norton. My plan has never been costed out.
    Mr. Barry. OK. So I think very easily, Congresswoman, you 
are talking about over $2\1/2\ billion, but I think we ought to 
look at that in the context of the Federal budget, a trillion-
dollar budget. And I think that is how I would like to approach 
it.
    Mrs. Morella. And right now we are having committee 
meetings with regard to authorizations that are going to be 
within certain boundaries that have been established, and that 
is going to be difficult. Our concern also is if we do not 
prioritize what we need to do a jump start that then can be 
continued, then I think we are operating in a vacuum. My humble 
point of view is we have got to come up with something that we 
think we can sell.
    Mr. Barry. Ms. Jarvis and I, we talked about this while you 
were out, in terms of continuing the Federal payment, taking 
unfunded pension liabilities, and Ms. Norton's plan. Those are 
our three priorities.
    Mrs. Morella. But the total cost, then, give me that again, 
you estimated.
    Mr. Barry. Federal----
    Ms. Jarvis. Wait a minute. With all due respect to the 
Mayor, if we talk about the pension, District taxpayers have 
already paid $1.9 billion, I believe, into the pension system 
for pensioneers who were Federal employees before we got Home 
Rule, and so I do not want to say to you, here is what this 
package costs, without there also being on the table what local 
tax revenues have paid for that system. That is $1.9 billion.
    That is why our citizens have some of the highest taxes in 
the country, because we have paid $1.9 billion of benefits. We 
have the third highest per-capita income taxes of Federal taxes 
in the country. All right? So, to say that this package would 
cost this without recognizing that $1.2 billion is revenue 
foregone because of restrictions on our revenue, and if you put 
that package together, that is $2.4 billion.
    Mrs. Morella. I will not only recognize that, but I 
mentioned in my opening statement that it was 1973, with Home 
Rule and prior to that, that that is why you had the unfunded 
pension liability, because it had been paid.
    Putting that with an asterisk, then what would the cost be? 
Now, I say this in light of, again, in my opening statement, 
schools that leak, buses that fall part, safety that is not 
safe. I mean, you know, Duke Ellington School, which closes 
under court order.
    You know, all of these kinds of things that are so 
deplorable that Members of Congress want to know that we can 
achieve results and what they are going to cost, and I think 
they are willing to invest, but they also need to know what the 
amount is going to be, and we need to know because we want to 
be able to come up with----
    Ms. Jarvis. OMB has done for the pension plan a cost in the 
out years of that plan, Mrs. Morella, which we can provide to 
you, but which, of course, as a Member of Congress, you have 
access to immediately. And the pension proposal would take the 
$4.5 billion of assets and bring them into the Federal 
Treasury.
    Now, they would be set aside for the payment of the 
pensioneers, but that would be an asset pool that is brought 
over, and the pensioneers would be paid out of that $4.5 
billion of costs for a period of time--I am not sure--6 or 7 
years, and then there is--in fact, 10 years. And then in the 
out years there is going to be a $700 million cost to the 
Federal Government for a period of time in order to fully fund 
the pension system.
    So those costs are not going to be in the 1998 budget; they 
are going to be 10 years hence, and there will not be a cost in 
the current budget for pensions except those that are pay as 
you go, I think I am correct in saying.
    The Medicaid costs for the President's plan are----
    Mrs. Morella. Well, you can figure out the whole 
president's plan, you know, with the courts and the prisons and 
Medicaid.
    Ms. Jarvis. But it brings us even.
    Mrs. Morella. That comes to what? Is it about $4 billion on 
that. But what I am saying is that we like that, but then we 
also want to not terminate the Federal payment. I mean, this 
may have merit, and I have mentioned this before. We also want 
to do something about St. Elizabeth's. We also want a tax-
benefit plan. And they all sound great, but when you put them 
together, we have got to think about a package which 
prioritizes and will bring about results, so it is asking----
    Ms. Jarvis. Let's do the pensions, Ms. Norton's stimulus 
package because you produce some economic growth for the 
District, and we cannot survive without economic growth and the 
Federal payment, and the Federal payment properly constituted, 
which reflects the real loss of revenue.
    These are not gifts. This part of it, these are not gifts.
    Mr. Barry. Congresswoman, I know you have been supportive, 
but I think the Congress has to do what some of us have to do 
from time to time: Bite these tough bullets and advocate a 
level of Federal involvement that will begin to permanently 
solve these problems.
    Mrs. Morella. Of course.
    Mr. Barry. I know it is hard, but we have got to just do 
that. When the Defense Department comes up, they talk about all 
what they need, and people bite that, so we need a balance here 
where we begin to move in 1998 as a first step to permanent 
recovery for the District, with our doing our share. There is 
no question about that. We are prepared to do more than our 
share, but I think you have to bite these tough bullets and be 
advocates as you have been on the Appropriations Committee and 
other places that we have got to put this level of funding over 
here and push for it.
    Mrs. Morella. I appreciate your both trying very hard to 
respond to the question. I do not quite have an answer, but I 
value working with you and look forward to so doing. Thank you. 
Thank you, Mr. Chairman.
    Mr. Davis. Thank you very much. Ms. Norton.
    Ms. Norton. Mr. Chairman, in light of the time, I will 
simply put before these witnesses a few issues that I wish they 
would look into on the theory that if there were substantial 
progress on such issues, it would aid us in what I must tell 
you for sure is going to be an uphill struggle to get any 
substantial part of these bills.
    On FTS-2000, I thought I heard Mr. Rogers talk about 
another kind of system. Now, let me tell you something about 
FTS-2000. I do not know if it was between administrations, but 
I recall sending something, and it may have been in the 
transition between administrations, but if you were to tell 
cities across the country you could get on FTS-2000, they would 
hug you, kiss you, and not let you out of the room.
    Alone, FTS-2000 will save millions, multimillions of 
dollars in telephone bills. I did not hear an answer as to 
whether we are on FTS-2000. I believe we are not. What happened 
was one of my committees sent off and said--sent the chairman--
I am sorry--the staff director of one of my committees sent to 
me several years ago and said, Do you realize how much money is 
going down the drain because the District has not accepted our 
invitation to come on FTS-2000?
    Now, I ask about it because whatever that system was, it 
did not sound like FTS-2000.
    Mr. Rogers. Well, let me just say, Congresswoman, that the 
system that we are moving forward with, I think, is a part of 
the FTS-2000 program. It was procured off of the GSA schedule, 
and it was procured for the purpose of achieving the same 
benefits of FTS-2000 in terms of saving the District----
    Ms. Norton. Do you mean off of a competitive schedule, or 
off--do you mean you got the vendors off of their schedule?
    Mr. Rogers. Yes, yes. We will give you a specific answer on 
that.
    Ms. Norton. I see Mr. Demczuk there. Look, follow through 
is my middle name. This is money. I would like to know, because 
I would like to help. If we are not on FTS-2000, we are going 
some other route. I need to know it right now. I am on the 
subcommittee that can get us on FTS-2000. If you hook into the 
Federal Government system, even before the District went down, 
that was seen as a way for us to save money.
    Could you get that to me by the end of the week? I need to 
know if we are on FTS-2000. I need to begin to work to get us 
on FTS-2000.
    I have a bill in. We have talked a lot about State 
functions. There is one State function that the President's 
bill does not mention and that we have not talked about, and 
that has to do with welfare. In the first 2 years, these funds 
go up, then they drop off the side of a cliff. I have a bill in 
that would, in fact, put the District not in the position of a 
State, but in the position of a city and would require that we 
contribute what an average city would contribute to the quotas 
that must be met in order to keep from losing your grant.
    You will lose, by the year 2000, 21 percent of your grant 
if you do not have 50 percent of your people in work activities 
or at work at least part time. We do not have time for me to 
get a progress report on where we are on welfare reform in the 
District. Now, I know we had a late start, but I would 
appreciate knowing that because perhaps I could include in my 
own bill other sections that could be helpful to you if there 
are problems with respect to how you are proceeding.
    Ms. Jarvis, I appreciate that you have moved the pilot bill 
forward. Frank Raines included in his bill in the President's 
bill the National Infrastructure Fund, and in delineating where 
money beyond the $125 million will come from, talked about the 
pilot. The council has had before it a legislation or a 
proposal for payment in lieu of taxes for some time, and I 
believe I have a letter from you saying that that is moving 
forward. I would like also to know--again, could I know this by 
the end of next week?
    I know this has to be negotiated, but based on how other 
cities have negotiated it--let's take two that I know, and 
there are many more, New Haven and Boston. They have negotiated 
even with small colleges. They get some payment in lieu of 
taxes. I would like to know how significant you believe would 
be the revenue if we negotiated payment in lieu of taxes from 
the kinds of tax-exempt entities that other cities now get on a 
regular basis payment in lieu of taxes from.
    We know that there have even been some offers, or at least 
an offer from at least one, the National Education Association, 
to give 40 percent. That is a lot of money, and as you are 
cutting budgets, if we could proceed on that, as Ms. Jarvis 
apparently has moved the council recently, that would be very 
helpful.
    FTS-2000--I am taking these down, you all. Do not let me 
have to call you; call me--FTS-2000, pilots, the welfare bill, 
and, finally, Mr. Mayor, when your transformation plan came up, 
even your harshest critics up here embraced it and embraced 
you. You have indicated that the transformation plan is moving 
along. I have said to you that I would like, in my own work on 
the House floor which I do every day, to indicate specifics 
about how the transformation plan is being implemented.
    And what began as a compliment to you has now become a 
point of criticism from the Hill because the Hill will not buy 
these notions that we are moving along, we are having meetings, 
and it is going along. So the kinds of things that most 
interest Congress is restructuring agencies and services.
    This is what the District and the control board could not 
get a hold of initially because the financial situation was 
what you worked on initially, but here, the impression is that 
we have the largest government per-capita, and if we do not 
show not only that the District has cut, but that the agencies 
look differently, your figures do not register up here, and it 
is a terrible, terrible shame that the District is not getting 
credit for privatization and even for layoffs because the 
District cannot show when it comes up here that X agency had 10 
layers last year, and it has got 5 layers this year, that it 
had what your transformation said would happen, that there were 
5 agencies in one department, and now there are 2.
    That is what would most help us to show a difference based 
on the transformation plan that many of us believed was going 
to be the road map out of which you would proceed. And I 
recognize how difficult it is to get there, but even working on 
some of those consolidations, some of the elimination of 
bureaucratic layers would help me to respond to people who do 
not give you any credit for very substantial changes in the 
District government.
    Moreover, without working off of a plan like the 
transformation plan, when there is overspending, there is a 
clear impression here that the District and the control board 
are forced to get the bodies and the money wherever they can 
find them and that that will not necessarily be in 
consolidations and elimination of layers of bureaucracy, but 
will be wherever because you have got to stop the hemorrhaging 
of money.
    We are most interested in specifics, not only on what has 
happened thus far, but on what the process is for implementing 
the transition plan, whether there are pieces of legislation 
before the city council that would, in fact, carry out the 
transformation plan. It would be one of the most significant 
things you could do for us as we go forward with this plan so 
that we would be armed with this evidence as we have the 
skepticism come at us that the District should not have more 
money, should not even be relieved of these State costs.
    I ask also, because constantly we are told that we have the 
largest government per-capita, that we do not need any more 
money, just cut, and you will get the money out of that, I 
would ask that you send the number of employees and, if 
possible, the amount of money that goes for the State functions 
alone up here. They count all of the employees, and then they 
say, See, we have a fraction of those. You obviously have to 
have employees for Medicaid. Well, you will have to have that 
anyway because you will keep Medicaid. Employees for prisons.
    I do not know if the court employees--I suppose they are 
counted to you. You have employees for the State functions, and 
I do not need to run down what they are to you. If somebody 
could isolate what those employees are, so we then would cease 
the process that I am faced with every year of comparing apples 
to oranges, their city employees or their county employees with 
our State, county, and municipal employees.
    If I could get responses to those, you would help me, and I 
believe you would help the chairman, who is trying to help us a 
great deal. Thank you very much, Mr. Chairman.
    Mr. Davis. Thank you.
    Mr. Barry. Ms. Norton, in terms of the specific information 
about State functions, here it is, and I would like to----
    Mr. Davis. Without objection, it will be placed in the 
record.
    [The information referred to follows:]

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    Mr. Barry [continuing]. Ask you to take it, you know, and 
expand on it as you talk about this on the floor of the House. 
It is very specific, by agency, by function, and etcetera.
    Mr. Davis. It will be put in the record.
    Mr. Barry. Second, we are going to get to you a list of 
where we are with transformation. I am going to discuss it with 
Congressman Davis this afternoon. Also, there is a lot of 
misinformation and noninformation that we want to share so that 
people can see that this process is making steady and 
significant progress.
    On the other hand, Congresswoman, we certainly can become 
more efficient. We certainly can streamline. But if you look at 
the big cost centers in our budget, the big cost centers in our 
budget--Medicaid, prisons, and others--they are a result of our 
disproportionate share of poverty in this community. If you 
look at where a lot of this money is going, it is the 
disproportionate share of poverty.
    Now, the way you correct that is get people out of poverty, 
and I have got some notions about these nonprofits, which I 
will not say today, but I share with you about how we can get 
them more involved with putting people to work.
    So we are going to do all of that, but I think if we do not 
point out, though, that these big cost centers, look at where 
they are, are really the direct result of the social and the 
demographics of our city, which are disproportionate low income 
compared to other parts of the region or other parts of the 
city. New York City has all these other boroughs to do that.
    Mr. Davis. Thank you. Ms. Norton, thank you very much. I 
will make two final comments.
    First, I would like to see, if you have it, all the Federal 
property, and what you would get under normal real estate 
assessments if the Federal Government paid real estate. I have 
seen a lot of conflicting numbers on that, and if you have the 
programs ready to run that----
    Mr. Barry. We have it exactly.
    Mr. Davis [continuing]. That would be very helpful, and I 
would be happy to put that in the record, because that will 
give us an idea of what the Federal Government is not paying 
for the real estate that would be payed by someone else.
    Mr. Barry. The other thing, Mr. Chairman, people fail to 
point out and notice that we usually talk about property tax 
forgone, but just think of the income that would be earned on 
this property, too, with people working in office buildings or 
living in homes that would be on some of this property.
    Mr. Davis. If you can provide us with your numbers, I am 
going to have our staff go over it.
    Mr. Barry. We have them.
    Mr. Davis. We would like to get a definitive number. A lot 
of numbers are floating out there. People have tried to make 
the best stab----
    Mr. Barry. Mr. Chairman, we have the exact numbers.
    Mr. Davis. Fine. And, finally, I just want to ask you, Mr. 
Mayor, and you do not have to answer this now, maybe for our 
discussion this afternoon. There is a high-technology 
revolution that is encompassing the beltway and the DC area 
that has produced hundreds of thousands of jobs, and our 
question is, how can we get the city to participate in this? To 
date, the city has not been a beneficiary of this. And it could 
be the function of the University of the District of Columbia. 
UDC could be starting with appropriate training programs.
    We have over 12,000 jobs identified in northern Virginia 
that we cannot fill in the region. There is no reason the city 
cannot start doing some training and share in this.
    We would love to have you as partners, and to get all of 
the university presidents from Virginia and DC, and Maryland 
together to talk about how we can fill this gap. It does not 
take a college diploma in some of these cases, but it takes the 
appropriate training. This is something that we can work 
together on, and we can discuss that later this afternoon, but 
let's be thinking in these broad terms--not just Government 
jobs, but some of these high-technology, telecommunications, 
Net-based service jobs that we cannot find people to do. How 
can we start orienting our young people in this direction?
    I would love to see you share in that with us. It would 
help the whole region.
    Mr. Barry. Mr. Chairman, one of the things that we are 
doing immediately is to assign staff, and we will talk more 
about it this afternoon, that will begin to look at these lost 
opportunities, including the high technology, and also how we 
can begin to match up DC residents with jobs in the suburbs and 
the impediments to doing that. So we will discuss it.
    Mr. Davis. Thank you both.
    Mr. Barry. Thank you.
    Mr. Davis. We have kept you here longer than we 
anticipated. You can have the last word, Ms. Jarvis.
    Ms. Jarvis. Just with respect to the high-technology 
revolution, as an outgrowth of the Board of Trade's Greater 
Washington Initiative, Susan Williams is now working with them 
to bring together at the consortium of universities to talk 
about the training that should occur, and there is a meeting, I 
believe, that has been set for that, and so you are right on 
target, Mr. Chairman, on that.
    The Appleseed Center also has numbers with respect to the 
Federal payment.
    Mr. Davis. Thank you both very much.
    Ms. Jarvis. Thank you, Mr. Chairman, for your support. 
Thank you, Ms. Norton.
    Mr. Davis. Mr. Rogers, thank you.
    Mr. Barry. Thank you very much, Mr. Chairman; and certainly 
our warrior on the Hill, Ms. Norton, thank you.
    Mr. Davis. We are pleased to have next Dr. Brimmer.
    We have Dr. Brimmer and also the District's chief financial 
officer, Tony Williams. Tony, I do not know whether to call it 
your checkered past or a historic past, being the local 
official in Connecticut, but we are pleased to hear about that.
    Thanks, both, for the fine job that you are doing. As you 
know, it is our policy that all witnesses be sworn before they 
may testify.
    Let me start at the beginning, Dr. Brimmer. I understand 
that congratulations are in order for you. As I understand, you 
became a first-time grandfather last night.
    Mr. Brimmer. Thank you very much, Mr. Chairman.
    Mr. Davis. I have not had the pleasure of that particular 
honor yet, for which I am grateful at my age, but I look 
forward to it sometime in the future. I know how proud you must 
be, and we congratulate you.
    Would you just both stand with me and rise.
    [Witnesses sworn.]
    Mr. Davis. Thank you. Dr. Brimmer is chairman of one of the 
most underpaid jobs in America. We are happy to have you here. 
I have read your testimony, and I think Ms. Norton has. If you 
would like to hit the highlights, that would be great. It is 
very thoughtful, and it will all be put in the record.
    Mr. Brimmer. Thank you very much, Mr. Chairman. I would 
like very much to do that.
    Mr. Davis. Pull that microphone next to you, too. Go 
through and summarize the facts you want to get into and then 
we can get right to the questions and not keep you longer than 
we have to.

 STATEMENTS OF ANDREW BRIMMER, CHAIRMAN, DISTRICT OF COLUMBIA 
 FINANCIAL RESPONSIBILITY MANAGEMENT AND ASSISTANCE AUTHORITY; 
 AND ANTHONY WILLIAMS, CHIEF FINANCIAL OFFICER, WASHINGTON, DC

    Mr. Brimmer. What I would like to do is call the 
committee's attention to several attachments to my prepared 
testimony, and I will use those attachments to highlight the 
brief remarks I will make.
    You have a chart called ``Plans for Revitalization of the 
Nation's Capital.'' I will refer to that. It compares the 
Authority's strategic plan with the President's plan. You will 
also find in the attachments two tables. Table 1 shows the 
impact and trends of revenue and expenditure through the year 
2000 under the current financial plan and budget.
    And, by the way, the copy you have may have left the 
numbers of the years off, but those are years 1996 through year 
2000.
    Mr. Davis. We have that. What we do not have is a table 
based on no interyear or intrayear Treasury borrowing. Is that 
correct?
    Mr. Brimmer. The first one, as you will notice, does have 
Treasury borrowing, and I will comment on that in the table.
    The second table shows the President's plan and its effects 
on revenue and expenditures. Attached to each of those tables 
is a graph which tracks revenue and expenditures first under 
the current financial planning budget, and the second one under 
the President's plan, and I will use those for illustrative 
purposes in a few minutes.
    I would also like to include in the record the control 
board's strategic plan, which we released last December. Much 
of my remarks today will be designed to contrast the 
President's program with our strategic plan because we believe 
that the proposal for the assumption of State-like functions 
contained in our strategic plan is the better one to follow.
    Mr. Chairman, if you were to look at Chart 1, you will note 
that in the left-hand column we have identified several of the 
principal elements in our strategic plan, and in the right-hand 
column we contrast our proposal with the President's. I will 
not go through each of these in detail, but I would ask you to 
note that with respect to the unfunded pension liability, we 
have recommended that the Federal Government assume all of 
those liabilities, $4.8 billion.
    The President's plan would do the same. I should say, Mr. 
Chairman, that with respect to the President's plan, we 
recognize that we are trying to assess a work in progress. From 
the original announcement there have been a number of 
modifications, and so the figures I will be using today are 
those which were available in the original plan.
    You will note that the first-year cost of the Federal 
Government's assumption of the unfunded pension liability in 
our estimate is $246 million. The President's plan, about $268, 
they are not essentially different. Over 5 years, we believe 
that about $1\1/2\ billion would be the cost under our proposal 
and about $1.6 billion under the President's proposal.
    With respect to Medicaid, we propose that the Federal 
Government assume 100 percent of the cost of the Medicaid 
program. The President's proposal calls for the assumption by 
the Federal Government of 70 percent, and that makes a great 
deal of difference in terms of the cost. Our first year is 
about $467 million. The President's program, because of the 
assuming only 70 percent, is much less, $156 million. And you 
will notice over 5 years we believe that it would be $2.4 
billion; the President's is only $918 million.
    Before I go further, let me say that the President's plan 
is designed to relieve the city of certain expenditures. It is 
a cost-relieving plan. It is not a revenue-generating plan--
quite the contrary. The President's plan would remove $660 
million of revenue from the city that is now available to the 
city, $660 million of Federal revenue flowing to the city.
    Those divergent actions represent the major difference 
between our proposals and the President's. You will notice that 
I also show what the 1st-year and 5-year costs of prison would 
be, the court system in the case of the President, 
transportation and infrastructure, mental health. We propose 
that the Federal Government take over the full cost of mental 
health, and we estimate that to be about $114 million the first 
year and just under $570 million in 5 years. The President's 
plan has no provision in that regard.
    The other major difference deals with the revenue, as I 
have said. If I were to add up the first-year cost of the 
proposal we made--and, Mrs. Morella, this has some bearing on 
the question you were asking--we get just about $1\1/2\ 
billion, $1.4 billion. That does not include any capital, and 
it does not include the cost of long-term financing of $4 to 
$500 million for the accumulated deficit.
    The first year cost of the President's program, insofar as 
we can estimate them on the basis of figures that are still in 
flux, we believe the President's first-year cost would be about 
$950 million. But since the President also had some capital 
costs, the first year for the capital would be about $300 
million, so that would sum to about $1.3 billion.
    What I would like to do now, Mr. Chairman, is to look 
briefly at the effects of the President's program in budgetary 
terms. I call your attention to table No. 1 and chart No. 1. 
What we have done in this table is to identify the principal 
revenue sources now available to the District of Columbia, and 
we have projected those through the year 2000.
    These figures are from the 1997 financial planning budget, 
under which the city is now operating and with adjustments that 
were made in the interval. You will note that the principal 
sources of own revenue are sales taxes and income taxes. You 
will note the Federal payment, and then you will note other 
revenues, mainly grants and so on.
    You should note that one thing stands out in this table, 
that over the years there is very, very little growth in local 
revenue sources. If you let your eyes run down and you look at 
total revenue, you will notice that in 1997, total revenue, 
including the Federal payment, is $4.4 billion. In the year 
2000, total revenue is $4.5 billion, virtually no growth.
    And if you look at the principal local sources, you will 
note that as far as property taxes are concerned, we estimate 
that there will be a decline in the level of property tax 
revenue over the period shown. If you look at sales taxes, you 
will note similar stagnation or decline. Let me repeat again 
that local source revenues under the current plan will grow 
very little.
    On the other hand, if you look at expenditures, and here we 
have identified on a separate row those expenditures that are 
highlighted in the President's program, the Medicaid, I will 
call your attention to particularly. Under the current 
arrangement, the Federal share of Medicaid expenditures would 
go from $421 million to $459 million. The District's share 
would also grow because it is 50/50. With respect to the 
pension fund, we estimate that expenditures in 1997 would be 
$321 million, would grow to $421 million by the year 2000.
    Prisons, expenditures would rise from $268 to $283. Again, 
I would summarize to say that the expenditures for the programs 
for which the Federal Government would assume all or partial 
responsibility would rise from $1.6 billion in 1997 to $1.8 
billion in the year 2000, and you will notice what is happening 
to other expenditures. That is the program without the 
President's plan.
    In chart 1, you will see that in every year, in every year 
expenditures exceed revenue; and if you look at 1998, you will 
see that the deficit is on the order of the magnitude of $136 
million. You will note also that the deficit diminishes over 
the out years, but there is still a deficit under the present 
plan.
    Next, I will call your attention to table No. 2. Here, we 
have incorporated the budgetary effects of the President's 
program. With respect to revenue, you will note that we have 
eliminated the Federal payment as a source of revenue. You will 
notice we have added additional Medicaid revenue because the 
Federal Government would be assuming another 20 percent points 
of that, and so we treat that as revenue, but here note what 
happens.
    Under this proposal, total revenue rises from $3.9 billion 
in 1997, virtually the same in 1998, but only to $4.3 billion 
in the year 2002. You will also note that in 1998, we have 
included $400 million because we assume that there would be an 
intermediate-term financing under the plan to refinance the 
deficit, to borrow to cover the deficit.
    Note again that with respect to total revenue, it rises 
from--in the year 1998, it is $4.3 billion; in the year 2000, 
it is essentially the same.
    On the other hand, if you look at expenditures, you will 
note again that the net result of the expenditures is that the 
remaining expenditures left with the city after the Federal 
Government has assumed certain costs, the expenditures will 
remain, and this would be in the neighborhood of $4.7 billion 
in 1997, $4.1 billion in 1998, and $4\1/2\ billion in the year 
2002.
    However, if you put aside the effect of the one time 
borrowed in 1998, you will see that in every year the city runs 
a sizable deficit. That is the result of the elimination of the 
Federal payment. I want to stress again that the city, despite 
the assumption of certain costs responsibilities by the Federal 
Government, is still left with a high level of necessitous 
spending.
    Now, what we see here are expenditures that are either 
mandated by courts or required to carry out an essential 
function, such as the schools and so on. The net result is, as 
you can see in chart No. 2, is that except for 1 year, total 
expenditures exceed total revenue, so the deficits persist.
    Let me summarize again, the President's program would 
assume certain costs, but it would also erase certain revenue, 
and the net impact is that the city, on the basis of the 
figures available to us at this point, would be worse off than 
it would otherwise be. I want to pin that down.
    So the key for us at the control board is that if the 
Federal payment is eliminated, the city must have some 
additional source of revenue. And if you look at the revenue 
sources described in the two tables, you will see that none of 
the traditional sources, property, sales, will generate that 
revenue.
    The only tax base available to the city that will grow over 
the years with a high degree of assurance is the income tax 
base. It is the only source that is growing.
    Moreover, as I explain in some detail in my written 
statement, the personal income, the level of personal income in 
the District has been growing; and, in fact, over the last 
decade or so that growth rate has roughly paralleled the growth 
rate of personal income in Maryland and Virginia.
    The problem is that the entire tax base, personal income 
revenue, is not available to be taxed by the city, and that is 
because of the constraints imposed on the city by Congress with 
respect to the taxation of income at the source, the city is 
unable to share through its tax rate the growth in the one tax 
base that is increasing.
    So if the Federal payment disappears, then you will get 
from us a strong recommendation that you lift the prohibition 
on the city and allow the city to tax all income, if not at the 
same rate, at some significant rate. And I am talking now about 
taxation of income at the source. I am not talking about a 
commuter tax of any kind.
    Mr. Davis. What is the difference?
    Mr. Brimmer. The difference is as follows, and in most 
cases in Virginia and in Maryland, the income taxes are levied 
at the source of earnings. I pay taxes in Maryland. I pay taxes 
in Virginia because I have income earned in Maryland, and I 
have income earned in Virginia. Now, from the District's point 
of view, I get a tax credit, so I am not being taxed twice, but 
it means that Virginia and Maryland, and by the way, this is 
true for virtually every other jurisdiction in this country, 
and I know of no exception, that income is taxed at the source.
    Now, the reverse of that is as follows. Because the 
District cannot tax all income earned, essentially that 
prohibition permits Maryland and Virginia to reach into the 
District and tax a share of the benefits of economic growth in 
this city. It is almost as though Virginia or Maryland were, in 
fact, in a position to levy a tax on property in the District. 
Since the base is exactly analogous, this would mean that what 
is happening now is that the incomes earned in the District by 
residents of Maryland and Virginia are being taxed for the 
benefit of Maryland and Virginia and not for the benefit of the 
District.
    And I want to work very hard to try to show the Members 
that that is, in fact, the result of--whatever the intent was, 
that is the consequence.
    [The prepared statement of Mr. Brimmer follows:]

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    Mr. Davis. I did not say anything during the Mayor's 
comments today, because I think the source tax is a non-
starter. But let me just say, I think what would happen at that 
point is companies that are currently in the District would 
find a reason to move to the suburbs and it would hasten the 
decline of business from the city, which is the wrong 
direction.
    But we are going to work with you to solve the revenue 
problems in different ways, and I think that is critical. I do 
not think we need a fight between the suburbs and the city; 
that would not be productive.
    Mrs. Morella. Mr. Chairman, could I just ask about the 
figure?
    Mr. Davis. Sure.
    Mrs. Morella. Mr. Brimmer, I really appreciate these 
charts. And when you factor in the deficit with the President's 
plan, you have not factored in, though, mental health, have 
you, St. Elizabeth's or UDC? So, I mean, is that correct? So, I 
mean, if you wanted----
    Mr. Brimmer. That is right.
    Mrs. Morella [continuing]. To do something with their 
health, then it would be an additional amount, a greater 
deficit.
    Mr. Brimmer. The District--I am sorry. The President's 
program has no provision----
    Mrs. Morella. Right.
    Mr. Brimmer [continuing]. For the assumption of mental 
health costs. If they were for the full amount we estimated in 
that chart A, row 6, mental health, you will see we think the 
first-year costs will be $114 million, and so you would need to 
add that.
    Mrs. Morella. So the deficit could be larger, then, too.
    Mr. Brimmer. That is right.
    Mrs. Morella. Right. Thank you. Thank you, Mr. Chairman.
    Mr. Brimmer. Well, Mr. Chairman, those summarize my 
comments.
    Mr. Davis. Great. Thank you. We will have questions for you 
in a moment. We will now hear from Tony Williams.
    Tony, thank you for your patience.
    Mr. Williams. Thank you, Mr. Chairman, and very, very 
briefly, I feel under great pressure today, as the District's 
chief financial officer, both because of our financial crisis 
and also because I am the last speaker, and I feel a need to 
abbreviate dramatically my comments, and I will do so.
    I think the District is in a unique situation as we look at 
the President's plan because the District is two things at one 
time: The District is a unique entity, but at the same time it 
is in a situation similar to many other cities. That is, 
fundamentally, the District has to turn its economy around.
    I always go back to the legislative history of the Control 
Act, and in that legislative history it is pointed out that the 
District faces really three problems: a financial problem--a 
cash shortage, or cash deficit driven essentially by a 
structural imbalance in our budget; a budget problem with a 
growth of expenditures at a rate of anywhere from 6 to 10 
percent while revenues remain essentially flat; and an economic 
problem which compounds the budget problem.
    And I think that the legislative history speaks volumes 
about our present situation because essentially the District, 
like many other cities around the country, has to find a way to 
fundamentally reverse the trend in its economy. Cities went 
through a first phase, up to the Great Depression, of 
spectacular growth, movement from an agrarian economy to an 
industrial economy. Beginning with the Great Depression and 
World War II, basically there was stagnation, and in 1950, in 
the District and elsewhere, you see essentially a spectacular 
drop in population. The city of St. Louis, for example, a 
population of over 800,000 in 1950 dropped to under 400,000 in 
1990.
    And essentially what the District has to do is find a way 
to get competitive again and turn its economy around. I think 
the charts that Dr. Brimmer illustrated for you and the chart 
that we have also submitted into the record as part of our 
testimony basically speak to the fact that while the 
President's plan eases the structural imbalance in the city's 
budget, it does not entirely eliminate that problem.
    To put it another way, it does not solve our 
competitiveness problem. I think our competitiveness problem is 
basically solved in three different ways, and I will talk about 
the ways that we are contributing to it. First, there is a 
management side, and on the management side I think right now 
we have a couple of problems. One, we need to turn the 
headlights on. We are not operating with the best information. 
We desperately need a financial management system to give us 
better information with which to make decisions.
    Right now, it is as if you went out into your garden, you 
blindfolded yourself with some pruning shears, and you started 
cutting: you would reduce the size of your garden, but it would 
not look very good. I think what we are doing right now is 
essentially reducing the size of the District government, but 
we are not making it look very good. We are not really 
improving its efficiency at the velocity I think all of us 
would like to see.
    And what we are trying to do in the 1998 budget is to 
provide in one document for the Mayor, the control board, the 
council, and notably, the Congress, the legislation, as well as 
information on not only the transformation plan and how we are 
doing, but information on the level of our programs, our 
priorities, what is essential, what is basic, what is 
discretionary, so that we can make these critical management 
decisions.
    Moving along, I think something that we desperately need to 
do in terms of bringing stakeholders to the table is, first and 
foremost, move much more aggressively than we have in bringing 
labor to the table in an overall agreement that corporations do 
in their reorganizations, that other cities have done in their 
reorganization, and, finally, bring the Federal Government to 
the table. And I applaud the President's plan as a constructive 
first step to do just that.
    But in the sense that the President's plan does not address 
this gap, this structural imbalance in long-term expenditures 
and revenues, I think we are basically faced with two choices, 
and that, I think, is the crux of the issue before us. One 
choice is to provide additional revenue to the District 
government to provide that structural balance.
    Another choice--and I do not think these choices are 
mutually exclusive--is presented by Congresswoman Norton and 
others in terms of capital gains concessions. A key component 
of the President's economic development plan is to invest in 
the local economy with the objective that by investing in the 
local economy, either in terms of businesses or private 
investors, we are going to grow the tax base. And by growing 
the tax base, grow revenues and erase that in balance.
    I think what we can do on the local side is work with the 
Tax Review Commission, in which we have invested an enormous 
sum of money to continue its operation, to provide an overall 
plan of how we can, in conjunction with these plans at the 
Federal level, streamline and reduce the complexity of our tax 
structure not only for administrative purposes, but also by way 
of providing a needed incentive to the business community.
    And I think another thing that we can do, and we are in the 
process of doing--and I will close with this point--is continue 
to work as we have with the Treasury and OMB, Mozelle Thompson, 
and Ed DeSeve, respectively to provide the District with the 
short- and immediate-term credit that we need to not only 
continue in operation, but to finally get a handle around the 
District's liquidity crisis.
    There are really--and I will mention this--three issues 
that we are addressing with the lack of the Federal payment, 
and these are the financial issues as opposed to the budget 
issues that Dr. Brimmer discussed. We have, first of all, 
increased borrowing costs. When you lose that big chunk of 
revenue at the beginning of the year, that changes your cycle, 
and your schedule of borrowing can increase borrowing costs.
    As with any troubled credit, and certainly in the situation 
today, if you lose that Federal payment and you look for short-
term, intermediate-term financing, you always have credit 
collateral issues, and that can impair the stake of existing 
bondholders, and that is something that we are looking at as 
well.
    And, finally, as Chairwoman Jarvis pointed out, we also 
have the debt-cap-limitation problem, in that we have a best 
service limitation of 14 percent against local revenue. If you 
reduce that Federal payment, and we have got to recalculate 
that debt-cap position as well. But, again, these three things 
are something that we are working with, the Treasury and OMB to 
accomplish.
    I think we will get a handle around the financial issues, 
but we are still left with the overall fiscal structural 
imbalance that we have got to find one way or another to 
address. I thank you, Mr. Chairman.
    [The prepared statement of Mr. Williams follows:]

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    Mr. Davis. Tony, thank you very much. Let me just 
summarize. The first of the three items you talked about before 
shedding some light on the subject. Is the second area the 
relationship between the Federal Government and the city and 
structuring that relationship?
    Mr. Williams. That is correct, sir.
    Mr. Davis. And then the third area, of course, is moving 
the tax base back in the city. I have the same analysis, and 
would agree with you on that.
    Let me start by asking Dr. Brimmer, and I will ask you, 
Tony, too, after the control board legislation we passed last 
year, and we have had now a couple of years to review it, are 
there any additional functions, additions or subtractions that 
either one of you would suggest to the legislation as we move 
through this? I will start with you, Dr. Brimmer.
    Mr. Brimmer. Mr. Chairman, some time ago, we did suggest 
some modifications in our statute. I was pleased that the 
Congress made those modifications and gave us those additional 
authorities. We are putting together a list of additional 
authority which we believe we should have. The list is not 
complete. We have not thought through all of them, and so I am 
reluctant at this time to describe them in detail, but there 
are a couple which we will be asking the Congress to look at.
    Currently, we can issue an order if we conclude that a 
position is no longer necessary for the function of the 
District government. We can issue an order and remove that 
person from that position, but we cannot at this time simply 
and automatically specify a replacement. So we are faced with a 
situation in DHS, for an example, the Department of Human 
Services, where at our urging, the Mayor removed that director 
almost a year ago but the position is still not filled.
    So we will be spelling out that proposal, and we will ask 
the Congress to share that with them.
    Another area to which I have given thought, not the whole 
board, and that is the question of appointment of the chief 
financial officer and the inspector general. As matters have 
developed over the last year, we have been very pleased and 
delighted in the way the appointment of the chief financial 
officer has worked out. It took some time, but once there, as 
you know, we have said many times, we are very pleased with the 
way the chief financial officer has carried out his duties.
    We are less so pleased--in fact, we are unhappy--with 
respect to the inspector general, and we will have some 
discussion of that further, and if I can persuade my 
colleagues, we will probably ask for authority to make that 
appointment. But this has not been fully developed. These are 
my thoughts, and we will reach a conclusion on that later.
    Mr. Davis. Dr. Brimmer, both Ms. Norton and I would like to 
be involved in your thoughts on that, not out here, of course, 
but as you work forward.
    Mr. Brimmer. Yes. Thank you. But there are a few other, 
minor, technical things. We will review them, and we will 
submit a written request to you, Mr. Chairman. Thank you very 
much.
    Mr. Davis. Thank you very much.
    Tony, you talked about cities moving from the agrarian into 
the industrial economy. We are now moving into a third wave, 
and that is technology, knowledge-based, service economy where 
the city and a lot of cities have not taken advantage of what 
is offered. Have you seen the city with any plans to take 
advantage of this revolution coming at this point, or do you 
have any thoughts on how we might involve the city?
    It is going on all around the city, and the President's 
plan does not specifically target that, and, in fact, some of 
the incentives that they offer I do not think are likely to 
attract those kind of companies to the city. And this is an 
area to which I think we can add some value and work with our 
suburban neighbors to make that happen.
    Mr. Williams. I think, and Dr. Brimmer can speak to this, I 
think the control board called for an economic development 
strategy at the beginning of this year. I think the District, 
in conjunction with the DC Agenda, came up with an economic 
strategy which I think is good. The transformation plan as a 
plan is good, but in terms of the rubber hitting the road, I 
think one of the key, important features of the President's 
economic plan that I think all would agree is a good thing is 
having a corporation overseen by top professionals to actually 
implement a plan, an entity that has the throw weight to 
really, on a project-by-project basis, make something happen.
    I think we have a traction problem. I know I sound like I 
say that all the time, but we really do have a traction 
problem. We have got good vision and objectives, but actually 
getting down and getting some mileage has presented some 
difficulty, and I think this development corporation is a good 
way to see the plan that was presented to Dr. Brimmer actually 
achieve something.
    Mr. Davis. Well, I think, on an individual transaction deal 
it can be helpful, but you have to look at the overall 
competitiveness of the city in terms of bringing that in based 
on its capabilities. We would look forward--if you do not have 
to answer today--to any thoughts you have on how to make the 
city more competitive, particularly for some of the kind of 
businesses that are attracted to the region but have chosen not 
to go in the city.
    We know that the rent structures are something we may not 
be able to control in a significant way, but we can control 
some of the other costs of doing business and other 
attractions. I think we have to realize that this is the only 
chance we are going to have at the Federal level to address 
this, so we look forward to any thoughts you have. Dr. Brimmer.
    Mr. Brimmer. Mr. Chairman, as Mr. Williams indicated, 
reminding us that in our strategy plan we do have a section on 
economic development, and I am delighted to see that a number 
of the elements in the plan the President announced a few days 
ago correspond closely with what we had in mind.
    So our reaction to the economic development component of 
the President's program is a favorable one. We think it is 
comprehensive, and I particularly like the stress on the 
Economic Development Corp. I believe all of these efforts must 
be owned by somebody. Someone must take responsibility, and the 
device of the development corporation strikes me as a good way 
to go.
    I have some specific comments on various pieces of it, but 
I would not want to take up the committee's time at this time.
    Mr. Davis. Dr. Brimmer, I just want to point out that the 
President's proposal can do it on a case-by-case basis, but, 
again, the overall competitive level of the city has to be 
addressed, and you cannot do that on a piecemeal basis. You 
cannot do that with just a few incentives here and there.
    We have to take a comprehensive look, and that means taxes 
and regulation to me. It may also mean some other items. I 
think we share that the strategy is, how we get there, given a 
limited ability to make up the revenues elsewhere; that is the 
missing piece.
    How do we get a work force involved in some of these 
technology areas where currently UDC is not turning them out? 
People are having to go to private colleges and universities, 
Strayer and others, to get the training they need for the tens 
of thousands of jobs that are available right now that the DC 
residents are not utilizing, and neither are some of my 
northern Virginia residents.
    We keep preaching, this is the area of job opportunity. We 
still have in Virginia more psychology majors coming out of our 
universities than computer science majors. If you take a look 
at the job growth, it does not make any sense.
    But the city needs to be involved and engaged in this. That 
will give the city some traction, and it will be an opportunity 
and an additional rung on that ladder of opportunity for some 
city students today that do not have the kind of futures in 
mind that they think they can have. We are starting people out 
of college at $40, $50,000 a year in the suburbs.
    Mr. Brimmer. Mr. Chairman, in my written comments on the 
economic development component of the President's plan, you put 
your finger on exactly the area where I had some reservations, 
as mentioned in this text. Competitiveness, and much of this, 
of course, the anticompetitive takes the place of excessive 
regulations and practices which discourage business.
    Some 15 years ago, we did a study for the District in my 
own company on business retention, and we asked, why are so 
many businesses leaving? One of the things that stood out was 
the burden of regulation and other anticompetitive devices.
    In our own review over the last year, we have discovered 
that basically nothing has changed, and so in administering the 
various pieces of legislation that come before us, we always 
put an emphasis on and ask the question--I particularly ask the 
question, since economic development is my area at the board, 
how will this affect the business environment? And we believe 
that a great deal more has to be done, and we use our authority 
to eradicate these obstacles whenever we can.
    Mr. Davis. And I think Ms. Jarvis, who is behind you, 
understands this, and as I asked earlier, you have got some 
studies coming up. This time we have got to move, roll up our 
sleeves, and put the rubber to the road.
    If we get a little traction in these areas, you can get 
some momentum, and you have got to create a critical mass, and 
that will give you some momentum. We are not there yet, but 
this is the time, and we are happy to help any way that we can.
    I am going to now recognize the delegate from the District, 
Ms. Norton.
    Ms. Norton. Thank you very much, Mr. Chairman. Dr. Brimmer, 
first of all, let me offer my congratulations on what must 
surely be one of the most significant developments in your 
entire life. I have met your beautiful and smart daughter, so I 
know what this must mean to the family.
    Mr. Brimmer. Thank you. Thank you.
    Ms. Norton. Dr. Brimmer's testimony, your testimony, sir, 
is not only very useful, but it is a wakeup call that casts 
great skepticism over the viability of the President's plan, as 
far as I am concerned. First of all, when the Federal payment 
was first proposed in my discussions back and forth--and this 
was before the plan was made public--to be eliminated, it was 
after that point that OMB talked about financing the 
accumulated deficit.
    If I may read from the part of your testimony that I think 
could blow up the President's plan, it is the following. 
``Absent the Federal payment, our projections show that the 
District will experience a surplus only by the financing of the 
accumulated deficit. In fiscal year 1999, 1 year after the 
financing, the District will not only have spent through its 
positive fund balance created by the borrowing, but it will 
start to experience an operating deficit that increases to 
approximately $112 million by fiscal year 2000.''
    This part of your testimony in so many words restates what 
you went through with us when you were going through the charts 
so helpfully. In going through those charts, I kept looking for 
something, having seen this sentence and having seen the 
charts, that might preserve some basis for believing that there 
was any life left in the notion of getting rid of Federal 
payment.
    Then I recalled that OMB is, of course, working with the 
city to find some kind of way, some kind of proxy, I guess, for 
the borrowing. I do not understand how that would help us, 
unless we were going to be relying on the Treasury forever. 
They have not, in fact, come forward with any notion about 
collateral, so what you do in your charts, you just eliminate 
the Federal payment because you do not see any collateral; and 
if I am hearing them talk, the only collateral they have is, 
you know, they will lend it to us, which just gets us back more 
dependent than we have been in a very long time.
    In other words, I have to ask you, do you see any way that 
the OMB can get around this problem of the Federal payment as 
they are now trying to do by finding somewhere else, some other 
source of a borrowing that would leave us permanently stable or 
some other collateral, or is that chasing our tail, and we just 
as well face it now and try to find something else?
    Mr. Brimmer. Congresswoman, I do think they are chasing 
their tails. The key point is that, from the point of view of 
the budget, we need to deal with sustained and predictable 
revenue sources available to finance sustained and predictable 
expenditure requirements. And if you look at the chart again, 
you will notice that the traditional sources of revenue will 
not grow, so they have to find some substitute for the Federal 
payment, and I stress that has been the second largest source 
of revenue available to the city. If you get rid of it, then 
you must find some equally predictable and sustainable source 
of revenue.
    Borrowing is not that. Borrowing is not a source of 
revenue. It enables you to finance the deficit but not to avoid 
the deficit.
    Mr. Davis. If the gentlelady will yield?
    Ms. Norton. I will yield to the chairman.
    Mr. Davis. I would say when we had Mr. Raines up here 
explaining the administration's proposal, I was very skeptical 
of some of the numbers you supplied concerning what this does 
to cash-flow, so I will continue to pursue it.
    But the reason there would be no Federal payment was really 
twofold. Mr. Raines said, first of all, he felt it would be 
more attractive to Congress. That does not appear to be the 
case as I canvass other Members and particularly the 
appropriators, who like being involved in this process. So, 
that is not flying the way it was intended.
    Second, it was to give the city a sense of accountability, 
that the final decision is being made at that level. We can do 
that in other ways and still make a payment come forward. It 
seems to me, if you meet those two objectives, I do not know 
why the administration would not be flexible on this. I think 
we are going to need some kind of annual payment from the 
information I am hearing today. I will be happy to yield back.
    Ms. Norton. Thank you, Mr. Chairman. The problem is that I 
really see this as a major stumbling block, and that is why I 
look forward to this testimony, because until this testimony, 
what we had heard was characterizations: The Federal payment is 
for services rendered. That does not wash. If, in fact, we got 
a whole lot more revenue on one side, then who in the world 
would care what you call it, so long as we came out truly 
ahead?
    But this, I think, is a major, major impediment to the plan 
going forward, and with due regard to my chairman, he will be 
the first to say that what we are required to do is to pay for 
this. And essentially what it looks like is OMB was trying to 
find a way to pay for it, the Federal payment.
    If there had been enough of a tradeoff, might have been--
your figures, it seems to me, unless they are wrong, 
definitively show that nowhere near enough tradeoff to make up 
for it because you have, in fact, done your figures with their 
new takeover costs included, and I really believe that we 
should not go much further without sitting down with the OMB.
    And I recognize that they have given off to some of the 
staff there to try to patch together something that will 
continue to make this fly, and what I do not want to see happen 
is, you know, we get to what, May, and this problem, which you 
have raised early, is still a cloud over us, and the CBO or 
somebody comes back and says, ``This does not wash, this does 
not fly,'' we are left with nothing.
    Mr. Brimmer. Well, I am delighted to hear you say that, Ms. 
Norton. And, again, I stress, revenue, revenue, revenue. That 
is the key for the Federal payment, and let me go on to say 
that the expenditures which you see here which will be rising, 
even under the President's program, do not provide for the 
kinds of claims that will be rising.
    I mention one in particular. There is nothing here for 
capital expenditures, and capital expenditures, which have been 
neglected, will become even more pressing. And I name 
particularly the schools. There is a backlog of maintenance and 
expansion for school construction that will not go away.
    Earlier, Mrs. Morella mentioned the Duke Ellington School. 
That is only typical. School construction will continue to 
expand, and as a matter of fact, for the current fiscal year, 
we will most likely come to the Congress and ask for a 
supplemental because the backlog of construction necessary just 
for the schools to open next September is so large and the city 
is going to have to pay for them in some way, and the city has 
no money.
    So, let me repeat. The expenditures you see here with which 
the city will be left after the Federal Government takes more 
than a billion dollars of expenditures on an annual basis, 
those expenditures are substantial, they are necessitous, and 
they will grow. So we are going to need revenue from some 
source.
    Ms. Norton. And if we keep having to shut down schools like 
Duke Ellington in the middle of the year, we are done. There 
will be nobody here who pays taxes. I keep trying to figure if 
there is anything that can be done there. I think that the 
second semester has been ruined for those students when you 
consider the special effects they need just to, in fact, have 
their program at that school. And yet I understand that now 
that the court is in it, it is almost no way around that.
    Mr. Brimmer. Madam Chair, may I----
    Ms. Norton. Yes, sir.
    Mr. Brimmer. This is one thing I would like for the 
committee to think about, and we are going to make this before 
the Appropriations Subcommittee over and over. A large fraction 
of the expenditures in the District government today is court 
mandated. So even before you get to the discretionary 
questions, a growing share is being mandated. I read today of 
another one that might be coming down the pike. A judge, I was 
told, is considering taking over the bus system, the school bus 
system and turning that over to a master or someone and 
mandating expenditures.
    That is happening over and over, and so the flexibility 
available to the city is diminishing rapidly.
    Ms. Norton. I had always hoped that once the city got into 
the mode it is now, that we could somehow bargain our way out 
of those mandates, but in order to do so, we would have to show 
very substantially improved management, so that obviously is 
going to take some time to do. And you are right. That puts 
everything else behind the line because those mandated costs 
come first.
    I was surprised to learn--actually I was briefed in some 
detail by Mr. Williams on the way in which our budget process 
works so that it is not a reconciliation process. And as I 
understand it, unlike the Congress where the bills and the 
budget come at the same time, in the District the bills do not 
come at the same time, which means that almost automatically 
there is not going to be the bill to carry out what the budget 
says.
    Could I ask Mr. Williams where we are on that, because 
apparently that is a source of your $85 million hole that arose 
at the very beginning of the year?
    Mr. Williams. Congressman Davis, the CFO staff, the control 
board staff, and the council staff got together at the 
beginning of the year and worked together on developing a 
consensus budget process, a key component of which would 
involve all the legislation necessary to implement the budget 
being adopted when the budget was approved by the control 
board, sent to the Congress. This facet of the consensus 
process has been incorporated in the Authority's guidance, and 
we are pleased to say that in our March 18 submission, we are 
going to have a large part of that legislation as part of the 
submission.
    Now, it will need some further work, but we are confident 
that when the budget is actually passed, we will actually have 
the legislation to get it under way immediately on October 1, 
and that is a real departure.
    Ms. Norton. This problem is going to be gone then.
    Mr. Williams. Pardon me?
    Ms. Norton. This problem is going to be gone then.
    Mr. Williams. I think we will have solved a lot of the 
implementation problem that way. Another thing we are asking 
for, and, again, this is in conjunction with the board, is that 
as we move through the remainder of this year in the 1998 
budget cycle, we work with all the agencies in adopting a 2-
year obligation plan, so that when we begin the year next year, 
they also have the benefit of a full-year program of 
expenditures.
    It is another thing we did not have in 1997 and certainly 
did not have in 1996. We did not even have a budget. So we are 
making progress on both of those fronts.
    Ms. Norton. The assessment process, I think, which you 
wisely suspended rather than have the confusion continue; where 
are we on a new process there?
    Mr. Williams. We have asked the Mayor and consulted with 
him, and he has transmitted to the council legislation that 
would move the District to a triennial assessment process, and 
we believe--this is something that Maryland does, for example--
we believe that this is going to allow our assessment people to 
do a better job not only--once we have cleaned up the 
assessment data base to do a better job not only in doing the 
assessments one-third per year, but also handling at an 
administrative level the personal and commercial reviews that 
now are automatically thrown up to an appeals board and 
routinely result in a rejection of the city's position.
    Ms. Norton. Dr. Brimmer, the process that apparently the 
Financial Authority took the leadership on with respect to the 
police department, whereby you got the city and all, the police 
chief and all to sign a Memorandum of Understanding so that 
nobody would try to block a process of reform; that process, 
which has resulted in some early action in the police 
department, I think has had a very beneficial effect on the 
city. Seeing that change occur was a very recognizable change 
and the kind of change that heartens people about changing the 
whole city.
    I am so much impressed by that kind of change, sending some 
consultants in, giving them a date by which to come back with 
their recommendations, and then pursuing that, that I am--my 
question really has to do with whether or not you might repeat 
that process in agencies that have been languishing in the way 
the police department was.
    I mean, I have in mind what we do not know, I suppose, in 
the fire department, says this granddaughter of a DC fireman, 
might surprise us. And we would not want an emergency to happen 
before we decided to send consultants in there or DPW, where 
recycling has had to be suspended. We do not know if 
consultants had been in there, whether or not that might have 
been changed or, God help us, the Department of Social 
Services.
    Is there a way that, using the process that you are now 
apparently successfully using for the police department, state-
of-the-art consultants with respect to other city services 
could now go in and do the same thing there?
    Mr. Brimmer. Ms. Norton, I believe that the process which 
we adopted vis-a-vis the police could be used if future 
circumstances are similar. What we had here with the police was 
a scattering of responsibility. If you look, the signers of the 
MOU are all responsible for various pieces of the problem, and 
so getting them together and to get them to sign, and, above 
all, to agree on the procedure of hiring the consultant and so 
on and waiting for the results of the consultant's work before 
they took a position was very helpful.
    With respect to other agencies, take DHS, for example, and 
by the way, when you look at the management questions, the big 
task for us was the schools. The next one was police. The next 
one in line is DHS, and we have had a preliminary survey. We 
have had some consultants in working on contracting various 
pieces, but our own staff has done a substantial amount of 
work, and we have reached the following conclusion, that DHS 
needs to be in the--should be the responsibility of a chief 
executive officer.
    So we have recommended to the Mayor that he appoint someone 
to own the department, to take responsibility, with the 
authority to run it. The Mayor has indicated that he agrees 
with this notion, and he is looking for someone to be CEO. I 
think that would produce the kind of results which we expect.
    I would be reluctant to say that we should search for an 
MOU in every case because in some of these cases there are not 
many parties, a multiplicity of parties. Basically, that has to 
come directly from the administration.
    Ms. Norton. How about--leave us out of the MOU for a 
moment--the notion of consultants who have an understanding, 
perhaps based on comparisons with other cities, of how a DPW or 
how a Department of Human Services, the best that we now know, 
or a fire department? Could not that help us regardless of 
whether an MOU is necessary?
    Mr. Brimmer. I agree wholeheartedly, and we have 
recommended that in a number of cases and will be doing so in 
the future. And we, ourselves, as you know, at the control 
board, we have brought in consultants of many of our problems. 
We concluded very early that there was no point in our trying 
to hire and put on our staff permanently the levels of 
expertise and the variety of expertise which we require, so we 
relied on consultants. They do the job. When they are no longer 
needed, then they move on, and another group comes in to help 
us.
    That approach, I believe, is the one that ought to be 
encouraged across the government.
    Ms. Norton. Working with the city, and I emphasize working 
with the city, the kind of model you have established in the 
police department I think would have a measurable effect if 
that was done in a number of other departments as well.
    For example, the UDC, which went through one crisis and now 
is in the middle of another crisis, I know that you were 
working on a report for February 1. I wonder where that is and 
whether you think what has happened already at UDC is enough or 
whether there are going to be further recommendations on UDC 
and what you see as its future as a 4-year university and the 
like.
    Mr. Brimmer. All right. This is an example where we are 
relying on consultants. The control board asked me to take the 
lead in having a thorough review of UDC, not only its structure 
and management, but also its programs. To help in that, we 
engaged a number of consultants to work with our staff, and 
there are three consultants now engaged. We have a preliminary 
report, which we did get by February 1. That was the target. 
That has been reviewed. Additional assignments were made, and 
the consultants are now expected to respond by April 1, with 
another series of reports.
    I would anticipate that we would examine those, and I have 
committed to the rest of the board to have not only reports, 
but a set of recommendations for the board to consider by May 
1. And we will meet those deadlines because we are well on the 
track to do so. And for the time being, I have been reluctant 
to reach any conclusions about what reforms ought to be in 
place until we see them, but there are several issues that we 
already know must be examined.
    One of these has to do--leave aside the budget, and by the 
way, what is in place now will correct the situation for this 
year. But the University has to make up its mind how it will 
carry out what is, on the one hand, a very complex teaching 
arrangement and, on the other, very simple. A large fraction of 
the UDC students need remedial work, and so that is one of the 
questions that has to be dealt with. We will do so over the 
next month.
    Ms. Norton. Mr. Chairman, I have one more question. I am 
simply going to ask the chairman, because I am sure Chairman 
Brimmer can straighten this out. Perhaps because the Congress 
did not give any guidance, hoping that there would never have 
to be a consultation process, it has been since December that 
the chairman's staff has been unable to get the appropriate 
meeting with your staff on the lottery board.
    Let me just indicate that I believe that a mistake was made 
that the members of the council who I think were inclined to 
try to come onto the same page with the Authority were not 
given a meeting either with the Authority or their staff. I 
understand that the Authority cannot always meet, but I do not 
even think this would have taken the Authority.
    And thus, I do not think this ever would have had to go to 
consultation; and then when we read in the paper that they 
cannot get a meeting, that is very bothersome to this Member of 
Congress because these are matters that I am sure intelligent 
people sitting together could have figured out.
    I certainly have no position on the lottery board. I have 
not looked at it. All I know is I do not think it should have 
gone to consultation. It has. Once it goes to consultation, 
this body must be involved. That is a part of the way the 
process works. I am told that your staff has been unwilling to 
meet with the chairman's staff simply to go through the process 
and see where the lottery board is, that we have been unwilling 
to set up a meeting. And I am simply asking, would you instruct 
the staff to, in fact, set up a meeting with the chairman's 
staff so that we can come to a mutual understanding on the 
consultation process?
    It is very minor, as far as we are concerned. We have no 
interest in--we have no knowledge of the issue. We are 
concerned with how the issue was handled.
    Mr. Brimmer. Ms. Norton, I had no knowledge of the 
difficulties you have just described, rest assured. The staff 
will be instructed immediately today to do that, and I am quite 
certain they will respond positively very quickly.
    Mr. Davis. Thank you very much.
    Ms. Norton. Thank you very much, Dr. Brimmer.
    Mr. Davis. Thank you, Ms. Norton, for that last question. I 
have a number of other questions, but you have been here a long 
time, and I will submit them in writing and give you some time. 
Without objection, all written statements and submissions will 
be included in the record.
    Without objection, I also order that the record of this 
hearing be kept open for 60 days for further written 
submissions, including a submission we will request from OMB to 
respond to Dr. Brimmer's questions. This hearing is adjourned. 
Thank you very much.
    [Whereupon, at 1:45 p.m., the subcommittees were 
adjourned.]

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