[Senate Hearing 105-857]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 105-857

 
        DISTRICT OF COLUMBIA APPROPRIATIONS FOR FISCAL YEAR 1999

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

                                HEARINGS

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION

                                   on

                           H.R. 4380/S. 2333

  AN ACT MAKING APPROPRIATIONS FOR THE GOVERNMENT OF THE DISTRICT OF 
 COLUMBIA AND OTHER ACTIVITIES CHARGEABLE IN WHOLE OR IN PART AGAINST 
THE REVENUES OF SAID DISTRICT FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 
                      1999, AND FOR OTHER PURPOSES

                               __________

                  Council of the District of Columbia
      Financial Responsibility and Management Assistance Authority
                          Office of the Mayor

                               __________

         Printed for the use of the Committee on Appropriations




 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate

                                 ______

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46-093 cc                   WASHINGTON : 1999

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                      COMMITTEE ON APPROPRIATIONS

                     TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
SLADE GORTON, Washington             DALE BUMPERS, Arkansas
MITCH McCONNELL, Kentucky            FRANK R. LAUTENBERG, New Jersey
CONRAD BURNS, Montana                TOM HARKIN, Iowa
RICHARD C. SHELBY, Alabama           BARBARA A. MIKULSKI, Maryland
JUDD GREGG, New Hampshire            HARRY REID, Nevada
ROBERT F. BENNETT, Utah              HERB KOHL, Wisconsin
BEN NIGHTHORSE CAMPBELL, Colorado    PATTY MURRAY, Washington
LARRY CRAIG, Idaho                   BYRON DORGAN, North Dakota
LAUCH FAIRCLOTH, North Carolina      BARBARA BOXER, California
KAY BAILEY HUTCHISON, Texas
                   Steven J. Cortese, Staff Director
                 Lisa Sutherland, Deputy Staff Director
               James H. English, Minority Staff Director
                                 ------                                

                Subcommittee on the District of Columbia

               LAUCH FAIRCLOTH, North Carolina, Chairman
KAY BAILEY HUTCHISON, Texas          BARBARA BOXER, California
TED STEVENS, Alaska, (ex officio)    ROBERT C. BYRD, West Virginia (ex 
                                         officio)
                           Professional Staff
                          Mary Beth Nethercutt
  


                            C O N T E N T S

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                       Wednesday, March 18, 1998

                                                                   Page
Financial Responsibility and Management Assistance Authority.....     1

                        Wednesday, June 10, 1998

Council of the District of Columbia..............................   105
Office of the Mayor..............................................   113
Financial Responsibility and Management Assistance Authority.....   125


        DISTRICT OF COLUMBIA APPROPRIATIONS FOR FISCAL YEAR 1999

                              ----------                              


                       WEDNESDAY, MARCH 18, 1998

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:20 a.m., in room SD-124, Dirksen 
Senate Office Building, Hon. Lauch Faircloth (chairman) 
presiding.
    Present: Senator Faircloth.

                          DISTRICT OF COLUMBIA

      Financial Responsibility and Management Assistance Authority

STATEMENTS OF:
        DR. CAMILLE CATES BARNETT, CHIEF MANAGEMENT OFFICER
        DR. ANDREW F. BRIMMER, CHAIRMAN
        ANTHONY A. WILLIAMS, CHIEF FINANCIAL OFFICER

                  OPENING STATEMENT OF LAUCH FAIRCLOTH

    Senator Faircloth. Good morning. I am delighted to see all 
the friends and people who are going to make the city of 
Washington work here this morning. I am sorry to be a little 
late. We had an SBA meeting which I felt I had to attend. We 
have a distinct capability in the Senate of scheduling all 
committee hearings on the same morning at the same time. I do 
not know how we work it out, but we have been able to do so.
    The hearing is called to order.
    This is the first hearing this year of the Senate 
Appropriations Subcommittee on the District of Columbia. I want 
to welcome Dr. Brimmer, Tony Williams, and Dr. Barnett. We 
thank you for being here this morning, and I thank you for what 
you are doing.

               progress in implementing management reform

    The reason for this morning's hearing is to review the 
progress being made in implementing the management reforms 
called for by legislation which I insisted be a part of last 
year's rescue plan for the District of Columbia. Dr. Barnett, 
as you know, that legislation led to the creation of the 
position of Chief Management Officer, and I think the city is 
lucky to have someone with your qualifications to accept that 
role.
    Tony Williams has done a tremendous job working at the 
direction of Dr. Brimmer and the rest of the Control Board in 
getting control of the city's finances. That was one step on 
the road to recovery for the Nation's Capital. The rest is 
really going to be up to you, Dr. Barnett.

             overhaul of the way the city delivers services

    Congress and the American people and certainly I do want 
this city to succeed, and what is needed is a complete overhaul 
of the way the city delivers services to its citizens. We need 
professional management that can clean, repair, and do the 
ordinary functions of the city, like issuing drivers licenses, 
and many of the things other cities deliver on a proper and 
regular basis that we have failed to do here for so many years.
    Dr. Barnett, it is a tall order, but I want you to know we 
expect the job to be done. Congress and, I think, everybody 
will support you, but there have been enough hand wringing and 
excuses as to why things simply do not happen. There is no one 
in this Congress--and I am sure in the entire city or the 
administration of the city--that does not want to see this to 
be the finest capital in the world, as it should be. Certainly 
there is no dissension in the direction in which we are moving. 
It is just a question of how we are going to get there.

                        number of city employees

    For years the District's agencies have been drifting in a 
sea of mismanagement. This city has roughly 35,000 municipal 
employees for a population of 529,000. There are simply too 
many employees for a city of this size. Hopefully, this is 
going to change under the new Chief Management Officer, and 
certainly a lot of it will change because duties the city has 
been performing, like the prisons, will be moving to the 
Federal Government. But that is entirely too many people for a 
city of this size to be employing.
    While Congress last year provided a rescue package for the 
District, quality of life services such as recordkeeping, 
public safety, health, street repair, trash collection, and the 
public school system are still in serious condition and still 
in need of much, much, much improvement.
    Just last month the District audit revealed that 20 former 
District employees who had died have been receiving pension 
checks. The District still cannot account for its employees 
whether they are dead or alive.

                        delay in school opening

    Last September, despite a pledge that all public schools 
would open on schedule, the opening was delayed due to 
incomplete repairs. Now, I am totally in sympathy with General 
Becton, and the city administrators in thinking that the judge 
that delayed the school opening for minor roof repairs was 
totally wrong. That simply is not the way business is conducted 
anywhere at any time. Nobody wants to endanger the children, 
but a hole in the roof is no reason to close the school.
    We cannot, and the Congress will not, allow the District 
school children to be penalized by another delay. I have talked 
to General Becton, and he has assured me that the schools will 
be ready to open at opening time next August.

                   police department run by committee

    The Police Department is being run by a committee, which is 
not the best way to run a police department. The memorandum of 
understanding for the Police Department was set up to study 
what was wrong with the Department. We have learned that the 
District of Columbia has more police per capita than almost any 
major city, but the large majority of them are sitting behind 
desks.
    Just recently we heard the Acting Police Chief, whom I 
think is doing a good job, has three chauffeurs of her own. For 
this type of thing to be going on is absolutely ludicrous. 
There is no reason for the Police Chief to have one chauffeur, 
much less three.

                               crime rate

    The crime rate is still too high. The District reported 
over 300 homicides last year. The police force has a deplorable 
record of apprehending killers.
    The D.C. medical examiner is often unable to determine how 
or why people die.
    Citizens complain that not enough police officers have been 
assigned to the patrol service areas, and I think they are 
right in complaining.
    I will be carefully reviewing the first quarterly report on 
the 83 patrol service areas that is due Congress at the end of 
this month. This provision was included in the fiscal year 1998 
appropriations bill at my insistence so we can monitor crime 
reduction in the District's neighborhoods.
    We are also aware of the embarrassing circumstances 
surrounding the resignation of Chief Soulsby.
    The District's residents and the thousands of citizens who 
visit our Capital each year deserve better.

                      surplus for fiscal year 1997

    Last year the District projected a $74 million deficit at 
the end of fiscal year 1997. Today the District's Chief 
Financial Officer, Tony Williams, reports a surplus for fiscal 
year 1997 of $185.9 million. This is the good news, but until 
District citizens can feel and see the effects of the surplus 
through a better quality of life and city services, the 
District will continue to have its problems. We need to improve 
the services to the city.
    Today we are going to hear from three key figures in the 
District: Dr. Andrew Brimmer, Chairman of the Control Board; 
Dr. Camille C. Barnett, the District's new Chief Management 
Officer; and Mr. Anthony Williams, the District's Chief 
Financial Officer. We hope our distinguished panel will have 
more good news to report to the committee. We look forward to 
your testimony.
    I am sorry that neither Senator Hutchison nor Senator Boxer 
was able to join us this morning. Senator Boxer had a couple of 
questions that she would like to be posed for the record, and 
we will do so.
    Without objection, the record will remain open until 5:00 
p.m. on Tuesday, March 24, 1998, for the submission of any 
additional testimony or response to questions members might 
have for our witnesses.
    I would now like to welcome our first witness, Dr. Camille 
Barnett. Dr. Barnett, this is your first appearance before the 
committee, and we look forward to your testimony.
    Dr. Barnett. Thank you.
    Senator Faircloth. I might say for those who are not aware, 
Dr. Barnett has 27 years of professional experience in 
municipal management, and she recently served as city manager 
of Austin, TX, one of the fastest growing cities in Texas. Dr. 
Barnett, we welcome you.

                   statement of camille cates barnett

    Dr. Barnett. Thank you and good morning, Mr. Chairman. It 
is a pleasure to be with you today. As is stated, I am Camille 
Cates Barnett, Chief Management Officer for the District of 
Columbia.

                           management reform

    You have my written testimony, and so I want only to 
summarize a few things in terms of our initiatives for 
management reform for the District of Columbia. I have some 
charts here to assist me.
    One of the things that I have done, since coming to the 
District, is to focus the District's activities on a few key 
goals. I would like to draw your attention to something that we 
are summarizing as the District of Columbia commitment. It is 
our commitment to the citizens who live here on what we are 
doing, as well as to the people who work and visit here. It 
talks about our vision, our values, and our goals.
    The vision statement that we have is that we want the 
District of Columbia to be a model of the very best of American 
cities. We need to strive for excellence. We need to use best 
practices, and we need to work together as one government.
    We have two values that underscore everything that we do: 
customer service and accountability. This is not currently in 
all cases a service-oriented organization, and we are going to 
make it one. We are all accountable to the people that we 
serve.

                              three goals

    We have three goals. One is to improve customer service. 
The second is to implement management reform, and the third is 
to meet our budget targets. All of the work that we are doing 
in the District can be focused around these three goals.
    One of the things that I have done in addition to reviewing 
the 269 management reform projects, which you have seen, is to 
conceptualize management reform, and these projects as part of 
a multiyear change process. We are really changing the way we 
think.
    Senator Faircloth. Dr. Barnett, how many reform----
    Dr. Barnett. Two hundred and sixty-nine projects have been 
approved.
    Senator Faircloth. For reform.
    Dr. Barnett. Yes.
    Senator Faircloth. 269.
    Dr. Barnett. 269.
    Senator Faircloth. That constitutes a day's work.
    Dr. Barnett. Yes; I think so. I think it will keep us busy.
    One of the things that we have done is to talk about this 
new management system in terms of quality management techniques 
and business process reengineering techniques that are familiar 
not only in the private sector, but increasingly in the public 
sector.
    What we have done is to put together a performance 
management system. It is based on a simple cycle of plan, do, 
check, act, where you do some planning, both strategic planning 
as well as operational work planning. Then you actually 
accomplish it. You check the results, both in terms of reports 
that you do on performance measures, but also with your 
customers to see how well you are doing. Then you take action 
based on those results. It is a very simple concept that can 
really transform the way we manage.

                     performance management system

    This is what it looks like when we apply it to the District 
of Columbia and the initiatives that we have underway. This 
summarizes the report that we gave you on March 2, 1998, of 
what we are doing in the District of Columbia to institute a 
performance management system. The darker blue circles on this 
chart are things that exist now. The lighter blue circles 
either exist only partially or we are creating them. Let me 
briefly walk through this management cycle because it is our 
philosophy, and it shows you how management reform fits into a 
new way of doing business.
    Senator Faircloth. Dr. Barnett, may I say there is not any 
need to rush. We are going to take our time. We are here today 
to thoroughly review what we are doing and where we are headed.
    Dr. Barnett. Great. My time is your time.
    Senator Faircloth. So, you take your time.

                             strategic plan

    Dr. Barnett. What we are going to be doing is putting 
together a 5-year strategic plan for the District. This 5-year 
strategic plan I hope to accomplish in the next 2 months where 
we talk about our long-term change process. This 5-year 
strategic plan will also drive long-term strategic plans in 
each of the agencies. You see that on the outer circle of the 
chart.
    This 5-year strategic plan then every year has an 
operational plan, and the inside circle on this chart is really 
the plan, do, check, act cycle. It goes on an annual basis.
    So, you will have a District of Columbia commitment each 
year, much like the one I just reviewed with you, that is a 
one-page summary of what we are doing that year. That will be 
the work plan that has specific projects, timetables, people 
assigned, performance measures and outcomes.
    That annual work plan then drives the budget and the 
management reform initiatives. Both of those activities are 
indicated in other circles there.
    One of the things that we have done, in conjunction with 
the Chief Financial Officer, is to institute performance 
measures throughout the budget. These measures now are in some 
cases not totally tracked by the agencies. In some cases they 
are targets more than they are measures, but we are beginning 
to look at the budget as performance based budgeting.
    We are also tracking performance measures with each of the 
management reform projects and all of the management reform 
initiatives.
    Those two items, as well as the agency's strategic plan, 
then work toward developing the annual work plan of each of the 
agencies. This is what summarizes what that agency is going to 
do, and it is tied to the budget so that the funding and the 
plan are matched.
    That agency work plan is the basis for individual 
performance contracts with each of the agency directors.

                        performance contracting

    We are beginning performance contracting now. I have 
briefed all of the agency heads on performance contracts. I 
expect in the next 30 to 60 days to have signed performance 
contracts with each of the agency heads where they will commit 
to results to accomplish by the end of this fiscal year.
    Senator Faircloth. May I ask you what is a performance 
contract?
    Dr. Barnett. Sure. That is a negotiated agreement between 
me and each of the agency heads on what they will accomplish 
during the remainder of this fiscal year. Each year we will 
execute new performance contracts where there will be 
objectives for each of the years that the agency directors are 
personally accountable for achieving. A performance contract is 
a way to make operational this value of accountability and 
customer service.
    Senator Faircloth. What is the fiscal year here? When does 
it end?
    Dr. Barnett. September 30, 1998, fiscal year 1998.
    Senator Faircloth. September. Thank you.
    Dr. Barnett. Then these individual performance contracts 
are the basis for the evaluation of the agency directors and 
would be the basis for any kinds of increases in pay as well as 
any kinds of changes in position. I expect that we will be able 
to do performance contracting with all of the agencies and all 
of the second tier of the agencies starting next fiscal year.

                      personnel reform legislation

    In addition, the personnel reform legislation that is 
making its way through the Council now allows us to tie pay to 
performance throughout the whole organization. I am hopeful 
that this concept of performance management is really brought 
home to everyone in the organization because they will know 
their part in doing this, and when they know their part, they 
can be held accountable.
    Then we go into the next part of the plan, do, check, act 
cycle, which is actually producing the results and checking to 
see what we are doing. I am hopeful that we will be able to get 
to a point where we will be giving you and others quarterly 
reports not only on management reform, not only on our 
financial performance, but also on the operational performance 
of the city.
    We need to be able to standardize our reporting and to 
connect both the performance and the financing in one document 
so it is easy for everyone to see what we are doing, what we 
are accomplishing, and what issues need to be addressed. So, we 
will be working on redesigning reporting so that it is easier 
to read, and it is more comprehensive.

                        customer service survey

    But we do not want to just check our results based on 
reports. We want to see what our customers think. We have done 
a customer service survey. We did that last year. I am sure you 
have seen and reviewed the results. They are not good. They are 
some of the worst results I have ever seen in terms of 
customers' evaluations of their services. We are not going to 
be able to say that we have improved customer service until our 
customers agree with us. One of the things we want to do is to 
use customer surveys, focus groups, and other ways of thinking 
through how we are measuring our performance with our 
customers. That is part of our checking.
    When we do that checking, that then feeds back into the 
long-range planning as well as the next annual plan.
    This is what we call our performance management system. We 
have talked with the agency directors about it. We are 
beginning to fill in each of the pieces, and I am confident 
that if we implement this system, we will not have to talk 
about management reform as a separate initiative. We will not 
have to talk about a number of separate projects. If we do 
this, we will have changed the way we manage, and that to me is 
true management reform.
    We are beginning, as is indicated in my written comments, a 
thorough analysis of all of the management reform initiatives 
and encouraging and facilitating their implementation through 
the organization.
    With that, I will conclude my initial remarks and be happy 
to answer any of your questions.
    [The statement follows:]

              Prepared Statement of Camille Cates Barnett

    Mr. Chairman and Members of the Subcommittee: Good morning. My name 
is Camille Cates Barnett, the Chief Management Officer appointed by the 
District of Columbia Financial Responsibility and Management Assistance 
Authority to oversee management reform in the Nation's Capital. I 
appreciate the opportunity to present testimony on this important 
topic.
                              introduction
    Mr. Chairman, as you know, I have been CMO for about two months, 
specifically since January 15, 1998. Previous to this position, I have 
been privileged to hold a number of positions in City government, and 
in private sector jobs that focused on the improvement of local 
government services. Most recently, I was employed by the Research 
Triangle Institute's Center for International Development to implement 
innovations in the structure and management of cities, primarily in 
foreign governments.
    Previously, I was the City Manager for Austin, Texas, a city with 
roughly the population of the District of Columbia. In my time at 
Austin, I believe that the City made considerable progress in improving 
basic services, and in creating a strategic planning system and a 
structure for initiating service improvements for years to come. This 
experience, combined with my 27 years in city management, should prove 
beneficial as I shift my attention to the problems and challenges of 
the Nation's Capital.
    I believe that the District of Columbia has an historic 
opportunity. The Authority and the Chief Financial Officer have made 
considerable strides in the financial recovery of the District. Now, we 
need to improve customer service and build institutional capacity to 
sustain those improvements. The National Capital Revitalization and 
Self-Government Improvement Act (Revitalization Act) provides an 
effective vehicle for ensuring that we fundamentally restructure the 
District Government. I am pleased to be a part of the management reform 
effort outlined by the Authority and submitted to Congress, in 
accordance with the Revitalization Act.
    My focus, as I begin, is on the vision that ``The District of 
Columbia is a model for the very best of American cities.'' The values 
that guide us will be customer service and accountability. My primary 
goals for 1998 are to: (1) improve customer service; (2) implement 
management reform; and (3) meet budget targets.
                       management reform program
    The goal of management reform is to have government that works for 
the citizens of the District of Columbia. Management Reform is a 
multiyear process to change the way we do business in the District of 
Columbia. As you know, the Authority commissioned studies of the 
departments, which led to 269 projects being selected for 
implementation. The departments have reviewed the consultants' reports 
and begun implementation of some of the projects.
    Management reform is more than a list of projects, of course. 
Reforming management must translate into better performance and 
improved service delivery. As such, we have begun to develop a 
comprehensive performance management system. It is a variation of the 
Plan, Do, Check, Act Cycle of quality management. The system is 
designed to coordinate and integrate all performance measurement 
initiatives together in a city-wide organizational framework. This 
system is described in the Comprehensive Performance Management System 
Report submitted to Congress on March 2, 1998. The components of this 
system include:
  --The District's five year strategic plan;
  --The annual District of Columbia Commitment;
  --The District's annual budget;
  --The management reform initiatives;
  --Agency strategic plans;
  --Individual performance contracts;
  --Development of Government-wide performance measurement; and
  --The District Government performance scorecard.
    The performance management system is illustrated below:
    [GRAPHIC] [TIFF OMITTED] T03MA18.001
    
    The key to management reform is to transform the thinking of our 
people. We need:
    1. Department heads who know how to deliver services.--We should 
not continue to need consultants to tell us what to do--but just to 
help us implement our plans until we develop sufficient internal 
capacity. Department heads should be able to efficiently and 
effectively deliver services. They must implement the needed changes in 
business processes. They must be held accountable for the performance 
of their departments.
    Initiative.--Department heads will be asked to sign performance 
contracts which call for them to develop and implement specific 
outcomes/results for which they will be held accountable.
    Initiative.--We will recruit for selected department heads where 
vacancies exist or where performance is lacking.
    Initiative.--Department heads will develop strategic plans. There 
will be five year and annual strategic plans for the Government as a 
whole and for each agency.
    Initiative.--Consultants will be engaged to reengineer processes 
and implement reform projects.
    2. A trained, motivated properly equipped workforce.--Our workforce 
must be given a chance to succeed by knowing how to properly do their 
jobs. We must provide them the tools necessary to perform their jobs, 
such as working phones and management information systems. And, they 
should have a work environment that is clean and conducive to serving 
citizens.
    Initiative.--Implement a working telephone system and develop a 
phone directory.
    Initiative.--Implement new automated systems where required.
    Initiative.--Upgrade the District's Wide Area Network.
    Initiative.--Resolve year 2000 issues.
    Initiative.--Continue training the workforce and encourage their 
attendance at the motivational seminars. Training initiatives include: 
The Center for Excellence in Municipal Management (CENMS), technology 
training at the Skill Development Institute housed at the University of 
the District of Columbia.
    Initiative.--Conduct a compensation/classification study.
    Initiative.--Select a vendor to conduct physical assessments of our 
facilities so that plans can be made to upgrade the facilities.
    3. A fully staffed operational Chief Management Officer's Office.--
Key to the full and implementation of management reform is an effective 
Office of the Chief Management Officer. So that management reforms do 
not wait for the recruitment, selection and hiring of key personnel, I 
am bringing on managers under contracting arrangements to assist in 
reviewing and implementing the projects and to form a partnership with 
the agency heads to handle critical operational issues.
    4. Responsive internal service functions.--Operating departments 
should be able to procure goods and services without a long burdensome 
process. Department heads should be able to concentrate on service 
delivery and not spend time trying to get the resources they need to do 
a good job.
    Initiative.--Complete implementation of reforms in the Office of 
Procurement to streamline the procurement process.
    Initiative.--Complete implementation of the Comprehensive Automated 
Personnel and Payroll System (CAPPS).
    Initiative.--Complete implementation of the Office of the Chief of 
Technology in order to provide reliable enabling technology and be able 
to leverage technology to improve productivity.
    5. To explore alternative ways of doing business.--Just as the 
private sector is reviewing its activities, determining core 
competencies and instituting selective outsourcing, so should we. 
Agencies should be encouraged to recommend alternative ways of 
operating that would improve service delivery and cost efficiency. The 
goal should be to consolidate and provide best value to our citizens. 
It is very important that appropriate contracting mechanisms be in 
place to monitor contractor performance, to hold them accountable and 
to control costs.
    Initiative.--Outsource operation of the data centers.
    Initiative.--Outsource lease administration.
    The departmental management reform projects will result in improved 
service delivery including:
  --Implementing a new motor vehicle information system to improve the 
        turnaround time for obtaining drivers licenses and vehicle 
        tags.
  --Purchasing fire and EMS equipment to improve public safety.
  --Reengineering business processes and implementing a new automated 
        system in the Department of Consumer and Regulatory Affairs to 
        improve the turnaround time on licenses and permits.
  --Implementing improvements in the Department of Housing and 
        Community Development which will provide better expenditure 
        monitoring and control to improve the housing stock.
  --Developing a solid waste disposal plan, realigning street cleaning 
        and trash collection routes and consolidating transfer station 
        operations to improve the effectiveness and efficiency of solid 
        waste collection and disposal.
  --Creating internal capacity and program delivery to improve the 
        street program.
                         implementation process
    On March 26, 1998 there will be a Joint Budget Workshop on 
Management Reform and Budget Enhancements. This session includes the 
Mayor, the City Council and the Authority. In preparation for that 
workshop, the Office of the Chief Management Officer (OCMO) and the 
Office of the Chief Financial Officer (OCFO) are reviewing the status 
of management reform and budget enhancement requests. The reviews will 
have the intent of----
  --1. Closing out completed projects;
  --2. Determining the status of projects started in 1998;
  --3. Determining whether funds will be needed for those projects in 
        1999;
  --4. Determining if the project can be integrated into overall 
        operations or needs to be continued as a management reform 
        project; and
  --5. Determining what dollars will be required for consulting 
        services in 1998 and 1999.
    The remaining reviews are scheduled for March 16th and 17th. The 
results of these reviews will be presented at the March 26th workshop.
    Interim Deputy Management Officers and other staff from my office 
will be assigned to the departments to work with departmental personnel 
to:
  --Review the products produced by previous consultants to determine 
        their adequacy and the suitability of that consultant to 
        continue the process.
  --Review the proposed scope of work for the new tasks and determine 
        its sufficiency.
    Work with the agency to determine whether the task really requires 
outside assistance or could be performed by internal resources.
  --Prioritize or group tasks requested to minimize the number of 
        projects to be successfully managed at once.
  --Work with the agency to establish joint agency/consultant teams so 
        as to support internal capacity building and to facilitate 
        integrating the project into normal operations.
  --Request proposals where the consultant's expertise may not match 
        the work effort required at this time.
    Some of my personnel will be sent onsite to work with the agencies 
where required to assist in the implementation of reform projects.
                         implementation status
    Briefly, let me highlight some elements of management reform 
already underway:
  --Both the Office of Procurement and the Office of the Chief 
        Technology Officer have been established. Organizations are 
        being defined and new procedures implemented. Council approval 
        is still needed on some issues.
  --A contract has been awarded to Maximus for the implementation of 
        the Human Services reform projects.
  --The Office of Personnel reports completion of most of its 
        operational type management reform projects.
  --The Department of Housing and Community Development has been told 
        to proceed with tasking of its consultant for implementation.
  --The remaining departments are in various stages of review to 
        consolidate their projects and issue either tasks to the 
        current contractors or new requests for proposal.
                            budgetary issues
    We are working with the Chief Financial Officer to present a 
funding plan to the Joint Budget Work Session on March 26 that funds 
all 269 management reform projects by the end of fiscal year 1999.
    1. Approximately $60 million in management reform funds has been 
set aside in capital for implementation of the major management reform 
projects as follows:

                     Paygo Management Reform Budget

                        [In millions of dollars]

Integrated Tax System.............................................  15.7
Telecommunications System.........................................  15.0
Material Management System (Procurement)..........................   1.3
Year 2000 Compliance..............................................  10.0
Automated Fueling System..........................................   0.5
DCRA-Corrective Actions...........................................   5.8
Motor Vehicle information System..................................   4.8
Facilities Condition Assessment...................................   2.0
Comprehensive Automated Personnel and Payroll System (CAPPS)......   5.0
                        -----------------------------------------------------------------
                        ________________________________________________
      Total.......................................................  60.1

    2. Personnel in this office will assist the departments with 
implementation of their management reform projects and will manage and 
monitor operational issues. Further, this office will centrally manage 
some of the major management reform initiatives.
    3. 1998 funding will be required to implement the Office of Asset 
Management. The Facilities Assessment is included in the capital 
budget, but additional operating funds will be required to combine 
functions, obtain consulting assistance and fully staff this Office.
    4. The 1999 Management Reform budget requests will most likely 
include some organizational realignment, which could include the 
creation of some new entities. The CMO is currently reviewing these 
issues and will present these reorganizations during budget 
discussions.
    In conclusion, Mr. Chairman, I want to thank you and the 
subcommittee for your leadership and interest in the revitalization of 
the District of Columbia. I hope this information has been helpful, and 
I will be able to supply you with information in much greater detail 
shortly.
    I look forward to the work in front of us--if we are successful, 
the District and its residents will receive the quality services that 
they deserve.
    I would be pleased to respond to any questions that you or other 
members of the subcommittee wish to ask at this time.

    Senator Faircloth. Thank you, Dr. Barnett.
    We will ask Dr. Brimmer to come forth with his statement. 
Dr. Brimmer is Chairman of the D.C. Financial--Dr. Brimmer, we 
use the proper name so seldom--D.C. Financial Responsibility 
and Management Assistance Authority. He has a distinguished 
career in both the public and private sector. Dr. Brimmer, it 
is always a pleasure to receive you.
    Dr. Barnett, I just want to say one thing. Just one word 
you kept using, and I was delighted to hear, referring to those 
people that do business with the city as customers or clients. 
I think for so long here the people who had to do business with 
the city were viewed by city employees as in-the-way irritants, 
and I am delighted to see we are referring to them differently.
    Dr. Brimmer.

                     STATEMENT OF ANDREW F. BRIMMER

    Dr. Brimmer. Thank you very much, Senator.
    Since this is the first time I have had an opportunity to 
appear before this committee since the full implementation of 
the Revitalization Act signed in August 1997, I want to take a 
little time to----
    Senator Faircloth. Well, we are not in a rush for time here 
today. We are here to get to the facts.
    Dr. Brimmer. Thank you very much.
    I have a prepared statement. I will ask that it be included 
into the record in full.
    Senator Faircloth. Without objection, it will be.
    Dr. Brimmer. Some of what I will say sounds better, to me 
at least, if I speak it rather than just reading it.
    Senator Faircloth. You speak it as you see fit.

                         management reform act

    Dr. Brimmer. From the point of view of the Authority, 
management reform really began with the Congress' adoption of 
the Management Reform Act in 1997. As you all know, Senator, 
you were responsible substantially for that part of the act, 
and we proceeded to implement it promptly.
    You might recall that the Management Reform Act provided 
that in carrying out the reforms, the nine key departments were 
to report solely to the Authority. It also provided that for 
four crosscutting citywide functions, the same arrangement was 
to prevail. Each member of the management reform team was to 
take any and all steps within the member's authority to 
implement the terms of the plan under the direction of and 
subject to the instructions of the chair of the Authority or 
the chair's designee.
    Thus, Congress expected that the Authority would undertake 
a far-reaching program of management reform to implement 
services for the District government, acting through its 
designated agents and exercising control over the nine 
departments and four governmentwide functions.

               implementation of management reform plans

    Implementation of these management reform plans requires 
supervision of the day-to-day operations of the government to 
achieve their purpose. When the Authority accepted this 
responsibility, we stated that we would engage a Chief 
Management Officer to whom we would delegate the assignment.

                    agencies reporting to authority

    An order of the Authority, issued on August 5, 1997, 
required the heads of each of the nine departments and each 
governmentwide function to report to the Authority and to act 
under the direction and subject to the instructions of the 
chair of the Authority with respect to the exercise of all 
powers and performance of all the duties of the office. Using 
my options, I have instructed the heads of these departments 
and functions to report to the Authority through the chief 
management officer.
    Mr. Chairman, I pause to emphasize the reporting 
arrangement because there is some question that has been raised 
as to whether the Congress intended that the heads of the 
departments should report to the Authority, as opposed to the 
traditional reporting arrangements whereby they had reported to 
the Mayor. We have interpreted that to mean that Congress meant 
what it said, that these departments report to the Authority 
solely, and we are acting on that assumption.

                        management reform teams

    The Management Reform Act stipulated that management reform 
teams would be established to implement reform plans 
recommended by consultants and approved by the Authority.
    Senator Faircloth. Dr. Brimmer, I just might interject that 
that part of the plan was not drawn lightly, carelessly, or 
flippantly. That is exactly what it meant.
    Dr. Brimmer. Thank you. That is our interpretation.
    Senator Faircloth. There is no other way to interpret it.
    Dr. Brimmer. Thank you.
    Senator Faircloth. If you read the English language.
    Dr. Brimmer. Thank you.
    Now, the teams consist of the Mayor, the chair of the 
Council, and the chair of the Authority, and we have been 
working to implement the plans, but the implementation is 
really the responsibility under the statute of the department 
heads, and we have delegated that to the Chief Management 
Officer. That is the framework within which we are working.

                        management reform plans

    Since the passage of the act, the Authority has moved 
aggressively to develop and to implement management reform 
plans to address service delivery. The Authority has developed 
those plans. In many areas we already have begun to fix the 
problems, and we are beginning to deliver some improvements in 
services.
    The Management Reform Act declared vacancies in the 
position of agency director of the nine agencies. As I said, 
the act itself began the management reform process. As a 
result, the Authority named acting heads for each of the 
agencies and functions. In subsequent action, the Authority 
named permanent agency heads. Some of them were recruited from 
outside the government, and others were persons who were 
serving in other capacities but who in our judgment had the 
capacity and the ability to assume these responsibilities of 
pursuing management reform and improving service delivery.

                        chief management officer

    To carry out its responsibilities in accordance with the 
act, the Authority also created the position of Chief 
Management Officer. In announcing this decision, I stated that 
the person appointed to that position must have substantial, 
high-level experience in municipal management. The task of 
identifying and recruiting a CMO has already begun, I said, and 
it will be accomplished promptly.
    We accomplished that. After a nationwide search, we were 
able to identify Dr. Camille Barnett, and we selected her to be 
the CMO. I should say, Mr. Chairman, that the response to our 
search was very strong. We had a number of very promising 
candidates, and Dr. Barnett stood out head and shoulders. I 
want to stress that again. She was not competing against 
second-raters. We had a very rich list of candidates, and she 
was the best of the lot, and we selected her solely on that 
basis.
    Senator Faircloth. I think we are all proud of your 
selection and looking forward to seeing her show us that you 
made the right one. [Laughter.]
    Dr. Brimmer. Thank you.

                      office of city administrator

    I will also note that as part of the process, the Office of 
City Administrator is currently downsizing its operation. 
Previous to the passage of the Revitalization Act, the City 
Administrator's Office was responsible for the management 
oversight of most District government agencies. Since the 
Authority has been mandated by Congress to assume 
responsibility for the majority of these functions, both in 
terms of personnel and budget, the Authority is working closely 
with the Mayor to restructure the City Administrator's Office 
to ensure that its resources are in line with its current 
responsibilities. Thus, we expect that the size of the City 
Administrator's Office will decrease in the coming months.
    Let me pause and amplify on those comments because I know 
that the committee is interested in that matter, and I may as 
well answer it directly at this point.
    Before the act transferred oversight responsibility of the 
nine departments and four agencies, the City Administrator, 
acting under the Mayor's direction, had oversight 
responsibility for about 75 percent of the employees in the 
District government and for about 85 percent of the budget. If 
we add in the Police Department, the numbers increase. If we 
look at the City Administrator's Office then, that office had 
29 persons and a budget of about $4 million.
    With the transfer of the responsibility to the Control 
Board and our delegation of the day-to-day oversight of the 
bulk of the government to this CMO, there is no need for a City 
Administrator's Office of the magnitude and the level of 
resources we just described.
    So, we are in the midst of conversation with the Mayor 
right now to restructure that office and to reallocate and 
reprogram those resources. The conversation, as I said, is 
going on and has not been concluded. We have some differences 
of opinion, but I am confident we will resolve those in the 
near future and that the office will be refashioned and 
revamped because we do not need two persons, two offices, with 
the level of responsibility we have just described.

                        services of consultants

    Now, with respect to the management reform legislation, it 
was required that the Authority obtain the services of 
consultants within 30 days. These consultants were supposed to 
review the departments and make recommendations for 
improvement.
    We met the deadline. We engaged those consultants, and they 
made recommendations. As was already mentioned, we, in fact, 
are implementing those reform plans.
    In developing the management reform plans, the consultants 
first conducted an assessment of the program. Basically, Mr. 
Chairman, I have characterized their work as the first round of 
effort at problem finding. They found a lot of problems. The 
second phase of their work I have described as problem solving, 
and they have done that. Now the implementation is up to us. As 
already stated, we are in the midst of doing that right now.
    Briefly I wish to indicate to you the range of the 
management service delivery problems that will be addressed by 
management improvement projects. As mentioned, we did in 
January 1998, submit a report to the Congress. It had some 269 
improvement projects. All of those projects cannot be 
implemented simultaneously. We have approached the matter 
roughly as follows.
    There are a number of proposals that cut across the city. 
Many of these deal with information systems, communications. We 
will need to invest substantially in the improvement of 
computers, telephones, other communications activities. Let me 
give you one example.

                             motor vehicles

    Motor Vehicles is far behind in its improvement of systems 
and the acquisition of computers so that Motor Vehicles has 
been unable to respond to the public in a timely fashion. 
Moreover, the systems are so decrepit that Motor Vehicles 
cannot provide the assistance which we normally would provide 
for police and others because of the fact that its records are 
in such poor shape.

                    consumer and regulatory affairs

    Consumer and Regulatory Affairs issues thousands of 
licenses to businesses and others. It has a wide range of 
responsibilities. So, while I had low expectations of what they 
would find, I was really stunned to find that in that 
department much of the work is still done on 3 by 5 cards. Many 
fees are not collected because they cannot perform.
    They need improvements in equipment and systems, and above 
all--and this cuts across the government as well--while the 
District has many, many employees that you just noted, 
thousands of employees, the level of training of employees has 
been abysmal. The city simply has not kept pace with the 
requirements. Because of the early retirement program in effect 
a few years ago, the city lost a substantial number of its 
skilled employees who were the more experienced employees. They 
have not been replaced by persons who were equally able.
    So, we can talk in greater detail about the individual 
projects, as you wish, but I want to stress that we are 
underway, and we will be able to finance the services of the 
projects. Let me talk a little bit about that.
    Thanks to your efforts, sufficient resources--I want to 
take note of that. You started us off with $8 million. The 
Congress approved the use of the net benefit of the 
Revitalization Act, which was appropriated to the Authority, 
some $200 million. We said that if Congress were to appropriate 
that to us, we would use it to finance a number of improvements 
in the government. Our first task, of course, is to use some of 
that surplus to make certain we reduce the deficit.
    We said also that we would set aside $30 million to pay for 
productivity and management improvements.
    So, we got the $8 million you provided, $30 million from 
the net benefit earmarked.

                               borrowing

    We said we would also use $3.5 million to pay the cost of 
borrowing $50 million in additional capital funds. We have 
decided to do that. We will borrow an additional $50 million, 
and we will allocate about----
    Senator Faircloth. You did decide to borrow.
    Dr. Brimmer. Yes; we have decided.
    Senator Faircloth. To borrow.
    Dr. Brimmer. We will borrow the additional $50 million in 
capital. I instructed the staff yesterday to combine that $50 
million for capital purposes with the city's planned borrowing 
of $150 million. I see no point in having two borrowings for 
the same purpose. So, that will go forward in the next few 
weeks.
    Of the $50 million of borrowed capital proceeds, we will 
use $10 million to aid the schools in their capital expenditure 
program. We will use another $10 million explicitly for public 
works, to provide capital expenditures for public works. That 
will leave $30 million which we will use to finance some of the 
capital components of the management reform program. So, that 
will give us immediately $68 million of funds available 
promptly.
    It turns out that there were some capital funds already 
appropriated in the 1998 budget, and those have been 
identified, and those funds will also be earmarked for 
improvements.

              implementation of management reform programs

    Mr. Chairman, the implementation of a number of the 
management reform programs will result in some savings, cost 
avoidance, or some revenue generation. We believe that 
additional revenues of about $140 million would be available. 
Those figures are being refined. Mr. Williams, the Chief 
Financial Officer, and his staff are working to do that.
    The basic point I want to make is that the implementation 
of the management reform programs will not be hampered by lack 
of funds. We will make certain the funds are available to do 
that.
    As I said earlier, the projects are being scheduled. We 
anticipate that we can make some start on most, the substantial 
proportion of those, but a number of these are multiyear 
projects. So, some will get started this year. They will 
continue into next year and the funds should be available 
because we have identified the funds to the project. Once we 
have committed those funds to finance the project, they should 
be available until the end of the project. My budget people 
tell me that this is an interpretation which is consistent with 
the appropriation language because we said to the committee and 
to the Congress that we would use the funds to finance the 
projects. So, in our view these funds' availability should not 
lapse at the end of this fiscal year. Now, Mr. Chairman, I 
could amplify that somewhat more fully if you wish.
    But let me say that the next steps with respect to 
implementation have been described amply by Dr. Barnett. This 
is now her responsibility. We on the management reform teams 
will support her in every way, and the steps she has described 
will be implemented promptly.
    Rest assured that the Authority has fully backed the 
management reform efforts. All of us are working hard at it. We 
are confident that the benefits we have projected will accrue 
and that we will, in fact, see an improvement in service 
delivery and some improvement in the management of the city's 
business. As I said, we started with the passage of the act. We 
have new people in place. Others are being recruited, and I am 
quite confident that we will fulfill the mandate which Congress 
gave us.
    Thank you very much.
    [The statement follows:]

                Prepared Statement of Andrew F. Brimmer

    Mr. Chairman and Members of the Subcommittee: Good morning. My name 
is Andrew F. Brimmer, and I am Chairman of the District of Columbia 
Financial Responsibility and Management Assistance Authority 
(Authority). Accompanying me this morning is Dr. Camille Cates Barnett, 
the Authority's Chief Management Officer. I appreciate the opportunity 
to appear before the Subcommittee today to discuss management reform of 
the District of Columbia government.
                              introduction
    Mr. Chairman, the National Capital Revitalization and Self-
Government Improvement Act (Revitalization Act), which was signed by 
the President on August 5, 1997, included the Management Reform Act 
which required that the Authority engage consultants to develop and to 
implement management reform plans to improve public services for the 
following departments and government-wide functions: Administrative 
Services; Consumer and Regulatory Affairs; Corrections; Employment 
Services; Fire and Emergency Services; Housing and Community 
Development; Human Services; Public Health; Public Works; Asset 
Management; Information Resources Management; Personnel Management; and 
Procurement.
    The Department of Administrative Services encompassed the 
government-wide functions of information technology, procurement and 
real property asset management. With the implementation of management 
reform plans, the Department of Administrative Services will cease to 
exist as a separate entity. The heads of these separate functions will 
report directly to the Chief Management Officer (CMO).
                   agency reporting responsibilities
    Management Reform of the District Government is a considerable 
undertaking, but the Authority is committed to the results such reform 
can achieve in terms of improved public service delivery. For the 
Authority, management reform began when we accepted the Congressional 
mandate to implement the legislation and to effect a reorganization in 
the leadership and responsibilities of major public agencies.
    In the Management Reform Act, Congress provided that, ``in carrying 
out any of the management reform plans,'' the ``head of a department'' 
of the District government ``shall report solely'' to the Authority.
    With respect to the four government-wide functions, Congress 
directed that ``each member of the management reform team shall take 
any and all steps within the members' authority to implement the terms 
of the plan, under the direction and subject to the instructions of the 
Chair of the Authority (or the Chair's designee)''.
    Congress thus expected that the Authority would undertake a far-
reaching program of management reform to implement services for the 
District government, acting through its designated agents and 
exercising control over the nine departments and four government-wide 
functions. Implementation of these management reform plans requires 
supervision of the day-to-day operations of the government to achieve 
their purpose. When the Authority accepted this responsibility, we 
stated that we would engage a Chief Management Officer to whom we would 
delegate the assignment.
    An Order of the Authority on August 5, 1997, required the head of 
each of the nine departments and each government-wide function to 
``report to the Authority and act under the direction and subject to 
the instructions of the Chair of the Authority with respect to the 
exercise of all the powers and the performance of all the duties of the 
office.'' Using my options, I have instructed the heads of these 
departments and functions to report to the Authority through the CMO.
                       management reform program
    The Management Reform Act stipulated that management reform teams 
would be established to implement reform plans recommended by 
consultants and approved by the Authority. The management reform teams 
consist of the Chairman of the Authority, the Mayor, the Chairman of 
the Council of the District of Columbia, and the head of the affected 
department. To ensure that the management reform teams are 
knowledgeable about the plans and projects prior to their 
implementation, and to facilitate the participation of the elected 
leadership in the development of the plans, teams were established and 
convened early in the reform process, and the participation of all 
parties was sought and provided.
    Since the passage of the Management Reform Act, the Authority has 
moved aggressively to develop and to implement management reform plans 
to address service delivery problems facing the District of Columbia 
government, and to establish the capacity and capability for permanent 
and continuing improvement in government operations. The Authority has 
developed those plans and, in many areas, already has begun to fix the 
problems of poor service delivery to our citizens.
    The Management Reform Act declared vacancies in the position of 
agency director of the nine agencies. As a result, the Authority named 
acting heads for each of the agencies and functions, in subsequent 
action, the Authority named permanent agency heads. Some of them were 
recruited from outside the government. For example, Richard Fite, the 
Chief Procurement Officer, came to the District after a career with the 
Ford Motor Company. Others, such as Ms. Jearline Williams, Director of 
Human Services, were already employees of the District Government.
    To carry out its responsibilities in accordance with the Act, the 
Authority also created the position of Chief Management Officer. In 
announcing this decision on August 5, 1997, I stated that ``The person 
appointed to that position must have substantial, high-level experience 
in municipal management. The task of identifying and recruiting a CMO 
has already begun, and it will be accomplished without delay.''
    The Authority undertook a nation-wide search for the Chief 
Management Officer to assist us in implementation of the management 
reform plans and the operations of the departments and functions under 
our purview. After completion of the search and interviews with leading 
candidates, the Authority on December 22, 1997, announced the selection 
of Dr. Camille Barnett to be the CMO. She is charged with overseeing 
the implementation of the management reform plans and working on a 
daily basis with agency directors. Dr. Barnett, a former City Manager 
of Austin, Texas, began her employment on January 15, 1998. The CMO 
reports to the Authority through the Chairman, and she is already 
working to improve management practices and the reform of city 
services. The CMO is appointed for a fixed term of five years.
    I would also note that, as part of this process, the Office of the 
City Administrator is currently downsizing its operations. Previous to 
the passage of the Revitalization Act, the City Administrator's office 
was responsible for the management oversight of most District 
Government agencies. Since the Authority has been mandated by Congress 
to assume responsibility for the majority of these functions--both in 
terms of personnel and budget--the Authority is working closely with 
the Mayor to restructure the City Administrator's office to ensure that 
its resources are in line with its current responsibilities. Thus, we 
expect that the size of the City Administrator's Office will decrease 
in the coming months.
                       management reform process
    The Management Reform legislation required the Authority to obtain 
the services of consultants within 30 days of enactment. Therefore, on 
August 20, 1997, the Authority issued a solicitation requesting 
proposals for assessing, developing, and implementing management reform 
plans. One hundred and thirty-three solicitations were distributed, and 
71 proposals were received and evaluated. By September 4, 1997, within 
the 30 day requirement, contracts were awarded to management and 
program experts. The total cost was $6.6 million. On January 2, 1998, 
within 120 days of obtaining the consultants, the Authority submitted 
the management reform plans to Congress.
    In developing the management reform plans, the consultants first 
conducted an assessment of the management and program operations of the 
agencies and District wide functions enumerated by law. The assessment 
entailed the review of strategic plans, organizational structures, 
service delivery systems and processes, and the actual delivery of 
services to citizens. The consultants were instructed to solicit the 
views of citizens, stakeholders, and employees at all levels, as well 
as to review existing analysis and studies where available. Citizen 
surveys, group meetings, and interviews also were conducted to provide 
insight into satisfaction levels with service performance, and to 
obtain recommendations on how to improve service delivery.
    As the Authority discussed in its report to Congress, the 
assessments documented serious deficiencies in how the agencies were 
delivering public services. The findings ranged from the lack of 
capable staff with the requisite skills to do their jobs; the presence 
of outdated and, in some instances, obsolete technology to support 
service delivery; inadequate business practices; and an absence of 
effective cost reduction methods.
    The second step in developing the management reform plans consisted 
of the identification of management improvement projects that would 
address the many deficiencies cited by the contractors during the 
assessment phase. On October 25, 1997, the consultants submitted 
recommended improvement projects, which outlined the costs and benefits 
of implementing the projects and the capacity of agencies to implement 
them. Then, on November 25, 1997, the consultants submitted the final 
management reform plans, containing 340 management improvement 
projects.
    Through a collaborative process with the members of the management 
reform teams, the Authority reviewed and selected 269 management 
improvement projects to be included in the management reform plans. The 
selected projects, once implemented, will have an immediate and long-
term impact on the provision of public services. The projects will 
address serious deficiencies in infrastructure and organizational 
capacity, and will help to alter fundamentally how services are 
performed. Some projects will reduce costs, while others will generate 
increased revenues.
                             reform issues
    Briefly, I wish to indicate to you the range of management and 
service delivery problems that will be addressed by management 
improvement projects. They include some of the following:
  --In the Department of Human Services, contractors found that the 
        organizational structure and current staffing patterns needed 
        to be aligned more effectively with the priorities of the 
        agency. The DHS Management Reform Plan includes projects to 
        eliminate the Office of the Commissioner for Social Services 
        and consolidate functions into the Office for Social Services, 
        to out-source some functions of the Office of Facilities 
        Management, and to establish generally a new administrative 
        structure.
  --Contracts are developed in agencies without benefit of a District-
        wide Procurement Policy and Procedure Manual, or without any 
        commonly-accepted quality assurance standards. Performance 
        based Statements of Work, objective comparison of bids, and 
        contract management practices are of poor quality. The lack of 
        standards makes it time consuming and expensive to do business 
        with the District, and risks supplier protests, which in turn 
        disrupt contract executions. The District will develop a 
        procurement and operations manual to provide standards and 
        contract formats, so as to ensure consistent and uniform 
        performance.
  --The Department of Consumer and Regulatory Affairs collects over $25 
        million in revenue each year, primarily from permit and license 
        fees. However, it does not have a policy for setting permit and 
        license fees, and the agency does not review them periodically. 
        A comprehensive review of all fee schedules and the development 
        of a policy for setting permit and license fees is one element 
        of the management reform plan.
  --The District will implement a one-stop shopping system in the 
        Bureau of Motor Vehicles, similar to systems in the states of 
        Virginia and Oregon, which will reduce customers' waiting time 
        by 50 percent.
  --In the Department of Housing and Community Development, the 
        consultants found weak loan underwriting and monitoring 
        procedures, poor financial record keeping, and high loan 
        default rates which have jeopardized program performance and 
        future funding. The Department of Housing and Community 
        Development Management Reform emphasizes outsourcing loan 
        underwriting and other loan servicing functions.
  --The fire death rate per capita in the District is 60 percent above 
        the national average. Response times for advanced life support 
        calls are extraordinarily high on the average, and do not come 
        close to meeting national goals. One project for addressing 
        response times is the development of a Fire/EMS automatic 
        vehicle location system to facilitate dispatch of vehicles.
  --Fundamental communication needs are unmet due to a failing and 
        archaic telephone system. This problem negatively impacts staff 
        productivity and service delivery, and increases the cost of 
        doing business. Forty percent of the District Government's 
        telephones are of the rotary style, and many lack telephone 
        features such as voice mail and transfer capabilities. The plan 
        calls for replacing the District's telephone system.
  --In the Department of Health, at a time of scarce resources, an 
        average of 25 percent of grant funds was not expended in fiscal 
        years 1991 through 1997. The Department of Health plan contains 
        a project to redesign grant management operations in order to 
        utilize better available funds to provide more effective 
        services.
                  reform plan costs and implementation
    Mr. Chairman, it is important to state that, thanks particularly to 
your efforts sufficient resources exist to support implementation of 
the management reform projects in fiscal year 1998. To fund the 
projects, a variety of sources will be used. The CMO, working in 
collaboration with the Chief Financial Officer of the District, have 
reviewed the estimated needs for expenditures on management reform 
activities. They report that there is approximately $47 million 
contained in the consensus operating budget, and approximately $79 
million contained in the capital budget. The total estimated cost for 
management reform projects in fiscal year 1998 is $126 million.
    This is partially financed from the operating budget by the direct 
appropriation of $8 million contained in the Fiscal Year 1998 District 
of Columbia Appropriations Act, $30 million we have anticipated using 
from the net benefit generated by the Revitalization Act's 
implementation, and $9 million that was already in the budget. In 
addition, we anticipated an increase of $50 million in capital 
borrowing, to be combined with the $29 million for management reform 
projects that were already included in the estimated fiscal year 1998 
capital program. Finally, it is expected that some of these projects 
will result in cost savings, or additional revenues estimated to total 
$140 million, which can be used to support the projects in future 
years.
    To ensure that sufficient resources exist to support the projects, 
it will be critical to track the spending and revenue streams 
associated with each project. Working with the Chief Financial Officer, 
we are in the process of developing detailed spending plans to 
accomplish this task.
    The Authority has instructed the department heads to implement all 
of the selected reform plans, both those which can be effected 
immediately, and projects which first require additional scheduling and 
coordination. There are opportunities to address performance problems, 
to make employees more productive, to increase revenues, and to improve 
service delivery. Some projects are already being implemented. They 
range from stabilizing the Motor Vehicle Information System at the 
Department of Public Works to strengthening the Special Operations 
Function of the Fire Department. All of them will give citizens better 
quality services at lower cost.
                               next steps
    Mr. Chairman, the Authority looks forward to the implementation of 
the reform plans, and to the revitalization of City services that will 
be improved as a result of this program. The Authority will continue 
its collaborative approach with the management reform teams to ensure 
that all actions are taken to ensure implementation of the reform 
plans. Moreover, the Authority, members of the District Council, and 
the Mayor are engaged in a series of meetings that will lead to the 
development of a consensus budget and financial plan for fiscal year 
1999.
    In the weeks and months ahead, the Authority, utilizing the offices 
of the Chief Management Officer and the Chief Financial Officer, will 
work to integrate important elements of the District's overall reform 
structure with the Management Reform Act's efforts. First, we will 
require that agencies engage in a strategic planning process that 
focuses on their appropriate mission, goals and objectives, to ensure 
that they are supported by the reform plans. Furthermore, under the 
CMO's direction, the District is developing a Comprehensive Performance 
Management System to coordinate and integrate all performance 
measurement initiatives together in a city-wide organizational 
framework. The details of this Comprehensive Performance Management 
System and a timetable for its implementation were submitted to the 
Congress on March 2, 1998. Additionally, we will ask that agencies, as 
they develop such plans, to link performance outcomes to budget 
factors. Implementation of the reform plans should reflect these 
factors, and we look to the CMO and the CFO to ensure their effective 
implementation.
    The Authority will, through the CMO, use a centrally-managed 
automated project tracking system to monitor the effective 
implementation of the Management Reform Plans. The data base will 
contain the detailed plans for each management improvement project. The 
data base will stipulate the time frames, the major tasks, and the 
person responsible for each major task. We will also refine the 
performance measures for each management improvement project. In turn, 
this will help us to determine the progress made in implementing the 
projects and the impact of the projects on service delivery.
    The Authority will provide regular updates to the Congress and the 
public on the progress made in management reform plan implementation. 
We wish to make sure that information is widely available to the public 
on the improvements in City services, and we will use, where 
appropriate, the Internet, timely public briefings, and other means to 
ensure communication with all stakeholders. Finally, the Authority will 
continue its regular survey of citizens to measure the impact of 
service delivery improvements on residents' daily lives.
    The Authority will produce swift and sustained improvements to the 
quality of life of District residents and visitors--positive change 
that our citizens can measure and support on their own. We believe that 
the District can achieve sustained improvement in City services with a 
determined implementation of this reform program.
    Mr. Chairman, that concludes my prepared testimony. I would be 
happy to respond to any questions that you or other members of the 
Subcommittee have at this time.

    Senator Faircloth. Thank you, Dr. Brimmer, and thank you 
for the report.
    Before we get into questions and more discussion than 
questions, I would like to hear from Mr. Tony Williams. If we 
could first take just a brief break.
    [A brief recess was taken.]
    Senator Faircloth. Thank you. The hearing will come to 
order, and we will hear from Mr. Tony Williams, the Chief 
Financial Officer.

                    STATEMENT OF ANTHONY A. WILLIAMS

    Mr. Williams. Mr. Chairman, thank you for the opportunity 
to testify today before the subcommittee. It is always a 
pleasure, and I would like to thank the subcommittee for its 
support in our efforts to improve the financial and fiscal 
status of the District over the last year, calendar year 1997.
    If I may, Mr. Chairman, I have some charts I would like to 
use to illustrate some of my points.
    Senator Faircloth. Any charts. As I said earlier to the 
other people, there is no rush. Take your time.
    Mr. Williams. OK, Mr. Chairman.

                        positive financial news

    Our written testimony has been submitted for the record.
    I want to start by just highlighting for the committee some 
of the recent positive financial news that we have seen in the 
District and some of the issues behind this good financial 
news.

                              clean audit

    I would start first and foremost with the clean audit that 
the District received, the unqualified opinion, on our 1997 
financial statements. This was the first unqualified opinion in 
some time for the District. I think it represents a number of 
things. It represents, one, the fact that we have at least met 
the minimum acceptable accounting standards in terms of our 
processes and procedures that produce those reports and allow 
those reports to be judged fairly with other institutions like 
the District. So, investors, stakeholders, citizens, this 
Congress, the leadership in general can make informed 
decisions, and I think that is important.
    I think it also represents, Mr. Chairman, some significant 
achievements we have made in bringing our people, our 
employees, up to a higher level of service. There was a lot of 
consternation, a lot of questions about the introduction of the 
new financial management system and whether our people were 
ready to accept the challenge of implementing and managing that 
system. I think the fact that we are able to challenge our 
people, bring them to the level of producing this clean audit 
says a great deal about their ability and capacity as we move 
forward.

                            balanced budget

    Next, let me talk about the balanced budget. Mr. Chairman, 
the surplus that we produced in fiscal year 1997 was a result 
not only of a robust economy--that certainly contributed to an 
increase in income revenues for the District--no question about 
it--but very, very importantly, improvements in tax 
administration, tax collection, and improvements in our funds 
control and reporting also contributed to the budget surplus. 
All those factors, I think, contributed to that improved fiscal 
outlook in 1997.

                               tax system

    Just to give you an example of how we have improved the tax 
system--I may not have shared this with you, Mr. Chairman, 
before, but last year as of this date, I think we had processed 
on the order of magnitude maybe 150 tax refunds that we had 
sent back to citizens. That is not in thousands. That is 150. 
This year we have sent back over 30,000. Last year the cycle 
time for tax refunds was 4, 5, 6 months, God knows how long. 
This year our cycle time is something like 15, 16 days. We have 
made a commitment to process our refunds ahead of the IRS. We 
are doing that as I speak, and I am very proud of that. I would 
like to thank Dr. Nat Ghandi, our Tax Director, for a lot of 
his work in bringing us to that point.
    Senator Faircloth. Last year we had sent back 159 refunds.
    Mr. Williams. I may be off by 100, but an extremely low 
number.
    Senator Faircloth. And this year you are at 30,000.
    Mr. Williams. Over 30,000 now have been sent back.
    Senator Faircloth. Well, talk about spectacular 
turnarounds. That is one.

                             cashing checks

    Mr. Williams. Another, Mr. Chairman, is posting, cashing 
our checks within 24 hours. John Hill, the Executive Director 
of the Authority, and I were out visiting California and their 
introduction of a new tax system, and they were showing us 
their floor, their management floor, where they literally had 
runners pick up checks and rush them to the bank. We were 
comparing this with the District where last year I was getting 
calls from folks. One gentleman called me and said that he had 
sent a check of $60,000 to the District and would we please get 
around to cashing it because it had been something like 3 or 4 
months.
    Senator Faircloth. $60,000.
    Mr. Williams. $60,000. Dr. Ghandi implemented a policy 
where checks are deposited on a 24-hour basis. We now have 
cashed over $40 million in checks, and on that basis will save 
the District $4 million a year on interest alone.

                            investment grade

    So, with these different improvements, we have reentered 
the public market. Even though our credit rating is still below 
investment grade, we are trading on an investment grade basis. 
As you know, Mr. Chairman, we have enjoyed two rating upgrades 
now, one from Moody's and one from Standard and Poor's, which 
put us on the threshold of investment grade.
    I have talked about the budget surplus. We are paying our 
vendors on time, and as we speak under the direction of Dr. 
Barnett and our new Procurement Director, we are integrating 
our financial operations and procurement operations to see that 
the remaining vendor payment problems are addressed and 
rectified.

                          financial reporting

    Finally--and something that we are very proud of--we are 
providing decisionmakers throughout the District with 
consolidated, streamlined financial reporting. It is not on the 
speed we would like. It is still 60 days old, but I think we 
have come light years, given the fact that we have an 
inadequate and decrepit financial management system.
    So, Mr. Chairman, on the basis of these improvements in our 
financial and fiscal affairs, I think we can see now a 
difference in our general fund revenue and expenditure 
patterns.
    In this first chart, we basically show the period from 1994 
to 1997, and we see before 1996 expenditures trending ahead of 
revenues in the District, and we see in 1997 that red line 
diving below the black line, the revenue line, for the first 
time.
    In the second chart, we see----
    Senator Faircloth. The red line is the----
    Mr. Williams. The red line is expenditures.
    Senator Faircloth. And the dark blue line is----
    Mr. Williams. Total revenues in the general fund. So, you 
see on the basis of the work that we are doing, the Authority, 
and the work of this committee with the Revitalization Act, you 
can look now, projecting 1998 to 2002, and see that revenue 
line running ahead of the expenditure line.
    Mr. Chairman, that is good news for the District, and it 
shows that we are now facing the potential for real structural 
balance in the District. I say potential because, I think as 
Dr. Brimmer would agree, this balance is tentative, fragile, 
and subject to change. I think, as the Authority would also 
agree, the District still faces, notwithstanding this good 
financial news, a number of deficits.

                              tax deficit

    One deficit I would call our tax deficit. If you take 
information technology firms, biotechnology firms, services, 
associations, we tax these folks too much to be competitive.
    Senator Faircloth. Would you say that again?
    Mr. Williams. Information technology firms, biotechnology 
firms, service firms, and associations, all of these entities 
are taxed on a noncompetitive basis in the District. We tax 
them much higher than surrounding jurisdictions, and this does 
not put the District in a competitive position going forward.

                           revitalization act

    Even though the Revitalization Act has meant a lot for us 
in terms of our fiscal status, and our net benefit from the 
Federal Government has increased since the Revitalization Act, 
there is still a deficit between what we feel the District 
deserves, if you will, from the Federal Government and what we 
have actually obtained.

                            capital deficit

    There is a capital deficit that remains in the District 
both on the physical side and the human side. A study of the 
schools has shown that there is $1 billion left in capital 
investment. The U.S. Department of Transportation has shown 
that there is a $2 billion capital deficit.
    Senator Faircloth. How much?
    Mr. Williams. Two billion dollars, sir, for public works, 
transportation, and a study last year by the schools showed a 
$1 billion capital shortfall. So, there is a huge capital 
shortfall in the District.
    Senator Faircloth. Did you say there was a $2 billion 
capital deficit for public works as in streets and----
    Mr. Williams. Yes, sir, bridges, public works in general, 
streets, sewer systems, all of the capital you need to have a 
solid public works infrastructure in the District.
    Senator Faircloth. Thank you.

                        service delivery deficit

    Mr. Williams. Then finally, Mr. Chairman--and this gets us 
to the next point and the whole reason for the management 
reforms--a service delivery deficit. And it is in service 
delivery, coupled with economic development and tax 
restructuring, that we can boost the city's economy and improve 
its revenues.

                             budget process

    Which allows me to wrap up, Mr. Chairman, with this final 
chart. The Chief Management Officer, Dr. Barnett, and I, 
working in conjunction with the Authority and under the 
direction of Dr. Brimmer, based on legislation by this 
committee that gave the District the ability to streamline and 
reorganize the budget process, are focusing in this year's 
budget process, which includes the Financial Authority, the 
Mayor, and the Council, on 10 key areas.
    One, financial management, meeting some key financial 
targets. Obviously they are subject to policy, but they are 
general goals we all want to shoot for, whether trying to 
create structural balance in the District, creating a reserve 
fund or trying to manage our debt load better.
    Management reform, the purpose of the hearing today.
    A comprehensive labor strategy, matching pay and 
performance on a consolidated basis, I believe, under the 
direction of the Chief Management Officer.
    Tax restructuring we have talked about already.
    Federal relations. I think the committee is well aware of 
all of those issues.
    Capital priorities. We have talked about the capital 
deficit in the District.

                             receiverships

    Managing the receiverships, a big joint effort on all of 
our parts, under the auspices of the Chief Management Officer 
and the Authority, to try to enter successfully and ultimately 
collectively with all of the receiverships into an agreement 
that would allow the District to be assured that it will move 
out of these receiverships by improving service delivery in 
these key areas, whether it is foster care or mental health or 
whatever.
    I would personally think that the Congress would pay a lot 
of attention to that because I think that the District itself 
in general is in fix-up mode, and the courts have ordered fix-
up mode in some of these receiverships. And there may be some 
way to try to reconcile all the fix ups so that we are working 
on a coordinated basis.
    D.C. public schools is a big funding issue for the 
District.
    Health care policy, trying to get the most bang for our 
buck in health care.
    And then, finally, all the different program enhancements 
that will be part of the overall improvement efforts of the 
Chief Management Officer.
    Mr. Chairman, those are the 10 issues that we face and why 
I think the 1999 budget is one of the most important budgets 
the District is going to formulate and enact.
    With that general testimony, Mr. Chairman, I would be happy 
to answer any questions you may have.
    [The statement follows:]

               Prepared Statement of Anthony A. Williams

    Chairman Faircloth, members of the committee, my name is Anthony 
Williams and I am the Chief Financial Officer for the District of 
Columbia. Thank you for this opportunity to testify on the issue of 
management reform in the District, specifically with respect to the 
financing of these reforms and its associated effect on the District's 
financial and fiscal stability. In addition, you requested that I 
discuss the current status of the new financial management system and 
any other important issues facing the District.
                               background
    The District's recent financial crisis was years in the making. 
Poor financial management practices that had been masked in the 1980's 
by the healthy stream of real estate revenues became acutely obvious in 
the 1990's. The District faced a bleak revenue picture, both because of 
a shrinking tax base and an ineffective tax collection system. 
Compounding this, the District's spending pattern continued unchecked. 
Also, the District's budget was and continues to be structurally 
imbalanced. While we now have reversed the trend of expenditures 
outpacing revenues, without further assistance from the federal 
government, like the President's revitalization plan, District 
expenditures, in the long term will continue to outpace revenues. This 
is primarily due to the District's narrow tax base. And our financial 
reporting system was abysmal. By 1995, the years of financial 
mismanagement and neglect posed a significant threat to the long-term 
viability of the District government.
    Today, the District has a balanced budget, due in large part to 
more effective spending controls and better collection efforts by the 
Office of Tax and Revenue. Indeed, we have gone from a projected budget 
deficit of $75 million to a surplus of $105 million. We have recently 
had our bond ratings upgraded by both Standard and Poor's and Moody's 
Investor Service. In addition, we have achieved the first clean audit 
for the District government since 1993. These successes would not have 
been possible without the support and assistance of this Committee.
    However, we still have a lot of work to do. With our financial 
house in order, the District is now in a position to successfully 
implement management reforms that will result in better service 
delivery to our citizens.
                           management reform
    We recognize the need for management reform. At the same time, we 
must also recognize the need to implement reform in a financially 
responsible manner. Management reform must be brought about along with 
the reduction of the District's accumulated deficit. District 
stakeholders must maintain and continue to improve upon the financial 
health that we have worked so hard to restore.
   financial reform created the conditions for successful management 
                                 reform
    The enormous progress that we have made in reforming the District's 
financial management provides the foundation for successful management 
reform. Additionally, the Council, the Mayor and the Authority have 
made the difficult decisions to help put the District on sound 
financial footing. The District's overall financial position improved 
dramatically in fiscal year 1997, and, with responsible decision making 
by District leadership, we expect that to continue into 1998 and 1999.
  --This improved financial outlook is not just a byproduct of the 
        economy. Much of the District's increased revenue is due to 
        improved collection efforts of the Office of Tax and Revenue.

                        [In billions of dollars]

                                                               Estimated
        Fiscal year                                        local revenue
1997.............................................................. 2.749
1998.............................................................. 2.811
1999.............................................................. 2.870

    Indeed, the fiscal year 1997 financial audit results show that 
improved revenue collection and spending discipline left the District 
with a surplus for the first time since 1993.
  --The improved budget process produces better information for making 
        decisions while aggressive budget execution increases the 
        capacity to enforce accountability.
  --The efforts of our Treasury department have given the District new 
        credibility in the bond markets. Our improved financial 
        performance has been recognized by the bond markets through 
        lower rates and the recent upgrade of the District's credit 
        rating.
  --The Controller's Office has made tremendous strides in rebuilding 
        our financial infrastructure.
    Our financial progress gives the District's stakeholders the 
institutional capacity to implement management reform. Working closely 
with the new Chief Management Officer, we can now ensure that the 
District connects resources with results.
                                funding
    One of the most important issues regarding management reform is 
funding: where will the money come from. The starting point should be 
the fiscal year 1998 consensus budget. Our analysis of the management 
reform proposals indicates that it will be possible to implement a 
substantial one time management reform program with current available 
funds. While the Chief Management Officer is still reviewing and 
assessing agency implementation plans, it is now estimated that at 
least $38 million will be spent on management reform in fiscal year 
1998. Funding for the $38 million is already included in the District's 
fiscal year 1998 budget. Additional funds have been identified to the 
extent additional projects are approved.
    The funds identified in agency budgets are based on existing 
spending plans, although the decision makers are still working out the 
final numbers on management reform. It is possible to increase the 
funding available for management reform even further by reducing 
spending for current programs, but I strongly urge all stakeholders to 
remain consistent with the overall consensus budget framework.
                    reducing the accumulated deficit
    As we move forward with management reform, it is important that the 
District make progress in reducing the District's accumulated deficit. 
I believe that all the stakeholders have this priority at the 
forefront. It is also one of the key requirements to move the District 
toward regaining Home Rule. The following principles may serve as a 
useful framework for discussion:
  --The District should live within its approved fiscal year 1998 
        budget. Management reform funds must only be used for approved 
        projects, not diverted to fund ongoing agency operations. To 
        ensure that this happens, the Chief Management Officer and I 
        required agencies to develop detailed spending plans for each 
        project. After the plans are approved, we recommend that 
        management reform funds be placed in separate accounts to track 
        projected expenses and progress. We will show the District's 
        residents exactly how much was spent for each project and 
        exactly what results each project achieved.
  --Management reform should be directed towards one-time expenses. 
        Projects which have significant continuing costs should be 
        implemented through the regular budget process.
  --Although the primary purpose of management reform is to improve 
        services, many projects are also projected to either increase 
        revenue or create cost avoidance. We must ensure that projected 
        savings and revenues actually materialize or clearly identify 
        funds to pay for needed reforms. The Chief Management Officer 
        and I will work closely together to track progress in cost 
        reductions and revenue enhancement.
           coordination and collaboration between cfo and cmo
    As the financial organization moves from a control posture to a 
support posture, we are committed to integrating financial management 
into program management in order to improve governmental efficiencies. 
As we move out of a control period, this integration will be central to 
the long term success of the District. Our office has supported the 
Chief Management Officer in her initial efforts at implementing 
management reform and we are committed to continuing that support.
       overview of fiscal year 1999 budget process and priorities
    Working together, the Mayor, the Council of the District of 
Columbia, and the Financial Responsibility and Management Assistance 
Authority reached agreement on the top budget priorities for fiscal 
year 1999. These were identified as follows:
    1. Meet financial management targets.--Obviously, enhancing the 
District's financial position remains a primary concern. The budget 
must support achievement of key financial goals, including the 
following:
  --Eliminate accumulated deficit
  --Establish a positive fund balance
  --Achieve investment grade bond rating
  --Reduction of debt burden
  --Develop structural budget balance
    2. Funding for management reform.--Baseline budgets will not 
include management reform funding. Initiatives must be prioritized and 
implementation decisions must be made concurrently for fiscal year 1998 
and fiscal year 1999.
    3. Develop a labor strategy.--To better prioritize and support the 
compensation needs of District employees, decision-makers must first 
devise a comprehensive labor strategy, which will then guide budgeting 
and negotiating decisions for fiscal year 1999.
    4. Tax restructuring policy.--The Office of Tax and Revenue has 
developed options for modifying the tax code to promote economic 
development and parity with surrounding jurisdictions. These options, 
in conjunction with the Tax Revision Commission's proposals, will 
provide the foundation for discussion and policy decisions.
    5. Federal relations.--The federal government provides financial 
contributions to the District through various forms. This discussion 
will focus on the best approach to negotiating and leveraging these 
contributions for fiscal year 1999 and beyond.
    6. Capital financing priorities.--The District faces substantial 
capital needs in excess of available funding. The Capital Review Team 
has prioritized the requests of agencies according to sound criteria. 
Providing adequate funding will be a central focus of budget 
discussions.
    7. Returning receiverships to District control.--Currently, 
receiverships and court orders account for $200 million of the District 
budget. To improve service delivery and regain budgetary discretion, 
decision-makers must develop a strategy to improve these operations so 
that they may be returned to the District.
    8. Funding for D.C. Schools.--Improving the public schools 
continues to be a major priority for the District. A combination of 
reform initiatives and funding support must be evaluated for fiscal 
year 1999.
    Health policy.--Rising costs, operational issues, and a rapidly 
changing federal environment will require essential policy and funding 
decisions to be made regarding health policy in the District. 
Particularly, this discussion should focus on the following issues:
  --Funding for D.C. General/Public Benefit Corporation
  --Medicaid policy
    10. Program enhancements and service improvements.--As part of 
their budget request, agencies submitted specific program enhancements. 
Decision-makers must set priorities and review the associated budget 
requirements to determine which will be funded.
    The District's decision makers have a window of opportunity to set 
the District on sound financial footing for years to come. Therefore, 
it is critically important that these ten priorities be achieved.
    The Mayor, the Council of the District of Columbia, and the 
District of Columbia Financial Responsibility and Management Assistance 
Authority have also agreed to a revised budget process for fiscal year 
1999, as provided for in Section 11603 of the National Capital 
Revitalization Act. The process includes a series of joint budget 
workshops held with the Mayor, the Council, and the Financial 
Authority. Each workshop is focused on these ten priorities.
    After the final work session, options will be submitted to the 
Council for passage, then to the Financial Authority for approval. The 
Financial Authority plans to transmit the complete consensus budget to 
Congress for enactment.
             implementation of financial management system
    Mr. Chairman, due to the leadership of this Committee, the District 
was able to let a contract for the installation of a critically 
important new financial management system. The need for a new system is 
vital for the long term financial stability of the District. And I 
thank you personally for your support.
    There are two aspects to the new Financial Management System (FMS): 
Hardware/Software and the reengineering of process/training of 
personnel. With the assistance of this Committee and the Authority, we 
secured funding for and selected a vendor to implement the first piece, 
a new system. This system has already been installed on a pilot basis 
at the Metropolitan Police Department and the D.C. Public Schools. The 
feedback from these agencies has been positive. Over the next few 
months, we will include the Department of Public Works and portions of 
the Department of Human Services and procurement and personnel 
functions. The system will be fully operational by October 1, 1998.
    The new FMS allows agency heads and others to access financial 
information in real time: that is, instantaneously. Currently, 
financial information is usually 60-90 days old by the time it is 
compiled into a report for officials. Some information is never 
available. With the new system, agency heads will be able to access 
financial information at their desktops with the click of a mouse 
button.
    Having timely information available will allow managers to make 
informed decisions regarding departmental priorities. The new FMS will 
dramatically improve the ability of District officials to make the 
important budgetary and programmatic decisions necessary to streamline 
and improve agency operations while at the same time ensure that 
spending caps are not exceeded.
    Another major component of the FMS installation includes an 
intensive, ongoing training program and reengineering of our financial 
processes. As you know, these elements of the implementation are 
critical to the success of the overall project and ones that we take 
very seriously. All users will be fully trained in the operation of the 
new system. Training for these pilot agencies has been completed. 
Additionally, we are undertaking a reengineering of our financial 
process in order to ensure that our systems and processes are 
synchronized for maximum efficiency and performance.
    I want to thank the Committee for their support of this critically 
important system and will continue to meet with you and your staff as 
we make progress towards completion.
                    economic development corporation
    Although the District has balanced its books and realized a budget 
surplus for the current year, and continues to enhance its revenue 
collection efforts, real recovery requires the growth of the District's 
economy. The National Capital Revitalization Corporation (NCRC) 
consolidates the currently fragmented economic development functions of 
the City into one entity which will stimulate the economy and create 
new jobs in the District.
    Initially, the NCRC will be charged with preparing a strategic plan 
for economic development. As we all know, the District has been lacking 
an economic development strategy. Unfortunately, this has cost us 
significantly, in terms of lost opportunities to attract and retain 
businesses, thereby reducing the increase in revenue that many other 
cities have been experiencing. With the NCRC, the District will begin 
to see the benefits of a growing economy and a rebirth of the city, 
both downtown, and perhaps more significantly, in the surrounding 
neighborhoods.
    Too often in the past, economic development entities did not have 
the right staff to make the important decisions that had to be made. 
The NCRC will be staffed with economic development professionals that 
will be held accountable for achieving specific results.
    The NCRC will have the authority to finance economic development 
through the issuance of revenue bonds, including tax increment bonds, 
as well as other financing, including the use of loans and grants.
                               conclusion
    In closing, a properly financed management reform plan will provide 
immediate and visible benefits to the citizens of the District. 
However, we must remember that management reform should be part of a 
broader strategy of revitalizing the District: economic development, 
tax relief, and long term financial stability are equally vital 
components of the District's recovery, as is deficit reduction. If the 
District acts responsibly it will be possible to improve basic services 
and reduce excessive taxes.
    Thank you and I am pleased to answer any questions the Committee 
may have.

    Senator Faircloth. Thank you, Mr. Williams, and thank all 
of you for what we are doing here and what we are trying to do.
    Just as a broad statement on where we stand and what we are 
doing, we have begun to make a start in this city in 
straightening out the problems that have tended to inundate it 
for the last 20-plus years. I find and feel a spirit of 
excitement in the city and among the citizens that I see and 
talk to on a regular basis. Somebody is always saying that they 
are beginning to see improvements, and I think that is an 
excitement that we can all share and be proud of, that it is 
beginning to happen.
    As has been pointed out by each of you, we are a long way 
from being where we need to be and where we want to be and 
where we want the city to be. But I think there is a strong 
feeling both here and certainly in the Congress--there is the 
feeling with you all and with the citizens of the city that we 
have started to make the turn. And there is the determination 
to continue to make it and to make the city the type of city we 
want it to be.

                             press coverage

    Now, Dr. Barnett, everyone else at that table and most of 
them in this room know it, but you will rapidly find it out, 
that in Washington you are under a very finely filtered 
spotlight. Anything we do here, both good and bad I must say 
for the press, gets excellent coverage. [Laughter.]
    And that is good because the things we do right, the 
improvements we make will be properly reported and we will know 
about them. Those tend to inspire further improvements in 
things.
    I have got a lot of questions. When I say questions, I mean 
we are here to discuss what we can do to make the city better, 
so do not hesitate to speak up or ask questions yourselves.

                           police department

    I want to start. One of the first things, Dr. Brimmer and 
Dr. Barnett, is the police department. The Metropolitan Police 
Department is currently operating under a memorandum of 
understanding. Some have criticized the MOU partnership because 
it has too many chiefs and creates too many lines of authority. 
Among those who have criticized it, I am in the group.
    I was disappointed to see that after 1 year, the MOU 
received a report about the number of police still behind 
desks. The police still do not deploy officers to the streets 
as recommended. Some are there. It is a little better, but it 
is a long way from where it should be.
    Do you all share the criticism of the MOU partnership? 
Would you recommend continuing MOU as a structure, or is it 
something we should monitor very, very closely in the next 
year?
    We have time to think. We have begun to make the turn, so 
we can take the time to think.
    I think we have made great headway, Dr. Barnett, in 
speeding tickets and getting building permits, and we are 
beginning to function as a city should.

                        police chief chauffeurs

    But the Police Chief, Chief Proctor, who I think is doing a 
good job and trying, has three chauffeurs. That is the type of 
ludicrous thing we have been reading and the public has been 
reading about the city now for far too many years. It is time 
that we cut out that kind of stuff and move to running it like 
a hard, tough, real city should be run and eliminate the fluff.

                      memorandum of understanding

    That having been said--and I will ask any one of the 
three--do you share the criticism that has been levied against 
the MOU, not as individual members of the MOU because I think 
that every one there has truly tried to make it work, but as an 
operating entity, as a way of doing business?
    Dr. Brimmer. Mr. Chairman, I will speak to it. I am a 
member of the MOU group. Three of us at the Authority are 
members: Vice Chairman Harlan and Ms. Newman.
    The group was formed in order to bring to bear all of the 
resources in the city concerned with criminal justice in order 
to mobilize those resources and use them most effectively. It 
got started when the police department was under the day-to-day 
direction and supervision of the Mayor.

                            booz allen study

    You might recall that soon after the group was started, we 
engaged a management consulting firm, Booz Allen and Hamilton, 
to study the department, tell us what is wrong, what can be 
done to improve it. We thought it was better to have that study 
and review paid for by the Control Board. We paid for it. We 
engaged them, but we thought the one way to get it done was to 
take responsibility for it.

              members of memorandum of understanding group

    But we also concluded that the members of what later became 
the group had different responsibilities. The memorandum of 
understanding group includes the three members of the 
Authority. The Mayor is a member, the chair of the Council is a 
member, as is the chair of the Judiciary Committee, and the 
Corporation Counsel. The Chief of Police is a member. The U.S. 
Attorney is a member and the Chief Judge of the Superior Court. 
All are members.
    Senator Faircloth. How many members total? Seven?
    Dr. Brimmer. Seven, that is correct.
    It is an informal group. We meet, we discuss a number of 
issues. The group is chaired by Mr. Harlan who is the Vice 
Chair of the Authority and the member among us who already had 
oversight responsibilities for public safety, the police, 
corrections, and fire.
    What has the group done in relation to the implementation 
of the reforms and now the role it is playing in the search for 
a new police chief?
    The group serves in an advisory role. The MOU group does 
not give day-to-day instruction and direction to the police 
chief. When we empowered the Chief in February 1997 to run the 
department, we made it clear, first, that the day-to-day 
operations of the department were in the hands of the Chief. 
The Mayor delegated that authority to the Chief.

                      authority delegated to chief

    Senator Faircloth. I am sorry?
    Dr. Brimmer. The Mayor delegated his day-to-day oversight 
and direction.
    Senator Faircloth. The Mayor does not have that.
    Dr. Brimmer. No, no; under the statute he has it, but we 
encouraged the Mayor in the winter of 1997 to delegate that 
authority to the Chief of Police.
    One of the recommendations of the Booz Allen group was that 
the day-to-day direction of the department be transferred from 
the Mayor and vested in the chief. They said that as a result 
of their study, they had concluded that there was an 
unnecessary degree--there had been an unnecessary degree of 
day-to-day intervention by the Mayor's office in the conduct of 
the police department. They said that intervention had not been 
helpful, but it had been a source of difficulties.
    We took that advice seriously, and we discussed the matter 
with the Mayor and encouraged him to delegate his authority to 
the chief for day-to-day operations and oversight.
    At the same time, we at the Control Board used our 
authority, which we could do under our legislation. We gave the 
chief the power to make personnel decisions outside of the city 
personnel rules. We delegated to the chief the power to make 
procurement decisions outside. Booz Allen and Hamilton told us 
that those powers were necessary to enable the Chief to 
function. So, for well over 1 year, the Chief has had the 
responsibility to run the department.
    Now, the Chief does consult, and I want to stress that. The 
Chief does consult with the MOU group, and particularly the 
Chief does consult with the chair of the MOU group, Mr. Harlan, 
because Mr. Harlan is available and devotes more time and 
attention to it. But the MOU group has not been running the 
department, and I am going to stress that. The Chief runs the 
department, and the oversight is provided basically by the 
Control Board. I want to stress that because there are three of 
us, and Mr. Harlan is the chair.

                        search for police chief

    Now, let me say one thing about the role of the MOU in the 
search for the police chief. Under the statute the Mayor has 
the authority to appoint the chief with the approval of the 
Council, but at the very beginning it was understood, and the 
Mayor has said it publicly, that the search, while technically 
it will be conducted by the Mayor, in fact----
    Senator Faircloth. Would be conducted by----
    Dr. Brimmer. Would be conducted by three people, the Mayor, 
the chair of the MOU group, Mr. Harlan, and Mr. Evans, the 
chair of the Council's Judiciary Committee. Those three persons 
are, in fact, acting as the search committee for the chief.
    However, all of us are participating and discussing the 
search. I participate. Ms. Newman participates.
    The search was put in the hands of a management recruiting 
firm, Norm Roberts of California. He has produced a list of 
candidates that is very strong. The list has been reviewed by 
us, and we will be interviewing those candidates. I can assure 
you that, just as was the case with our search for the Chief 
Management Officer, we will play a strong role in identifying 
those candidates. I can assure you--and the Mayor has said it 
publicly--the candidate recommended to be police chief will be 
the candidate agreed to by the MOU group. I said that that 
means the whole group. All of us are participating.
    The search is quite far along, and my review of the list 
and the references convinces me that we will end up with a 
first-rate chief of police.
    Now, I know the Mayor has established a committee. He is 
looking for public input, and that would be appreciated, and 
their views will be considered. But in the end the selection of 
the Chief of Police will be the result of the process I have 
just described where the search is in the hands of the MOU, and 
those of us who are members of it will be playing a strong 
role.
    Senator Faircloth. Thank you, Dr. Brimmer. I thank you. I 
have a question I want to ask you in a little bit but not right 
now.

             memorandum of understanding win-win situation

    The MOU started out in a win-win situation because from 
where the Police Department was, there was not much you could 
do to make it worse. So, the MOU had a pretty good base to 
begin with. Booz Allen did not have to bring their top brains 
to the table to figure out that there was an unnecessary degree 
of interference in the Police Department by the Mayor. That did 
not require deep and long study. It was pretty obvious from day 
one.
    Dr. Brimmer. Mr. Chairman, may I just say one other thing? 
I realize you did ask the question, is the MOU needed, should 
we keep it?
    Senator Faircloth. Yes; that was my one question I wanted 
to ask you. Dr. Brimmer, in a word, yes or no. Is it good or 
bad?
    Dr. Brimmer. Yes. Yes, and I reached that because I raised 
the question myself 1 week or 10 days ago.
    Senator Faircloth. Is that the way to run a police 
department with an MOU? Yes or no.
    Dr. Brimmer. In the District's setting with this diversity 
and dispersion of authority, the answer is yes, but I would 
hope that the need for the MOU would disappear very quickly.
    Senator Faircloth. Thank you, Dr. Brimmer. I have got some 
other questions.
    Dr. Barnett, I do not mean to put you on the spotlight, but 
this is a question we are going to face. You have had a fairly 
full plate with nine agencies and have not really had time to 
get beyond your purview of what you are assigned to do. But 
would you recommend the change of the MOU structure in the way 
the Police Department has been handled?

                memorandum of understanding partnership

    Dr. Barnett. I think the MOU partnership is a good way to 
get people together from a criminal justice system and 
coordinate activities. In that sense, I think it has been an 
extremely valuable group, and I would hope that it continues.
    In terms of the management of the police department, I have 
not seen any police department managed by a group like this, 
and as Dr. Brimmer has indicated, I do not think it was the 
intent for the MOU partners to manage the police department. I 
think we do need to look at clarifying the lines of authority 
in the police department, and I think in the police department, 
like many of the other agencies, we need to bring the 
government back together because we all need to work together.
    One of the things that I am trying to do operationally is 
to be sure that the police department and the nine agencies 
that I work with and any of the other agencies work together to 
provide the service because that is ultimately what it is going 
to take. I recognize that we are in a transition period, and so 
some things are necessary now that may not be necessary later, 
but I do hope that we will be able to bring the government back 
together.
    Senator Faircloth. Thank you, and that is a good summation, 
I think, of where we stand. The MOU has certainly served well. 
They have served without benefit of pay or anything else. They 
have just dug in and the three members of the Control Board, 
totally unpaid, have done work, and have tried to make it work.
    Tony, would you care to----
    Mr. Williams. Mr. Chairman, as the CFO, I really do not 
have any public, formal opinion on the matter. I think that is 
best to have it that way.
    Senator Faircloth. I am sorry?
    Mr. Williams. I think it is best to have it that way, for 
me to focus on the financial issues.
    Senator Faircloth. Since we are on you, Mr. Williams, I 
wanted to just say one thing in great praise. I have heard 
nothing, in visits with you and Dr. Barnett, but of the 
cooperation between the CFO and Dr. Barnett's office. Behind 
your back, she has been high in praise of your cooperation and 
what you have done and how it is working together to bring a 
coordinated effort. For that, I thank both of you.

                    management improvement projects

    Dr. Brimmer and Dr. Barnett, following the release of the 
management reform plan, the Control Board selected 269 
management improvement projects to be included in the reform 
plan. These projects cover pretty much every area from welfare 
to work to street cleaning, trash collection, improvements that 
are long overdue. It appears that some of these projects will 
be completed this year and some will extend on to the turn of 
the century.
    Could you tell us what percentage of the projects are short 
term, to be completed immediately and what percentage are long 
term, to be completed over an extended period of time? Dr. 
Barnett, would you----
    Dr. Barnett. I can estimate that for you. Much of the 
management reform projects are----
    Senator Faircloth. Name me some examples of what we are 
trying to do immediately.
    Dr. Barnett. Well, a lot of the immediate work has to do 
with what I would call short-term operational issues that 
require attention. In some cases a management reform project is 
characterized as stabilizing the leadership of the department, 
which means hiring where there has not been a permanent 
director. Or it is developing a strategic plan, as I discussed 
in my testimony earlier, that we will be doing citywide. Or it 
might be buying a piece of equipment such as a fire truck or an 
ambulance that is needed to provide the service. So, in those 
cases, those types of management reform projects are pretty 
easy to accomplish within the scope of the remainder of this 
fiscal year.
    Other types of projects are mostly systems implementation. 
There are computer systems that need to be designed and 
installed to do things like support the motor vehicle 
registration or the grants processing in the Housing 
Department, or a wide area network throughout the city, or 
installing telephone systems. Those may not all be completed. 
In fact, they will not all be completed by the end of the year.

                          year 2000 complaint

    One of our major projects is to be sure that all of our 
computers are year 2000 compliant. That is one of our major 
initiatives under management reform. That project is underway, 
but it is not anticipated that we will complete that until 
midyear 1999.
    So, those are the examples of them. The large dollar 
projects generally, where most of the effort and most of the 
money are, are going to take more than this fiscal year to 
complete just because of the nature of the project. Some of the 
shorter-term projects I think we will be able to finish this 
year.
    Senator Faircloth. Dr. Brimmer, if I heard you correctly in 
earlier testimony, you mentioned, however the phrasing was, 
that once money is appropriated for a major project, that it 
stays there. It is not chopped off at the end of the year to be 
redone. Would you tell me what you said again?
    Dr. Brimmer. Yes; before I do, Mr. Chairman, may I call 
your attention to my testimony?
    Senator Faircloth. All right.

                           projects underway

    Dr. Brimmer. I did include some of the examples of the 
projects that are underway. They give the flavor of what is 
being done. A couple of items Dr. Barnett mentioned are 
included. I put this in deliberately to indicate that we are 
not twiddling our thumbs.
    Senator Faircloth. You are not what?
    Dr. Brimmer. We are not twiddling our thumbs. It is not 
just efforts being planned, but project that are actually being 
done.
    Now, I will call your attention to some of those. They 
illustrate what under certain circumstances I might be tempted 
to call low-hanging fruit, but I will not. These are examples 
of activities that are going on in a variety of departments 
already. Some of them will be completed in months. Some will be 
completed by the end of the year and so on. So, they are 
actually being implemented. Very soon the service delivery 
associated with these will be showing up.
    Senator Faircloth. I hope we are gathering the low-hanging 
fruit quickly and carefully.
    Dr. Brimmer. Yes.

                    completion of goals and projects

    Senator Faircloth. My question was really--and maybe Mr. 
Williams will speak to this--that there had been a tendency in 
the city of no continuity of a project, that we would start a 
plan, a program and chop it off and the budgeting did not flow 
from year to year to arrange for the proper completion of a 
given goal or project.
    Dr. Brimmer. Yes; that is the point I was addressing, Mr. 
Chairman. It is my understanding that in the past most 
appropriated funds were fiscal year funds that gave rise to the 
deplorable habit of agencies finding themselves during the year 
rushing at the end to spend the money before the authority 
lapses.

                  funds available for life of project

    What I am saying is that--and this is what we spelled out 
in our testimony when we were before you with the budget--the 
funds we are earmarking for management reform we would like to 
have available over the life of the project and not have it 
lapse at the end of the fiscal year simply because the funds 
were appropriated during a given fiscal year. So, the $8 
million, for example, that you provided. The chances are that 
we will spend all of it this fiscal year, but if we do not, we 
do not want to see it lapse. That is what I meant. We want the 
funding earmarked for management reform to be available to 
finance the implementation of that project, however long it 
takes.
    Senator Faircloth. Thank you, Dr. Brimmer.
    Mr. Williams, I had two questions. One I am sure is 
overlapping and I am not into the details of the city's 
operation enough to understand, but I remember very clearly in 
time--maybe it was almost 2 years ago--that we met and maybe 
with the Control Board at the time.

                           accounting system

    In essence what you said was that the city did not have an 
accounting system, that the equipment was antiquated to broken, 
that a lot of the people were untrained. I am not trying to 
quote you, but that is in essence what you said and that we 
just did not really have an accounting system for the city.
    What I would like to know--and I heard what Dr. Barnett 
said, that one of our first goals and moves was to improve 
equipment. Would you tell me how that is coming, how much of it 
we have outsourced, which is one thing we were going to do? 
Would you tell us how that is coming? Because the core and the 
basis of the operations of the city have to come from sound 
accounting practices. So, would you tell us what you have been 
able to do and where we stand?
    Mr. Williams. Yes, sir; when we talked to you, we discussed 
with you the fact that, in our estimation, the District was 
lacking in a number of the key elements of a workable financial 
system, and we defined a financial system to include not only 
hardware and software but operations, people, and processes, 
and that we needed to do a lot of work in each of these 
different areas.

                      financial management system

    As we began to do work on the people, process, and 
operations front, under the auspices of the Authority and in 
conjunction with them, we issued a solicitation for a new 
financial management system. We had involvement from the 
Congress in terms of oversight and critique of that 
solicitation. The GAO was involved in terms of critique. The 
OMB was involved as well. It was directly involved, along with 
our people and staff of the Authority, to move forward on the 
solicitation.
    After an exhaustive amount of analysis and review, 
including an analysis of the capabilities of the current 
system, we made a decision. That decision was based on 
comparing the existing, as-is situation, with a situation in 
which we basically took the system, tried to improve it, bought 
a new system, and another option in which we took the new 
system and looked at what additional people or combinations of 
people and staffing patterns we needed to make this thing work 
best. We decided that of all of the different options, the 
option to implement was a new system, and so we proceeded with 
the solicitation on that basis.
    Having done that, I think we did two things in the 
financial management system from a risk management point of 
view that have allowed us to move forward I think on time and 
under budget.

                            risk management

    The first is we enlisted, again on the basis of a 
nationwide solicitation, the help of a contract management 
firm, James Martin, known around the country for contract 
management of projects like this. To provide us assistance and 
consultation in managing the firm, Peat Marwick is being used 
for installing the project. And I think that was a big step in 
terms of risk management.
    Another risk management step that we have taken was that we 
have all along planned on installation of the system on an 
incremental, as opposed to what is called a big bang, basis. In 
other words, rather than waiting to a certain point in the year 
turning the system on in all the different agencies, we decided 
that what we would do is prioritize the major service areas, 
the agencies with the major dollar volumes, bring them up on a 
pilot basis, test them on an experimental basis while we still 
use the old system as what we call the system of record, and 
then over the summer bring the remaining agencies on board so 
that on October 1, the beginning of the next fiscal year, we 
can execute the new system throughout all the agencies as the 
system of record. This will leave us another 6 months to do 
what we call the reengineering, the final indepth fix on all 
these processes and operations that plague the District.
    Senator Faircloth. Mr. Williams, where does that stand now? 
How far are we into that?
    Mr. Williams. Mr. Chairman, we have now installed the major 
initial pilots. Those are the police department, public works, 
public schools, and part of the Controller's Office, my office, 
that services the smaller agencies in the District.
    Senator Faircloth. This will all, as I understand it, feed 
into one entity.
    Mr. Williams. That is correct, sir. Essentially all the 
different financial accounting activities feed into the general 
ledger, and then associated with this general ledger are 
different what you call modules, many of which we do not have 
right now, I might add. If I go down the list, you will not 
believe what we do not have right now. We do not have, for 
example, an accounts payable.
    Senator Faircloth. You are getting them.
    Mr. Williams. Right. We do not have accounts receivable. We 
do not have grants. We do not have budget. I mean, it is 
incredible.
    Senator Faircloth. But we are getting there.
    Mr. Williams. But we are getting them, yes, sir.
    One final thing--and I think you would appreciate this with 
your experience, Mr. Chairman, in highways--is we really are 
insistent on the belief that while we are essentially digging 
up the road that we not only fix, let us say, the storm drains, 
we fix everything while we have got the road open. So, the 
analogy here is that, while we have got this system being 
installed in the agencies, we use this opportunity to 
aggressively and thoroughly reengineer not only the financial 
operations and processes, but in conjunction with the CMO, also 
look at all the other related and interfaced management 
information processes, a spectacular example of which would be 
procurement.
    Dr. Brimmer. Mr. Chairman?
    Senator Faircloth. Yes; Dr. Brimmer.
    Dr. Brimmer. You said we could make comments or questions.
    Senator Faircloth. Yes; we are wide open. There are no 
strict rules here.
    Dr. Brimmer. I want to take this opportunity to report to 
you that the progress Mr. Williams just described was made 
possible entirely by your efforts. You might recall well over 1 
year ago, we had a great deal of difficulty getting 
authorization to proceed with the acquisition of the financial 
management system and the implementation of the plan Mr. 
Williams described. In fact, there was active opposition which, 
if it had prevailed, we would have still been stuck with the 
old system with no progress being made. So, what you see here 
today is a result of the position you took when you insisted 
that these funds be included and that the management of the 
system be left to the Authority and Tony Williams. I want to 
report that because this is good news, a favorable outcome.
    Senator Faircloth. I sure appreciate it. I need it in North 
Carolina worse than I do here. [Laughter.]
    But thank you.
    Mr. Williams. I want to echo that, Mr. Chairman.
    Senator Faircloth. I do have a question for Mr. Williams. 
As I said and alluded to a while ago, I guess no city in the 
country, certainly not in this country, is more under the 
intense scrutiny, that problems are more magnified than here.

                      deceased retirees on payroll

    So, saying that, I ask you, Mr. Williams. Peat Marwick 
determined that 20 deceased retirees from the District's 
payrolls were receiving retirement benefits. I understand where 
we are moving, but would you explain to the committee how this 
happened and what we are doing to avoid that kind of glaring 
bad publicity in the future?
    Mr. Williams. Yes, sir; what had happened was--essentially, 
Mr. Chairman, what you are always trying to do in these 
personnel and payroll situations is you are trying to take 
three universes, if you will, and make sure that----
    Senator Faircloth. Three?
    Mr. Williams. You are trying to take three universes or 
databases, if you will, and you want to make sure that they are 
always synchronized. So, you have got people who show up or 
people who have filed for retirement, and you want to make sure 
that the count of who is working or who is eligible for 
retirement matches, who you are paying matches your records for 
what you have budgeted. Position control in the District is 
something that is one of our top priorities and something we 
have been working on all along to try to bring forward.
    What had happened with this particular case was that we 
were getting these accounts and the Social Security numbers 
related to these accounts coming to pay and retirement, and we 
were only reviewing them on a yearly basis. In reviewing them 
only on a yearly basis, we had accounts falling between the 
cracks or under the radar.
    What we had already started doing when the audit came out 
was accelerating that review to every quarter or every 3 
months, using outside help to review these files to see that 
all the different databases matched, to make sure all the 
accounts are authentic before the retirement payroll was 
actually sent.
    I also might add, Mr. Chairman, I believe we have reclaimed 
one-half of these accounts, and we have efforts underway to 
reclaim the amounts owed the District in the remaining accounts 
as well.
    Senator Faircloth. By reclaiming the accounts, you mean get 
the money back?
    Mr. Williams. Getting restitution for the money we paid 
out, right.
    Senator Faircloth. Well, that is great.
    I understand that what you took over, and we have to 
evaluate where we are from, where we came from.

                          financial operations

    Mr. Williams. If I could say, Mr. Chairman, I think it is 
important you mentioned that case because it is our goal now in 
the financial operation. You talked about the win-win situation 
for the MOU. In a lot of ways, I inherited a win-win situation 
because things were so bad, you could not do anything but win 
in some cases.
    We have got to do more than simply get an unqualified 
opinion. We have committed ourselves now to really bringing the 
District ahead of the rest of the pack or ahead of other 
governments in the country, in that it is our goal now to 
eliminate all material weaknesses and to minimize the 
management letter comments that the District has. Most 
governments are happy if they have got one or two material 
weaknesses and some management letter comments. We want to have 
no material weaknesses and minimum management letter comments 
because I think that is a testament to the soundness and 
integrity of the financial operations.
    Senator Faircloth. Well, thank you. This is a goal of where 
we have got to go. As I say, we have begun to move, and I 
redundantly say I sense a spirit of revitalization among the 
citizens of the city. It might not be total and unanimous, but 
I think the vast majority of the people in the District feel 
that we are doing the right thing and moving in the right 
direction.

                       medical malpractice reform

    Dr. Brimmer, I had a question here and maybe Dr. Barnett 
would like to help on it. I ask this question because it is of 
interest to a lot of people and a lot of Members of Congress. 
The Senate report accompanying the fiscal year 1998 
appropriations bill required the Control Board to submit to 
Congress by March 1 of this year a report on malpractice reform 
for the District.
    Malpractice reform is not only an area of interest to 
members of this subcommittee, but it is pretty high on the 
radar screen of all the Members of Congress. In fact, medical 
malpractice reform is an issue of concern to the entire Nation. 
Sometimes it seems trial attorneys are running up the cost of 
everything we do.
    Dr. Brimmer, we have not received this report. When can we 
expect it and when it arrives, will it be making 
recommendations for reform? What will it say?
    Dr. Brimmer. Actually, Mr. Chairman, it was submitted 
yesterday. It probably got to your office very late, but it was 
submitted yesterday.
    Senator Faircloth. Would you tell us very briefly what it 
says?
    Dr. Brimmer. Yes; we concluded, based on the evidence in 
front of us, based on our hearings, based on our investigation, 
that there was no basis for imposing the kind of caps that the 
proponents of the reform had recommended. We did recognize that 
the evidence is conflicting.
    Senator Faircloth. I am sorry.
    Dr. Brimmer. The evidence is conflicting.
    First, the cost of medical malpractice insurance is higher 
in the District than it is in Maryland or Virginia.
    But we also found that the cost of medical malpractice 
insurance for the various specialties is very close to the cost 
in Baltimore, that when the setting, population groups, 
demographic characteristics, members with insurance coverage 
are compared, there are very few differences.
    The proponents were not able to demonstrate that the cost 
of insurance is uniquely related to settlements and awards in 
the malpractice suits.
    That is the essence of the proposal that was in front of 
us.
    Senator Faircloth. Well, thank you.
    Dr. Brimmer. We concluded that that was an area where it 
would be better for the local government, the City Council 
specifically, to address the question, and if the evidence 
demonstrated that the effects were adverse, they should act.
    We also said that the economic case was not made at this 
time, but if evidence comes to our attention, if experience 
shows that there is a negative impact on the economic viability 
of the District and the availability of services, we would come 
back into the matter. But for the time being, we concluded it 
with the recommendations I just made.
    Senator Faircloth. I thank you.
    One thing that brought it to my attention, I saw that a 
prominent malpractice attorney was attacking maybe me and the 
Control Board for what we were doing in trying to reform some 
of the problems. I understand that you are making no 
recommendation, but I do think the issue requires close 
scrutiny.
    Dr. Brimmer. I am sorry, Mr. Chairman. Our recommendation 
was that the Congress leave this to the locals.
    Senator Faircloth. I was somewhat, if I must say, 
disappointed at your not making recommendations on the caps 
because this is a problem. But we have many problems and we are 
going to solve them, and we will address that one later, too, 
if it needs attention.
    Dr. Barnett, you are new to the job. You have been on the 
job 2 months now, or 3?
    Dr. Barnett. 2 months.
    Senator Faircloth. 2 months.
    Prior to your coming to the board, the Control Board 
approved management reform plans which were developed by 
consultants. These plans identified management improvement 
projects that you have discussed, the 269 projects.
    Let me ask you. I am sure you have had an opportunity to 
look at the recommendations. Are these areas of priorities with 
which you agree with the Control Board?
    Dr. Barnett. Yes.
    Senator Faircloth. Of the 269, you are going to be 
undertaking some of them, as you said, earlier this year and 
some are not.

                              consultants

    I have always had a theory that if a private company, if 
the executives went out and hired consultants, that there was 
something wrong with the executives if they needed somebody to 
come tell them what to do.
    How can we make sure that the city learns and that we keep 
our management practices up to date, that we are not forever 
getting into the pit that we feel like we need outside 
intelligence to lift us out?

                  implementation of management reform

    Dr. Barnett. The first thing that we are doing is looking 
at the consultant contracts that we have on the table for 
implementing management reform. One of the things I have asked 
all the agency directors to do is to tell me whether they think 
the plan for implementation is appropriate, whether they think 
the consultant that has done the recommendations is the 
appropriate one to do the implementation, and to convince me 
that we need the consultant at all, that we do not have 
internal capacity. If the recommendation is that we do not have 
internal capacity to implement all or part of these management 
reforms, then part of what the job of the consultant will be is 
to build that internal capacity so that we are restructuring 
the way we are using the consultants and the implementation of 
management reform.
    The question you ask, however, goes to a longer-term issue 
in the District which is the capacity of the managers and the 
work force, and this is something that is going to take us a 
while to address, but we have some training and development 
initiatives underway. I expect that we will expand those 
greatly, and I expect that we will also be recruiting 
additional talent. So, in these ways I think we will be able to 
fill the gaps and also build the organization so that it is not 
dependent on outside consultants.
    Senator Faircloth. Thank you, Dr. Barnett, and I thank you, 
Dr. Brimmer and Mr. Williams.
    As we have said here this morning, and each of you have 
pretty much said the same thing, we are making headway. We have 
come a long way. I must say that I want to briefly praise what 
you all have done and where you have come from in the 
relatively short time.
    The people that have been by with various ones of you, and 
I will not name the people, but I have been impressed by each 
of the assistants and people that are working under you to 
bring about the spirit and the enthusiasm with what we are 
doing.

                        status of receiverships

    I had one last question I wanted to bring, and it would be 
to Dr. Barnett and to Mr. Williams. It is the status of 
receiverships. I think this city has probably had more problems 
with judges, and particularly I am referring to the school 
system and keeping the schools closed for weeks and months 
beyond what I think should have been.
    But what we have are receiverships running several of the 
District's departments and programs--child welfare, mental 
health services, public housing, and the health system at the 
D.C. jail. I assume that is the jail rather than Lorton.
    When can we expect to get out from under these 
receiverships? They are burdensome, they are bothersome, and 
they are in essence an insult to the city. When do we hope and 
think we can begin to get rid of some of these?
    Well, you both have worked together beautifully on it, so I 
will listen to both answers.

                    number of receivers or trustees

    Dr. Barnett. One of the things that I mentioned earlier was 
the need to bring the government together. One of the ways that 
we need to do that is to deal with these receivers. We have 14 
receivers or trustees or special masters running parts of the 
city operation. Our objective, and one of the reasons that we 
have identified this as one of the 10 budget issues for the 
Council and the Mayor and the Control Board to deal with, is 
because of the effect that it has on both our finances and our 
operations.
    We are going to be discussing plans for exit strategies for 
receivers this Friday in the budget work sessions that we have 
with the policymakers to begin discussions with the receivers 
and with the policymakers about how we can improve the services 
so that the receivers are no longer necessary.
    I cannot specifically answer your question on how long it 
is going to take us to do that because in many cases we do not 
have clear exit strategies from the receivers. We do not have 
clear performance expectations that we need to achieve before 
we are sure that we have met the standards. But more 
importantly, we need to develop new kinds of dialogs and 
negotiations so that we can develop those in such a way that we 
can do them.

               mental health and child welfare receivers

    We have made some progress with the two receivers that you 
particularly mentioned in mental health and also on child 
welfare. We have negotiated what we are calling memorandum of 
understanding agreements with those receivers that has to do 
with how we will conduct ourselves operationally and 
financially. We have got some agreements about how we will work 
together, and how they will develop what is essentially their 
management reform initiatives so that we can support each other 
in doing that. I am encouraged by that progress and I think 
that there is opportunity for more progress with the other 
receivers.
    As you know, it is a substantial portion of our budget that 
is not controlled by our regular budgetary process because of 
the court ordered initiatives. So, it is in everyone's best 
interest to have an exit strategy. It is one of our top 
priorities. Working with the Corporation Counsel on the legal 
side of all of this, I think we will develop some strategies, 
for the first time in a long time, that not only set the goal 
of bringing services to the point where these receivers are no 
longer necessary, but that actually achieve that goal.
    Mr. Williams. Mr. Chairman, I would agree with everything 
that Dr. Barnett has stated. I think for a long time we have 
not been able to chart a path for getting out of the 
receiverships because we have not really had the kind of 
program information, let alone the kind of financial 
information, matched to it from them that allows us to make 
that kind of projection. So, this effort to work with them to 
develop that information, develop these plans, we 
wholeheartedly support.
    But I would also mention, Mr. Chairman, this is just a 
thought and I guess it does intrude slightly, if not 
completely, into the policy area, and it does not represent 
anyone's official opinion. But it seems to me that the 
receivers are all in the process on behalf of the courts in 
pursuing remedies. In pursuing those remedies, they are 
generally operating under a Federal mandate and ultimately a 
legislative mandate. It seems to me the financial plan for the 
District ultimately is the responsibility of the Authority, 
reporting to the Congress, to see that the District's recovery 
commences.

   financial authority responsible for management and fiscal recovery

    The Financial Authority is responsible ultimately for the 
management and fiscal recovery of the District, responsible to 
this Congress for that, if you want to call it, remedy.
    Senator Faircloth. The Financial Authority meaning the 
Control Board.
    Mr. Williams. The Control Board.
    Senator Faircloth. Yes; OK.
    Mr. Williams. Just using the fancy title. The Control Board 
for basically financial management and recovery of the 
District, reporting to the Congress.

                    receivers pursuing their own fix

    Now, you have got a number of these different receivers 
also pursuing their own fix. Right? The problem is they are not 
coordinated in any way or synchronized in any way with the 
overall management/fiscal fix in the District. It seems to me 
there may be some opportunity for some legislative language 
that would at least put these remedies pursued by the receivers 
under the same kind of fiscal auspices and framework the rest 
of the District operates under. It just would make good 
management sense.
    Senator Faircloth. Well, it certainly does to me, and this 
is one reason I was pursuing the question. If your job is being 
a receiver, there is a tendency to perpetuate your job.
    Dr. Brimmer. Mr. Chairman.
    Senator Faircloth. Yes; Dr. Brimmer. Just one second.
    And recommendations from all three of you is what we need 
to do to get control of the city from the receivers. I would 
like to have just a call or visit, whatever we need to do, to 
begin to effect this.
    Yes; Dr. Brimmer.
    Dr. Brimmer. The question of receivers and the relation 
between the city and the receivers is a policy matter. The 
Authority has taken the initiative to try to work this through. 
The Corporation Counsel is taking the lead because it is a 
legal matter, a matter of the courts, in working with the 
Authority, and the CMO has joined that effort most recently.
    But the fundamental issue is the extent to which the 
conditions which gave rise to the receivership----
    Senator Faircloth. I am sorry. What now?

                      city not providing services

    Dr. Brimmer. The receiverships, the masters are there 
because the courts concluded that the city was not providing 
the services, was not carrying out the law, and the only remedy 
was to have the court step in, provide a mechanism for 
enforcing the law.
    The task now is to correct the deficiencies so that the 
basis for the receivership can disappear, and that is the 
responsibility of the Authority. We are making certain that 
some of these deficiencies are being corrected, and I call your 
attention to the editorial in today's Washington Post which 
deals directly with the question you have just described.
    Senator Faircloth. Well, I am glad to hear the gospel. 
[Laughter.]

                            youth detention

    Dr. Brimmer. But it reports that the city administration 
did nothing about--this is the youth detention case--until the 
court stepped in, and the Authority then stepped in to enforce 
the changes.
    Senator Faircloth. The Authority being the Control Board.
    Dr. Brimmer. The Control Board stepped in, provided the 
resources, ordered the revamping of the management, and the 
condition has now improved, not to the point where the court is 
likely to disappear anytime soon or the receivers disappear 
anytime soon, but it describes how it is to be done. It is not 
simply denouncing the receiver but correcting the problems, and 
that is what we are trying to do.
    Senator Faircloth. I understand, and I thank you. I am 
thoroughly familiar with why they were appointed, the necessity 
for them, but my question is--and it is not a question. We have 
to begin to get rid of that oversight because of the 
inefficiency in running the city. What form we go at it, I do 
not know, but all I know is that whatever a governmental agency 
happens to be--and the receivership is a governmental agency--
usually its primary goal is not to terminate its existence. So, 
I think that is something that, as people running the city, we 
need to make sure that we stay alert to, and as soon as these 
masters can be eliminated, we need to eliminate them.

                    receivers--budgetary implication

    Dr. Brimmer. I agree, and the budgetary implications are 
very serious. As matters stand now, basically the receivers, 
while one or two of them consult with us over their budget, 
basically write their budget and pass it through. This will 
have serious budget implications.
    We are now seeking to have discussions with all of the 
receivers, and I can tell you now that you might see some more 
controversy because at the Control Board, we have to weigh 
these budget claims against all other budget claims. The time 
might come when we will simply have to say to the receivers, 
please try to operate more efficiently because we cannot 
provide all the money you are seeking.
    Senator Faircloth. This is what I am saying, that we need 
to get this receivership thing behind us, and the quicker we 
can do it, the better off we are.

                     Additional committee questions

    Again, I say I thank you for what you are doing for the 
city. We certainly all have the same goals, the same hopes in 
mind, and no question we have turned the corner and we have 
started to move in the direction that we are going to have to 
go. I want to say to you as one of the representatives of the 
Congress, certainly from the Senate, and Congressman Charles 
Taylor from the House, we all want the same thing, and we will 
give you total cooperation from the Congress to bring it about. 
I thank you so much.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

                   Questions Submitted to Dr. Barnett

                Questions Submitted by Senator Faircloth

                       improved customer service
    Question. You have stated that your primary goals for 1998 are to 
(1) improve customer service; (2) implement management reform; and meet 
budget targets.
    Please explain in detail how you intend to achieve each of the 
stated goals.
    Answer. It should first be noted that many of the improvements to 
customer service are facilitated by management reform. Our department 
directors have been asked to implement any management reform 
initiatives that relate to customer service as well as any service 
delivery improvements that they feel can be implemented within existing 
resources.
    Our directors' commitment to delivering services will be documented 
in their performance contracts. They are developing specific 
performance targets and will be held accountable for directing their 
departmental personnel toward the achievement of those goals. Their 
goals must be specific and measurable and geared toward results. Our 
other personnel will also be asked to sign employment contracts, which 
document the expected outcomes of their positions, customer service 
being a primary component of their job performance.
    The performance contracts are a part of our overall performance 
management system that is illustrated on the following page. Our 
performance measurement system is based on the PDCA Cycle--(Plan Do 
Check Act). The first step is to plan a change for improvement. We will 
expect our department directors to develop specific strategic plans 
that involve service enhancements geared toward improving the services 
they deliver to our citizens. Second, we implement change. The actions 
suggested by those plans will be implemented along with the management 
reform projects. Third, we analyze the results. The departments will 
record activities against their performance measures. The results will 
be provided in quarterly reports. In addition, we will evaluate the 
outcome by citizen surveys. These surveys will allow us to determine 
how our citizens feel about our service delivery.
    In order for our services to improve, we must have a trained, 
motivated, equipped workforce. Significant resources have been devoted 
to training and motivating the workforce. It is my belief that we have 
dedicated, hard working employees who desire to do the best job of 
delivering service. In some instances they simply lack the skills 
necessary to perform at the required level. In order to assist them, 
skills training, supervisory training, and automation training is being 
made available.
    In addition, a compensation study will be conducted to determine 
where inequities in pay might exist that could dampen the motivation of 
our employees to do a good job. Further, we will assess the condition 
of our facilities so that improvements can be made to the working 
environment of our employees as well as the public access areas. 
Finally, we must provide them with the equipment necessary to do their 
job. This includes computer resources, management information systems, 
working telephones, telephone directories and the like.
                           management reform
    We are implementing management reform with both consulting 
resources and internal resources. Personnel in my office are involved 
in a review of the 269 original management reform projects to determine 
which ones have been completed or will be completed by the end of the 
fiscal year. Further, we are reviewing the remaining projects for 
activities which are in process and have been integrated into the 
normal operating functions of the department. These projects will 
become a part of the normal course of business and not be counted as 
management reform in the future. Our field personnel will monitor the 
continuation of these activities as warranted.
    The remaining management reform projects are in process. The Office 
of Procurement and the Office of the Chief Technology Officer have both 
been established and their reform projects are in process. The 
Department of Human Services has contracted with its implementation 
consultant and is moving forward. The Department of Housing and 
Community Development has been given approval to move forward with 
contracting for its implementation consultants.
    In order to establish appropriate accountability for resources, my 
personnel are reviewing the remaining management reform projects for 
which consulting assistance has been requested, to determine whether 
the internal capacity exists to perform the work, whether some projects 
could be consolidated, or whether the consultant who performed the 
initial study are the appropriate consultants to assist with 
implementation. Once a determination is made, contracts or tasks will 
be awarded to begin the reform effort in all remaining departments.
    Where there are major projects that cannot be completed by the end 
of the fiscal year, we have established, with the assistance of the 
Chief Financial Officer, carryover capital funds to pay for these 
ongoing activities. Some of the major projects will be managed from my 
office, in order that I might pay personal attention to their progress.
                             budget targets
    The District's Chief Financial Officer and his Budget Office staff 
have assisted me greatly in the monitoring of the budget. Through the 
vigilance of our department heads and the oversight of the CFO's Office 
we appear to be on track to meet our budget targets. Joint reviews 
being conducted by his staff and mine are reviewing with departments 
their expected spending for the remainder of the fiscal year. Although 
those sessions have not been fully completed, I am not aware of any 
problems with regard to the budget. All department heads have been 
instructed to monitor their budgets monthly and notify me immediately 
of any projected deficits.
    Question. Can you estimate the overall costs associated with 
improving customer service for fiscal year 1999?
    Answer. The primary means of improving service delivery, as 
previously stated, are the management reform initiatives, training and 
budget enhancements for 1999. We will have our Budget Workshop on 
Management Reform and 1999 Budget Enhancements on March 26, 1998, and 
following that session we will have significantly better information. I 
will certainly provide detailed information subsequent to the 
completion of our budget process.
    Question. Can you estimate the overall costs associated with 
implementing management reform for fiscal year 1999?
    Answer. First, it must be noted that the review process we have 
underway will identify some management reform projects that will be 
completed in 1998. Further, some previous reform projects will be 
incorporated into the ongoing operations of a department and will 
become part of operating budget for 1999. Again, once we have gone 
through the budget development process, we will be in a better position 
to accurately quantify what the funding needs are for management reform 
in fiscal year 1999.
    Question. You are familiar with the provisions of the Management 
Reform Act of 1997. In your opinion, should Congress have included all 
of the District's departments and agencies in the legislation, or are 
you satisfied that only the nine listed agencies are in need of reform?
    Answer. I believe that it is important to have all agencies 
involved in management reform whether they are included in the 
Revitalization Act or not. We are achieving that in part through 
funding provided through the four cross cutting agencies. Further, we 
are inviting all agencies to participate in department meetings and 
government-wide initiatives such as strategic planning.
    Many of the agencies are inter-dependent and need shared 
information. One of my objectives is to facilitate inter agency 
cooperation in the way that I manage.
    Question. What is the status of the spending plans you are 
developing with the CFO for each of the reform projects?
    Answer. As previously stated, we are in the midst of joint reviews 
of the departments' current spending and 1999 requests. The information 
will be reviewed by the Council and others during the March 26, 1998 
budget workshop.
    Question. Have you identified any reform project that has generated 
a net benefit or revenue stream?
    Answer. With respect to reform projects having revenue-generating 
ability, there are approximately 40 such projects identified. As noted 
in earlier testimony, consultants estimated that by implementing these 
projects in the first quarter the city could potentially reap roughly 
$140 million in revenue and cost savings. As you may recall, key 
factors in the selection process were both revenue generation and cost 
savings.
    It is important to emphasize as well that time frames for realizing 
such proceeds will vary with project implementation. Such projects 
require time intense startup and in most cases, we have determined that 
the city will not realize revenue growth until well into the next 
fiscal year. However, in other cases the city will benefit upon 
immediate completion of the project. We have requested that the Office 
of the Chief Financial Officer analyze these projects and make a 
judgment on the revenue projections. The Office of the Chief Financial 
Officer will also set up accounting procedures to track additional 
revenue and cost savings. We estimate that upon full implementation, 
the city's revenues will substantially increase and improve the revenue 
stream.
    Among these projects are:
  --Compliance with Regulatory Requirements, to be implemented by the 
        Department of Consumer and Regulatory Affairs. This project 
        will result in stricter compliance with regulatory requirements 
        and bolster $2.3 million in revenue as a result of issuing 
        increased numbers of business licenses.
  --The Revenue Realization initiative, to be implemented by Asset 
        Management. Consultants estimate that this project will 
        generate approximately $1.5 million by year-end 1999. This 
        project will both improve the management of accounts receivable 
        functions and out-source the collection of receivables that 
        have aged over 120 days.
  --Process Redesign.--Fraud and Abuse Detection, to be implemented by 
        Public Health. This project will generate an estimated $3 
        million in Medicaid fraud recoveries and hopefully serve as a 
        deterrent to future crimes.
    Question. Prior to your coming on board, the Control Board approved 
management reform plans, which had been developed by consultants.
    These plans identified management improvement projects that could 
address many of the deficiencies plaguing the District government. The 
Control Board selected 269 projects for implementation. You have had an 
opportunity to review the Control Board's recommended priorities. Are 
there any areas or priorities with which you disagree with the Control 
Board?
    Answer. My discussions with the department directors who have 
reviewed the projects for their departments have indicated broad 
agreement. These projects address issues of primary concern to the 
residents of the District and as such, are all warranted and needed in 
order to significantly improve service delivery. We are combining some 
reform projects to facilitate implementation and allow for more 
effective monitoring.
    Question. One of the most expensive components of the city's 
operations are the receiverships that are operating four agencies of 
the DC government. Please tell us what management reform steps are 
being taken to end the receivership in the Department of Human 
Services?
    Answer. The Department of Human Services consists of the Commission 
on Mental Health Services and the Commission on Social Services. The 
entirety of the Commission on Mental Health Services is currently under 
the Dixon Receivership. A portion of the Commission on Social Services, 
the foster care and child welfare functions, is under the LaShawn 
General Receivership.
    All components of the Department of Human Services, including the 
functions under receivership, were reviewed or are being reviewed under 
the management reform process. (The review of the mental health system 
is currently in process. Authorization of the review was held until the 
new receiver, Dr. Scott Nelson, was appointed and on site.) While the 
receivers have a great deal of latitude in determining the course of 
reforms they will pursue, the Authority commissioned these reviews in 
order to assist the receivers in their reform efforts.
    The Authority has also executed memoranda of understanding with the 
LaShawn and the Dixon receiverships. These documents serve to 
facilitate the day to day working relationship by clarifying policies 
and procedures related to procurement, fiscal accounting, and the like.
    Two criteria were established by the court that must be met before 
returning control of the mental health system back to the District. The 
Dixon court order states that ``the Order will remain in effect until 
such time as the Service Development Plan and the orders of the court 
are fully implemented, and the receiver is no longer necessary to 
assure the ongoing operation of the District of Columbia's mental 
health system.''
    We are working with the Dixon Receiver to create a plan that will 
satisfy the two criteria identified by the court. Again, these are (1) 
to meet the specific service mandates of the court order and (2) to put 
a system in place that will ensure that the service mandates will 
continue to be met once the receivership is concluded. Once the reform 
plan is completed, we will be assisting the receiver in carrying out 
these plans. A similar process is being undertaken with the LaShawn 
Receivership.
    In total there are 14 receivers. More information is available from 
the Corporation Counsel. A budget workshop on receivers is being held 
on March 20, 1998. Issues surrounding the receivers will be discussed 
in that session.
    Question. What steps have been taken to ensure that the Department 
of Human Services shifts its efforts from the old entitlement focus to 
the new temporary assistance focus?
    Answer. No set of reforms are more critical to the health of 
District families and communities than those of welfare reform. This 
opinion is shared by District residents in that nearly three quarters 
of District residents rank the need for improvements in services to 
low-income District residents as a top priority. For the past six 
months, the District's Department of Human Services has been intensely 
engaged in the welfare reform effort. The management reform process is 
serving to support and expedite the welfare reforms efforts that are 
underway.
    The District's welfare reform program is moving from a basic cash 
subsistence program to an aggressive effort to provide the necessary 
support services to guide current and potential recipients into viable 
employment opportunities.
    To accomplish this, we are working to connect the needs of the 
business community with the activities of the human services and 
employment services agencies of the District government. The federal 
Department of Labor has been tapped to provide technical assistance. A 
working group has been established, led by DC Agenda, to better define 
the roles of the various participants in this effort, such as 
government agencies, the Private Industry Council, and private 
contractors.
    While still in its infancy, welfare reform has produced results in 
the District. At present, the welfare rolls are declining at a rate of 
1.2 percent per month. This is an annual rate of decline of 14.4 
percent. Since October 1996, the District's welfare caseload has fallen 
by 3,700 families, representing a 14.7 percent reduction over the 
period. It is important to note that no family was dropped from 
receiving cash assistance due to the imposition of a pre-established 
time limit. The families leaving the rolls are doing so because of 
their actions to secure employment or because they have chosen not to 
comply with the new requirements.
    Under the District's redesigned program, a ``Work First'' strategy 
is being employed. When first contacting the public assistance office, 
applicants are immediately encouraged to undertake job search 
activities. If the recipient is not successful in securing employment 
during the initial 30-day period, the individual will be assigned to a 
contractor that has experience with, and will receive compensation 
based upon their success with, transitioning welfare recipients into 
employment. The contractor will be provided additional compensation for 
ensuring that the welfare recipient retains employment over an 
eighteen-month period.
    To implement this ``Work First'' strategy, the District Government 
must restructure its internal operations and must build a capacity to 
monitor private contractors. Fourteen of the management reform projects 
currently underway relate to this restructuring effort.
    Question. Please report to the committee on reforms currently being 
implemented in real property asset management.
    Answer. The 1997 Asset Management Reform Report, the 1996 Strategic 
Facilities Report, and the 1990 Rivlin Report, have all found that the 
District's real estate management structure is highly decentralized and 
fragmented, and operates without a consistent operational strategy or 
leadership. As a result, the District is generally unable to manage its 
real property assets to their highest and best use, or ensure that high 
quality management and maintenance services are delivered to tenants.
    The District's real property management system is characterized by 
a highly decentralized structure, with each agency, office, or division 
within the government primarily concerned with managing their 
respective office space or buildings. There is limited centralized 
coordination of these efforts, There is also significant duplication 
and waste among the various management and administrative support 
services, and in service delivery. This results in excess office and 
warehouse space, the inability to efficiently manage inventory and 
tracking functions, contractual services, and equipment purchasing. 
Altogether, these factors result in valuable properties sitting vacant 
or underutilized. This lack of coordination is also evident in the 
District's poor maintenance schedule, deferred maintenance, and 
unfunded capital repairs.
    The Office of the Chief Management Officer has begun to implement 
structural and operational reforms in the management of District owned 
real property. We are currently recruiting for a Chief Real Property 
Officer, whom we expect will have significant public and private sector 
experience in real estate management, as well as experience in 
overseeing and implementing comprehensive change management and process 
reengineering efforts.
    We are also creating a new centralized organization to be called 
the Office of Real Property, for which we will leverage funds from the 
management reform process. We expect this new office to operate in a 
manner similar to a responsive commercial real estate management 
company. Its primary mission will be to attain the highest return on 
all real estate investments. It will also assume the responsibility and 
accountability for the life-cycle management of all of District owned 
real property--from acquisition, management and maintenance, to 
ultimate disposition. We are currently redefining the organizational 
structure, personnel characteristics and skills, job descriptions, and 
budgetary requirements necessary to implement and operate this new 
office.
    We are also performing a comprehensive skills assessment of 
personnel involved in the management of real property, creating new 
position descriptions where necessary, and determining the appropriate 
staffing levels for each unit involved in the real property management 
process. We are also identifying functions that are required to be in-
house, and those that can best be obtained under private sector 
contract. We are identifying and building performance measures to be 
employed in connection with the real property management process, and 
identifying appropriate feedback mechanisms to gauge the level of 
internal (District employees), and external (business, community and 
neighborhood development organizations, District residents) 
stakeholders satisfaction with service delivery. Finally, we are 
working to establish and implement new operational policies, procedure 
manuals, and regulations required to effectively manage all aspects of 
real estate. We expect this new organization to be operational and 
functional by September 30, 1998.
                                 ______
                                 

                  Question Submitted by Senator Boxer

           labor-management partnerships as a tool for reform
    Question. Dr. Barnett, welcome and congratulations on your 
appointment.
    I am advised that the City government has set up a ``DC Labor-
Management Partnership Council.'' The expressed purpose of this 
partnership is to be a forum for communication and cooperation between 
unions and management to support their joint mission to deliver high 
quality, cost effective service to D.C. residents and visitors, while 
maintaining a high quality work environment for employees of the D.C. 
government.
    I am told that a goal of a robust Labor-Management Partnership is 
to transform the labor-management relationship from the traditional 
adversarial model to a joining-of-forces model to focus on improving 
service, and performance.
    It would appear that a strong and healthy partnership between 
managers and the workers closest to the delivery of services is vital 
if the D.C. government is to improve its operations.
    I am told that on February 24, 1998, the Chief Management Officer 
(CMO) signed on to the D.C. Labor-Management Partnership Council as the 
Management Co-Chairperson representing both the CMO and the D.C. 
Financial Authority.
    Dr. Barnett, how do you intend to use the D.C. Labor-Management 
Partnership Council to review, implement, and re-evaluate the various 
recommended management reform changes?
    Dr. Barnett, what more can you tell us about this?
    Dr. Barnett, is there anything else you wish to report to the 
Committee about the matters under your jurisdiction?
    Answer. I am very pleased that you have asked this question, 
Senator Boxer. I have decided to use the Labor Management Partnership 
Council as one of the primary mechanisms to bring about management 
reform, to improve the quality of customer service, and to foster 
greater job satisfaction among District government employees. On behalf 
of the Authority, I have become a signatory to the Council's Charter, 
and in the future, I will serve as one of the three co-chairs.
    In addition, I am proposing that the District expand the scope of 
the Council to include the membership of the independent entities, such 
as the District of Columbia Public Schools, the University of the 
District of Columbia, and the Public Benefit Corporation (formerly D.C. 
General Hospital), and the entities currently under the control of 
court-appointed receivers. In this way, I intend to introduce the 
cooperative labor-management relations approach to the entire District 
government. I am convinced that this approach will greatly facilitate 
the acceptance of the management reform projects and ultimately 
expedite their implementation.
    Furthermore, to ensure that this process continues, I am attempting 
to obtain from the Department of Labor full time personnel with 
experience in this area to oversee this activity. Initial indications 
are that the Department is willing to detail such an individual to my 
staff to serve in this capacity.
                                 ______
                                 

                   Questions Submitted to Dr. Brimmer

                Questions Submitted by Senator Faircloth

    Question. In November, the Congress appropriated $8 million to the 
Control Board for a program of management reform for the District of 
Columbia.
    Please give the Committee an accounting of how this money has been 
spent.
    Answer. On January 2, 1998 the Authority reported to the Congress 
on the management reform plans as required by Public Law 105-33, the 
District of Columbia Revitalization and Self-Government Improvement Act 
of 1997. Contained in that report is the approval of 269 projects 
selected for implementation as part of the management reform plans for 
the eight agencies and four city-wide functions.
    The $8 million will be used to fund a portion the implementation of 
these projects.
    Question. In December, 1997, Cotton & Company completed an audit of 
the summer capital repair program for the District's Public Schools. In 
particular, the audit focused on the process used by the school system 
to conduct procurement operations in connection with the repairs.
    The audit concluded that the school system did not have an 
effective procurement system in place, and that the system did not meet 
statutory and regulatory needs in the schools. The District will soon 
embark on another round of capital repairs of the District's public 
schools.
    What steps are being taken by the Authority to correct the errors 
in the District's system for the procurement of goods and services?
    What improvements can we expect in the upcoming contracting 
procedures for the District's school repairs?
    Answer. The public schools' procurement operations have been placed 
under the District's Chief Procurement Officer, and has been 
reorganized under new leadership. This change has the support of the 
Chief Executive Officer/Superintendent, General Julius Becton. New 
procedures are being developed for the entire District government, and 
will apply to the public schools.
    Question. How many repair projects are planned for the public 
schools this summer?
    How many contracts are currently in place for the commencement of 
those repairs?
    Since the Parents United law suit has been settled, can the repairs 
begin before school is over for the summer?
    Answer. DCPS facilities personnel are continuing to execute the 
current emergency program of replacing boilers and chillers, and is 
putting together a program for the fiscal year 1998 capital funds. 
Procurements are underway for design of the next phase of school 
repairs. The planned completion date for these repairs is August 15, 
1998.
    Question. In January, 1998, the D.C. Court ruled that the Control 
Board went too far in transferring its authority to the Emergency 
Transitional Education Board of Trustees. The Control Board elected not 
to appeal the court's ruling.
    What role is the Emergency Board playing in the management of the 
District's public school system since the Court's decision, and what is 
the future role of the Emergency Board?
    Answer. On February 12, 1998, the Control Board adopted a second 
order relating to the District of Columbia public school system. It 
reconstituted the Emergency Transitional Education Board of Trustees as 
its agent for purposes of making recommendations to it with respect to 
the school system. The Emergency Board has done so, and the Control 
Board presently has its first set of recommendations under 
consideration. I have written to the Emergency Board advising them that 
the Control Board will hold a public meeting to consider these 
recommendations and to take action on them. The Authority expects the 
Emergency Board to play a constructive role in the development of 
policy for the school system.
    Question. Are you confident that given the court's ruling, the 
Control Board and the Emergency Board can continue to address, in an 
effective manner, the crisis in the District's public school system?
    Answer. I am confident that, if the order of February 12, 1998, is 
permitted to be effectuated, the Authority and the Emergency Board of 
Trustees, working together and with the advice and input of the Board 
of Education, can continue to address in an effective manner the crisis 
in the District's public school system.
    Question. Mayor Barry has insisted that he be allowed to hire a new 
City Administrator and staff that office. You have opposed the filling 
of this position and stated that such a person would simply interfere 
with the Chief Management Officer's duties.
    What is the status of the City Administrator and Assistant City 
Administrator positions within the Office of the Mayor?
    Answer. The City Administrator post remains open. Section 1-242(7) 
provides that the Mayor shall appoint a City Administrator to be the 
chief administrative officer of the Mayor, and shall assist the Mayor 
in carrying out the Mayor's functions as the chief executive of the 
District. The City Administrator, who is not a part of the Office of 
the Mayor, has no statutory powers of his own, but rather performs such 
duties as are assigned to him by the Mayor.
    With the implementation of the Management Reform Act the Authority 
has chosen an experienced municipal manager, Dr. Camille Cates Barnett, 
to act as the Chief Management Officer (CMO) over the nine city 
agencies and four cross-cutting functions now under the Authority's 
control. Those agencies and functions constitute 75 percent of the 
total budget of the District and 85 percent of the personnel of the 
city government. These facts make clear that, at this time, the 
District does not require a person to fulfill the statutory role of the 
City Administrator. The Authority has informally requested that the 
Mayor simply leave the office vacant for the time being.
    Question. What is the status of staffing of the office of the Chief 
Management Officer?
    Answer. The Authority has transferred many of its program analysis 
staff, and several support staff to the CMO's office. It is expected 
that the CMO will obtain additional staff in the coming weeks.
    Question. Do adequate District funds exist to fund both offices?
    In your opinion, can the District government justify fully staffing 
both offices?
    Answer. The Authority is now reviewing appropriate staffing levels 
for a restructured City Administrators Office.
    Question. The Federal Payment Reauthorization Act of 1994 required 
the Mayor to develop and submit to Congress by March 1 of each year, 
beginning in 1995, a ``Performance Accountability Plan'' which would 
include measurable performance goals for all departments, agencies and 
programs of the District of Columbia.
    The Mayor did not comply with this law. Following the shift in 
control of nine District agencies from the Mayor to the Control Board, 
Congress amended the original law to require the Control Board to 
prepare the report by March 1, 1998.
    On March 2, the Control Board submitted its ``Report on a 
Comprehensive Performance Management System.'' This report does not 
provide the details Congress anticipated when it required the Control 
Board to produce a Performance Plan. Instead, it is more of a schedule 
for the production of more reports. The Committee recognizes that the 
Management Reform Act has had a significant impact on the plans for 
operating most city agencies. However, the information required by the 
Performance Plan is valuable to both the District and Congress in 
having a vision for the future.
    When will the Control Board produce a performance accountability 
plan for all of the District's departments, agencies and programs?
    Will the plan include, as required by law:
  --a statement of measurable, objective performance goals for all 
        significant activities;
  --the title of the manager responsible for achievement of each 
        performance goal; and
  --a statement of the status of any court orders and actions taken by 
        the government to comply with the order.
    Answer. In the ongoing fiscal year 1999 budget development process, 
agencies have been asked to develop performance measures for every 
program within a department. The Offices of the Chief Financial Officer 
and the Chief Management Officer are currently working with agencies to 
refine these standards and to ensure that the measures reflect outcomes 
and customer satisfaction, as well as outputs. Additionally, a vigorous 
training and coaching schedule is being developed to make government 
managers more comfortable with the concept of performance measurement--
so that managers may view it as a management tool, and not as simply a 
reporting requirement.
    In concordance with the budget development schedule, these 
performance measures are to be complete, and will be made available, by 
May 15, 1998.
    Question. Would you please give us an update on the status of the 
various receiverships that are running several of the District's 
departments and programs: child welfare, mental health services, public 
housing, and the health system at the D.C. jail.
    Answer. A number of receiverships remain in effect, including 
foster care, community mental health services, public housing, and the 
health system at the District of Columbia jail. The Authority has 
entered into working agreements with the receivers for foster care and 
community mental health services. It reviews budgets and contracts 
proposed to be entered into by a number of these receiverships. The 
Authority has established collaborative relationships with a number of 
the receivers and the judges who are administering the receiverships.
    Meanwhile, the Office of the Corporation Counsel has devoted 
increasing attention to determining how the District may best comply 
with the court orders that led to the creation of the receiverships, 
with a view toward persuading the courts eventually to lift the 
receiverships. The Authority supports the Corporation Counsel's Office 
in this effort.
    The Chief Management Officer is working closely with the 
Corporation Counsel and the receivers to develop an exit strategy for 
each receivership. It is the Authority's expectation that the needs 
which led to the imposition of the receiverships on the District 
government by the courts will be met, as the District's economic 
situation improves. The ultimate object is the return of all segments 
of the District government to the control of that government.
    Question. In January, the U.D.C. Law School received a 5-year 
provisional accreditation by the American Bar Association. The Fiscal 
Year 1998 Appropriations Act for the District of Columbia required the 
Control Board to report to Congress by March 1 on whether or not the 
law school should (1) continue to operate; and (2) continue to receive 
funds from the District Government.
    What improvements is the law school required to make in order to 
receive full accreditation?
    What are the costs associated with these improvements?
    Given the limited resources available for the University of the 
District of Columbia, can both the undergraduate program and the law 
school continue to be funded to the degree required to give the 
students the quality of education they deserve?
    What are the Control Board's recommendations with respect to 
continued operation and funding of the law school?
    Answer. The Authority will submit answers to these questions upon 
completion of its report to the Congress on the D.C. Law School, which 
will be submitted shortly.
                                 ______
                                 

                  Question Submitted by Senator Boxer

collective bargaining agreements which were negotiated and ratified in 
                               july 1997
    Question. I am advised that the management representatives of the 
District--with clear guidelines from the D.C. Financial Authority--sat 
down at the bargaining table with labor to negotiate a comprehensive 
Collective Bargaining Agreement with the City's employees. The parties 
reached agreement in July 1997. I am told that there has been a 
question about who has the authority to move the agreements forward, 
and thus, the agreements which the unions negotiated with the City have 
yet to go into effect.
    The Chief Financial Officer just recently sent the bargaining 
agreement to the City Council for its consideration. After 60 days it 
must move to the Control Board.
    Dr. Brimmer, do you see any apparent reason that the Control Board 
would not act quickly and positively on the collective bargaining 
agreement, once it is received, inasmuch as the negotiating teams 
followed the D.C. Financial Authority guidelines for the negotiations 
and that the CFO has already reviewed and forwarded the collective 
bargaining agreement to the City Council?
    What can you tell us about this, Dr. Brimmer?
    Dr. Brimmer, is there anything else you wish to report to the 
Committee about the matters under your jurisdiction?
    Answer. At present, the Authority has no specific information about 
the collective bargaining agreement referenced by Senator Boxer. 
However, as a rule, the Authority moves expeditiously to review and 
approve labor contracts. The Authority understands that once the 
parties have reached an accord, they are anxious to see that it is 
implemented as soon as possible. The Authority has not approved 
agreements that do not contain sufficient funding for their 
implementation. As long as an agreement has sufficient funding and 
otherwise comports with the Authority's Guidelines for Collective 
Bargaining, it should move rapidly through the Authority's review 
process. We will look forward to the agreements from the Office of the 
Chief Financial Officer, and we shall endeavor to review them quickly.
                                 ______
                                 

               Questions Submitted to Anthony A. Williams

                Questions Submitted by Senator Faircloth

                   financial management system (fms)
    Question. GAO recently issued a report placing the contract for the 
procurement of the new financial management system (FMS) for the 
District in a ``high risk'' category.
    For example, the report states that the District has not 
established the necessary evaluation process to ensure that the new FMS 
will meet the contract requirements, such as testing requirements to be 
used for acceptance testing.
    Please respond to the concerns raised in this report.
    What procedures are in the place to ensure that District personnel 
are adequately trained to operate the new FMS?
    Answer. The District does have an immature software acquisition 
process and the implementation of the system is a high-risk effort. 
However, the report does not consider that the District has not 
acquired any new major systems or software for many years. As a result, 
policies and procedures do not exist for software acquisitions. Despite 
this weakness, we disagree that our process for this acquisition is 
``undisciplined''. A comprehensive source selection plan was applied 
that objectively assessed and evaluated proposed solutions for the FMS 
including upgrading the existing system, outsourcing the financial 
operations, and acquiring a new system. Furthermore, an oversight group 
to address the need for the new financial system was formed that 
included OMB, HAC staff, the District's CFO, the Authority's Executive 
Director, the District's Inspector General, and the GAO. Ultimately, 
the group developed an aggressive time line for considering solutions 
for the FMS. The aggressive time line is a result of the looming Year 
2000 Problem that must be addressed. The aggressive time line 
represents a primary reason for the high risk scenario the new system 
is being implemented under.
    While the District agrees that the implementation of the new system 
is a high risk effort, we do not agree with the reasons cited in the 
draft report. The system is high risk due to the aggressive schedule 
required to implement a solution before the Year 2000; the lack of 
infrastructure to support a modern financial system; conversion of 
unreliable and inaccurate data into the new system; and the complexity 
of the system.
    Furthermore, the district does not agree with the characterization 
of the draft findings related to requirements development, contract 
tracking, and risk management. The following discusses the District's 
actions in more detail:
    Requirements development.--Initial requirements were defined in a 
capabilities assessment in December 1996. These were further refined 
during the spring of 1997 by James Martin and Company and were fully 
defined by the KPMG as part of the new system solution during the fall 
of 1997.
    Contract tracking.--The District contracted with James Martin and 
Company to supplement the program management of this monumental effort. 
Their responsibilities include a variety of contract monitoring efforts 
including the measure of performance versus payment, timeliness of 
deliverables (as well as quality), and constantly monitors the project 
plan and risk mitigation plans.
    Risk management.--Two separate risk assessments have been developed 
for the project. The primary management focus of the program management 
office continues to be risk management. A comprehensive risk management 
plan calls for the identification of risk, source of the risks, 
analyzing the risk, developing alternative risk mitigation strategies, 
constantly tracking the status of the risks, and ensuring 
implementation of risk action plans. Proactive risk management is a 
continuous emphasis for the program management of this effort.
    Many of the GAO recommendations are changes that the District will 
embody as we continue to develop and refine our policies and procedures 
for financial operations.
    Question. The Office of Tax and Revenue is recommending a ``tax 
restructuring framework'' that would: (1) cut current taxes by $355M by 
fiscal year 2002 and modify the code and regulations; (2) eliminate as 
many as 7 taxes, streamline user fees and charges, and make additional 
modifications to the code; (3) increase revenue from not-for-profit 
activities and create a D.C. gross-receipts tax; (4) implement 
administrative improvements, an integrated tax system, clear policies 
and professional management.
    Please identify the 7 taxes that are under consideration for 
elimination:
    Answer. Personal property tax.--currently assessed only against 
business equipment.
    Unincorporated business franchise tax.--currently assessed against 
the entity income of some partnerships and proprietorships.
    Arena Fee.--revenue to be folded into the proposed broad-based, 
low-rate (-0.350/0) gross receipts tax that is similar to the current 
arena fee.
    Motor Vehicle Excise Tax.--with sale of motor vehicles to be folded 
into the existing sales and use tax.
    Hotel Occupancy Tax.--with revenue for the convention center fund 
generated, instead, through the hotel ad valorem sales tax.
    Professional License Fee and Vendor License Fee in Lieu of Tax.--
with revenue generation folded either (1) into the professional and 
vendor licenses collected by the Department of Consumer and Regulatory 
Affairs or (2) into collections of the broad-based, low-rate gross 
receipts tax.
    Question. Please explain in detail the gross-receipts tax under 
consideration by the OTR?
    Answer. The proposed broad-based low-rate gross receipts tax is 
modeled after the current Arena Tax-All business entities doing 
business in the District would be subject to the tax on their D.C. 
generated gross receipts. This tax 2 is very similar to the gross 
receipts tax in use in Virginia's counties. Either actual gross 
receipts in the District could be reported, or all gross receipts could 
be apportioned according to an apportionment factor; for the Arena Fee 
the apportionment factor is the equally weighted average of D.C. 
payroll, property, and sales of all payroll, property, and sales. At a 
rate of 0.35 percent of gross receipts, the tax is believed to generate 
roughly $110 million annually.
    Question. Please outline the process and date line for enactment of 
the tax restructuring proposal under consideration.
    Answer. The District Government is in the process of building a 
consensus budget proposal for fiscal year 1999. As part of this 
process, the Council, CMO, CFO, Mayor, and Financial Authority have met 
jointly to discuss tax restructuring. Other key decisions for the 
consensus budget also have been or will be reviewed by these bodies. 
The actions will be folded into the budget document. We do not know the 
extent to which these recommendations will be incorporated into the 
fiscal year 1999 proposed budget.
    The framework prepared by OTR proposes to revise and reduce certain 
taxes in fiscal year 1999, to introduce the broad-based gross receipts 
tax and other changes and reductions in fiscal year 2000,and to 
complete restructuring in fiscal year 2001. In total, these changes 
should improve the tax structure to ``track'' more fully with the 
District's economy, while also reducing individual income taxes by $60M 
and reducing business taxes so that no industry pays materially more 
and virtually all industries have a net tax reduction.
    Question. The February 5, 1998 KPMG Marwick Independent Auditor's 
Report found that the District's financial statements conformed to 
generally accepted accounting principles. In other words, it received a 
``clean'' opinion. At the same time, the report identified material 
weaknesses in internal control over the District's financial reporting 
related to:
  --the District of Columbia Procurement Practices Act of 1986
  --the Anti-Deficiency and Home Rule Acts
  --the Quick Payment Provision of the District of Columbia Code
  --electronic data processing
  --business tax information system processing
  --monitoring of Department of Housing and Community Development loan 
        activity
  --DC Lottery and Charitable Games Control Board financial management
  --bank reconciliation controls
  --controls over transactions involving the Authority
  --lack of timely entry of transections into FMS
  --other reconciliation and management items
    For each of these material weaknesses, please explain for the 
committee:
  --A description of the exact nature of the material weakness; and
  --Steps being taken to remedy the material weakness.
    Answer. The Office of the Chief Financial Officer, through its 
Office of Financial Operations and Systems, will continue its efforts 
to correct all internal control structure deficiencies and management 
letter comments to and maintain a ``clean'' audit opinion. To 
facilitate this goal, the Office of Financial Operations and Systems 
established a goal committee composed of agency chief financial 
officers, controllers, and OCFO central finance personnel. The 
committee reports its progress through 8 subtasks, each representing an 
area of attention critical to elimination of the District's internal 
control structure deficiencies.
    As in fiscal year 1996, the goal committee will review the 
auditor's reports, meet with the designated agency representatives to 
ascertain the agency's position on the weaknesses identified; evaluate 
the appropriateness of each agency's written responses; observe the 
extent of the agency's follow-through; ensure multi-agency resolution 
coordination, as necessary; examine and evaluate available remedial 
documentation, systems and processes instituted to resolve the issue 
and recommend further corrective actions, as appropriate. The review is 
dynamic. With the recent release of the fiscal year 1997 report, the 
goal committee and OFOS are only in the initial stages of the process--
ascertaining the agency's position on the weakness identified and 
obtaining actions plans as to how the agency will correct the problems. 
Thus, while the responses are preliminary in nature; we remain 
available to provide subsequent updates as the process and corrective 
actions unfold.
  violations of the district of columbia procurement practices act of 
                                  1985
    While violations of the District of Columbia Procurement Practices 
Act of 1985 remained a problem during fiscal year 1997, improvements 
were made in the instances cited in the following areas:
  --Improper extension of emergency procurement contracts down by 21 
        percent from fiscal year 1996.
  --Splitting of invoices to avoid dollar ceilings down by 41 percent 
        from fiscal year 1996.
    Procurement and contracting policy and processes is the 
responsibility of the Chief Procurement Officer under the purview of 
the Chief Management Officer. The District does not require agencies to 
prepare quarterly listings of emergency procurements. DAS' system does 
not include a mechanism for extracting this information and/or for 
tracking emergency type procurements. In 1997, DAS, however, was in the 
process of developing an automated tracking system for contracts. This 
system was to include a field which can be coded with the contract type 
(``E'' for emergency and ``S'' for sole source). Based on this coding 
process, reports of various types of contract information, would be 
generated, as needed.
    DAS staff indicated that emergency procurements are frequently 
required to provide continuous financial support to critical city 
services. Services such as ambulatory care, food services, and 
respiratory care, cannot be suspended for any period of time. Thus, as 
contracts expire, emergency procurements are conducted to continue 
service/support.
    DAS has implemented procedures whereby staff must closely examine 
emergency requests to first determine whether there is a true emergency 
need. Unless there are circumstances which are life threatening or 
potentially detrimental to the operations of the District, a 
procurement is deemed not to be an emergency and is denied. These 
requests will then be processed as a ``regular'' procurement.
    The District does not require agencies to prepare quarterly 
listings of sole source procurement. DAS' system does not include a 
mechanism for extracting this information and for tracking sole source 
procurements.
    In 1997, DAS was in the process of developing an automated tracking 
system for contracts. This system would include a field which can be 
coded with the contract type (``E'' for emergency and ``S'' for sole 
source). Using that information, various types of contract reports can 
be generated.
    The District experiences sole source procurements problems 
primarily because there is no acquisition plan in place at the agency 
level. There is consensus that there must be a system for procurement 
planning throughout the year. Accordingly, agencies should be aware of 
time frames for exercising contract options and dates of contract 
expirations. Agencies should use this information to plan ahead and 
should forward the relevant documents to DAS as necessary throughout 
the year rather than all at once at yearend.
    As such, DAS plans to implement a process where agencies will be 
required to submit packages several months before their contract 
expiration date. For example, contracts expiring on September 30 should 
be sent to DAS before June 30. This will allow DAS sufficient time to 
review and process agency procurement requests and should reduce the 
need for sole-sourcing. DAS, however, maintains that some sole-source 
contracts will be awarded in cases where it is necessary to protect the 
life/health of individuals.
    DAS agrees with the audit findings that emergency procurements are 
an inappropriate substitute for well-planned procurement of 
requirements on a systematic, timely basis, but disagree that the act 
of tracking emergency procurements, whether manually or automatically, 
is an effective way to manage the problem preventatively. The root 
cause of the problem is the absence of a comprehensive procurement 
planning process. The Office of Contracting and Procurement is 
presently engaged in establishing such a process to manage the 
procurement of goods and services across all District of Columbia 
Government agencies and commissions. A descriptive outline of the 
process which is currently planned to be deployed is included in this 
reply below.
    A secondary root cause of the excessive dependence on emergency 
procurements is the fiscal year paradigm, which refers to the fact that 
the substantial majority of District contracts are unnecessarily and 
inappropriately aligned in terms of expiration date to fiscal year 
funding mechanisms employed by the District. In practical terms, this 
means that the majority of contracts expire on September 30 of each 
year, making their timely replacement unmanageable by definition and 
process. In an operating environment of unmanageability, agencies must 
necessarily rely on emergency procurements to avoid interruption of 
supply. In this context, it is not reasonable for agency contracting 
officers to be expected to differentiate, as the audit report suggests, 
between critical services such as medical care and food services and 
all other goods and services since government operations would not be 
able to function without continuity of supply of most goods and 
services. The Office of Contracting and Procurement is in the process 
of orchestrating a realignment of all contract expiration dates to 
address this problem.
    Sole source procurement has a justifiable role to play in many 
cases of proprietary know-how and expertise or other unique areas of 
specialization in goods and services. Sole source procurement in the 
District of Columbia Government has attracted a negative connotation as 
a result of the lack of organizational competence which is responsible 
for the absence of a sound procurement planning processes. This in turn 
drives excessive emergency procurements, a high percentage of which are 
also sole source procurements because they can be put in place in the 
least amount of time. The misuse of sole source procurement methodology 
will be addressed by the implementation of Demand-Pull Procurement 
Planning discussed in the attached.
    The issues raised in the audit report concerning splitting of 
invoices and inadequate file maintenance are presumed accurate by 
virtue of disclosure in the audit report. These types of problems will 
be addressed by the procurement reform initiatives which are now 
underway.
    Parenthetically, it would be appropriate for the audit report to 
refer to the Office of Contracting and Procurement in future audit 
reports inasmuch as procurement is no longer organizationally aligned 
with DAS.
Demand-Pull Procurement Planning
    Procurement transactions in the District are uniformly sub-
optimized in economic, operational and regulatory terms by mix-aligned 
timing between procurement efforts and the realities of program 
delivery requirements. The root causes of this condition are 
inappropriate focus on expiration dates of contracts, the alignment of 
contract periods to the fiscal year paradigm, and the syndrome where 
program managers wait for Procurement to do something and Procurement 
waits for Program Management to do something. The result is that 
neither does anything until ``do nothing'' becomes operationally 
egregious, at which point it is already too late.
    Organizationally, it is unrealistic to expect multiple program 
management operations throughout the city to adopt the correct 
forecasting and milestone practices to correct this problem for 
themselves; hence, standardized planning practices will be led by the 
Office of Contracting and Procurement to institutionalize District-wide 
prioritization of procurement requirements. These standardized planning 
practices will follow the ``demand-pull'' convention in which:
    Procurement actions in the future are forecasted by program 
activities at first inception of knowledge of a requirement. In the 
case of grants, for example, program activities will be required to 
forecast all contract spin-offs at the point a grant is either 
requested or granted, whichever comes first.
    Procurement actions are assigned a contract number even at this 
embryonic stage as required to attract milestone checkpoints for each 
segment of the procurement process based on timelines which reflect 
District processing times, supplier and major sub-supplier lead times, 
and strategic contingencies for economic and regulatory optimization.
    The Procurement Planning organization pulls transactions through 
the system based on milestone tracking and management by exception 
reporting in which:
  --The Chief Procurement Officer is regularly informed of ``at risk'' 
        conditions as required to facilitate corrective intervention.
  --Agency Directors are informed of a pattern of ``at risk'' 
        conditions and missed deadlines as both a personnel and 
        organizational performance metric.
    Key features of the demand-pull process are: milestone tracking 
based on performance and delivery needs, NOT contract expiration dates; 
compliance disciplines based on performance and timely feedback; and 
integration of both program planning and procurement into one process 
aimed at prioritization, manageability, and optimization of economic 
value.
    Implementation status is a follows:
    Procurement Planning operations now staffed at managerial level for 
Health and Human Services, Public Safety, and Public Management 
Procurement Divisions.
    Senior procurement planning analysts will oversee planning 
activities by organizational cluster working directly with full-time 
dedicated analysts in each agency service bureau which are now being 
evaluated and appointed.
    Contract inventories complete for all agency and commission 
operations responsible to the Office of Contract and Procurement except 
for Department of Health and being analyzed for vital contract 
attributes necessary for establishment of milestones by category of 
affected goods and services.
                   anti-deficiency and home rule acts
    The Office of the Chief Financial Officer executed the issuance of 
$237,810,000 of General Obligation Bonds, Series 1997A in June 1997. 
The bonds were issued to provide new money capital funds and a 
refunding escrow that was used to retire higher coupon outstanding 
bonds. The new money component totaled $155,440,000 and the refunding 
component totaled $82,270,000. The refinancing of higher interest bonds 
was due to lower marketing interest rates and the District's improved 
financial position. Below, we have summarized the retired bonds.

              DISTRICT OF COLUMBIA GENERAL OBLIGATION BONDS, SERIES 1997A--SUMMARY OF REFUNDED DEBT
----------------------------------------------------------------------------------------------------------------
                                                                                               Coupon     Call
                              Series                               Maturity      Amount      (Percent)    Price
----------------------------------------------------------------------------------------------------------------
1986A............................................................      1998     $17,045,000       7.70     101.5
1986B............................................................      1998       7,500,000       7.70     101.5
1986C............................................................      1998      10,745,000       7.90     101.5
1986D............................................................      1998      13,140,000       7.70     101.5
1986D............................................................      1999      14,065,000       7.00     101.5
1987A&B..........................................................      1998       9,105,000       7.25     101.5
1987A&B..........................................................      1999       9,765,000       7.40     101.5
----------------------------------------------------------------------------------------------------------------

    The refunding component of the Bonds was structured to realize debt 
service savings that resulted in the current refunding of bond 
candidates. The District's financial advisor performed: standard 
savings analysis, a maturity by maturity analysis of the savings 
candidates, a marginal savings analysis, a break-even analysis and an 
option value savings analysis and recommended bond candidates from the 
District's outstanding debt portfolio for refunding. The Office of the 
Chief Financial Office received and has available, the report of the 
District financial advisors, dated June 4, 1997 which provided the 
recommendation of the firm and the detail of the transaction.
    The refunding bonds were amortized with a 1.29 average life to 
match the debt service on the refunded bonds (June 1, 1998 and June 1, 
1999). The refunding produced over $1,900,000 gross savings over life 
of the issue and approximately $988,000 in present value debt service 
savings. Below we have summarized the refunding bonds.

             DISTRICT OF COLUMBIA GENERAL OBLIGATION BONDS, SERIES 1997A--SUMMARY OF REFUNDING BONDS
----------------------------------------------------------------------------------------------------------------
                                                                                              Coupon     Yield
                             Series                               Maturity      Amount      (Percent)  (Percent)
----------------------------------------------------------------------------------------------------------------
1997A...........................................................      1998     $58,065,000       5.50       4.50
1997A...........................................................      1999      24,250,000       5.50       4.95
----------------------------------------------------------------------------------------------------------------

    Under the provisions and requirements of gross budgeting, the 
refunding bonds were treated as an additional source of funds--an 
expenditure to the ``Repayment of Bonds and Interest'' expenditure 
agency and the ``Financing and Other Uses'' appropriation title. Under 
this treatment, the Repayment of Bonds and Interest agency was 
$78,332,000 over the amount of the approved budget, due to the 
allocation of $82,270,000 of refunding bonds.
    The office of the Chief Financial Officer, Office of Finance and 
Treasury is reviewing the District's anti-deficiency provisions with 
regard to Repayment of Bond and Interest appropriation. Home Rule Act, 
Sec. 483(d) provides that an additional appropriation not apply to 
``(2) any amount obligated or expended for the payment of the principal 
of, interest on, or redemption premium for any general obligation bond 
or note issued under 461(a) * * * of the Act. However, the treatment of 
the refunding bonds as an additional source of revenues and an 
additional expenditure, due to the gross budgeting.
    The refunding transaction lowered the District's capital and 
reduced the debt service owed by approximately $1,000,000 due to lower 
interest rates and the District's improved financial position. The 
transaction is being reviewed in order to assure a proper 
interpretation of the federal statutes and to permit the District from 
taking advantage of future opportunities to lower its debt cost through 
refinancings.
        quick payment provision of the district of columbia code
    As with the areas in violation of the Procurement Practices Act of 
1985, much work remains to be done in the area of compliance with the 
Quick Payment Provision although the number of citations identified 
improved by 11 percent from fiscal year 1996. Many of the provisions of 
the Quick Payment Act are obsolete, particularly those in areas 
requiring payment to vendors in less than 30 days, and are in need of 
revisiting. During fiscal year 1998, the Accounts Payable Unit within 
OFOS in conjunction with the Office of Finance and Treasury will review 
the Act and propose recommended changes while maintaining the purpose 
and the spirit of the Act.
                       electronic data processing
    Serious Internal Control Structure (ICS) weaknesses remain within 
the District's management information systems with little improvement 
to date. Management information systems (MIS) deficiencies represented 
57 percent of the fiscal year 1996 ICS findings and appear to remain 
the most significant aspect of the fiscal year 1997 ICS comments. This 
lack of progress in MIS specifically warrants a separate, concerted 
effort for improvement. The Office of the Chief Technology Officer 
(CTO) aligned with the Department of Administrative Services, under the 
auspices of the Chief Management Officer. The Chief Technology Officer 
is a recently created position, with the incumbent only reporting in 
the winter of 1997. Last year, the Office of the Chief Financial 
Officer (OCFO), Chief Information Officer coordinated system 
improvements to assist the agencies then under the Mayor's purview due 
to their lack of a chief information officer (CIO). Responsibility, 
however, for developing and restoring systems deficiencies resides with 
each agency that have identified weaknesses. This effort was largely 
unsuccessful, since the agency electronic data processing and 
information resources management staff did not report to the OCFO/CIO.
    During fiscal year 1998, it is incumbent upon the District CTO to 
take responsibility in the correction of these deficiencies and 
continue the work begun by the OCFO/CIO to motivate the District-wide 
EDP steering committee, and coordinate the efforts among the different 
District departments. The District CTO must ensure an overall, 
integrated effort that avoids duplication of resources and facilitates 
the proper interface of all systems, finalizing the draft comprehensive 
data security policies and procedures manual; establishing end user 
training; and working with the OCFO/CIO to ensure the automated 
interface between feeder systems and EMS occur. As of September 16, 
1997, the reviewer was informed that a new CTO for the District of 
Columbia had been selected and is expected to be on board in October, 
1997.
    As part of a city-wide plan headed by the OCFO/CIO, a contractor 
was engaged to develop and implement standard policies and operating 
procedures. The drafted policies and procedures include standards for 
data security, system back-up, and disaster recovery changes in 
applications programs, and segregation of duties. The draft policies 
and procedures have been distributed to all agencies for comment. The 
newly hired CTO for the District must work with the OCFO/CIO to 
finalize and implement the policy and procedures, modify, as necessary, 
the standards to reflect the characteristics of each individual agency, 
and establish an internal audit team to recommend, oversee and review 
appropriate changes for the physical processing environment at each 
installation.
                  business tax information processing
    The qualified audit opinion in fiscal year 1996 was a result of the 
auditor's inability to obtain sufficient evidence supporting the 
General Fund Business Tax receivables. That significant progress was 
made as during fiscal year 1997 is evidenced by the Auditor's removal 
of such qualification. Additional work is still needed however, in the 
business tax information processing area.
    The Office of Tax and Revenue (OTR) plans to install an additional 
modification to BTIS that will further improve the returned mail. The 
enhancement will allow the Returns Processing Administration (RPA) to 
input corrected addresses into the BTIS master file from forwarding 
address labels provided by the postal service. This enhancement will 
reduce the number of documents routed to the responsible areas in the 
agency. OTR has already implemented an enhancement to flag taxpayer 
accounts with returned mail for which no forwarding address is 
provided, and suspend the generation of future mail to those taxpayers. 
The Returns Processing Administration is not experiencing any staff 
shortages or lack of resources.
    In addition, OTR plans to use the Internet's Switchboard feature, 
the Haines Directory, taxpayer contact, as well as a National Change of 
Address vendor which utilizes the U.S. postal service's Code I program. 
In addition to implementing the system changes to track returned mail, 
OTR also sent a tape of the addresses in question to the National 
Change of Address vendor. Of a population of 17,000 questionable 
addresses, approximately 1,200 new/corrected addresses were received. 
Currently OTR is analyzing the remaining questionable addresses to 
determine the materiality and collectibility of the receivable 
accounts, and whether the taxpayer has any valid addresses (e.g., for a 
different location) on the BTIS master file. OTR plans to continue 
further efforts in fiscal year 1998, as part of their normal course of 
business, to obtain corrected addresses. Efforts planned include data 
entering addresses from returns, data matches with the Real Property 
Administration, as well as continued use of the National Change of 
Address vendor.
    KPMG noted tax returns were not readily available or easily 
traceable due to an inadequate system. During fiscal year 1997, OTR 
acquired the additional space and the new filing system equipment. The 
Returns Processing administration (RPA) completed its re-filing of tax 
returns in the new filing system. In addition, RPA updated the 
applicable portions of OTR's record retention policy and will continue 
to refine the process.
    To reduce the occurrence of processing errors, OTR plans to (1) 
implement several enhancements to its on-line data-entry system for the 
sales and withholding tax returns; (2) work with the Office of Finance 
and Treasury to ensure that a new lock box contract is issued that will 
address OTR requirements; and (3) continue data purification as needed 
until system enhancements are in production.
  monitoring of department of housing and community development loan 
                                activity
    The Department of Housing and Community Development (DHCD) concurs, 
in part, with the comment that ``the District does little to monitor 
the financial condition of the borrower to determine the ultimate 
collectibility of the note. Rather, it relies on foreclosure notices 
from the primary lender to determine whether a loan should be 
considered uncollectible. A deferred loan normally has no repayment 
requirement on the principal balance until the housing unit is sold, 
transferred or ceases to be the borrower's principal place of 
residence. In addition, deferred loans take on a ``quasi grant'' 
characteristic because the loan may be transferred at the borrower's 
death to a member of the borrower's household who has resided in the 
property for at least one (1) year and who will occupy the property as 
his or her principal residence.
    However, the vehicle for performance measurement on deferred loan 
borrowers with the primary lender is the current contract with the new 
servicer. It provides for monitoring the delinquency status of all 
superior liens on borrowers' collateral (including deferred loans), as 
well as monitoring to ensure that the residency clause has not been 
violated.
    On an annual basis, a sample will be selected from the deferred 
loan population by the Department and the servicer will confirm whether 
the deferred borrowers are current with their primary mortgage. This 
will assist the Department in determining whether the contractor is in 
compliance with their duties under the contract, and the potential 
collectibility of the deferred loan.
    Regarding the auditor's statement that there were a ``significant 
number of loans past due greater than 120 days; however, no loans were 
forwarded to the collection agency during the year'', DHCD concurs, in 
part. A work order was completed and executed for $1.4 million on 
August 19, 1997. An additional $18.3 million in loans greater than 120 
days were transferred to the collection agency during the first quarter 
of fiscal year 1998. The Department is working with the contractor to 
develop a system whereby this provision is implemented on a routine 
basis. This would reduce the time required to move a loan from the 
servicer to the debt collector, and enhance the possibility of 
collection.
    DHCD concurs with the comment that ``DHCD maintains little 
historical information on collection of deferred payment loans and 
amortized loans to allow it to determine the adequacy of the loan 
reserve on a recurring basis. Where some collection data is available, 
it has not been compiled to develop trends from one fiscal year to the 
next, and therefore has not been utilized to develop a strategy on the 
loan loss reserve.'' The Department is currently developing a strategy 
which will encompass the use of data from the debt collector, and in-
house analysis from reports provided by the loan servicer. Fiscal year 
1997 will serve as the base year for development of future trend 
analysis.
    DHCD does not concur with the comment that they did not adequately 
monitor the performance of the contractor. Meetings were initiated by 
DHCD and held with both the prior and current contractor to address 
ongoing concerns regarding the transfer of data and reporting 
requirements. Weekly meetings and site visits were held and written 
correspondence was addressed to the current contractor to assist in 
facilitating the expeditious handling of the related problems which 
occur in a transfer of approximately 6,300 loans to a new contractor 
with one month remaining in the fiscal year.
    Regarding the loans receivable subledger not reconciled to the FMS 
loans receivable balance during the year ended September 30, 1997, DHCD 
indicated that the loan receivable subledger was reconciled to FMS at 
year end and has instituted procedures for this reconciliation to occur 
on a quarterly basis in fiscal year 1998.
                      bank reconciliation controls
    The Office of Finance and Treasury (OFT) and OFOS share the burden 
and responsibility to ensure the cash is recorded in FMS, is reflective 
of the true cash position maintained by the banks and other holding 
institutions in the name and for use by the District. Questions raised 
by the fiscal year 1997 audit could have been more readily resolved had 
OFT and OFOS communicated better throughout the year on day-to-day cash 
accounting. The tremendous workload experienced during the closing days 
of the audit, in this area, can be attributed to the backlog of 
reconciling items caused by the following reasons:
  --Cash documents being coded with an incorrect cash account number.
  --Data entry errors.
  --Wire transfers being deposited without a corresponding FMS 
        recording document.
  --Wire transfers being sent out without a corresponding FMS recording 
        document.
  --Wire transfers being sent out not in accordance with FMS requesting 
        document.
  --Items being posted in the Check Writing System without a 
        corresponding FMS recording document.
  --Items being posted in FMS without a corresponding Check Writing 
        System document.
  --Cash documents being processed to an incorrect fiscal year.
  --FMS recording documents are not being prepared at all.
  --FMS recording documents not being prepared correctly.
  --Non-FMS checks being distributed without corresponding FMS 
        recording documents.
    Additionally, there were several contributing factors to the delays 
in the closing process/audit relating to cash. These contributing 
factors are as follows:
  --The District has too many bank accounts.
  --The opening of bank accounts and corresponding FMS bank accounts 
        are neither coordinated, timely, nor have responsibilities and 
        instructions been clearly disseminated.
  --Lack of procedures involving recording and distribution of cash.
  --Confusion and lack of assumed responsibility in correcting 
        inaccurate FMS documents.
    The following recommendations are under consideration to improve 
the bank reconciliation process:
    OFOS revise the cash reconciliation procedures to address these 
problems that became magnified during the fiscal year 1997 audit. These 
revisions will be focused on the timely recording of cash transactions 
and will include the following objectives:
  --OFOS/OFT establish clear and finite procedures which will define 
        the role and responsibility of the Cash Reconciliation Unit 
        versus the responsible agency as it comes to clearing 
        reconciling items.
  --OFT establish a threshold dollar amount for which reconciling items 
        under the threshold will be recorded in a miscellaneous 
        account--which are not cost effective to pursue--to concentrate 
        needed research on larger value items.
  --OFOS identify and seek resolution for the different kinds of errors 
        and the related research that should be performed by the Cash 
        Reconciliation Unit in identifying reasons for outstanding 
        reconciling items.
  --OFOS/OFT establish a format for transmittal of information to 
        responsible agencies when notifying them of errors or 
        outstanding reconciling items. These procedures will further 
        address required due dates for responses as well as appropriate 
        follow-up actions that should be taken when items are not 
        cleared within the specified time limit.
    Additionally, it is OFOS' plan (with OFT's cooperation) to review 
the current procedures for establishing new bank accounts as well as 
analyzing current existing accounts for ways to reduce the total number 
of District controlled bank accounts.
     inadequate controls over transactions involving the authority
    The Office of Finance and Treasury does keep an ongoing record of 
Authority held funds. This record takes into consideration funds 
received by the Authority on the District's behalf (primarily the 
federal contribution and bond/note proceeds) and transfers made to the 
District from the Authority for operating and capital expenditures. Any 
other account activity, i.e. interest earnings or transfers to other 
agencies, are not reconciled on a regular basis due to insufficient 
information from the authority. Although it is necessary to have actual 
data in order to reconcile the District's records, OFT has been unable 
to receive from the Authority actual bank records on a regular basis. 
As such, the reconciliation occurs at year-end as part of the audit 
process.
    The funds held by the Authority on the District's behalf are used 
for operating or capital expenditures. The operating funds held by the 
Authority typically consist of the federal contribution and note 
proceeds. Given that this pool of money is used for general operating 
expenditures, OFT tracks the principal amounts of these funds based on 
a first-in/first-out method. The Authority generally does not share its 
account information with the District, as such, OFT has no way of 
knowing whether these funds are pooled or tracked separately by the 
Authority.
    Other funds received by the Authority typically have specific-use 
requirements. As such, requests for these funds must specify which 
funding source to withdraw from. For example, capital bond proceeds are 
deposited into separate accounts and are withdrawn according to 
approved agency expenditures by bond issue. The Office of Finance & 
Treasury also tracks the receipt/disbursement of these funds based on 
limited information received from the Authority. Interest earnings and 
the use of those interest earnings is not available on a regular basis.
    The Office of Finance & Treasury is usually aware of the amount of 
funds anticipated to be received by the Authority on behalf of the 
District. Most of the anticipated funds are the federal payment or 
bond/note proceeds. Information regarding other federally appropriated 
funding is usually reported to the Office of Finance & Treasury on a 
timely basis by the Authority.
    Monthly receipt of banking records or account activity from the 
Authority would allow the District to reconcile its internal records on 
a regular basis and assist the District with improved cashflow 
management. As stated earlier, the Office of Finance & Treasury has not 
been able to receive this information from the Authority.
                    lack of timely entries into fms
    An environment in which financial information is timely, accurate 
and reliable is dependent upon the recordation of all transactions into 
the District's existing or new Financial Management System as close to 
the occurrence of the transaction as possible.
    Likewise, the timely analysis of data is a prerequisite to the 
early detection of any anomalies or exceptions subject to correction or 
further scrutiny. In the past, the District has relied upon the good 
faith efforts of agency personnel to enter timely and accurate data 
into FMS during the course of the fiscal year with little or no 
periodic oversight by the central accounting office. The results have 
been mixed, with some agencies waiting until the fiscal year-end 
closing process to enter information and/or make significant cost 
allocation changes.
    To further ensure the integrity of the District's financial 
information, the OFOS is instituting an interim closing process in 
fiscal year 1998. While the OCFO and OFOS had determined that an 
interim close and increased periodic reporting was necessary, the 
auditor's report citing the untimely entry of transactions into FMS as 
an internal control deficiency (resulting in significant transaction 
input, analysis, adjustments and late entries) has accelerated the need 
to institute such requirements. While OFOS remains cognizant of the 
workload of the operating agencies, and the hurdles faced during the 
fiscal year 1997 closing process, the environment reemphasized the need 
to implement an interim close this year. The interim/monthly closing 
process will be focused on improving day-to-day accounting activities 
in the agencies; fostering the importance or connection of their daily 
activities to the closing process; and creating an appreciation that 
maintaining good records throughout the year will diminish the 
transaction amount and volume activity required at year-end.
    The approach to ensure the timely, accurate and reliable provision 
of data will be a two-pronged effort. Beginning in April 1998, OFOS 
will require the monthly submission of specific information for 
analysis and tracking. Also beginning in April, OFOS will require the 
closing of specific packages by certain agencies for activity through 
the first 6 months of the fiscal year. The forms to be completed will 
focus upon those agencies and submissions that were inaccurate, 
extremely tardy or required significant transaction input at year end. 
The completion of any other quarterly or monthly closing packages will 
be determined based upon the assessment of information and accuracy of 
the midyear submissions.
    Recommendations:
Monthly Reporting
    OFOS prepares and OFIS distribute the new reports on non local 
source potential overspending, revenue recognition and cash collection. 
The agency prepares monthly explanatory reports on non local source 
potential overspending, revenue not recognized timely, and cash not 
collected timely. OFOS submits a monthly status report to the CFO on 
local expenditure, revenues, and cash collections, along with agency 
explanations.
    Monthly agency reporting of large vendor invoices not vouchered 
into FMS, using the agency invoice tracking log.
    Monthly agency reporting of significant new litigation against the 
agency.
    Monthly recording of WASA bills to District.
Quarterly Reporting
    Quarterly agency reporting and FMS and subsidiary system updating 
for fixed assets acquired from operations, and for fixed asset 
disposals.
    Quarterly agency reporting and FMS entries for new capital leases.
    Quarterly agency status reporting of significant litigation against 
the agency.
    Quarterly or cyclical inventory counting, reconciling, and 
recording in FMS.
    Quarterly update by agency of Medicaid accrual.
    OFOS develop methodology to estimate annual leave accrual change on 
monthly or quarterly basis.
Interim Close

------------------------------------------------------------------------
              Closing package                           Title
------------------------------------------------------------------------
Form 2-5..................................  Checking Accounts Under
                                             Agency Control.
Forms 3-2/3-3.............................  Analysis of Outstanding
                                             Encumbrances.
Form 3-4..................................  Analysis of Open Vouchers.
Form 3-6..................................  Accrued Expenses and other
                                             Current Liabilities.
Form 3-7..................................  Central Payment Accounts,
                                             adjusted to appropriate
                                             balance for end of period.
Form 4-2..................................  Analysis of Intra-District
                                             Revenue and Related
                                             Expenditures.
Form 8-3..................................  Adjustments to Receivables,
                                             Revenues and Advances.
Form 8-4..................................  Revenue source ``HOLD.''
Form 10-2.................................  Reimbursable Revenues and
                                             Receivables.
Form 10-4.................................  Clean Up Funding Source
                                             ``9999.''
Chapter 12................................  Enterprise Funds--only
                                             balance sheet, operating
                                             statement, and cash flow.
------------------------------------------------------------------------

    Question. The President's proposed budget for the District of 
Columbia includes $50 million in start-up funds for a National Capital 
Revitalization Corporation, designed to undertake economic development 
projects.
    In your opinion, what would be the necessary components for an 
economic development program to be successful in the District of 
Columbia?
    Answer. The essential components of an economic revitalization 
strategy for the District of Columbia must include:
  --improvement in the capacity of the District to provide efficient 
        financial services and other forms of governmental assistance 
        that facilitate private investment in the District by small, 
        medium and large businesses;
  --development and implementation of policies, plans and programs that 
        improve the conditions of private and public infrastructure by 
        eliminating blight, encouraging investment in the acquisition, 
        construction and renovation of business plant and equipment, 
        reducing the incidence of crime, disease, mortality and other 
        threats to the health and safety of residents, workers and 
        visitors;
  --expansion of opportunities for intra-regional business linkages and 
        greater cooperation in the training, retraining and placement 
        of residents in jobs within the District and throughout the 
        region.
    Each of these components must be developed and implemented in 
collaboration with local civic, trade, business, not-for-profit-
institutional, and neighborhood interests.
    Question. What aspects of the President's plan for economic 
development do you support?
    Answer. Although, the President's effort last year to create a 
federally-established Economic Development Corporation (EDC) set forth 
a specific plan of action for that entity, the proposed fiscal year 
1999 request for $50 million of start-up funds for the District-
proposed NCRC does not specify an expenditure ``plan''. Nevertheless, 
the NCRC and EDC initiatives share several similarities that highlight 
the points of agreement between the respective approaches of the 
President and District officials. Each plan, among other things, seeks 
to achieve the following objectives through establishment of a 
politically independent economic development instrumentality that will:
  --eliminate unnecessary and ineffective economic revitalization 
        policies, plans, strategies and programs;
  --consolidate fragmented and duplicative economic development 
        functions;
  --develop coherent short and long range policies and plans in 
        collaboration with private and federal stakeholders that 
        reflect neighborhood and regional interest in the development 
        of human and social capital and the improvement of public and 
        private infrastructure;
  --recruit and maintain a credible, experienced staff of business and 
        economic development professionals with the knowledge, 
        flexibility and institutional capacity required to meet 
        economic challenges and changing market conditions.
    The President's support for the District NCRC is, in part, based 
upon the achievement of a broad consensus among local business, 
government civic and community leaders on the need for establishment of 
such an organization to develop and deliver economic development on 
behalf of the District.
    Question. With what aspects of the President's plan do you 
disagree?
    Answer. The President's original proposal for federal control over 
the policies, programs and operations of a District economic 
development instrumentality generally was not favored by local elected 
and appointed officials.
    Question. The recent KPMG Peat Marwick audit determined that 20 
deceased retirees from the District's payroll.
    What steps are being taken to avoid payment of benefits to these 
``payroll ghosts?''
    Answer. In concept, the District is in agreement with the overall 
theme of the draft report. The District does have an immature software 
acquisition process and the implementation of the system is a high-risk 
effort. However, the report does not consider that the District has not 
acquired any new major systems or software for many years. As a result, 
policies and procedures do not exist for software acquisitions. Despite 
this weakness, we disagree that our process for this acquisition is 
``undisciplined''. A comprehensive source selection plan was applied 
that objectively assessed and evaluated proposed solutions for the FMS 
including upgrading the existing system, outsourcing the financial 
operations, and acquiring a new system. Furthermore, an oversight group 
to address the need for the new financial system was formed that 
included OMB, HAC staff, the District's CFO, the Authority's Executive 
Director, the District's Inspector General, and the GAO. Ultimately, 
the group developed an aggressive time line for considering solutions 
for the FMS. The aggressive time line is a result of the looming Year 
2000 Problem that must be addressed. The aggressive time line 
represents a primary reason for the high risk scenario the new system 
is being implemented under.
    While the District agrees that the implementation of the new system 
is a high risk effort, we do not agree with the reasons cited in the 
draft report. The system is high risk due to the aggressive schedule 
required to implement a solution before the Year 2000; the lack of 
infrastructure to support a modern financial system; conversion of 
unreliable and inaccurate data into the new system; and the complexity 
of the system.
    Furthermore, the district does not agree with the characterization 
of the draft findings related to requirements development, contract 
tracking, and risk management. The following discusses the District's 
actions in more detail:
    Requirements development.--Initial requirements were defined in a 
capabilities assessment in December 1996. These were further refined 
during the spring of 1997 by James Martin and Company and were fully 
defined by the KPMG as part of the new system solution during the fall 
of 1997.
    Contract tracking.--The District contracted with James Martin and 
Company to supplement the program management of this monumental effort. 
Their responsibilities include a variety of contract monitoring efforts 
including the measure of performance versus payment, timeliness of 
deliverables (as well as quality), and constantly monitors the project 
plan and risk mitigation plans.
    Risk management.--Two separate risk assessments have been developed 
for the project. The primary management focus of the program management 
office continues to be risk management. A comprehensive risk management 
plan calls for the identification of risk, source of the risks, 
analyzing the risk, developing alternative risk mitigation strategies, 
constantly tracking the status of the risks, and ensuring 
implementation of risk action plans. Proactive risk management is a 
continuous emphasis for the program management of this effort.
    Many of the GAO recommendations are changes that the District will 
embody as we continue to develop and refine our policies and procedures 
for financial operations.
    Question. The recent KPMG Peat Marwick Audit determined that 20 
deceased retirees from the District's payroll.
    What steps are being taken to avoid payment of benefits to these 
``payroll ghosts?''
    Answer. The District's Office of Pay & Retirement Services (OPRS) 
was notified that social security numbers for 21 of 15,000 annuitants 
on the active retirement roll were found questionable as a result of 
KPMG's verification of the numbers against the Social Security 
Administration's Death Index. KPMG utilized a private pension research 
services corporation to obtain the data.
    As a result, OPRS has instituted quarterly verification of social 
security numbers, as opposed to our previous annual verification, 
through a private pension research services corporation to report 
social security number mismatches and deceased retirees. The company 
will also supply copies of the death certificates.
    Of the 21 social security numbers reported as deceased annuitants:
  --2 recipients were reported in error and were not deceased;
  --3 recipients were removed from the retirement rolls prior to 
        receipt of the audit report;
  --annuities for 16 recipients were immediately discontinued and OPRS 
        reclamation procedures were instituted through the banking 
        institutions; eight (8) of these annuities have been refunded 
        in full.
    The OPRS is pursuing collections from the remaining estates and/or 
financial institutions which in some cases have made partial payments 
toward the District's reclamation request.
                                 ______
                                 

                  Question Submitted by Senator Boxer

collective bargaining agreements which were negotiated and ratified in 
                               july 1997
    Question. I am advised that the management representatives of the 
District--with clear guidelines from the D.C. Financial Authority--sat 
down at the bargaining table with labor to negotiate a comprehensive 
Collective Bargaining Agreement with the City's employees. The parties 
reached agreement in July 1997. I am told that there has been a 
question about who has the authority to move the agreements forward, 
and thus, the agreements which the unions negotiated with the City have 
yet to go into effect.
    The Chief Financial Officer just recently sent the bargaining 
agreement to the City Council for its consideration. After 60 days it 
must move to the Control Board.
    Dr. Brimmer, do you see any apparent reason that the Control Board 
would not act quickly and positively on the collective bargaining 
agreement, once it is received, inasmuch as the negotiating teams 
followed the D.C. Financial Authority guidelines for the negotiations 
and that the CFO has already reviewed and forwarded the collective 
bargaining agreement to the City Council?
    What can you tell us about this, Dr. Brimmer?
    Dr. Brimmer, is there anything else you wish to report to the 
Committee about the matters under your jurisdiction?
    Answer. At present, the Authority has no specific information about 
the collective bargaining agreement referenced by Senator Boxer. 
However, as a rule, the Authority moves expeditiously to review and 
approve labor contracts. The Authority understands that once the 
parties have reached an accord, they are anxious to see that it is 
implemented as soon as possible. The Authority has not approved 
agreements that do not contain sufficient funding for their 
implementation. As long as an agreement has sufficient funding and 
otherwise comports with the Authority's Guidelines for Collective 
Bargaining, it should move rapidly through the Authority's review 
process. We will look forward to the agreements from the Office of the 
Chief Financial Officer, and we shall endeavor to review them quickly.

                          subcommittee recess

    Senator Faircloth. If there is nothing further the 
subcommittee will be in recess.
    [Whereupon, at 12:25 p.m., Wednesday, March 18, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]


        Material Submitted Subsequent to Conclusion of Hearings

    [Clerk's note.--Public witness testimony was unable to be 
heard before the subcommittee, but the statement of the witness 
will be made a part of the record.]
    [The statement follows:]

   Prepared Statement of David J. Schlein, National Vice President, 
        District 14, American Federation of Government Employees

    Mr. Chairman and Members of the Subcommittee: Thank you for the 
opportunity to present our views in writing.
    The 14th District of the American Federation of Government 
Employees (AFGE) represents nearly five thousand employees of the 
District of Columbia and several of its independent Authorities. These 
are the front-line employees who do the demanding, often dirty, and 
sometimes dangerous, and almost always thankless work that keeps the 
city running.
                  workers want real management reform
    Like you, AFGE believes that addressing the urgent and glaring 
crisis in management is the long-term key to prosperity for the City 
and to assuring that the City's residents and visitors to our nation's 
capitol receive service excellence.
    The cause of the City's twin financial and management crises has 
never been that rank and file City workers are overpaid, or that there 
are too many people hired to pave the roads, fix the school boilers and 
roofs, renew licenses, maintain water and sewer lines, clean up the 
parks, or process the paperwork. Unfortunately, it is that political 
patronage had come to mean a management job or lucrative private 
contract. There were, and still are, too many bosses and not enough 
front-line workers or equipment or spare parts to get the job done. 
There were, and still are, questionable contracting practices that 
result in contracts let without proper regard to the price, the 
quality, or the experience of the contractor.
    And like you, as hardworking and dedicated employees, our DC 
members are extremely frustrated, when the City's government just 
doesn't work. Our members are the folks who try to continue to deliver 
services to District residents and businesses in an efficient, and 
humane way--despite that obstacles and frustrations caused by layers of 
redundant management, lack of training, materials, and/or equipment. 
They are the folks who arrive to work on time and do their jobs--
despite untrained, unprofessional, politically well-connected 
``managers'' who ignore ideas on how to make government work better. 
They are the skilled workers who keep plugging away at their work--
despite having their salaries cut twice in the past 24 months, their 
earned benefits reduced or eliminated, and their pay for overtime, 
hazardous duty, and holiday work being severely reduced. We are proud 
of our DC members. As public employees for DC Government they truly are 
the unrecognized heroes and heroines toiling under exceptionally 
difficult, demanding and often dreary conditions.
    Let's be clear. Our members have no stake in the status quo of 
management. As the front-line workers our members have a keen awareness 
of the problems with the city's operations. It is because they are 
closest to the delivery of services, that our members and their union 
representatives can offer a clear perspective on solving these 
problems. Transforming the DC governmental system into one that 
inspires public confidence in the city's ability to deliver high 
quality public service in a cost-effective manner is our goal.
     collective bargaining agreements are key to management reforms
    But DC employees cannot participate in the kind of city 
transformation--that both you and our members seek--unless they are 
treated with at least the basic tenets of worker fairness by sound 
management. Such basic principles include the right to bargain 
collectively over the terms and conditions of work.
    Unfortunately, the very institution of collective bargaining has 
been placed at risk because of the absence of clear lines of authority 
and management accountability in bargaining. With whom are the unions 
to bargain? What entity is legally able to represent Management and the 
City? Is it the Mayor, the Chief Financial Officer (CFO), the Control 
Board, the Council, the Office of Labor Relations and Collective 
Bargaining, the new CMO, the Congress or all or some of the above? The 
very modest agreements our union negotiated with the City, which were 
ratified in July, 1997, have yet to go into effect. They have 
languished for months, as the Mayor, the CFO, and the Authority play a 
shell-game of ``Who has the authority?'' I am glad to report that the 
CFO has just recently sent the collective bargaining agreement to the 
Council for its consideration. Then it must move to the Control Board. 
The forward movement of this agreement will do much to assist the city 
in improving services.
   labor-management need to be partners in creating and implementing 
                               solutions
    We understand that our members' futures are dependent on resolving 
the city's ongoing financial and management crisis. We also know that 
it is the front-line employees who do the city's work who must be in 
the center of any effort to fix the city's delivery of services.
    We are pleased to see that Camille Cates Barnett has signed on to 
participate in the DC Labor-Management Partnership Council. To 
transform how this city runs we must transform the relationship between 
management and labor. We must move away from adversarial postures and 
move towards working in partnership to identify problems and craft 
solutions, to form an alliance for real change. We welcome the 
opportunity to work with Ms. Barnett in partnership for real and 
lasting change in how this city operates.
    Indeed, over two and a half years ago AFGE, AFSCME and the City 
successfully applied for a grant from the Federal Mediation and 
Conciliation Service (FMCS) to establish a labor-management pilot 
program at the Fleet Maintenance Division at the Department of Public 
Works. The project has already yielded impressive results in improving 
efficiency and labor management relations. Furthermore, the grant 
required that a city-wide labor-management partnership committee be 
established. Both FMCS and the Department of Labor have generously 
donated resources and expertise to make the project a success. The 
successes achieved by this project as well as its historic successes in 
the federal government and other cities such as Philadelphia, 
Cincinnati, Indianapolis, Fort Lauderdale, etc. gives us reason for 
hope.
                 management reform consultant's reports
    We have a few comments on the reports by various business 
consultants hired by the Authority to analyze shortcomings in the 
management, operations, and structures of the agencies under its direct 
operating authority. Attached to this testimony is AFGE's response is 
entitled: Service Excellence: A Union's Vision for the District of 
Columbia. In it we respond specifically to the consultants reports on 
Emergency Medical Services, and the Departments of Employment Services, 
Consumer and Regulatory Affairs, Public Works, Health, and Housing and 
Community Development. We have also responded to the so-called ``cross-
cutting'' reports which focus on personnel management.
    Our approach to the consultants reports was systematic. We analyzed 
their ``findings'' and ``recommendations'' from the perspective of 
whether they would further the following eight AFGE goals and 
principles:
  --1. Strengthening collective bargaining in order to make reforms 
        effective.
  --2. Empowering employees and treating us with respect.
  --3. Improving management accountability
  --4. Improving performance management
  --5. Improving the rewards system
  --6. Flatten and modernize the management hierarchy
  --7. Support the development and use of skill
  --8. Create Service Excellence.
    Number eight is last, but certainly not least, as we believe the 
preceding seven to be its necessary pre-conditions.
    Our findings at this point indicate that where union leaders and 
members have been actively engaged in the process of analyzing 
agencies' strengths and weaknesses, and formulating reform proposals, 
the consultants findings were more accurate and the ideas for 
restructuring have been seen by workers as more likely to be effective.
    Unfortunately, we have little indication that as agency's move to 
implement recommendations, that employees through their unions will be 
involved.
    Our report makes several recommendations which we hope will be 
implemented:
    1. Accelerate the development to the city-wide labor management 
committees. The Authority needs to make a strong commitment to the 
process.
    2. Establish labor-management committees in each department. These 
offer the best channels for workforce participation to shape and 
implement effective reforms.
    3. The severe workforce downsizing of the past several years should 
be brought to an end. There should be no further contracting out where 
city personnel can do the job.
    4. Improve management accountability. Consistent leadership for 
reform must start from the top.
    5. Allow the collective bargaining process to work. Pay our members 
the salaries agreed to in our negotiated contract.
                               conclusion
    The front-line workers of the District of Columbia remain ready, 
willing, and able to work with any official or authority who approaches 
the job of improving the financial management and service delivery 
challenges we face with integrity, with a rational plan, and with 
respect for the crucial role we will play in any revival of this City.
    Thank you for your time and consideration.
                                summary
    Service Excellence presents a plan for reforming DC government by 
involving those who have firsthand knowledge of the District's 
agencies, their problems and the needed solutions--Washington's front-
line workers. Labor-management partnerships for reform have succeeded 
in building quality public services in other cities. We can build a 
successful partnership reform here. And the reform process can't work 
without drawing on the knowledge, insights and concerns of the 
District's workforce.
    As the largest union of DC employees, AFGE has mobilized its 
members to review 13 consultant reports commissioned by the Control 
Board to develop recommendations for DC management reform. We knew from 
experience across the country that labor participation can be a highly 
effective process for creating successful reform initiatives.
                             afge findings
    Our principal findings in reviewing the consultants' 
recommendations tracked eight principles for effective reform that we 
developed before the consultants' reports were completed.
    The different agencies experienced a wide variation in the extent 
of union/workforce involvement in the development of the consultant 
assessments and reform proposals. One basic finding ties all the 
consultant reports together.
  --Where the union leaders and members have been more actively engaged 
        in the process, the consultant findings are more accurate and 
        the proposed reforms are seen by front-line workers as more 
        likely to be effective.
    When the consultants reached out to the local unions and front-line 
workers, seeking their full participation their reports hit close to 
the mark in defining reform programs that are well matched to the needs 
of the agencies. When the consultants excluded the local unions and had 
only minimal or deeply flawed interactions with front-line workers, the 
assessments are full of factual errors and their reform proposals badly 
miss the target. This shows that labor participation is a highly 
effective process for creating successful reform initiatives. This 
participative method should be systematically implemented in following 
through with the city's management reform process.
Principle 1: Strengthen Collective Bargaining to Make the Reforms 
        Effective
    Because of the urgency of rapid, effective reforms, we propose to 
work with the Authority and with senior agency managers to establish 
channels for labor participation in the reform process, both city-wide 
and in each of the city's agencies. An intensive effort to mobilize all 
the knowledge and good ideas in the Department is needed on a priority 
basis.
  --To provide ongoing problem-solving capability, we propose to 
        accelerate the development of the City-Wide Labor-Management 
        Committee. Meeting on a more frequent basis, the Labor-
        Management Committee can help provide an environment supportive 
        of the reform process.
  --To directly address and support the organizational change--both 
        city-wide and in each of the Departments--we propose that an 
        active subcommittee of the Labor-Management Committee be 
        created as a City-Wide Joint Redesign Committee.
  --Within each department, we propose Joint Redesign Committees and 
        Labor-Management Committees. These offer the best channels for 
        workforce participation in the process of shaping and 
        implementing effective reforms and advancing the city to 
        Service Excellence.
    Based on the general principles of successful government reforms 
around the country, the labor-management partnerships should be 
undertaken city-wide, not one agency now, and others later. If we're in 
an emergency reform mode, then workforce participation needs to be 
organized from the beginning. We need input from the front-line worker: 
What do you think you need to do your job better, more efficiently, 
with better customer service?
    Finally, the consultants typically see the collective bargaining 
functions of the city--where they are acknowledged at all--in a 
negative and defensive way. We think collective bargaining should be 
seen as a vehicle for problem solving and dealing successfully with the 
challenges faced by DC government, DC citizens, and DC employees.
Principle 2. Empower employees and treat them with respect
    A basic premise of employee participation in reforming their 
organizations is that they can not be punished for that participation--
at least not if the reforms are meant to succeed. DC workers and our 
unions need to be mobilized as partners in the reform process, not 
treated as uninterested observers or pieces to be moved around on other 
people's chess boards.
  --The severe workforce downsizing of the past seven years must be 
        brought to an end now if we are now to embark on a successful 
        reform process. Most consultant reports recognize this basic 
        fact. One at least plainly does not.
  --There should be no more layoffs and no further contracting out 
        where city personnel can do the job. This city can't make 
        further cuts while expecting to rebuild morale and employee 
        initiative.
  --Agencies and the city should reject those few consultant 
        recommendations to fire current employees and make them re-
        apply for their existing jobs, with the likelihood of bringing 
        in new outside hires.
  --Agencies should not pursue policy of further ``hollowing out'' of 
        internal capacity through additional staff cuts and contracting 
        out. This is inefficient and ineffective in improving service 
        quality.
    The city must recognize in practice that ultimately ``people are 
our most important resource.'' Agencies and the city can not give 
insincere lip service to this principle while continuing to treat the 
workforce primarily as a cost to be cut--rather than a resource to be 
developed and built upon. This kind of inconsistent, destructive 
message will only engender further disillusionment and cynicism among 
the workforce. And this approach will undermine efforts to reform 
service delivery in DC government.
Principle 3. Improve Management Accountability
    The most important prerequisite for effective reform is consistent 
leadership for reform from the top. This is needed within each agency. 
Even more important, consistent top level leadership for reform is 
needed for the city as a whole.
  --The Authority needs to firmly express its commitment to workforce 
        and union participation in the reform process. Department 
        directors need to hear this message loud and clear, and more 
        than just once. The Mayor and the City Council also need to 
        endorse this direction for reform of service delivery in the 
        District.
  --Agency heads need to provide consistent leadership within their 
        departments and for their senior managers. Labor participation 
        should be built into every manager's job evaluation.
  --The city needs to recognize that labor participation in design and 
        implementation of agency systems and technologies, goals, 
        objectives and metrics will yield more effective results for 
        everyone's goals.
Principle 4. Improve performance management
    Several key points that come up across all the agency reports that 
demand urgent attention.
  --The personnel function needs a radical overhaul, not only on a 
        city-wide basis, but within every agency as well. Hiring 
        decisions, performance evaluations, and promotions today are 
        typically not objective and not geared to meeting agency 
        service delivery goals. Personal relationships and cronyism 
        must be replaced by objective assessments based strictly on 
        performance and merit.
  --Front-line workers should be integral participants in process 
        redesign, bringing in new technologies, and establishing 
        feasible goals for continuous improvement in service quality 
        and cost effectiveness. As designers of the systems and their 
        performance metrics, they will have every incentive for 
        achieving the goals they have helped to establish.
  --It is wrong to blame employees for productivity and quality 
        problems. W. Edwards Deming, the long-time DC resident 
        recognized as the father of the quality movement, said that 
        quality problems are 90 percent due to bad management. It is 
        wrong and ineffective to try to remedy quality problems by 
        punishing or replacing workers.
Principle 5. Improve the rewards system and allow the bargaining 
        process to work
    We think it is possible to design appropriate positive performance 
incentives, for teams, work groups, and other groups that work together 
to produce superior quality or greater cost effectiveness. These are 
issues that ultimately must be collectively bargained.
Principle 6. Flatten and modernize the management hierarchy
    Modernization of management means more than using new technologies. 
High participation, high learning, high performance work systems mean 
demands for new management approaches and skills. We would like to see 
modernized high performance work systems matched by high performance 
management.
Principle 7. Support the development and use of skill in the workplace
    Very few of the consultant reports recognize that workforce skill 
is fundamental to high quality, high productivity service delivery. 
High performance work systems and jobs require skill and continuous 
learning.
  --We need to develop skill requirement profiles for the new jobs in 
        our reformed agencies, objectively assess existing workforce 
        skills, and develop systematic training programs for all city 
        workers.
  --Joint training committees should be set up in the agencies and 
        city-wide.
  --Adequate budget resources must be secured to support a training 
        program that reaches the agreed minimum of 2 percent of payroll 
        for each employee.
Principle 8. Create excellence in customer service
    We in AFGE believe that this city's agencies can be reformed to 
provide service excellence for residents, commuters, and visitors to 
Washington DC. We stand ready to work with the Authority, agency heads 
and senior managers, and elected officials to make this goal a reality.
    ``The District must do more to involve the District's labor unions 
in the financial recovery of the District.'' \1\ The Authority, May, 
1997.
---------------------------------------------------------------------------
    \1\ ``Human Resource Management Reform: A Strategic Approach,'' May 
1997, The District of Columbia Financial Responsibility and Management 
Assistance Authority, p. 23.
---------------------------------------------------------------------------
                          part 1. introduction
    Service Excellence.--A Union Vision for the District of Columbia 
makes the case for involving front-line union members in the reform of 
their workplace. In the end, it is up to us, the District's workers, to 
transform the rough mandate of laws passed by Council and Congress into 
the indispensable reality of quality government services and benefits. 
Front-line workers know what it will take to turn this city around. 
Whether fighting illegal drugs or caring for the poor, DC workers know 
the barriers to service excellence and we want to help The Authority 
break them down. Reform can only succeed if it builds on the knowledge 
and insights of the people who best know what's wrong with DC 
government and how to fix it--DC workers and their unions.
    The Authority has hired 13 outside consulting firms to conduct 
organizational assessments and make improvement recommendations for 
seven agencies and four city-wide services. AFGE District 14 has shared 
these assessments and recommendations with the front-line workers from 
the respective agencies. This report presents a front-line analysis of 
the consultants' work. Merging workforce insights with consultant 
expertise is critical to successful reform.
    Service excellence identifies eight basic principles that are the 
foundation for successful reform efforts. These all hinge on seeing 
city workers and their unions as valuable resources for reform--not as 
roadblocks to be avoided.

  --Strengthen collective bargaining to make the reform process 
        effective
  --Empower employees and treat them with respect
  --Improve management accountability
  --Improve performance management
  --Improve the rewards system and allow the bargaining process to work
  --Flatten and modernize the management hierarchy
  --Support the development and use of skill in the workplace
  --Create excellence in customer service
    Restoring DC's fiscal health while at the same time improving 
service delivery is a challenge that can only be met if Congress and 
the city's political leaders work with, rather than against, DC front-
line workers and their unions. This report proposes concrete steps the 
city can take to achieve effective management reforms through an 
indispensable method: involving front-line workers and their unions in 
reform of our city.
    The American Federation of Government Employees (AFGE)--in addition 
to being the largest union representing federal government workers in 
the United States and overseas--represents some 5,000 employees working 
for the District of Columbia government. AFGE District 14 provides 
supervision and support to its 14 locals representing D.C. workers. 
AFGE Council 211, comprised of all D.C. local unions also serves the 
membership through coordinated activities. AFGE represents DC employees 
at the following agencies:
  --Department of Public Works
  --Water and Sewer Authority
  --Department of Human Services
  --Department of Health
  --Department of Administrative Services
  --Board of Parole
  --Department of Employment Services
  --Department of Fire and Emergency Medical Services
  --Department of Recreation and Parks
  --Department of Housing and Community Development
  --D.C. Public Housing Authority
  --Metropolitan Police Garage
  --Department of Consumer and Regulatory Affairs
  --D.C. Energy Office/Office of Planning
                               background
    Congress is now spending millions of taxpayer dollars to have 
outside consultants tell them what AFGE and our members have been 
trying to tell them for years. Poor management is the biggest problem 
facing the District of Columbia.
    AFGE and the DC workers we represent have time and again raised 
concerns about the management problems in our city, but no one 
listened. We also have offered our views on how the problems could be 
solved, but our advice and offers to help were put aside while the 
financial fires were put out (largely through reducing pay and benefits 
for front-line workers). Now, as top-down consultant reports are 
presenting management reform plans--usually developed without 
meaningful involvement of the workers who have the best knowledge of 
what is wrong with DC government systems and of how to fix them--it is 
time for DC workers to be heard.
      the track record of reform to date: little or no workforce 
      participation, disproportionate impact on front-line workers
    DC's unionized workers have already borne a disproportionate share 
of the spending cuts made--without meaningful workforce input--to 
address the financial crisis we had no part in creating. Over the past 
two years, DC workers have suffered pay cuts of more than $40 million, 
which have severely impoverished many working families in the District. 
What is more, we have borne the shame and humiliation of blame for the 
City's inability to deliver decent, reliable, effective and cost 
efficient services to City residents. Yet in agency after agency, 
budget cuts were implemented by halting needed training, neglecting 
needed equipment purchases and repairs, reducing front-line staff, and 
delaying the purchase of essential materials and supplies. When 
management deprives workers of the resources we need to do our jobs, a 
crisis like the one now facing the District is inevitable.
    Since 1995 when the Authority was established and given ultimate 
authority over the city's budget, its management, its procurement, and 
its labor contracts, the only real changes that have been implemented 
are job reductions and pay and benefit cuts for front-line service 
delivery workers and reductions in income assistance to the very poor. 
Meanwhile, the City has twice rolled back property taxes, which now 
stand at 1993 rates. These cuts have severely reduced the revenue 
available to the District to meet its budget shortfall.
    In the past two years, unionized city workers have endured:
  --12 days of mandatory, unpaid furloughs
  --6 percent salary reductions for the last half of fiscal year 1995
  --3 percent salary reductions throughout fiscal year 1996 and fiscal 
        year 1997
  --A 2 percent reduction in the employer's contribution to the post-
        1987 pension plan, made up by the employees (in effect, another 
        2 percent reduction in pay)
  --Restrictions on overtime pay
  --The temporary elimination of optical and dental benefits.
    These cuts were far deeper than those imposed on the non-union 
workforce. Outside contractors and service providers have not been 
asked to re-negotiate their contracts at all. In the midst of a severe 
budget crisis the City continues to spend millions of dollars in 
wasteful contracting out.
    Union workers have also borne the brunt of job elimination. The 
Authority in its May, 1997 report, Human Resource Management Reform: A 
Strategic Approach,\2\ points out that, instead of targeting reductions 
at the management level as directed by the Authority, most reductions 
have been of employees in lower pay grades who actually deliver 
services. In August 1995, the Authority called for the District to 
reduce full-time equivalent (FTE) personnel from 40,208 to 35,771 by 
September 30, 1996. Although the District met the targeted FTE level, 
the majority of the reductions have occurred in the front-line 
workforce, not in the management ranks. Seventy-two percent of the net 
2,488 non-school reductions have occurred in grades 9 and below; and 42 
percent have occurred in grade 5 and below.
---------------------------------------------------------------------------
    \2\ ``Human Resource Management Reform: A Strategic Approach,'' 
May, 1997, The District of Columbia Financial Responsibility and 
Management Assistance Authority.
---------------------------------------------------------------------------
    In addition to destroying morale, management's self-serving 
approach to reducing the workforce has resulted in:
  --Severe shortages of employees with critical expertise, especially 
        in procurement, information services, and environmental 
        engineering skills
  --A disproportionate distribution of workload, with the result that 
        many employees who perform critical tasks are overworked
  --An excessive amount of overtime being worked by critical personnel, 
        particularly in the Public Safety agencies.
    Collective bargaining, grievance and arbitration are the 
traditional processes that workers have available to them to voice and 
resolve these important financial and workplace issues. But even these 
most fundamental vehicles have broken down under the weight of the 
City's crisis. Although the Financial Responsibility and Management 
Assistance Act of 1995 called for the Authority to approve all labor 
union contracts, there have been no labor union contracts agreed to by 
the District and a bargaining unit in the two years of the Authority's 
existence. In fact, agreements reached by City officials and the unions 
sit waiting for the most basic of decisions: determining who has the 
authority to implement the agreements. A court-mandated settlement on 
back pay has languished for months waiting for Control Board approval. 
Compensation agreements ratified last summer sit in the CFO's office 
waiting to be submitted to the Authority.
                 critical role of workforce involvement
    According to the Authority's own report, ``The District Government 
must do more to involve the District's labor unions in the financial 
recovery of the District.'' \3\ The report goes on to recommend that 
the city work with the city's unions and the Federal Mediation and 
Conciliation Service to expand the current city-wide joint labor-
management effort to include the formation of joint councils in 
selected departments and agencies. AFGE stands ready to work with the 
City and the FMCS to expand this important initiative. We believe that 
a strong partnership will provide our members with the voice in the 
reform process that we have been seeking all along. However, a strong 
partnership can only emerge within the context of a strong and viable 
system of collective bargaining that allows for workers interests in 
financial and employment security to be aired and addressed.
---------------------------------------------------------------------------
    \3\ ``Human Resource Management Reform A Strategic Approach,'' May 
1997, p 23.
---------------------------------------------------------------------------
    This is an extremely important point. If workers' knowledge, 
insights, and interests are not taken into account, then the reform 
process simply will not work. Whatever the reform process does, whether 
it cuts costs or not, it is the DC workers who must ensure that it is 
done well and that it meets the needs of a demanding public. Every 
endeavor of the DC government ultimately relies on the skills, ability, 
and motivation of DC workers. Before workers will fully support the 
reform process, we must first know that our efforts to improve the city 
will also serve to improve the quality and stability of our work lives.
     a reform process that will last: labor-management partnership
    The problems with the District government are deeply rooted in its 
ineffective organizational structure and obsolete management 
philosophy. The current organizational model is based on centralized 
control of a multi-layered, autocratic management hierarchy. With its 
emphasis on control, rules, and standardization, this model is designed 
to take the thinking out of work and to devalue and discourage employee 
participation in workplace decision making. In this system, DC's front-
line workers are hamstrung by red tape and often pointless rules, 
buried under stacks of pointless paperwork, and if managed at all, 
micro-managed to within an inch of their lives. The central message of 
this system is that workers can not be trusted to do the right thing.
    By the early 1980's American business and government began to 
abandon this outdated management philosophy of command and control in 
order to remain competitive and survive in a new world of tough global 
competition, new complex technology, and lightning-fast communications. 
These companies learned the hard way that in the transformation from an 
industrial age to an information age a premium is placed on 
intelligent, highly trained, creative workers who have the resources 
and responsibility to analyze new situations and act quickly and 
effectively in response to new opportunities.
    As more organizations moved to form new systems that support the 
development and use of skill in the work process, they discovered that 
the knowledge and creativity of their employees was often the margin of 
difference between mediocrity and excellence. There is no question that 
the engines that drove the change in successful companies and 
government agencies have been the principles of employee empowerment 
and labor-management partnership.
    Employee empowerment rests on a simple but powerful notion: the 
people who are closest to the work know where the problems are and 
usually have the best solutions. Not all good ideas flow from the top 
down. When front-line workers are trusted to identify and correct 
problems, and when their decisions are supported by top management, 
they will be motivated to make continuing and meaningful improvements 
to the work they do. The key is to push decision making down and give 
workers the authority to think creatively and act independently, within 
the context of the organization's objectives and values.
            the positive role of labor-management relations
    The evidence shows that long-term organizational success is bound 
together inseparably with good relations between labor and management. 
Time and again it has been proven that effective labor-management 
partnerships have led to increased productivity, greater quality, 
better customer service, and greater employee satisfaction on the job. 
Union involvement in the design and implementation of reforms 
strengthens both the reforms and the process by which the reforms are 
designed and implemented. Notable union contributions to reform efforts 
include:
    1. Unions provide reform efforts with credibility. Employees are 
skeptical about the potential of the reform effort to make a real 
difference. The involvement of the union will send the message that The 
Authority is making a meaningful attempt to fundamentally reform the 
District. Labor-management partnership is the first step in developing 
a culture based on mutual respect and trust.
    2. Unions provide workers with an independent locus of control in 
the reform process. Collective bargaining will ensure workers that they 
will receive a share of the gains they help to achieve, and the 
protection of the union encourages employees to speak their minds on 
controversial issues without fear of reprisal.
    3. Unions promote and help to institutionalize change within 
agencies. Unions remain long after the elected leaders and top managers 
who initiated the change process. The union and its members are the 
only constant, and therefore are the ones who will carry on the changes 
long after the reforms are implemented.
    4. Unions bring needed knowledge, insight, and skill to the change 
process. AFGE represents workers in a number of government agencies. We 
can share information, ideas and experiences gained from our other 
partnerships and joint reform initiatives. This type of learning 
exchange could help to create a powerful synergy within the DC reform 
initiative.
    As DC employees who believe deeply in public service, AFGE members 
want to participate in positive ways to improve the performance of our 
government. But time and again we have been frustrated. For years we 
have offered thoughts on how to make government work better and more 
efficiently, but we have been told ``that's management's job.'' Now the 
Authority has hired consultants to do what we have been willing to do 
all along, identify problems and recommend proactive changes in how the 
city is operated. Next, the consultants' studies and recommendations 
will go to a team of top leaders and managers to implement, even though 
the reports have clearly identified management as the primary reason 
why many of the city's problems exist in the first place.
    DC's problems of inefficient and outdated management can not be 
solved by top-down, consultant driven reforms. AFGE provides the 
Authority with the only viable path to effective reform--to partner 
with city employees in the reform process. That is why AFGE urges the 
Authority to pursue a reform approach that recognizes that DC's front-
line workers are the solution. We urge the Authority to involve the 
union and our members in the Management Reform Teams that are about to 
implement the consultants' recommendations.
                  afge's service excellence principles
    Underlying AFGE's involvement in the reform initiative will be a 
set of basic principles we will use to shape and evaluate the DC reform 
process. These principles are based on a solid understanding of how to 
make the system changes needed if the DC Reform process is to produce 
the results it has promised to District residents. Our principles will 
allow the City to develop and implement a reform process that draws 
upon the knowledge and talent of its workforce in improving the 
District Government and enhancing the community we serve.
    1. Strengthen Collective Bargaining to Make Reforms Effective. To 
succeed, the reforms must broaden the scope of bargaining and provide 
employees with a voice in improving productivity, increasing efficiency 
and enhancing customer service. New vehicles for labor relations that 
expedite the bargaining process and grievance administration will 
provide workers with the protection they need, and serve to free up the 
time of labor representatives to play a meaningful role in the reform 
process. The framework of labor-management councils should be expanded 
to other departments and be provided with a role in the evaluation and 
implementation of the consultant's recommendations.
    2. Empower Employees and Treat Them with Respect. Employees hold 
the key to solving the City's service problems. No one knows the 
problems that DC faces better than the dedicated workers who serve this 
City. Our front-line workers through their unions should be given a 
voice in the reform process, and in every day decisions regarding the 
delivery of the services they provide.
    3. Improve Management Accountability. Systems that support 
strategic planning and the establishment of performance goals must be 
established. Further, these systems must include mechanisms that hold 
management accountable to achieving goals and to behaviors that support 
a professional and equitable work environment for employees. If 
management is not held accountable to reforms, the reform process will 
not produce needed results.
    4. Improve Performance Management. Earlier in the 20th century 
performance management systems focused on identifying and disciplining 
individuals for non-performance. The current system in DC still 
functions in this negative way. Today it is realized that performance 
results from many factors, some individual, but many more that are 
group or organizational in nature. DC needs a new performance 
management system that will provide individuals with clear direction on 
positive work related goals, and which will support team work and 
problem solving. Any change in the performance management system should 
provide for bargaining and direct involvement in its design by the 
employees whose performance the system will measure. If employees do 
not have ownership in the system, they will have no real confidence in 
its fairness or effectiveness.
    5. Improve the Rewards System and allow the bargaining process to 
work. Instead of establishing an arbitrary awards system that will 
reinforce cronyism, allow us to negotiate a fair system where we 
emphasize gainsharing and make increased productivity our goal.
    6. Flatten and Modernize the Management Hierarchy. The District's 
current command and control system is supported by an excessive 
management hierarchy that must be dismantled in size and scope. Once 
employees are empowered to make operational decisions, managers are 
freed up to focus on longer term strategic concerns. This system needs 
less managers and it needs different managers. The managers who remain 
in an empowered work system must assume new roles that require 
different skills. For example, managers must build and support 
teamwork, aid in troubleshooting and provide clear goals and 
performance measures. Individual managers who remain must be supported 
through training and performance management mechanisms if they are to 
succeed in assuming their new roles.
    7. Support the Development and Use of Skill in the Workplace. If 
employees are to take on a broader role in the work process, training 
and skill development must be viewed as a strategic investment in 
quality--not as a cost to be controlled or eliminated. One of the worst 
causalities of the budget crisis has been the virtual elimination of 
front-line worker training. What little training that still exists in 
the City is concentrated in mid-to-upper level management while the 
front-line workers who actually deliver city services are ignored. 
Action must be taken to turn the training deficit around. However, the 
skills gap in the city is not merely a training challenge. The current 
command and control work organization does not support workers in using 
the skills they already have. The work structure must also change if 
workers are to bring current and new skills to bear in their work.
    8. Create Excellence in Customer Service. Like other governmental 
agencies and private employers, the DC government must focus on 
providing prompt, cost-effective, and customer-responsive services. 
This is what taxpayers demand and what the public has every right to 
expect. It is also what DC's union-represented employees want to 
deliver. Our city's government systems, supported by an empowered work 
force and engaged unions, should aim for and consistently deliver 
excellence in customer service.
    As a first step toward our involvement in the reform process, AFGE 
shared the consultant's studies and recommendations with union members 
on the front-line of the agencies under review. This report contains 
their views on those reports. Included is an evaluation of the 
recommendations against AFGE's Service Excellence principles, and in 
cases where we think the consultants are off base, we provide what we 
believe to be a more viable course of action.
       part ii--the afge response to consultant assessments and 
                            recommendations
Introduction: Stakeholder Participation and Consultant Recommendations 
        in the Reform Process
    Consultants can use a variety of methods to help a client 
understand and respond to its strengths and weaknesses. An essential 
key to success is the degree of involvement the selected method affords 
the stakeholders in the problem identification and resolution process. 
Effective assessments generate a consensus regarding the barriers to 
effectiveness and create ownership within an organization for the 
implementation of chosen solutions. Without stakeholder buy-in, 
proposed solutions often sit on a shelf collecting dust, rather than 
producing the results they were intended to help achieve.
    Effective consultants (and managers) involve workers and their 
unions in the design of studies. They use the knowledge of the people 
who work within a system to identify issues around which people can be 
mobilized. Successful consultants go beyond cursory surveys and focus 
groups and rely heavily methods that involve key stakeholders directly 
in analyzing problems and crafting solutions.
    The consultants hired by the Authority to conduct the 
organizational assessments and develop reform recommendations often 
fell far short of the best practice benchmarks for stakeholder 
participation. The selected consultants relied heavily on managers in 
the information gathering and assessment process. Those consultants who 
chose to involve workers through the use surveys, town meetings and 
focus groups limited worker involvement to discussing questions that 
the consultants viewed as important. The consultants shaped the 
questions, assessed the data, and decided what issues to pass on for 
further consideration and what to leave out. Worker involvement also 
often occurred on managements terms. Workers were selected by managers 
to participate in the study, yet many managers may not see it as in 
their best interest that all views be heard. In most cases basic 
methodological rules for soliciting worker views were violated: the 
consultants almost always mixed managers in with front-line workers in 
their focus groups, thus limiting the ability of workers to freely 
express their views.
    The Authority has invested too much money and political capital in 
the Reform Process to see it hampered by ineffective studies and 
implementation processes. The candid, informed views of front-line 
workers, provided on their own terms, is essential if the process is to 
produce valid data and positive results in successful, effective 
reforms.
Overview: Main AFGE Findings
    As AFGE members responded to consultant reports for six agencies 
and the city-wide personnel function, we found a remarkably consist 
pattern in our findings and recommendations across the agencies and the 
personnel function.
    First, we noted the wide variation in the extent of union/workforce 
involvement in the development of the consultant assessments and reform 
proposals in the different agencies. Those differences in the quality 
of worker participation in generating the reports led directly to 
differences in the quality of the reports themselves.
  --Where the union leaders and members have been more actively engaged 
        in the process, the consultant findings are more accurate and 
        the proposed reforms are seen by front-line workers as more 
        likely to be effective.
    When the consultants reached out to the local unions and front-line 
workers, seeking their full participation--as in Emergency Medical 
Services--their reports hit very close to the mark in diagnosing 
problems and then in defining reform programs well matched to the needs 
of the agencies. These reports treat the workforce with respect and 
generally integrate workforce insights and employee interests (e.g., 
job security, increased training, adequate resources for doing our 
jobs) into their reform proposals.
    When the consultants excluded the local unions and had only minimal 
or deeply flawed interactions with front-line workers--as in the report 
on the Department of Housing and Community Services, at the extreme end 
of the spectrum--the assessments are replete with erroneous findings 
and their reform proposals miss the target by a wide margin. These low 
quality processes have generated resentment and resistance already--
creating early barriers to successful reform. These barriers will have 
to be addressed and overcome soon if reform is to succeed in those 
agencies.
    This remarkably consistent pattern underscores the need for active 
union involvement in the design and implementation of the reform 
process. In short, Labor participation is a highly effective process 
for creating successful reform initiatives. This method should be 
followed in the rest of the city's management reform process.
    Certain other fundamental themes stand out in common across the 
seven individual agency and functional reports developed by AFGE 
members and local unions. These basic themes fit well within the 
framework of the union's eight Service Excellence principles.
Principle 1: Strengthen Collective Bargaining to Make the Reforms 
        Effective
    Because of the urgency of effectively implementing well conceived 
reforms in the shortest possible time, we propose to work with the 
Authority and with senior agency managers (and outside consultants, as 
needed) to establish a joint reform, redesign, and implementation 
process in each of the city's agencies. An intensive effort is needed 
to mobilize all the knowledge and good ideas in the Department on a 
priority basis. We feel such joint initiatives will make the reform 
process much more successful.
  --To provide ongoing problem-solving capability, we propose to 
        accelerate the development of the City-Wide Labor-Management 
        Committee. Meeting on a more frequent basis, the Labor-
        Management Committee can provide a forum for solving problems 
        that may arise in the general framework surrounding the reform 
        process. It can help provide an environment that consistently 
        supports the reform process.
  --To directly address and support productive organizational changes--
        both city-wide and in each of the Departments--we propose that 
        an active subcommittee of the Labor-Management Committee be 
        created as a City-Wide Joint Redesign Committee. This would be 
        a practical working group. It would support and facilitate the 
        redesign initiatives in each department and in city-wide 
        functions. Interacting with agency directors and local union 
        leaders, it would work toward consistency in following ``best 
        practice'' approaches across the agencies.
  --Within each department, we propose a similar structure of Joint 
        Redesign Committees and Labor-Management Committees. These 
        offer the best channels for workforce participation in the 
        process of shaping and implementing effective reforms and 
        advancing the city to Service Excellence.
    Based on the general principles of successful government reforms 
around the country, the Labor-Management partnerships should be 
undertaken city-wide, not one agency now, and others later. If we are 
in an emergency reform mode, then workforce participation needs to be 
organized from the beginning. We need input from the front-line worker: 
What do you think you need to do your job better, more efficiently, 
with better customer service?
    It has to be recognized that most of the consultant reports have 
poorly recognized the fundamental linkage between collective bargaining 
and successful reform in union-organized city governments. While there 
is some variation across the reports from different consultants on the 
various agencies, the majority of the consultant processes have shown 
little recognition of the unions as potential partners in the reform 
process. They have, with important exceptions, limited the engagement 
of unions in the assessment and redesign processes. They have failed to 
develop proposals for union participation in the redesign efforts, or 
for redesign teams. For those consultant reports that did recommend 
benchmarking of best practices around the country, they generally 
selected the ``best practice'' sites themselves, according to unstated 
and questionable criteria, and they failed to propose ideas for labor 
to participate in designing or conducting the benchmarking analyses. 
None of them recognized the importance of labor-management committees 
as channels for advancing a successful reform process.
    The collective bargaining responsibilities of the city--where they 
are acknowledged at all--are typically seen in a negative and defensive 
way.
  --Collective bargaining should be seen as a vehicle for problem 
        solving and dealing successfully with problems that that are 
        faced in common by DC government, DC citizens, and DC employees 
        and their unions. Labor-management partnerships for work system 
        redesign are basic building blocks of best practice in 
        municipal government reform around the country.
    Workers are principal stakeholders, along with DC citizens as the 
``owners'' of city government and citizens as customers of the full 
range of public services. Workers as stakeholders participate 
collectively through their unions and individually in their own 
workplaces. Several reports advocate a ``stakeholder'' process (e.g., 
in DCRA) but fail to recognize that workers are basic stakeholders.
Principle 2. Empower employees and treat them with respect
    A basic premise of employee participation in reforming their 
organizations is that it won't work if employees are to be punished for 
their participation. DC workers and our unions need to be mobilized as 
partners in the reform process, not treated as uninterested observers 
or pieces to be moved around on other people's chess boards, and then 
discarded.
  --The severe workforce downsizing of the past seven years must be 
        brought to an end if we are now to embark on a successful 
        reform process. Most consultant reports recognize this basic 
        fact. One at least plainly does not (Price Waterhouse at 
        Housing and Community Development).
  --There should be no more layoffs and no further contracting out 
        where city personnel can do the job. This city can't make 
        further cuts while expecting to rebuild morale and employee 
        initiative.
  --Agencies and the city should reject recommendations to fire current 
        employees and make them re-apply for their existing jobs 
        (DHCD), with the likelihood of bringing in new outside hires.
  --Agencies should not pursue policies of further ``hollowing out'' 
        their internal capacity through additional staff cuts and 
        contracting out. This is inefficient and ineffective in 
        improving service quality.
  --The city must recognize in practice that ultimately ``people are 
        our most important resource.'' Agencies and the city can not 
        give insincere lip service to this principle while continuing 
        to treat the workforce primarily as a cost to be cut--rather 
        than a resource to be developed and built upon. Treating city 
        employees as the problem, rather than the solution, will only 
        engender further disillusionment and cynicism among the 
        workforce and undermine efforts to reform service delivery in 
        DC government.
    Finally, it must be recognized that genuine workforce empowerment 
is not a significant recommendation in most of consultant 
recommendations for agency reforms. While some agency recommendations 
do call for more modern organizational structures, notably on the 
management side (e.g., fewer layers of management), there are virtually 
no calls for restructuring work systems toward best practice high 
participation, high performance systems. Traditional top-down 
bureaucratic thinking predominates.
  --There are important opportunities for creating more effective 
        service delivery through empowering employees with wider, more 
        holistic job responsibilities and supporting them in these new 
        roles with appropriate training.
Principle 3. Improve Management Accountability
    The most important prerequisite for effective reform is consistent 
leadership for reform from the top. Such leadership is needed in each 
agency. Even more important, consistent leadership for reform based on 
workforce participation is needed for the city as a whole.
  --The Authority needs to express its commitment to workforce and 
        union participation in the reform process. Department directors 
        need to hear this message loud and clear, and more than just 
        once. The Mayor and the City Council also need to endorse this 
        direction for reform of service delivery in the District.
  --Agency heads need to provide consistent leadership within their 
        departments and for their senior managers. The message needs to 
        flow down through senior management ranks as well as through 
        the leadership structures of the unions. Participative change 
        processes are often resisted by middle managers who are fearful 
        of unfamiliar new roles--in spite of the fact that the new 
        approaches can provide superior service delivery and cost 
        effectiveness.
  --Labor participation in design and implementation of agency systems 
        and technologies, goals, objectives and metrics will yield more 
        effective results for everyone's goals.
    Without this kind of leadership commitment, the reform process is 
not likely to succeed.
Principle 4. Improve performance management
    Several key points come up across all the agencies for improving 
performance management.
  --The personnel function needs a radical overhaul, not only on a 
        city-wide basis, but in each agency as well. Hiring decisions, 
        performance evaluations, and promotions are not objective or 
        geared to meeting agency service delivery goals. Personal 
        relationships and cronyism must be replaced by objective 
        assessments of performance and merit.
  --Front-line workers should be integral participants in process 
        redesign, bringing in new technologies, and establishing 
        feasible goals for continuous improvement in service quality 
        and cost effectiveness. As designers of the systems and their 
        performance metrics, workers will have every incentive for 
        achieving the goals they have helped to establish.
  --It is wrong to blame employees for productivity and quality 
        problems. W. Edwards Deming, the long-time DC resident 
        recognized as the father of the quality movement, said that 
        quality problems are 90 percent due to bad management. However, 
        several consultant reports seem to place the principal blame 
        for bad performance on workers. They therefore, wrongly, seek 
        to remedy the problems by punishing and/or replacing workers. 
        This approach can not lead to successful reforms or 
        improvements in service quality.
Principle 5. Improve the rewards system and allow the bargaining 
        process to work
    AFGE is interested in exploring appropriate approaches to positive 
performance incentives, for teams, work groups, and other groups that 
work together to produce superior quality or greater cost 
effectiveness. These are issues that ultimately must be collectively 
bargained.
Principle 6. Flatten and modernize the management hierarchy
    Modernization of management means more than using new technologies. 
High participation, high learning, high performance work systems mean 
demands for new management approaches and skills. We would like to see 
modernized high performance work systems matched by high performance 
management. Neither empowerment nor respect plays a significant role in 
most of consultant recommendations for agency reforms:
    As noted above (principle 2, empowerment and respect) traditional 
top-down bureaucratic thinking about reforms and operations will cause 
the city to miss important opportunities for creating more effective 
service delivery.
Principle 7. Support the development and use of skill in the workplace
    Very few of the consultant reports recognize that workforce skill 
is fundamental to high quality, high productivity service delivery. 
High performance work systems and jobs require skill and continuous 
learning.
  --We need to develop skill requirement profiles for the new jobs in 
        our reformed agencies, objectively assess existing workforce 
        skills, and develop systematic training programs for all city 
        workers.
  --Joint training committees should be set up in the agencies and 
        city-wide.
  --Adequate budget resources must be secured to support a training 
        program that reaches the agreed minimum of 2 percent of payroll 
        for each employee.
Principle 8. Create excellence in customer service
    We in AFGE believe that this city's agencies can be reformed to 
provide service excellence for residents, commuters, and visitors to 
Washington DC. We stand ready to work with the Authority, agency heads 
and senior managers, and elected officials to make this goal a reality.
City Departments: Responses to Consultant Reports
               emergency medical services afge local 3721
    The quality of emergency health care response provided by the 
District's Emergency Medical Services is in a crisis condition that is 
deeply troubling to many of those who live and work in DC. Response 
times for the most critical ambulance service, advanced life support, 
are unacceptably slow. These dangerously long response times threaten 
the health and lives of those who need emergency medical service in the 
District. Turning this situation around, quickly and effectively, is a 
critical test for DC government and for the reform process.
    DC's EMS system has been the focus of many studies over the years, 
but effective reforms have not previously been implemented. Many EMS 
employees are weary of good recommendations not being implemented. We 
want it to be different this time.
    TriData Corporation has studied the EMS system since September. 
TriData's team was built around knowledgeable experts with extensive 
hands-on work experience in emergency medical systems; they weren't 
just academic experts. They used two criteria in developing their 
assessment and their reform proposals. First, ``What is best for the 
patient?'' And second, ``How to provide the desired level of service 
most effectively.'' We think these are good questions to start with.
    TriData had extensive contact with the local union representing EMS 
employees from the beginning of their assessment effort. They reached 
out to the local union leadership and met and spoke with union 
executive board members repeatedly as the study moved forward. In 
addition they went to firehouses and spoke with individual firefighters 
and EMS personnel. We feel we had a great deal of input. In general we 
support most of their recommendations because our thinking and insights 
were included in the process of developing the recommendations.
  --Our local union needs to continue participating in the process of 
        shaping reforms as recommendations are finalized and the EMS 
        system moves into the implementation phase of reform. We 
        propose to work with management (and with support from 
        consultants, as needed) to launch a Joint Redesign Team that 
        can work intensively on creating a successful reform effort. We 
        know that active involvement of front-line EMS employees and 
        their union will result in better reform projects that will be 
        more quickly and more enthusiastically put into effect.
  --To provide ongoing support for the Joint Redesign Team and to deal 
        with other ongoing issues facing the EMS Bureau, we want to 
        build on recent preliminary discussions to create an EMS Labor 
        Management Committee. Such an ongoing committee can deal with 
        issues beyond the scope of the critical near-term reform and 
        redesign challenge.
evaluation of reform recommendations against afge's service excellence 
                               principles
    In reviewing the written reports from TriData on Emergency Medical 
Services, we have compared their recommendations with AFGE's eight 
principles of Service Excellence. Our main findings are summarized 
below.
Principle 1. Strengthen collective bargaining to make the reform 
        process effective
    The good beginning by TriData needs follow-through from top-level 
management and the union to assure that the collective bargaining 
aspects of the reforms are properly addressed.
  --Some of the contemplated changes in organizational structure, in 
        job descriptions, and in the personnel system require 
        bargaining as a legal matter, but these and other reforms could 
        be strengthened, we feel, by incorporating supportive language 
        in the collective bargaining agreement.
Principle 2. Empower employees and treat them with respect
    The TriData methodology for gathering information for their reports 
has been to empower workers to participate from the early stages of the 
reform process. The report and its methods have also treated front-line 
workers with respect--recognizing their high levels of qualifications 
and the extremely high extent to which they are overworked under 
current inefficient, outmoded EMS systems.
  --It is critical for front-line employees to have empowered roles in 
        the next stages of the reform process--when specific reform 
        strategies are finally determined and when implementation plans 
        are put into effect. The EMSB Joint Redesign Team we have 
        proposed can help make sure that this happens properly and 
        effectively.
  --Providing supportive telecommunications and other technologies, 
        increasing the number of ambulances, and improving operations 
        protocols will make it easier for employees to do a quality 
        job.
Principle 3. Improve management accountability
    The proposed reforms go a long way toward upgrading management 
accountability at the EMSB.
  --The critical underlying organizational point is that Emergency 
        Medical Services are medical, public health services. They 
        should be organized under a Director who is a medical doctor to 
        provide patient-centered, medically oriented services. The 
        culture and mission of fire fighting organizations are unlikely 
        to change to give adequate emphasis to the needs of the EMS 
        system.
  --Setting a goal for 8:00-8:59 minute response for critical calls 
        provides a measure of progress in system effectiveness.
  --Upgrading computer-based automatic tracking systems will allow EMS 
        to understand and continue to improve operational patterns.
    The TriData proposal (No. 5) to make the EMS promotion process 
competitive and to review managerial positions and incumbents is sound. 
We agree with the TriData's statements that:
    ``There is an active distrust of the EMSB supervisors and 
management among the field providers; it is pervasive and 
organizationally limiting * * * [T]here is a widespread feeling that 
promotions [to and within management ranks] are made on the basis of 
cronyism and without regard to the merit of the individual for the 
position.'' (p 4-39)
    We also concur with their recommendation that ``some impartial 
review of the qualifications of incumbent managers will need to be 
undertaken.''
Principle 4. Improve performance management
    We believe that greater team-based operational autonomy would be a 
natural extension of the TriData recommendations, but this is not 
stated as an explicit goal.
    Continuing workforce participation in shaping specific operational 
goals and performance metrics for individual units will help assure 
that the goals are realistic and have the support of EMS employees.
Principle 5. Improve the rewards system and allow the bargaining 
        process to work
    Our local is interested in exploring innovations and improvements 
in reward systems for individuals and groups of employees who work 
together in teams or operating divisions.
Principle 6. Flatten and modernize the management hierarchy
    We concur with the TriData recommendations to flatten, strengthen, 
focus, and modernize the management hierarchy.
Principle 7. Support the development and use of skill in the workplace
    The TriData reform project to better integrate EMS documentation, 
quality assurance and training provides for close, supportive linkages 
between improving service quality and assuring that employees have all 
the skills they need to do an outstanding job.
  --We would like to expand ongoing involvement of the union in 
        planning for the training office to make sure that skills are 
        defined with broad enough scope to support system-oriented 
        learning and portable skill sets.
Principle 8. Create excellence in customer service
    We feel that the reforms proposed by TriData provide a strong 
starting point toward the reform process for creating excellent 
customer service. If the front-line workforce and the union can play 
meaningful roles, and if the investments in new equipment, systems, and 
technologies can be made, we are confident that we can move the 
District's EMS system rapidly toward Service Excellence.
           department of employment services afge local 1000
    The Department of Employment Services (DOES) has a long history in 
labor-management partnership. We believe that management and the union 
can work together to rebuild that departmental partnership in a way 
that can substantially strengthen the reform process that is about to 
be launched.
    AFGE Local Union 1000 has a good working relationship with the 
current DOES executive director. The local's six person executive board 
currently sits in on the Director's monthly executive staff meeting. 
The Executive Director and the President of the local union co-chair a 
DOES Labor-Management Committee that meets monthly and addresses a 
range of agency issues. The incumbent Executive Director will have left 
office on November 21, 1997.
    These relatively structured channels for high level labor-
management communication and problem solving can be traced back to a 
departmental Labor-Management Partnership created in 1991. The Labor-
Management Partnership facilitated negotiation of a win-win 
departmental contract in only seven days and laid a solid foundation 
for joint problem solving and development of high performance 
organization at DOES. A notable example of our accomplishments at that 
time was that every DOES employee received a full week's training on 
quality service in customer-focused, employee-centered operations--
``how to provide customer service the first time, on time, all the 
time.''
    Unfortunately, the DOES Labor-Management Committee that succeeded 
the original Labor-Management Partnership has been more adversarial 
than cooperative in recent years. Subsequent Executive Directors and 
many managers have not maintained the same high level of commitment to 
an active, productive partnership that was shown by the Director and 
senior managers in 1991.
    Over the past 90 days, DOES has been the subject of an assessment 
and development of recommendations for reforms by the Technical 
Assistance and Training Corporation (TATC). The TATC consultants met 
with the two top local union officers toward the beginning of the 
assessment phase of their work. They said they would follow up with our 
union leadership, but there has been no further contact from TATC since 
that first meeting. TATC has likewise not organized strong 
participation by front-line workers in its process of information 
gathering and developing recommendations. Front-line employees appear 
in their report as objects to be reengineered rather than as important 
agents of the change process. With its organizational focus on training 
issues, however, TATC does call for important and much needed increases 
in the Department's investments in staff training. But, again, their 
approach provides for little labor participation in shaping these 
training or other reform efforts.
    As employees at DOES, we want to encourage senior management to 
reinvigorate the labor-management partnership that was so productive at 
the beginning of the 1990's.
  --In a setting of emergency priority for agency reform, we would like 
        to work with senior management to create a Joint Redesign Team. 
        This Redesign Team would bring together the best thinking 
        within the Department--from all sources, including the front-
        line workers who actually deliver the Department's services--
        and to combine them intelligently with outside resources, such 
        as consultants, on an as-needed basis.
  --To address the broader, longer term issues of upgrading the 
        Department's service quality, timeliness, and cost 
        effectiveness, we propose that we work with senior management 
        to recreate the Labor-Management Partnership that flourished 
        under the agency's pro-active top leadership six years ago.
    As front-line employees, we understand where the Department's 
problems lie, and how they could be effectively remedied. All we want 
is an opportunity to combine our knowledge with that of the management 
team to design and implement reforms that will really work in practice, 
not just in theory or on paper. We are ready to take up this challenge 
with you.
evaluation of reform recommendations against afge's service excellence 
                               principles
    Local 1000 has studied the assessment and recommendations from 
TATC. We have analyzed their reform proposals in light of the eight 
principles of Service Excellence that AFGE has developed for this city-
wide reform effort.
Principle 1. Strengthen collective bargaining to make the reform 
        process effective
    The evidence of best practice reform of government services around 
the country makes it clear that real workforce participation in, and 
ownership of, the assessment and reform process leads to the most 
effective reform proposals and the most successful implementation of 
reforms. Ownership from the beginning is always more powerful than 
``buy in'' to somebody else's project after it is ready to move 
forward.
  --With union representation of the workforce, labor participation in 
        the reform process can provide highly effective channels for 
        workforce participation in the reform effort. This can take the 
        form of design or redesign teams, labor-management committees, 
        or broad labor-management partnerships. Local 1000 proposes to 
        build on all three of those options, as spelled out above.
    Collective bargaining represents a time-tested process for 
establishing joint reform programs. Consultation, joint fact-finding, 
problem-solving, benchmarking, or design committees can operate under 
the umbrella of collective bargaining, without entailing formal 
bargaining on every issue or even most issues. Collective bargaining is 
needed when issues of terms and conditions of employment come up. 
Indeed, collective bargaining is legally required for those issues. But 
bargaining can provide a broad umbrella under which workers can 
participate in reform efforts, knowing that their interests are 
properly represented and protected. It is the best, most inclusive 
approach to problem solving and organizational improvement.
    Unfortunately, neither collective bargaining nor AFGE is recognized 
at all in the reform proposals from TATC. This repeated oversight is a 
fundamental flaw in the process of developing the consultants' 
proposals. It undermines the prospects of seeing their reform proposals 
successfully implemented.
  --The positive role collective bargaining plays in effecting changes 
        in job descriptions, performance evaluation criteria, training, 
        compensation, and other issues should be spelled out in serious 
        reform projects.
Principle 2. Empower employees and treat them with respect
    TATC's process of assessment and developing reforms has flagrantly 
disempowered employees by effectively excluding them from 
participation. We think it is difficult, if not impossible, for 
employees who are disempowered in the redesign process to become 
empowered in the following stages of implementing reforms and operating 
new work systems.
    TATC's reform recommendations at various points come close to 
proposing basic concepts of high participation, high performance work 
systems, but they shy away from the target at the last moment, at least 
where front-line workers are concerned. While it is suggested that 
managers develop and operate a number of new cross-functional 
activities, the TATC recommendation on the most basic point of 
continuous improvement in operations states that the agency should 
only: consider establishing process improvement teams to involve 
employees in improving quality of service, and to increase a feeling of 
employee empowerment. (p xix, p 4-20, emphasis added).
    There is an important difference between ``a feeling of employee 
empowerment'' and measures that actually empower front-line workers.\4\
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    \4\ It should be noted that TATC does call for involving 
information technology users in their proposed redesign process for 
information systems [p 4-2]. In this context they describe worker/user 
participation as key to ``a rational, bottom-up planning process'' that 
is otherwise missing in their report.
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  --Proposals to further cut Department staff levels are the opposite 
        of both empowerment and respect. Where some areas are found to 
        have excess personnel, those employees should be reassigned and 
        retrained so that the Department can maintain a commitment to 
        its staff members. Treating staff as disposable or expendable 
        fundamentally undermines morale.
    Finally, the consultant's the one single concrete proposal for 
employee ``empowerment'' deserves to be cited in full: ``Empowering 
employees to decorate their own areas would boost employee morale, 
improve the appearance of office space, and may make the space more 
inviting to the public'' (p xxiii, p 4-29)
  --AFGE recommends that work groups and job responsibilities be 
        redesigned on a joint basis to genuinely empower front-line 
        workers. When workers understand the goals, objectives, and 
        responsibilities of their work groups, they should be able to 
        devise means for fulfilling the mission through benchmarking 
        best practices, studying their own work flows and processes, 
        and solving problems as they are identified. This is the basis 
        of assuring quality and of continuous improvement in the 
        quality and cost effectiveness of service delivery.
Principle 3. Improve management accountability
    TATC makes a number of positive recommendations for improving 
management systems and accountability. Achieving longer tenure for the 
Executive Director is critically important, as would be recruiting a 
Director who has a proven track record in promoting participation and 
partnership with workers and their union. Developing systems for 
planning, more active communication, redesigning how work is done and 
jobs are defined, establishing performance metrics (including quality 
but also cost), and upgrading computers and communications systems are 
all important for a more successful Department.
  --What is missing in these recommendations are significant roles for 
        front-line workers in redesigning systems, implementing 
        changes, and operating new processes with high levels of 
        employee participation and empowerment. Those roles need to be 
        added through the work of the proposed Department-wide Redesign 
        Team and in smaller redesign teams within DOES divisions and 
        bureaus.
    We are concerned that the consultant's report makes no mention of 
the pending proposals to merge and privatize the disability and 
workers' compensation systems. The City Council has held hearings on 
this subject and it has been discussed on Capitol Hill. We feel that 
any actual savings from such a move would be generated by denying 
claims--whether or not those claims are valid.
  --AFGE strongly opposes the idea of merging and privatizing the 
        disability and workers compensation programs.
Principle 4. Improve performance management
    The TATC recommendations for redesigned job functions with 
integrated job descriptions and performance evaluation metrics are 
steps in the right direction. Again, more active autonomous roles for 
the front-line workforce on issues like monitoring quality and 
improving work processes would improve these recommendations.
    The personnel system needs much greater attention than provided by 
TATC. Hiring practices are widely perceived as arbitrary, often unfair, 
and disconnected from qualifications and skills needed to fulfill the 
Department's mission. AFGE addresses many of these issues in our report 
on city-wide personnel functions (below).
  --We support reforms to move away from cronyism and personal 
        favoritism toward a merit system based on objective criteria 
        and implemented with even-handedness and fairness. Although 
        linked to city-wide reforms, counterpart changes will have to 
        be implemented within DOES itself. Evasions of personnel 
        procedures should be identified and reversed as soon as 
        possible whenever they occur.
  --Periodic personnel evaluations should be made more objective and 
        fair by having them performed by coworkers, by more than one 
        supervisor, and by customers inside and outside the agency. 
        This more thorough, balanced system can do more to help 
        identify areas of needed improvement. To be fully effective, it 
        should apply to all employees of DOES, both front-line workers 
        and supervisors and managers.
    Finally, AFGE Local 1000 recognizes our own need to change if we 
are to play a fully positive role in achieving service excellence. As 
employees we need to clarify our fair expectations of one another on 
issues such as absenteeism if we are to move into a world of high 
performance work systems.
Principle 5. Improve the system and allow the bargaining process to 
        work
    Our union is interested in sitting down with management to explore 
improved systems for individual and group awards for outstanding 
performance. In principle we agree that the rewards system should 
structure positive incentives for improving the quality of our 
services.
  --We need to explore together possible innovations to implement such 
        positive incentives consistent with fairness and even-
        handedness.
Principle 6. Flatten and modernize the management hierarchy
    TATC has made several recommendations for simplifying the 
management hierarchy and setting it up to operate on a cross-functional 
basis, with improved planning and accountability. These suggestions 
move in the right direction.
  --Work systems built around high employee participation and 
        empowerment would lead to a further set of simplifications in 
        the management hierarchy. In some cases there may be more 
        supervisors than needed trying to monitor employees through 
        outmoded command-and-control observation. Many supervisors 
        might function more effectively in new roles as coaches, with 
        their particular areas of specialization strengthened by 
        additional training. Changing work itself is the true 
        foundation of modernizing management.
Principle 7. Support the development and use of skill in the workplace
    As mentioned above, the training recommendations are probably the 
strongest part of the TATC report. We agree that training and skill 
development should be seen as necessary investments rather than as 
costs to be minimized. We concur that individual skill development 
plans should be worked out through a gap analysis based on an objective 
assessment of skills required for different jobs and the skill 
portfolio of the employees in those jobs (at all levels). We need to 
work together to make sure that adequate resources are available to 
support the needed training in DOES and elsewhere in DC government.
  --We suggest that bargaining unit employees and their union need to 
        play a stronger role in the design of these skill profiling and 
        assessment systems. It is too easy for managers or consultants 
        to go off on a tangent and lose track of the skill sets 
        actually needed for excellent performance. Again, it must be 
        recognized that front-line workers have the most direct 
        understanding of what is needed for successful customer 
        service, including the skills of their coworkers and 
        themselves. It is a mistake to exclude us from this critical 
        process.
Principle 8. Create excellence in customer service
    The focal point for all the changes we advocate is Service 
Excellence. Front-line workers have critical knowledge and insights 
that need to be mobilized in the process of redesign and reform of the 
Department of Employment Services. We believe that our participation 
can produce superior reform proposals that will be supported by the 
workforce and therefore implemented more rapidly and more successfully.
  --We look forward to working with DOES management to bring about 
        those results.
     department of consumer and regulatory affairs afge local 2725
    The Department of Consumer and Regulatory Affairs administers a 
wide range of programs that impact on the quality of life, public 
safety, and the regulatory environment for business in the District. 
Many of these functions have operated poorly in recent years. Since 
September DCRA has been studied by a KPMG consulting team, which 
published their assessment and initial reform recommendations earlier 
this autumn.
    The KPMG team arrived on the scene shortly after the appointment of 
the new Director of DCRA, David Watts. KPMG originally pursued a 
methodology of very limited workforce and union participation in their 
process of assessment developing reforms. The consultants did not meet 
with AFGE leaders at all before publishing their assessment and 
proposed reforms. As the KPMG reform proposals were being published 
(October 23rd), Director Watts initiated a series of weekly meetings 
with the leadership of our local union. He has been taking a very 
active approach to promoting union involvement in the reform process. 
He is committed to discussing issues with the unions and to sharing 
information. He says that the unions need to be part of the reform 
process from the beginning.
    Since these meetings with the new Director began, KPMG has been 
much more interested in involving the union in the further development 
of their reform proposals and strategies. Director Watts has evidently 
instructed the consultants to meet with our Local Union leadership and 
to discuss reform proposals with us.
    The published KPMG proposals contain many positive building blocks 
for reform at the Department. Their analysis and recommendations give 
much needed attention to areas of human resources and training for 
front-line workers as well as managers. We believe that by working 
proactively with David Watts, we can put in place a reform initiative 
that will address the real needs of DCRA in ways that can generate 
active engagement of the front-line workforce and the Union.
  --Because of the urgency of the reform timetable, we propose to work 
        with Department management in creating a Joint Redesign Team 
        for DCRA. We believe that the Department's employees have a 
        store of knowledge and insights that can add important value to 
        the reform process. By working together, we can develop the 
        most effective reform plans and move them toward rapid 
        implementation, thanks to the informed participation and 
        support of front-line workers.
  --To deal with the wider range of issues at DCRA, we further propose 
        immediate creation of a Departmental Labor-Management 
        Committee. Building on the city-wide Labor-Management 
        Committee, this group can build up a practice of developing 
        information and defining and solving problems throughout the 
        Department.
evaluation of reform recommendations against afge's service excellence 
                               principles
    Our Local has carefully reviewed the KPMG assessment and reform 
proposals and evaluated them against the eight AFGE principles of 
Service Excellence:
Principle 1. Strengthen collective bargaining to make the reform 
        process effective
    The KPMG report makes no mention of the collective bargaining or 
the Union.
    DCRA Director David Watts, on the other hand, has recently 
instituted a series of regular meetings with the Local Union leadership 
that have started the process of strengthening collective bargaining 
and creating a stronger foundation for the future reforms.
Principle 2. Empower employees and treat them with respect
  --The participative process begun by the DCRA Director needs to 
        become part of the process and procedure for the future work of 
        KPMG. Participation of the local union and front-line workers 
        is a necessary part of shaping the reformed agenda, developing 
        an implementation strategy, and monitoring and fine-tuning the 
        reform process as it moves forward.
    The KPMG process to date has not treated front-line workers with 
respect. It has worked around the workers and their unions as a source 
of independent insight and input. Again however the new Director has 
sought to remedy this method.
    The KPMG reform proposals do call for protecting DCRA workers from 
further layoffs and RIF's. While certain functions are noted as perhaps 
no longer necessary, the incumbent employees in those functions are 
slated in their report for reassignment and retraining to carry out 
other responsibilities in the Department. We agree with this approach. 
It reflects an element of respect for DCRA workers--their need for job 
security and they move into the reform process. This is important for 
all employees who are being asked to contribute to improving the 
organization where they work.
Principle 3. Improve management accountability
    KPMG recommends improved planning, reorganizing some functions 
processes for setting agency goals, defining objectives, and 
establishing metrics to track improvements. These are important and 
positive steps. However, we feel that the union can contribute 
important insights and perspectives in shaping these changes. Before 
implementation, the substance of these management system reforms should 
be reviewed and discussed by the agency's Joint Redesign Committee.
Principle 4. Improve performance
    The KPMG report properly recognizes the importance of human 
resource issues in creating effective work system in a productive DCRA. 
It properly connects workflow, job design, skill requirements and 
training in an integrated whole.
  --Redesigned work systems and new job requirements should be 
        addressed by the union and management together to reach the 
        best-informed decisions that will be most effectively 
        implemented. These questions should be taken up by the Joint 
        Redesign Committee and examined on a joint basis for each part 
        of the Department.
Principle 5. Improve the rewards system and allow the bargaining 
        process to work
    DCRA, like other city Departments, will benefit from the broader 
changes in the personnel systems, as outlined elsewhere in this report. 
We believe that there is room to explore the development of team-based 
and other collective performance metrics that can appropriately support 
high participation, high quality operations.
Principle 6. Flatten and modernize the management hierarchy
    Simplifying and rationalizing the organizational hierarchy and 
bringing in new information and telecommunications technology systems, 
as recommended by KPMG, can be a good start toward flattening and 
modernizing the management hierarchy. What needs improvement in their 
recommendations, again, is to build in workforce and union 
participation.
    KPMG even defines the goal, but their proposals don't quite fulfill 
it. A good example (among many) is found in their discussion of 
designing computer database software:
    ``All sections of DCRA must be involved in the integration process. 
It is imperative that all parties feel that they will benefit from the 
integration or there will be resistance and no commitment to ensure its 
success.'' (p 12)
    We, the front-line workers and our union, are definitely parties to 
these system changes. Our participation will not only minimize the 
potential problem of resistance or apathy, but will help generate the 
best choices.
  --Direct the Joint Redesign Team to review proposed changes in 
        organizational structure and functions.
  --Create a specialized joint design team for new information and 
        telecommunications technologies, with the goal of mobilizing 
        user participation in the evaluation, selection, customization, 
        and implementation of these new technologies.
Principle 7. Support the development and use of skill in the workplace
    KPMG's gives very positive attention to the needs for skill 
development in quality-oriented service delivery. Their proposed 
comprehensive training plan and program properly recognizes the need 
for training for new roles and responsibilities, for using new 
technologies, for maintaining professional skills, and for quality 
interactions with customers.
  --Create a Joint Skill Development and Training Committee to develop 
        the skills training program of DCRA.
Principle 8. Create excellence in customer service
    We believe that our front-line workers and Local Union can work in 
harness with the new Director and, under the right direction, with the 
consultants in shaping and implementing a very successful reform 
program for the Department of Consumer and Regulatory Affairs. We 
welcome the opportunity to participate in making our agency more 
effective through excellence in customer service.
          department of public works afge locals 631 and 1975
    The Department of Public Works encompasses many functions that 
impact directly--and nowadays often negatively--on large numbers of DC 
residents, commuters, and visitors. DPW functions include road 
maintenance, snow removal, trash collection and street cleanup, 
maintenance of DC public buildings, parking enforcement, and drivers 
licenses and motor vehicle inspections, among others. Successful and 
prompt reform of DPW is, therefore, a priority in the broader effort to 
turn this city around.
    As front-line workers represented by AFGE, we see the many problems 
at DPW at close range. We see first hand how organizational structures 
in DPW are fragmented and poorly coordinated and how, as a result, 
customer service and efficiency are often poor. An ongoing lack of 
investment in technology, training, and new vehicles and other 
equipment increases costs and impedes timely delivery of services in a 
host of areas--from building maintenance and repair to snow removal and 
waste management.
    The work force in the Department of Public Works has been roughly 
cut in half during the 1990's. Key agencies such as Facilities 
Operations and Maintenance Administration (FOMA) and Fleet Maintenance 
have had even more than half their jobs eliminated since 1990, while 
work assignments have not decreased to the same degree.
    FOMA did the maintenance work (e.g., roofs and boilers) for the DC 
public schools until the mid-1980's, and levels of maintenance were 
considered to be good at that time. The work has since been contracted 
out, with disastrous consequences for the school system.
    In spite of the difficulties facing the agency and its employees, 
we have made it clear that we are willing to work with DPW management 
in seeking more effective ways to deliver quality services. The 
positive track record of the Labor-Management Committee for Fleet 
Management and other joint initiatives supported by DPW Director Cel 
Bernadino in 1997 represent an important set of building blocks for 
future joint union-agency problem solving and redesign efforts.
    Since September DPW has been studied by a consultant group led by 
Managing Total Performance, Inc. (MTPI). While the consultants' 
recommendations for management reform in DPW contain some valuable 
insights and suggestions, their process has not adequately engaged the 
knowledge, insights and interests of the workforce stakeholders. DPW 
workers and their unions feel they have a great deal to contribute 
toward improving the department's operations, organization, and 
processes. What we need is an opportunity to bring that contribution to 
bear as recognized and valued participants in the process for 
redesigning the Department of Public Works.
  --Because of the urgency of effectively implementing well conceived 
        reforms, we propose to work with DPW management (and outside 
        consultants, as needed) to establish a Joint Redesign Team. An 
        intensive effort to mobilize all the knowledge and good ideas 
        in the Department is needed on a priority basis. We feel such a 
        joint initiative for reform will make the process much more 
        successful.
  --To provide ongoing problem-solving capability, we propose a broader 
        DPW Labor-Management Committee. Building on the positive 
        experience of the city-wide Labor-Management Committee and the 
        pilot LMC in DPW's Fleet Services Division, a Department-wide 
        committee would provide an environment that would support the 
        reform process.
evaluation of reform recommendations against afge's service excellence 
                               principles
    The consultants' recommendations for management reform and the 
process they used for determining these recommendations have been 
evaluated by AFGE union members at DPW against the union's eight 
principles for Service Excellence.\5\
---------------------------------------------------------------------------
    \5\ This report, prepared by AFGE members and leaders, does not 
directly address areas of DPW where other unions represent the 
workforce--e.g., the Solid Waste Management Administration (SWMA), the 
Division of Transportation (DOT), or the Division of Motor Vehicles.
---------------------------------------------------------------------------
Principle 1. Strengthen collective bargaining to make the reform 
        process effective.
    There was only a limited engagement of the unions in the assessment 
process. The Department of Public Works is one of the agencies in which 
the consulting contractors made an effort to reach out to the agency's 
union leadership. But that effort, however, did not go far enough.
    The consultants met with the presidents of the unions representing 
DPW employees early in the assessment phase. They also met with the 
Fleet Maintenance Labor-Management Committee and met alone with the 
union members of the LMC to seek their candid opinions about problems 
in Fleet Maintenance.
    Unfortunately MTPI used these encounters with union leaders only 
for narrow information-gathering purposes. The consultants posed 
structured questions, but they did not ask if the union leaders had 
additional topics that they thought were important to pursue. After 
those initial sets of meetings, there have been no follow-up 
discussions with the union leaders by the consultants. The 
recommendations that we put forward in those early meetings have not 
been included in the reform proposals developed by MTPI.
    By and large, the MTPI recommendations do not contain a meaningful 
recognition of an ongoing role for the Department's unions and front-
line employees in the reform process. In spite of the very positive 
activities of the city-wide Labor-Management Committee and the LMC for 
Fleet Maintenance, the consultants' recommendations do not identify any 
ongoing role for labor or the Labor-Management Committee in 
benchmarking best practices in other jurisdictions, assessing the 
strengths and weakness of existing DPW systems, or in participating in 
the redesign of DPW systems.
    We particularly note the value of the recent benchmarking trip made 
by senior DPW managers and union leaders to Indianapolis--a city that 
has made major strides in rebuilding its services on the basis of a 
labor-management partnership. We need to build on this foundation of 
joint benchmarking and assessment, not ignore it.
  --We renew our offer to form a Joint Redesign Committee with 
        Department management on an emergency basis, and to support its 
        work by building up a Labor-Management Committee for the entire 
        department as a whole and for particular Administrations within 
        DPW, as appropriate.
    The only major reference to unions and collective bargaining in the 
Task 2 report is the recommendation that FOMA should ``seek changes in 
labor agreements in areas affecting productivity,'' even though the 
specific practices they propose to change ironically originated with 
DPW management.
    DPW management should work with the union leadership to develop 
agreement on collective bargaining provisions on all issues that fall 
under the bargaining mandate.
    Unions must not be viewed in negative terms as obstacles to 
productivity improvements. Unions can play a positive role.
Principle 2. Empower employees and treat them with respect
    Empowering front-line workers as a means toward more effective 
service delivery at DPW is suggested by a number of specific proposals, 
but it is never really identified as an important step in its own 
right.
    The report refers to the need to remedy excessive layers of 
management, high supervisor/staff ratios, and costly (and ineffective) 
micro-management of workforce activities. Yet the other side of the 
equation--allowing empowered and properly trained workers the authority 
to direct their own work within a larger structure of high performance 
operations--remains unstated.
  --Reforming procurement and management practices so that workers can 
        successfully do their jobs (e.g., by having replacement parts 
        readily accessible for vehicle repair) should be matched by 
        high participation, high empowerment redesign of work processes 
        and teams so that that the Department's work can be done most 
        effectively.
    The views of DPW employees were not solicited or meaningfully 
valued in the consultant's process of assessing current practices or 
developing their recommendations for reforms.
  --DPW workers and their unions would like to see future reforms 
        implemented in ways that do empower them to do the best jobs 
        they can, based on the design of the new work organizations and 
        the training and resources that are available for employees to 
        provide quality services on a cost-effective basis.
    We believe that the success of the reform process at DPW depends on 
the active participation of the front-line workforce in the assessment 
and redesign process. Top-down reforms coming from senior managers or 
consultants without worker and union participation is, as spelled out 
throughout this report, unlikely to succeed.
Principle 3. Improve management accountability
    MTPI has made several proposals that have merit for improving 
management systems and planning. We would, however, suggest important 
improvements for those proposals.
    MTPI proposes creating a ``DPW Management Committee,'' including 
``business and civic leaders'', to provide counsel to the process of 
determining areas of service improvement.
  --Labor leaders representing the DPW workforce should participate as 
        internal members of this committee, and city-wide labor 
        officials should serve on it as external members.
    Creating geographically based service districts for street repair; 
tree maintenance, garbage collection and street cleaning can create 
closer ties between the DPW workforce and the residents they serve. 
Many questions need to be addressed for such a reform to be fully 
effective.
  --The city will need to assure that it works with workers and their 
        unions from the outset to coordinate the collective bargaining 
        implications of such a consolidation of service delivery, 
        especially as workers from different jurisdictions would work 
        together on a single project or under a single supervisor.
  --The consultant's proposal to integrate DPW service delivery 
        districts should mirror the seven police precincts appear to 
        move in the wrong direction for increasing the effectiveness of 
        DC government. It would be preferable if multi-purpose 
        geographic service districts followed the boundaries of the 
        eight City Council wards. This would strengthen lines of 
        accountability between DC citizens and their elected local 
        representatives. It would ultimately make city government more 
        responsive to citizen needs.
    The proposed centralization/integration of facilities management 
functions now spread among several agencies as well as the proposed 
upgrading of motor vehicle fleet management and maintenance functions 
pose similar questions in terms of the nature of the new work systems.
  --The City has an opportunity to work with its workers and their 
        unions in FOMA, DECA, DES and in Fleet Management to design 
        high participation, high learning, high performance work 
        systems that will provide excellent customer service in highly 
        efficient operations.
  --Identification of ``best practice'' cities, counties and states for 
        benchmarking analysis should be done on a joint basis. 
        Selection of cases as ``best practices'' that are built around 
        massive and uncritical contracting out do not qualify as best 
        practices in the eyes of this city's workforce.
    Finally, the huge resource shortfall in transportation services and 
other areas of DPW responsibility is recognized by MTPI, but 
recognition is not enough. The resource issue must be directly 
addressed. Suburban Maryland jurisdictions are spending $27,181 per 
lane mile of street on maintenance, while DC tries to struggle by with 
$5,289 per lane mile--less than one-fifth as much. DC's pothole repair 
crew has fallen from well over 100 staff to 22 workers, but DC's tens 
of thousands of lane-miles of streets have not been reduced. The city's 
more than 100,000 trees are now maintained by a staff of only 25--about 
one-fifth the number in 1990.
  --Adequate resources must be appropriated to carry out these 
        functions. Increased efficiencies alone can not close these 
        huge resource shortfalls.
  --Contracting out positions as employees retire or quit does not 
        necessarily assure more cost-effective services. DC employees--
        in properly structured systems with professional management--
        can provide better quality at lower cost than outside 
        contractors.
Principle 4. Improve performance management
    As in other parts of DC government, the personnel system is in 
disarray. In most parts of DPW it is perceived by our members as 
unfair, arbitrary, and grossly inefficient. The dysfunctional hiring 
and promotion functions directly undermine morale and affect motivation 
and performance. AFGE has addressed these issues in our response to the 
city-wide personnel function report (below).
  --For DPW, achieving a fair, objective and productivity-oriented set 
        of personnel practices is critical.
    We agree that setting goals for service improvement is important 
for groups within DPW (from Administrations to work teams) as well as 
for individuals. But we feel that we have important knowledge that 
needs to be part of the process for setting those goals.
  --The determination of service improvement goals and the measurements 
        that can best gauge our progress in meeting them should be 
        taken up as joint redesign initiatives between the affected 
        agencies and the unions representing their employees.
Principle 5. Improve the rewards system and allow the bargaining 
        process to work
    The scope and direction of changes outlined in the consultants' 
management reform recommendations open the doors for collective 
bargaining to address issues of changing jobs and their 
responsibilities.
  --DPW and the city should move early toward negotiating with AFGE and 
        the other unions to facilitate the smoothest possible 
        implementation of the agreed reforms. (Again, the reforms are 
        only likely to succeed if they are approached through joint 
        design programs between the departments and the unions 
        representing their workforces.)
    Creating positive incentives for effective service delivery may be 
a set of innovations that DPW and its unions can usefully address 
through bargained innovations in the reward system. Many work groups or 
teams in DPW have production and quality targets that could be 
effectively measured through performance metrics that are jointly 
evaluated, selected, and implemented.
  --Groups that meet or exceed targets in cutting costs, improving 
        quality, or cutting response times may be suitable candidates 
        for increased bargained financial rewards, so that innovative 
        workers can share the benefits enjoyed by their service 
        customers and the city's taxpayers.
Principle 6. Flatten and modernize the management hierarchy
    A flatter, more modern management hierarchy is a clearly stated 
objective in many of MTPI's proposed reform projects. The full 
potential value of these changes in modernizing how work is organized 
for managers is accompanied by matching changes in modernizing how work 
is organized for front-line workers, how their jobs are defined, and 
how their skills are developed for these new jobs.
    The benchmarks of best practice indicate that effective reforms 
should lead not only to high quality, cost effective customer service, 
but also to front-line service jobs that are more secure, more 
autonomous, more challenging, more rewarding and ultimately more 
enjoyable.
  --The jobs and work organizations that will work best for DC are 
        those that combine high workforce participation, high skill, 
        and continuous learning with opportunities for advancement and 
        broader responsibilities with greater autonomy. AFGE is eager 
        to work with DPW to create this parallel evolution of high 
        performance service delivery and high performance jobs.
Principle 7. Support the development and use of skill in the workplace
    Developing and implementing new skills for new systems with new job 
responsibilities will be a critical success factor for reforms at DPW.
    Achieving the goals of a well structured, responsive training 
system that supports high performance work systems will require 
important investments and a top-to-bottom restructuring of existing 
training systems. Like other DC agencies, DPW starts with major 
training and related system deficits. Training has not been widely used 
over the years to promote training and skill development programs for 
front-line workers. Most training has gone to managers, and even the 
little bits of training available for service delivery workers have 
been early casualties of cost-cutting initiatives in the 1990's.
    MTPI has concentrated their training recommendations on building up 
the skill of management personnel. We agree that upgraded and more 
consistent management capabilities are sorely needed in DPW. But the 
success of the organization does not depend on the skills of management 
personnel alone.
  --As organizations and jobs are redesigned, skill gaps should be 
        identified and addressed so that DPW front-line workers as well 
        as managers can have the tools to excel in their job of 
        providing excellent service to DC residents.
  --Training should be available for all DPW employees on both 
        technical skills and quality or ``people'' skills for the 
        upgraded and reorganized systems.
  --A joint labor-management skill development working group should be 
        instituted to assist in designing training systems and 
        continuous learning systems for the workplace.
Principle 8. Create excellence in customer service
    The consultants' assessments and reform recommendations can be a 
step in the right direction toward service excellence, but the city 
will only reach its goals if additional steps are taken by management 
and labor together, and if the direction of those steps is worked out 
among the stakeholders.
    Building joint labor-management design teams for DPW (as at other 
DC agencies) is the foundation upon which the elements of high quality, 
cost-effective customer service can be assembled and developed. We are 
ready, willing, and able to work with management at DPW to achieve 
these goals that will benefit the city, its citizens, and its work 
force.
            department of health afge locals 383, 2725, 2978
    The Department of Health is a part of DC government that has 
already begun to turn itself around in late 1997. The assessment and 
recommendations by the outside consulting firm, University Research 
Corporation (URC) appears relatively well balanced. What is missing 
from their recommendations is what was also lacking in their 
methodology: recognition (by management and by URC) of the positive 
role of a labor-management partnership in achieving high quality, cost 
effective health services for the District.
    URC is one of the few consultants hired in the Management Reform 
process to declare participation to be an important part of their 
methodology. Their framework for design and implementation of reforms 
is a variety of Total Quality Management (TQM) that emphasizes 
continuous quality improvement. They present their approach as based on 
participation and customer orientation (including front-line workers), 
the use of objective data, a process or systems focus, and a team 
approach (p 7). Their concept of participation, however, seems to have 
been developed in non-union settings, since URC made no effort to 
establish a dialogue with the union leadership.
    Unfortunately, our information indicates that actual ``employee 
participation'' in the URC processes for conducting the assessment and 
developing recommendations was heavily tilted toward managers and 
senior professional staff. The vast majority of front-line workers had 
little or no contact with the consultants. The local union leadership 
per se was not contacted by URC, and their report does not reflect any 
awareness of the legally required role of collective bargaining in 
making changes in the terms and conditions of employment.
  --The members and leadership of AFGE at the Department of Health want 
        to work with the Department's management in a Joint Redesign 
        Team to create a set of mutually agreed reforms and then to 
        implement them with employee ownership and enthusiasm for the 
        reform process. We have a lot of work to do, but we think the 
        Joint Design Team would be a very positive step toward creating 
        a reform process that can fully succeed. The workforce at DOH 
        has a lot to contribute and can help design and implement 
        reforms that will work for city's residents and visitors as 
        well as for the staff at the Department of Health.
  --More generally, we propose setting up a general DOH Labor-
        Management Committee to address the wider range of ongoing 
        planning and problem solving issues that exist now alongside 
        the reform effort and will continue to exist in the years to 
        come.
evaluation of reform recommendations against afge's service excellence 
                               principles
    The front-line workers and AFGE local unions at DOH have evaluated 
the URC assessment and reform proposals against AFGE's eight principles 
of Service Excellence. We have reached the following conclusions:
Principle 1. Strengthen collective bargaining to make the reform 
        process effective
    The participatory process that URC claims to follow needs to be 
extended, within a union-represented workforce, to include union and 
front-line worker participation and collective bargaining. The 
consultant's report hardly acknowledges the existence of the union and 
the contract at all. It discusses strategic planning, changes in 
organizational structure and job descriptions, training, personnel 
evaluation systems, and other fundamental issues without noting the 
benefits from union participation in shaping the proposed changes and 
the change process. The legal requirements for collective bargaining 
are not mentioned.
    The new senior management team at DOH has begun to recognize the 
advantages of working with the union and the workforce, rather than 
ignoring us. Contacts and communications with the new Director and 
other senior managers have been improving in recent months, starting 
from a very low point. A training session for managers on the union 
contract was scheduled for October 1997, to increase manager awareness 
of contract provisions and procedures (although no union 
representatives were invited to speak or participate). In general we 
think the labor-management relationship with the new management team is 
beginning to move in the right direction.
  --We extend our call for the creation of a labor-management Joint 
        Redesign Team to assure full labor input into the reform 
        process at DOH on an intensive, emergency basis.
  --A broader DOH Labor-Management Committee, established to deal with 
        the full range of ongoing organizational and operational 
        issues, can provide important support to the proposed Joint 
        Redesign Team in studying problems and developing innovative 
        solutions that lead toward a more effective ways to fulfill the 
        Department's mission. With the training and facilitation 
        support advocated by AFGE for Labor-Management Committees 
        throughout the city, we believe that these processes can be 
        highly effective in strengthening the Department of Health and 
        its divisions.
Principle 2. Empower employees and treat them with respect
    The URC proposals recognize many positive qualities of the DOH 
workforce. Many of their proposals call for creation of cross-
functional teams that can operate with considerable self-direction. 
These are positive steps.
    Yet the URC methodology in practice heavily tilted its 
participative thrust heavily toward managers and senior personnel. To 
date they have virtually ignored the union. When front-line employees 
participated in a focus group or meeting, they were mixed in with 
supervisors and other managers, thus inhibiting candor and limiting 
full expression of concerns and suggestions.
  --We believe that many of the URC reform proposals can be extended to 
        generate work systems that genuinely empower workers, but that 
        will happen realistically and properly only through a new 
        element of labor participation.
  --To be meaningfully empowered, employees will need the tools to do 
        their jobs--training, computers and information system 
        technologies, effective telephone systems, and fair personnel 
        systems based on objective facts, not personal favoritism. The 
        full access of front-line workers to these tools needs to be 
        clarified and confirmed by URC and DOH management.
Principle 3. Improve management accountability
    The URC recommendations strongly emphasize strategic planning as a 
way of clarifying agency goals and objectives and determining 
appropriate metrics and benchmarks to track the extent to which they 
are being achieved. They also suggest ``staff participation'' in the 
strategic planning process.
  --Union involvement in the strategic planning process can help assure 
        that the views and knowledge of front-line workers are fully 
        represented in the strategic planning process.
Principle 4. Improve performance management
    The broad, integrating perspective of the URC assessment and 
recommendations on this issue again needs to more fully include front-
line workers. The starting point for improved performance management is 
developing realistic job descriptions with responsibilities and 
evaluation criteria objectively and accurately spelled out.
    Revising the personnel system to eliminate personal favoritism, 
cronyism, and the predominance of subjective factors is one of the most 
fundamental changes needed at DOH (and elsewhere in DC government). 
Virtually all employees are demoralized by a system that seems to be 
systematically disconnected from both fairness and from advancing the 
service goals of the Department.
  --Postings for new job openings need to be visible, and the criteria 
        for selection clearly spelled out.
  --The performance evaluation criteria for each job should be 
        logically matched to requirements for achieving agency 
        missions. They should be determined in consultation between 
        managers and the union.
  --The performance evaluation process should be carried out on a more 
        comprehensive and objective basis than it is now, with co-
        workers and multiple supervisors offering their assessments, 
        perhaps along with internal and external customers.
    --These more comprehensive performance evaluations should be 
            available for supervisory as well as nonsupervisory staff. 
            Front-line employees, as internal customers of supervisors, 
            can provide uniquely valuable in evaluating supervisors' 
            skills.
    The objective of continuous improvements in performance should 
provide opportunities for employees at all levels to contribute ideas 
and innovations for improved services and processes:
  --Opportunities should be provided for employees to make suggestions 
        for improving the implementation of their various assignments
Principle 5. Improve the rewards system and allow the bargaining 
        process to work
    The existing system of financial bonuses for outstanding 
performance is perceived as compromised by a lack of objectivity and 
fairness. As in other aspects of the personnel system, personal 
favoritism and personal relationships often appear to predominate over 
outstanding effort and performance that advances system efficiency and 
customer service.
  --DOH employees are interested in exploring team-based and division 
        based rewards for outstanding effort and performance as a 
        supplement or alternative to individual awards. Performance 
        changes that improve efficiency, cut costs, or improve quality 
        are more often generated by work groups than by individuals.
  --Individual employees who perform outstanding work should be fairly 
        and consistently rewarded.
  --Employees who do the work of positions above their pay grade should 
        be fairly compensated according to the work they are doing.
  --Simple recognition of outstanding employee efforts can do a lot to 
        improve morale. A spectrum of positive recognition and rewards 
        should be available to all employees.
Principle 6. Flatten and modernize the management hierarchy
    The URC recommendations recognize the advantages of flatter 
management hierarchies to replace unresponsive command and control 
bureaucracies.
    Beyond simply ``flatter'' management, the operational goal of 
management should be to support an empowered workforce, to lead in 
shaping mission goals, metrics and milestones and in mobilizing the 
participation and initiative of all employees. We perceive the URC 
assessment and recommendations as consistently falling short in these 
aspects of modernizing the flattened management hierarchy so that it 
supports, empowers, and energizes a fully engaged work force.
Principle 7. Support the development and use of skill in the workplace
    The URC recommendations extensively address development of advanced 
organizational skills for managers. This is important to move DOH 
forward.
    It is equally important that non-supervisory employees increase 
their skill levels to move the Department forward as far and as quickly 
as possible. This means more than just narrow technical skills for 
operating new computers, software and communications systems.
  --High performance skills for non-supervisory employees require 
        skills for team operations, problem solving, quality metrics 
        and continuous improvement, among others. Training for DOH 
        personnel should be provided for these high performance skill 
        sets.
  --As jobs are redesigned and roles and responsibilities clarified, 
        all employees should be able to assess their current skills 
        objectively against the new skill requirements of their jobs. 
        Individual training plans should be developed for each employee 
        to raise skills to the levels required in the redesigned 
        organization.
Principle 8. Create excellence in customer service
    The combination of all these changes should be focused on the goal 
of increasing excellence in customer service. It is only by mobilizing 
the knowledge, intelligence, insight and creativity of all employees 
that the Department of Health will be able to move all of its services 
toward service excellence.
    department of housing and community development afge local 2725
    The Department of Housing and Community Development has been the 
single most battered program in DC government. Since 1990 employment 
has been cut by 65 percent, from 469 to 164,\6\ while the agency's 
mission and responsibilities have remained basically unreduced. We, the 
agency's front-line employees have sadly witnessed a decline at DHCD, 
from being nationally recognized for innovative and productive programs 
during the 1980's to being generally described as dysfunctional in 
1997. The workforce and local union see the principal causes of this 
decline in repeated changes in top management and ineffective 
management programs, practices, equipment and systems, and improperly 
trained management personnel.
---------------------------------------------------------------------------
    \6\ The Price Waterhouse Task 2 report inaccurately indicates a cut 
from 600 employees to 164.
---------------------------------------------------------------------------
    In spite of the demoralizing impact of deep RlF's, outmoded 
technologies and systems, and ineffective management practices, the 
Department's front-line employees still stand ready to work proactively 
with top management in redesigning and upgrading DHCD toward the 
union's goal of Service Excellence. Ironically, we feel we also have 
had to overcome an outside consultant organization, Price Waterhouse. 
Price Waterhouse (PW) has developed its assessment and reform 
recommendations over the past three months as if the workforce and 
union were principal barriers--not essential enablers and partners--to 
restoring this agency to quality, efficient service.
    Price Waterhouse has shown a unique disregard for the workforce, 
unique even within the range of the consultant organizations hired by 
the Authority to assess DC agencies and functions. Price Waterhouse is 
the only consultant to propose still deeper job cutbacks as part of 
their proposed solutions, in spite of the depth of job cuts already 
experienced at DHCD. (We estimate, probably conservatively, that their 
proposals would eliminate or replace 50 of the remaining 164 jobs, for 
a further 30.5 percent cut on top of the 65.3 percent cutbacks made 
earlier in the 1990's.) They further recommend firing still other 
additional agency staff and allowing them to ``compete'' with outside 
applicants for their existing jobs. This is also unique among the 
recommendations from the consultants in the Management Reform process.
    The insensitivity to workforce issues evident in their extreme 
recommendations is also reflected in their PW's methodology: they met 
with the union leadership only once, and then only after the union had 
requested a meeting. Contrary to accepted practice in labor-management 
consulting and research, they mixed front-line employees and 
supervisors in their focus group meetings, hampering the candor of the 
nonsupervisory employees in their only opportunity to put forward their 
concerns and suggestions for improvement.
evaluation of reform recommendations against afge's service excellence 
                               principles
    With this backdrop, it is not surprising to find that PW's 
recommendations generally fail to meet the standards of AFGE's eight 
Service Excellence principles.
Principle 1. Strengthen collective bargaining to make the reform 
        process effective
    The PW report fails to recognize the union and collective 
bargaining as resources that can make the reform process effective. In 
spite of the union's effort to reach out to the PW team, the 
consultants did not follow up on the union's offer to assist. There are 
no references to the union in the report as a potential partner in the 
process of redesign or implementation of reform strategies. Perhaps 
accurately in the context of this report, it principally mentions the 
union as an expected source of resistance to recommendations such as 
firing workers and making them compete with outside applicants for 
their own jobs (p 41).
    The consultants' rejection of the union's offer of active 
engagement in the assessment process and in developing reform 
recommendations, noted above, seems to show that the PW team's aversion 
to unions is more than incidental. Their approach contrasts poorly with 
the best practice benchmarks in city government around the country that 
consistently show a strong role for working labor-management 
partnerships in designing and implementing reforms.
  --AFGE strongly recommends creation of a Labor-Management Redesign 
        Team for the Department of Housing and Community Development. 
        Through this redesign team union leaders and members would work 
        with managers to shape reforms that will move the Department 
        toward excellence by building on the knowledge and insight of 
        the DHCD workforce.
  --This effort to lead reform via a Labor-Management Redesign Team at 
        DHCD should be a principal effort of a department-wide Labor-
        Management Committee that should be set up as part of a city-
        wide initiative to develop a productive dialogue between 
        managers and the workforce on a wider range of issues.
Principle 2. Empower employees and treat them with respect
    Empowering employees and treating them with respect is essential 
both to a successful reform process and to future operations 
characterized by consistent quality and cost effectiveness. The PW 
process and recommendations fail decisively on both of these fronts.
    We agree with the fundamental insight of W. Edwards Deming that 
quality problems are 90 percent due to management systems and practices 
rather than to shortcomings of the workers. The PW report may not have 
the candor to frankly blame the workers in so many words. Yet their 
recommendations for cutting jobs another 30 percent or more, 
transferring major functions to other departments of DC government, and 
potentially outsourcing additional basic program responsibilities 
hardly reflect a desire for empowerment or any sense of respect for 
employees.
    A high performance DHCD based on high workforce participation and 
continuous learning is not a goal in the PW report. Their vision is 
rather one of a more efficient, somewhat modernized Tayloristic 
bureaucracy. Yes, they do want to see improved strategic planning (but 
at the top only) and more consistent personnel and program practices 
(but designed without workforce input), even positive financial 
incentives (again designed exclusively top-down by consultants and 
managers).
    What is not mentioned is instructive: not continuous improvement in 
agency processes arising from insights and innovations of front-line 
workers; not continuous learning built into redesigned jobs, opening 
the way for quality improvements and for skill-based career ladders; 
nor team-based operations with cross-training and workforce-based 
problem solving. There seems to be little recognition that DHCD 
management now attempts to regulate the work of the staff with an 
outmoded authoritarian management style, which results in 
counterproductive bureaucratization and disharmony in the workplace. 
The basic idea that we, the workforce, are the backbone of a successful 
Department, or that workers are our most important resource, finds no 
place in this report.
  --Reorganization with skill development is a superior strategy 
        compared to firings and contracting out. In spite of ample 
        budgets available for training as part of federal housing 
        programs administered by DHCD, skill development training for 
        front-line workers has been virtually nonexistent in recent 
        years. Instead of further layoffs, contracting out, and forcing 
        employees to reapply for their own jobs, DHCD should develop 
        skill requirements profiles for the jobs in the jointly 
        redesigned agency. Based on an objective assessment of existing 
        skill levels of each employee compared to the skill 
        requirements of their jobs, individual skill development plans 
        should be developed for each employee and appropriate training 
        started immediately to close identified skill gaps.
    As in other DC agencies, policies and procedures for hiring and 
promotions seem to have been replaced by decisions reflecting personal 
relationships with managers rather than objective assessments of 
qualifications and skills. The prevalence of personal favoritism 
undermines agency morale and impedes efficiency.
  --Personnel policies and procedures should be developed in 
        consultation with the union to implement objective; job-related 
        criteria that can are factually--not subjectively--determined 
        in every case. This can be done for DHCD as part of the 
        overhaul of the city-wide Personnel functions.
  --Establishing a new direction in the department will depend on 
        energizing and empowering staff to overcome technical, 
        bureaucratic, and resource barriers to improve people's lives. 
        That can best be accomplished if the organization develops and 
        implements its strategy through cultivation of trusting 
        relationship within the Department.
Principle 3. Improve management accountability
    We generally agree with the PW recommendations for more systematic 
strategic planning for and within the department, but see this as being 
most effective only when the workforce has a recognized, validated role 
in the process of strategic planning.
  --The staff and union should be involved in the strategic planning 
        process of establishing organizational goals, selecting near-
        term objectives, and determining the performance metrics for 
        tracking progress toward meeting those goals and objectives. 
        Wherever feasible this planning process should draw on the 
        knowledge of the workforce and the new capabilities of the 
        proposed DHCD Labor-Management Committee.
    It is also important that the Department have strong, stable 
management leadership, willing and able to make a commitment to the 
staff and city. The succession of directors in the 1990's has 
contributed to a lack of consistent strategic direction.
Principle 4. Improve performance management
    The Department's existing negative performance management system, 
focused on identifying and attempting to punish individuals for non-
performance, needs to be replaced by a system that positively 
identifies performance goals and comprehensively supports the staff in 
working to achieve them.
    Upgrading technical systems--new telephone and computer systems 
hardware, software, and practices--is necessary, though PW's 
description of present systems has important inaccuracies. Redesigning 
agency, program and staff functions can also be positive, but it is 
much more likely to succeed if the knowledgeable and concerned staff 
are involved in the redesign process.
  --Participation by front-line workers and the union in an redesign 
        team and follow-on implementation teams throughout the 
        Department is essential if workers are to feel ownership of new 
        system goals and objectives and of the corresponding 
        performance objectives and evaluation criteria for individual 
        jobs. If an attempt is made to impose from the top, without 
        recognizing the knowledge and concerns of the workforce, they 
        are unlikely to succeed or be implemented quickly.
  --Agency and program goals, objectives, and evaluation criteria 
        should be closely aligned with the agreed goals, objectives and 
        evaluation criteria for individual jobs and functions.
  --Individual staff members should develop individual professional 
        development plans to help identify areas where improvements are 
        needed and to support them in achieving excellence in meeting 
        those objectives.
  --The Department's joint redesign team should consider the idea of 
        evaluating job performance on a ``360 degree'' basis--where 
        supervisors, peers, and customers (internal and external) 
        contribute to developing an objective and complete picture of 
        job performance for each employee. This process can be positive 
        both for front-line workers and for supervisors and even senior 
        managers in helping to develop a culture of continuous 
        improvement.
  --Where shortfalls are identified in skills or performance, employees 
        should be given the tools for positive improvement through real 
        access to meaningful training programs to upgrade their 
        individual skills and abilities.
  --Threats of firing and contracting out must end for employee morale 
        to be restored and for reforms to move forward effectively.
Principle 5. Improve the rewards system and allow the bargaining 
        process to work
    Performance-related financial rewards and non-financial recognition 
can be important as part of a broader system of positive incentives for 
service excellence. As addressed as part of AFGE's response to the 
recommendations for the city-wide personnel system, the union is open 
to discussing and negotiating such a system. At DHCD the local union is 
ready to work with a proactive management to fine-tune the 
implementation of such a system.
    Everyone should understand, however, that the city and agencies can 
not unilaterally design and impose a new compensation system--as 
apparently suggested by Price Waterhouse (p 61, section 6). Relying on 
legislation imposed on the District will not be any more effective. The 
city-wide collective bargaining agreement signed in 1997 puts some of 
these questions before a Labor-Management Committee.
Principle 6. Flatten and modernize the management hierarchy
    High performance management is a natural component of high 
performance work systems and front-line jobs. Unfortunately the PW 
report does not identify the need to reduce layers of management or to 
modernize management functions into coaches and resources for empowered 
workplace teams.
    Management functions within DHCD are in urgent need of 
reorganization and reorientation toward supporting front-line employees 
in doing the work of the agency and away from command-and-control and 
punishment.
  --The culture, structures and functions of managers at DHCD needs to 
        embody the principles of empowering and respecting workers and 
        supporting them as they strive to carry out the agency's 
        mission.
Principle 7. Support the development and use of skill in the workplace
    Skill-based operations are an important source of increased 
productivity and quality in many kinds of organizations. Unfortunately 
skill development has not been a priority within DHCD in recent years. 
Training funds are available as part of the federal programs 
administered by the Department, but few training opportunities have 
been made available to front-line employees. The PW report focuses on a 
lack of computer skills without noting that many employees received 
their first computers only last year. Almost none of them have received 
training in computers or the software they should or could be using to 
help them do their jobs more effectively.
  --The PW report prefers firing and outsourcing rather than skill 
        development as an organizational strategy. We believe that 
        continuing training and skill development is a necessary part 
        of a high performing organization at DHCD. Employees want to 
        develop their skills, and want to be able to apply those skills 
        in their work.
  --The skills and competencies needed at the Department encompass far 
        more than the technical computer skills mentioned by Price 
        Waterhouse. Quality systems, customer relations, financial 
        analysis, and overviews of federal and state/local housing and 
        economic development programs are all needed.
Principle 8. Create excellence in customer service
    We, the workers of the Department of Housing and Community 
Development and our AFGE Local Union, are committed to creating a 
system that can consistently deliver service excellence for the city 
and for the low and moderate income residents we are charged to serve. 
We are ready to work with managers who are willing to work with us.
    We believe that the anti-worker approach of Price Waterhouse, which 
falls outside the spectrum of all the other consultant reports, can not 
provide an adequate foundation for reform of DHCD. We restate our 
desire to work with management in shaping the reform process through a 
Joint Redesign Committee. We would welcome an opportunity to move 
forward on a path to meaningful reform, starting with basic principles 
of mutual respect.
                          city-wide functions
    The Authority has hired outside consulting firms to examine four 
city-wide functions through assessments and developing recommendations 
for reform. Of these four areas--personnel management systems, 
procurement, budgeting, and information systems--we feel that the 
personnel management has the most direct impact on how work is done and 
services delivered in the city. We have focused our comments on this 
one city-wide function.
                   the personnel management function
    The Authority retained Coopers & Lybrand to conduct an examination 
of the present services and delivery methods of the Personnel 
Management Function of the DC Government. The consultants' assessed 
information from a wide variety of sources, and spoke with many people 
within the DCOP and city agencies. However, the consultants appear to 
have made no effort to involve the union in the study process or in the 
development of their recommendations in any formal or informal way.
    As is often the case when organizational assessments are undertaken 
by external consultants facing time constraints, there are selected 
errors, overly broad statements and glaring omissions, interspersed 
with accurate analysis and supportable conclusions. The next section is 
an overview of AFGE's evaluation of the consultant's report against our 
Service Excellence principles. This section is followed by our response 
to key recommendations. Embedded in these comments are our suggested 
alternatives to recommendations we believe can not, or will not work 
given the legal, financial, political or cultural constrains facing the 
city.
 afge service excellence principles and the personnel consultant report
Principle 1. Strengthen Collective Bargaining to Make Reforms Effective
    Both the findings and recommendations are devoid of substantive 
knowledge of the legal and practical obligations of employer to 
employees and their elected union in a unionized work setting. In the 
hundreds of pages that make up both reports: the assessment and 
recommendations, the word ``union'' appears a total of three times. 
Each time the union is referred to as obstacle to change or good 
management rather than as the legitimate voice for workers interests 
and concerns within the organization.
    The collective bargaining agreement, the superseding source of 
personnel rules and regulations in a unionized setting, appears on a 
list of documents that the consultant reviewed during the assessment 
process. The labor-management contract is not referred to at all within 
the recommendations or work plan. The contract is impacted by many of 
the consultant's recommendations, yet the consultants do not even 
mention the city's need to negotiate any of their proposed changes.
    Although the city has a legal obligation to bargain many of these 
matters with the union, the city may also want to consider a negotiated 
approach to implementing the consultant's recommendations (as modified 
through stakeholder involvement), if only for the sake of expediency 
and effectiveness. Coopers and Lybrand in their recommendations note 
this need, if only indirectly:
    ``Beyond issues of coordination and cooperation with other 
functions and Agencies, a major concern regarding the ability of DCOP 
to implement many of these improvement projects is District culture: 
will the District employees be able to not only support, but embrace, 
the changes facing it? Change is not easy for most organizations, and 
the District is being asked to implement widespread and deep reaching 
changes. This will require concentrated effort and ongoing 
monitoring.\7\
---------------------------------------------------------------------------
    \7\ Coopers & Lybrand, November 1997, p. 12.
---------------------------------------------------------------------------
    Collective bargaining is a process whereby employers work with 
their employees and their representatives to provide for an equitable 
distribution of resources and create a safe and just work environment. 
Through bargaining the parties determine the rules of the game and 
devise problem-solving mechanisms to assist in resolving issues and 
disputes. Without collective bargaining, workers have no legitimate 
rights to a say in their workplace, and are less likely to trust that 
the rules governing the workplace also take their best interest into 
consideration. Without an effective voice, workers have no reason to 
support or embrace change, for they will have no real impact in shaping 
the change, and no influence over how and whether the change is 
actually institutionalized.
    The legal problems raised by ignoring the requirements of 
collective bargaining are equally fundamental. Substantive changes to 
the personnel issues--like the compensation system, the classification 
system, overtime formulas, environmental differentials, performance 
management measures and processes, recruitment and promotions--are all 
subjects of collective bargaining. The consultants may be unaware of 
the city's obligation to negotiate any change in these areas with the 
union, but AFGE is not, nor are city officials. As a simple legal 
matter, implementing the consultant's recommendations through the 
strategies suggested by the consultants will expose the city to very 
well grounded unfair labor practice charges. In practice and in the 
minds and lives of DC employees, ignoring these bargained provisions 
and moving to over-ride them without further collective bargaining with 
the employees and their unions is unlikely to have any positive result.
  --Collective bargaining works if the parties abide by the rules of 
        engagement set forth in labor relations laws. AFGE strongly 
        advocates that the city do the right thing and engage the city 
        unions in negotiations over many of the proposed changes 
        recommended in this report.
  --We recommend that the personnel function be addressed early in the 
        proposed city-wide Joint Redesign Team. The city's Labor-
        Management Committee should monitor the progress of personnel 
        function reforms over time and propose additional reforms or 
        adjustments every six months. Success in this particular reform 
        effort is critical to the overall effort for the city as a 
        whole and for each of the departments.
Principle 2. Empower Employees and Treat Them with Respect
    Our questions regarding the report's assessment against the Service 
Excellence principle of empowerment are twofold:
  --Are employees empowered by change?
  --Are employees empowered in the change process?
    In assessing whether the recommendations empower employees, we will 
assess whether or not a proposed change will provide employees with the 
information, resources or tools they need to take responsibility for 
their development, careers and benefits within the city. We also look 
to see whether the recommendations provide managers with the tools they 
need to support employees in these objectives. A key priority for AFGE 
is to ensure that we minimize the amount of variation in the way rules, 
regulations, and benefits are interpreted and applied throughout the 
city. If we can create a situation where everyone has the same 
information, everyone plays by the same rules, and everyone is 
evaluated through the same system and on same types of measures, then 
we will have created a situation where employees all who wish to 
advance in skill and recognition will have support in achieving their 
goals.
    Several recommendations, especially some related those related to 
providing employees with information they need to plan their careers 
will help to empower employees within key personnel processes. Other 
recommendations, to the contrary, may in fact serve to minimize the 
employees role in building a career within the city.
    In order to assess whether employees are empowered in the change 
process we look at whether employees are provided a voice in designing 
and implementing changes to the personnel system. The report does not 
spell out a specific role for employees or for unions in the change 
process. Therefore we must conclude that the recommendations do little 
to empower employees in the change process.
  --If front-line workers can not create an effective channel for 
        participating in the redesign of the personnel function through 
        the Joint Redesign Committee and the Labor-Management 
        Committee, we seriously question the ability of a change 
        process to succeed. There must be a meaningful, structured 
        process for workers and their unions to contribute to the 
        design of these changes.
Principle 3. Improve Management Accountability
    The consultant recommendations could serve to increase management 
accountability throughout the city in several ways:
  --A major problem the city is the ability of agency heads and mangers 
        to work around the current rules and regulations in promoting, 
        classifying, and disciplining employees. The proposed 
        reorganization recommendations related to the centralization of 
        the benefits, compensation, data base, policies and procedures 
        could serve to limit these current abuses. Top leaders like the 
        Mayor and Council would need to back this system by not 
        supporting agency heads or managers who might attempt to 
        circumvent the new systems and procedures once they are in 
        place.
  --The recommended DCOP Steering Committee representing all agencies 
        to help set DCOP priorities and monitor its performance will 
        help to install a system to hold DOCP accountable to its 
        mission and mandates. Regular labor-management discussion on 
        these issues is essential.
  --Mandatory supervisory training would improve supervisors' 
        understanding of the rules and regulations and may help to 
        instill a value for fairness and accountability within front-
        line management.
  --Cleaning up the policies and making them easily accessible to all 
        employees will help to ensure that everyone is held accountable 
        to the same set of rules.
  --Recommendation related to improving position control and limiting 
        ad hoc work a-rounds to the classification system will limit 
        management's ability to play favoritism in hiring, promotion 
        and classification decisions.
  --Supporting agencies in change management could help to instill a 
        higher level of professionalism within management and a value 
        for consistency and fairness. Strategies which involve workers 
        and unions in the change process within agencies will help to 
        build relationships between labor and management. 
        Accountability can also improve within the context of a strong 
        relationship based on mutual respect and support for common 
        goals.
Principle 4. Improve Performance Management
    The consultant's report is weak on its proposed approach to 
performance management. They advocate for a measurement-based approach 
to performance management. Yet organizational performance is based on 
many more factors. Performance is rooted in the nature and 
configuration of the work organization which includes: the way work is 
organized, the roles workers play and the skills they use in the work 
process, the available technology, the access to, use of, and influence 
over information and many more factors.
  --Setting and measuring individual, team and department performance 
        goals will help to improve the way performance is managed. By 
        improving the measurement system, employees and managers will 
        be clearer about their expectations of each other, and this 
        will have positive effects relationships, the culture and work 
        environment.
    But in and of itself this increased clarity will not lead to change 
and improved performance.
  --Structural changes in work processes, roles, technologies, methods 
        and practices must also occur to support performance 
        improvement.
Principle 5. Improve the Rewards System
    The goals for consultant's recommendations regarding change to the 
pay and classification system seems to be focused on making them 
efficient and consistent. For example, the recommendations will serve 
to: increase position control; increase control over wages and 
benefits; align internal pay with the external labor market; and align 
internal pay plan with consistent values and measures.
    Although these goals will help to improve the pay and 
classification system, they will not in and of themselves improve the 
reward system within the city. A greater respect for equity must be 
instilled in the culture of the city.
  --A system that recognizes and compensates workers for the use of 
        skill and good judgment must be negotiated before people will 
        feel adequately rewarded for their contributions to the city.
Principle 6. Flatten and Modernize the Management Hierarchy
    Changes to the classification system and job design should support 
a flatter management hierarchy within the city, but this is not 
recognized as a goal in the consultant report. Other than the proposals 
related to supervisory training and to the change management program, 
we see limited potential that the proposed changes as spelled out will 
lead to a more modern approach to management based in employee 
empowerment and improved labor-management partnerships.
Principle 7. Support the Development and Use of Skill
    The proposed vision and role for the Center for Workforce 
Development is limited and lacks understanding of today's innovative 
workplace learning systems that empower employees to take charge of 
their own development, while they also supporting improvements to 
organizational performance.
    First, the recommendations do not provide a role for employees and 
their unions in the design, delivery and assessment of training. There 
are hundreds of best practice examples of labor-management partnerships 
that have improved the impact of training on organizational and 
individual goals. These initiatives have developed rich methodologies 
for involving workers directly in the training process. The consultants 
have failed to draw on these experiences in developing their 
recommendations. We believe the program will suffer as a result.
    Second, the recommended training program is focused on narrow job 
related tasks and will have limited impact on goals related to job 
expansion, and will do little to support employees in developing 
potable skills they need to maintain employment security in an 
uncertain economy.
    Third, the report does not address the demand side of the skill 
challenge within the city. Until and unless the city pro-actively 
addresses the obstacles to the use of skill in the workplace, workers 
will have little motivation to invest in the development of additional 
skills to improve their job performance. Workers must be empowered to 
use the skills they have now to make job related decisions, solve 
operational problems, and make improvements to the work processes they 
operate within. Once a work environment that encourages innovation and 
learning is established, and once workers are acknowledged for the 
skills they now have, then the demand for and usefulness of in-house 
training will increase.
    Finally, several of the training recommendations, if implemented, 
will serve to compromise confidentiality, and therefore will limit 
employee's motivation to make use of the limited resources the program 
does provide.
Principle 8. Create Excellence in Customer Service
    An effective human resources and personnel system is fundamental to 
creating an organization within which excellent customer service is the 
goal and the norm in practice. Some of the components are present in 
the C&L recommendations, but others are missing or incomplete, as 
outlined above. The objective of excellent customer service should be 
an important standard against which all of the proposals for the 
personnel function are evaluated.
    The persistent undertone of the Coopers & Lybrand reports is that 
employees and their unions are a big part of the problem faced the city 
in its personnel management processes--not the inefficient and outdated 
management system within which we all operate. The consultants never 
once looked to employees and their unions as allies in their mission to 
make change. We encourage the Authority to take a different view. We 
advocate for the use of collective bargaining and the labor-management 
partnership to negotiate and problem solve the challenges laid out 
within the consultant's report. The following are several suggestions 
for how we might work together on these issues.
 specific afge responses to key c&l personnel function recommendations
                           docp organization
C&L Recommendation: Employee Relations Division
    `` * * * a coordinated Employee Relations function, which includes 
Labor Relations as part of the DCOP * * *. The Deputy Director, 
Employee Relations would be responsible for the field delivery of 
personnel services, for both union and non-union employees.
    The Employee Relations department would include personnel 
specialists who would be resident in Agencies--but these specialists 
would report to DCOP--to support individual Agency initiatives and 
priorities, yet assume central monitoring of policy compliance.
The AFGE Alternative: The Office of Labor-Management Relations
    The City should expand the Labor Relations Division to include 
responsibly for collective bargaining, grievance administration and the 
expansion for the labor-management partnership.
    The Division's mission should be expanded to include to support of 
Agencies in moving toward high performance work organizations which 
empower employees to develop and use of skill in the conduct of their 
work.
    This mission will be accomplished through the formation of Joint 
Redesign Committees and Labor-Management Committees within each agency. 
Each committee will have at least one staff person selected by the 
union to assist in facilitating workplace transformation and will help 
the Agency access needed information, assistance and resources from the 
centralized personnel functions. The Committees will develop and 
oversee the implementation of an agency transformation program that 
respond to the consultant reports and provide workers with a greater 
voice in the services they deliver.
    The city will also agree not to interfere in the unions' attempts 
to organize non-union employees and will provide the union with access 
to discuss membership with non-union employees during work hours, 
provided such conversations do not interfere with agency operations.
    In return the union agrees to enter into a partnership with the 
city to assist in the implementation of the consultant recommendations.
C&L Recommendation: Center for Workforce Development
    `` * * * we recommend * * * ongoing reviews with Agency management 
to assure the training and assessment services offered meet the 
priorities of the Agencies. We also recommend that DCOP completely 
outsource the employee testing function, and place the interface to 
testing vendors under the Center for Workforce Development, since it is 
closely tied to skill assessment.
The AFGE Alternative: The Labor-Management Center for Workplace 
        Learning
    We recommend the establishment of a city-wide labor-management 
committee to assure the training and assessment services offered meet 
line priorities.
    The city-wide committee will develop central programs to meet the 
development needs of individual workers. The city-wide committee will 
also work with agency labor management committees to develop programs 
to meet agency needs and that support the transformation process within 
the agency.
    The Center for Workplace Learning will not assume responsibility of 
testing until such time the city moves to implement a classification 
system based on nationally recognized skill standards. Testing for 
entry and promotion is different than skill assessment in a work system 
that has yet to moved to a skill based organizational structure. 
Testing is traditionally used as a screening mechanism where 
individuals are concerned about job security or income progression. 
Assessment is more developmental and used by individuals to set goals 
and guide their education. If these processes are confused, individuals 
will come to mistrust both. Utilization of training will be effected.
                      processes and work structure
C&L Recommendation: Reengineer Personnel Processes
    `` * * * begin to evaluate and reengineer core personnel processes 
* * * the initial process for reengineering the Recruiting Process. We 
recommend that in doing so, the Recruiting Process be defined to 
include sourcing, and not confined to the District's paper process.''
The AFGE Alternative: Stakeholder Participation in Reengineering 
        Personnel Processes
    The initial process for reengineering the collective bargaining 
process. Most collective bargaining negotiations are at impasse, and 
those agreements that have been reached have not been implemented 
because no one knows who has the authority to do so. Two thirds of the 
District's workforce is organized. That means that the city now has no 
effective way to make decisions regarding the wages, benefits, and 
working conditions effecting two thirds of its workforce. The city 
needs a vehicle to negotiate the changes recommended by the 
consultants. The fixing the labor relations process must take the 
priority over other issues.
                             client service
C&L Recommendation: DCOP Steering Committee
    ``DCOP should establish an ongoing--Steering Committee * * * to 
help set DCOP priorities and monitor * * * performance.''
The AFGE Alternative: Labor-Management Steering Committee
    The labor-management steering committee, which will consist of 
agency and union representatives should establish a DCOP sub-committee 
to help DCOP establish priorities and monitor performance.
                                training
C&L Recommendation: Center for Workforce Development Priorities
    ``Based on feedback from the Agency Directors and their employees, 
the priorities of the Center include:
  --Develop a skill assessment tool for departments that can be tied 
        into process redesign, job descriptions, and training
  --Make supervisory training a priority
  --Make supervisory training mandatory for all newly promoted * * * 
        supervisors
  --Develop a process to provide supervisor training for--supervisors 
        who never received training
                          the afge alternative
    The priorities for the Center should include:
  --The development of a labor-management infrastructure to guide the 
        development and delivery of training programs to front-line 
        union members
  --The development of skill assessment tools based on nationally 
        recognized skill standards that provide workers with portable 
        skills and recognized expertise
  --The development of recommendations for how skill standards could be 
        used to guide work re-organization and the development of a pay 
        for skill compensation system
  --Improvements to supervisory training
C&L Recommendation: Additional Activities
    * * * Other training needs we identified include * * * intra- and 
inter-team building training.
The AFGE Alternative
    Intra- and inter-team building training program will be designed 
and tailored to support agency steering committees in implementing 
their labor-management transformation plan.
                        compensation philosophy
C&L Issue/Problem: Authority to implement philosophy
    ``It is not clear who at the DC Government has the authority to 
implement the Compensation Philosophy.''
The AFGE Alternative: Collective Bargaining
    If the DC compensation philosophy will be used to govern decisions 
regarding union employees, then the development of that philosophy is 
the subject of collective bargaining.
    The Labor-Management Steering Committee should develop a 
recommended philosophy and present their recommendations to the 
negotiating committees for inclusion in the collective bargaining 
agreement. The C&L recommended philosophy should be reviewed and 
considered by the Steering Committee. The Steering Committee will 
determine whether the recommendations are included in the final 
statement.
                     job information and evaluation
C&L Recommendation: Market Alignment
    `` * * * establish what inherent characteristics within a job the 
City is willing to pay for and identify the appropriate markets for 
comparison pay * * * construct a flexible evaluation plan around which 
jobs can be classified within occupations based on jobs, 
qualifications, skills and responsibilities.''
The AFGE Alternative: Collective Bargaining
    The characteristics of jobs and the value of those characteristics 
are mandatory subjects of collective bargaining.
    The job classification system around which jobs are classified is 
also a mandatory subject of collective bargaining.
C&L Recommendation: Job Evaluation Team
    ``* * * establish a job evaluation team consisting of * * * DCOP, 
payroll, financial agency personnel, and an Authority designee * * * 
responsible for:
  --Facilitating--data gathering and exit processes
  --Developing appropriate job evaluations for each classification
  --Building an internal compensation database
  --Gathering qualifications, skills and required responsibilities for 
        each job''
The AFGE Alternative: Collective Bargaining
    The evaluation team, consisting of union and management 
representatives will devise a new classification system that will 
become a part of the collective bargaining agreement once complete.
C&L Recommendation: Computerized Job Evaluation System
    `` * * * consider a computerized job evaluation system to analyze 
and monitor data collection, data analysis and recommendations 
processes.''
The AFGE Alternative: Collective Bargaining
    The union-management evaluation team will consider using a 
computerized evaluation system, provided that system can be designed to 
weight jobs according to negotiated criteria.
C&L Recommendation: Evaluate Based on Current Job Descriptions
    `` * * * recommends building the data--to evaluate and classify 
jobs from the current job descriptions for positions.''
The AFGE Alternative: Evaluate Based on the Work
    This recommendation makes no sense given the finding that the 
current job system does not reflect how work is or should be organized. 
The evaluation process should be based the work people will be required 
to do in transformed work systems, the skills the transformed work 
system will require workers use, and the value people contribute to the 
work process and product.
C&L Recommendation: Consistent Approach
    `` * * * all jobs regardless of their union, classification, or 
status be evaluated in a consistent manner which does not provide 
special treatment to any individual classes of jobs.''
The AFGE Alternative: Collective Bargaining
    The manner in which union jobs are evaluated is the subject of 
collective bargaining. If the city wishes to be consistent with the 
process they use to evaluate jobs, then they will need to use the same 
process negotiated with the unions to evaluate non-union jobs.
                          compensation process
C&L Recommendation: Redefine pay structure
    `` * * * the job evaluation team should--redefine the current 
grade, structure and determine whether the current pay structures make 
sense.''
The AFGE Alternative: Collective Bargaining
    The union-management evaluation team should negotiate a new grade 
structure to implement the results of the job evaluation.
C&L Recommendation: Pay for Performance
    ``Assuming the pay for performance initiative can be carried forth, 
we see little use for the mechanical pay steps within the current pay 
structure beyond the competitive market rate.''
The AFGE Alternative: Collective Bargaining
    The job evaluation team should negotiate how workers will progress 
through the new grade structure.
                            dcop technology
C&L Recommendation: Information Technology Task Force
    As a management initiative for moving from mainframe to client-
server computer technologies.
AFGE Alternative: Information Technology Task Force
    As a structured opportunity for user participation in determining 
functional requirement, interfaces, and integrated training systems for 
the new computer systems.
                          capacity for change
C&L Recommendation: Change Management Capability
    `` * * * develop an in-house change management capability to 
support Agencies in the implementation of recommendations.
The AFGE Alternative
    The Labor-Management Steering Committee should help the city and 
the union develop internal capacity to support union-management 
transformation processes in the Agencies. Training and internal 
consulting in strategic planning, work place change, high performance 
work organizations, and labor-management partnerships should be offered 
to managers, union leadership and the selected labor-management 
facilitators. These leaders in turn should be supported in imparting 
this information and skill to line workers and managers.


        DISTRICT OF COLUMBIA APPROPRIATIONS FOR FISCAL YEAR 1999

                              ----------                              


                        WEDNESDAY, JUNE 10, 1998

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 2:05 p.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Lauch Faircloth (chairman) 
presiding.
    Present: Senator Faircloth.

                          DISTRICT OF COLUMBIA

                  Council of the District of Columbia

STATEMENT OF LINDA W. CROPP, CHAIRMAN

                      STATEMENT OF LAUCH FAIRCLOTH

    Senator Faircloth. I thank you for being here. I am 
delighted to see we have a full house of people attending and 
the interest in the budget.
    This afternoon marks the first hearing of the Subcommittee 
of the District of Columbia concerning the budget for fiscal 
year 1999. We are delighted to have with us to formally present 
the city's budget Ms. Linda Cropp, chair of the District of 
Columbia Council; Mayor Marion Barry; and Dr. Andrew Brimmer, 
chair of the District of Columbia Financial Responsibility and 
Management Assistance Authority.

              hearing on fiscal year 1999 consensus budget

    I want to note and be very clear that this afternoon's 
hearing is not a hearing about the structure of the government 
of the District of Columbia--it is not about the structure of 
the government of the District of Columbia. That is a subject 
for another time, another place. Today, we are going to focus 
on the District's consensus budget and the impact of the 
management reform process currently underway.

                            balanced budget

    This year marks the second year in a row since the creation 
of the Control Board that the Congress has been presented with 
a balanced budget for the Nation's Capital. This is not a small 
accomplishment, and it is something we can all be proud of. 
This is a consensus budget, and I know that each of the 
officials here have put in a lot of work and long hours to 
produce it. This budget of $5.2 billion will result in a $41 
million surplus. However, the surplus would have been much 
higher were it not for the $62 million deficit in the budget of 
the public school system.

                progress of repairs to school buildings

    In addition to budget deficits, I am concerned about the 
progress of repairs within the school buildings. There have 
been some who have suggested that the schools will not open on 
time again this fall. I want to be very clear that we cannot 
tolerate this again. Now, the Congress will not tolerate this 
again. If something has to be done, if people have to be moved, 
so be it. There is no excuse for this failure of the schools to 
open year after year and no reason for passing the buck. I hope 
and expect to hear concrete proposals for opening the schools 
on time. While I am touching on that fiasco we went through 
last year, when you could not open a school because somebody 
was patching a little hole in the roof, I thought it was 
ridiculous then and I still do.
    The budget for the District of Columbia for fiscal year 
1999 will be the second enacted by Congress since the passage 
of the District of Columbia Revitalization Act, which started 
the management reform process now underway. I strongly believe 
the American people are willing to make the kind of investments 
needed to repair this city. I said, ``the American people,'' if 
it need be, because it is the capital of the United States. All 
of us, all of us--the residents of the District, the people 
that are serving in government and are here as temporary 
residents--all of us want to see it be the crystal city on the 
hill, and we are willing to do what it takes to make it happen.

                   use of funds for management reform

    What we all want is the kind of city that the entire Nation 
can be proud of, all 280 million of us, and especially the 
500,000 or 600,000 or whatever we have as residents here within 
the city. We are all moving for a common goal. I find nothing 
in the Congress to indicate a lack of willingness to work with 
the city to bring about what we need to do to make it the kind 
of city we all want. Specifically, I would like to know how 
funds for the management reform in this year's budget will be 
used to reshape the thinking of the city's bureaucracy, reduce 
the regulatory burdens and red tape and make better service 
delivery a permanent part of city government. The citizens of 
the District of Columbia and the Nation, as I just said, 
deserve no less, and we in Congress intend to work with the 
city to bring it about.
    Before we begin, I would like to remind all of our 
witnesses that your entire statement will be made part of the 
record, so we ask if you would please limit your opening 
statement to about 5 minutes. We will hear opening statements 
followed by questions of our witnesses. If somebody is running 
a little over, we want to be generous and easy, but try to 
limit them to 5 minutes.
    Without objection, the record will remain open until 5 p.m. 
on Tuesday, June 16, if anybody wishes to submit additional 
testimony or responses to questions. With that, I will turn to 
our witnesses.
    Our first witness this morning is Ms. Linda Cropp, the 
chair of the District of Columbia Council, who has devoted many 
hours to working with the District's leaders to produce a 
consensus budget. Ms. Cropp, we welcome you, and if you will, 
proceed with your testimony.

                      statement of linda w. cropp

    Ms. Cropp. Thank you so very much, Senator Faircloth. Let 
me say good afternoon to you. As the Senate Appropriations 
Subcommittee of the District's Chair, I am here to testify----
    Senator Faircloth. Ms. Cropp, if you do not mind, the sound 
system is bad. If you will, pull the mike as close as you can.

               fiscal year 1999 budget and financial plan

    Ms. Cropp. I am here to testify--is that better--on the 
District's fiscal year 1999 operating budget and financial 
plan. This budget, balanced and unanimously approved by the 
Council, was the result of months of hard work, tough decisions 
and protracted negotiations. It is no small feat that this 
consensus budget, bargained by the Council with the Mayor and 
the Financial Authority, illustrates the story of how District 
stakeholders can get together to design a cow and not produce a 
camel. But, in fact, not only the cow, but a better Washington, 
DC.
    This $5.2 billion spending plan with tax relief, increased 
funding for the schools, a $41 million accumulated deficit 
reduction, and pay adjustments for city employees proves that 
the District's fiscal condition is improving, and it can now 
focus more on the rehabilitation of service delivery. That is a 
very important function that needs to be addressed. I have a 
copy of the Council's committee report that deals with the 
Budget Request Act, and I would like for that to be made a part 
of the record, and we submit it as such.
    Senator Faircloth. Without objection, it will be.
    Ms. Cropp. Thank you.
    [Clerk's note.--The copy of the Council's committee report 
that deals with the Budget Request Act is being held in the 
files of the subcommittee.]
    Prior to receiving the fiscal year 1999 budget in early 
March, the Council had already developed its platform to 
achieve a budget that is balanced and premised upon four 
priorities espoused by the Council at their January retreat. 
The four priorities are: to improve service delivery, to 
eliminate the accumulated deficit, to invest in our work force 
with appropriate compensation, and to begin tax relief and 
restructuring.

                   fiscal year 1997 operating surplus

    The financial audit showed that we ended 1997 with an 
operating surplus of $186 million. However, I cautioned us then 
and I continue to caution us, Mr. Chairman, that that is not a 
true surplus. We still have more work to do. We must succeed 
because it is the rehabilitation of our financial position 
which becomes the underpinning for our service delivery 
efforts, and then these efforts will provide the foundation for 
economic growth. We are adamant about translating this surplus 
into improved services and not just letting it be something on 
paper for our citizens.
    While you saw a $186 million plus surplus, it is not a true 
surplus as long as our schools need fixing, as long as we have 
potholes in our streets and as long as we have other services 
that need to be improved. It means that we need to direct those 
dollars into other areas. In addition, we anticipate $254 
million available for deficit pay down for this fiscal year.
    Although the numbers are not yet final, this new-found 
prosperity is not just because of our strong economy, but more 
importantly it demonstrates how the District can get back on 
its feet financially by adopting sound budgeting procedures, 
conducting stringent fiscal oversight and exerting prudent 
control over our spending. In fact, the Council has taken the 
initiative to finance some long-term capital projects, for 
example, the year 2000 compliance with operating funds, current 
revenue, not borrowed money.
    Besides saving the District money in years to come, this 
action reflects our determination that no financial good 
fortune will be squandered unwisely. In this budget process, 
the Council and its standing committee devoted many hours of 
discussion and spent much time and effort in judiciously 
reviewing our agencies' performance in numerous budget and 
legislative hearings.
    In fact, this year we held two sets of hearings. The first 
set of hearings was totally based on performance to see what 
the agencies were doing to make sure that there were 
performance measures that could be evaluated. After reviewing 
and scrutinizing the agencies past budget and spending pattern 
during the budget markup sessions, the committees were 
challenged to hold the line on expenditures, to make reductions 
or enhancements where possible and feasible, yet enhance the 
budget without shortchanging our citizens of basic services. 
The Council's committees rose to that.
    Thereafter, the committee of the whole proceeded to make 
more revisions in order to bring the budget into balance. Be it 
program enhancements for schools or young people or net 
reductions--and let me reiterate the Council supported 
additional funding for the schools and directed $2.3 million 
for youth programs--we were able to discipline our spending by 
allocating some $41 million for deficit reduction.
    As you stated in your opening statement, we had hoped that 
it would have been more. In fact, we had hoped we would have 
had the opportunity to totally eliminate the accumulated 
deficit. That, Mr. Faircloth, is no small task. I do not think 
any other city that had the types of financial problems that 
the District had would have been able to accomplish those 
goals. In most of the other cities, their debt was paid off 
from the very beginning. In the District it was not. Hopefully, 
by the year 2000 we will totally eliminate that.
    I must also say that this was accomplished with the first 
surplus coming in. I need to remind people that it was prior to 
the Revitalization Act going into effect. That was only for 
this year's budget. Prompted by this first unqualified audit or 
clean bill of health for several years, the Council took steps 
to jumpstart the rehabilitation for our city.

                         public works projects

    For example, we pushed for $7 million worth of public works 
projects to transform our neighborhoods and enrich our living 
environment because we care about houses lined up on smooth 
streets sans potholes. We do not care for unsightly garbage and 
recycled trash littering our curbs. We care about better 
community policing. We do not care about criminals and 
prostitutes lurking around our residences. We care about 
breathing spaces for our kids to play and frolic in. We do not 
care for violence and open air drug markets. In sum, we care 
about building an idyllic District of Columbia because--as one 
of the most overburdened taxpayers in America--we deserve a 
good city.

                     pay adjustments for employees

    For the city employees who have labored to produce the 
surplus and contributed directly with layoffs and benefit 
reductions, I am pleased to say that we are going to invest in 
our work force with pay adjustments, the first since 1994 for 
most of our workers.

                               tax relief

    In this budget package, we have offered $11 million worth 
of tax relief to residents and businesses and hope to encourage 
people to move to the District by eliminating the motor vehicle 
excise tax for new residents. However, this tax relief is just 
one small step in a joint effort to resuscitate the Nation's 
Capital. To recharge the District, we need to install a new 
economic engine. In other words, we need to invest the $100 
million, as promised by the President, in the new economic 
initiatives.

                      local chartered corporation

    More specifically, we need a locally chartered corporation 
to lure more businesses into the District, to encourage 
economic development and economic growth not only in the 
downtown areas, but in all of our neighborhoods in the District 
of Columbia. We envision a new convention center, so that the 
District can compete with other cities and stop the exodus of 
businesses which, in turn, hurts our hospitality industry and 
ourselves. Second to government, the hospitality industry is 
our major economic thrust. Not to sound trite or facetious, it 
has been said that other mayors and city councils are happily 
gobbling up Washington's million dollar lunch because our 
convention center is much too small.

             upgrade of deteriorated buildings and streets

    We need to upgrade some of the city's most deteriorated 
buildings and streets. We need to improve the quality of life 
in the District period. All of these needs and the ability to 
accomplish them cost money. Given the present improved 
financial situation, this money should be given to us so that 
we can transform the District into a thriving metropolis with 
bright, gleaming buildings.
    This goal cannot be achieved without these funds because, 
let's face it, economic development is going to be the antidote 
that propels this city toward fiscal veracity and physical 
wellness. No doubt, we are in better economic times. But we 
must be prudent and strive to find other resources to establish 
an accumulated surplus to cushion us against the next economic 
slowdown. The times now may not continue.
    What I have described in our process is akin to your budget 
in the Senate. While you strive to find fiscal priorities, the 
Council did likewise. While you agonize over budget reductions, 
the Council did the same. While we empathize with your 
considerations, we implore you to recognize the fact that we 
need more Federal funds to help change the city. Since this 
request is a small line item in the Federal budget, we beseech 
you to consider favorably the Federal fund portion of our 
budget request as you successfully approve a balanced budget 
for our Nation.

                  infrastructure needs over $3 billion

    Finally, we urge Congress to grant the $254 million 
infrastructure request. This fund is intended to support the 
city's existing infrastructure needs of over $3 billion. This 
fund can further alleviate our financial and structural burden 
so that the District can provide and perform efficiently all 
the State, county and local functions.
    Mr. Chairman, this is the budget that will move the city 
forward. This is the budget to endorse because we want you, Mr. 
Chairman, to join the consensus between the Mayor and the 
Financial Authority for a better District of Columbia.
    Senator Boxer had written me a note and said that she was 
unable to be here, but she wanted me to put on record an answer 
to a concern that she had raised. You certainly said this was 
not a hearing on this. But I do want you to be aware that 
governance structure is an issue that has been in the mind of 
many in the District of Columbia. In fact, Senator Faircloth, 
the Council has held a hearing on that very issue where we have 
had witnesses come in, citizens of the District of Columbia, to 
talk to us about the different forms for governance structure 
for the District.
    While there has been a debate and different views regarding 
the structure of the District, there is no debate over the 
issue that the changed structure should start within the 
citizens of the District of Columbia and their elected 
officials. It is our intent to continue to hold hearings on 
this very issue. We would certainly share with you the results, 
the information and the dialog.
    Mr. Faircloth, we would like to even submit to you for the 
record, if you would like, some of the comments that have been 
made by citizens of the District of Columbia at the Council's 
earlier hearing with regard to governance, governance 
structure. Many citizens have thought long and hard about that. 
While this is a budget hearing, it is an issue that is on the 
mind of many of our citizens, and we did want to add that.
    Senator Faircloth. Thank you. Were you through?
    Ms. Cropp. Thank you.

                           prepared statement

    I am through. We just want you to be a part of our 
consensus budget process and support the budget as submitted by 
the Council, the Mayor and the Financial Authority.
    [The statement follows:]

                  Prepared Statement of Linda W. Cropp

    Good morning Chairman Faircloth and other members of the Senate 
Appropriations Subcommittee on the District of Columbia. I am here to 
testify on the District's fiscal year 1999 operating budget and 
financial plan.
    This budget--balanced and unanimously approved by the Council--was 
a result of months of hard work, tough decisions, and protracted 
negotiations. It is no small feat that this consensus budget, arduously 
bargained by the Council with the Mayor and the Control Board, 
illustrates the story of how District stakeholders can get together to 
design a cow and not produce a camel. This $5.2 billion spending plan--
with tax relief, increased funding for the schools, a $41 million 
accumulated deficit reduction, and pay adjustments for city employees--
proves that the District's fiscal condition is improving and it can now 
focus more on the rehabilitation of service delivery.
    [I've here a copy of the Council's committee report on the Budget 
Request Act and I would ask that it be made part of the record.]
    Prior to receiving the fiscal year 1999 budget in early March, the 
Council had already developed its platform to achieve a budget that is 
balanced and premised upon four priorities espoused by the Council at 
their January retreat. The four priorities are:
  --(i) Improve service delivery
  --(ii) Eliminate the accumulated deficit
  --(iii) Invest in our work force with appropriate compensation
  --(iv) Begin tax relief and restructuring
    The financial audit showed that we ended 1997 with an operating 
surplus of $186 million. However, this is not a true surplus, Mr. 
Chairman. We still have more work to do. We must succeed because it is 
the rehabilitation of our financial position which becomes the 
underpinning for our service delivery efforts and, then these efforts 
will provide the foundation for economic growth. We are adamant about 
translating this surplus into improved services and not just let it be 
something on paper to the citizens.
    In addition, we anticipate a $254 million available for deficit pay 
down for this fiscal year, although the numbers are not yet final. This 
new found prosperity is not just because of our strong economy, but 
more important, it demonstrates how the District can get back on its 
own two feet financially by adopting sound budgeting procedures, 
conducting stringent fiscal oversight, and exerting prudent control 
over our spending. In fact, the Council has taken the initiative to 
finance some long-term capital projects, e.g., the Year 2000 Compliance 
with operating funds, i.e., current revenue, NOT borrowed money. 
Besides saving the District money in years to come, this action 
reflects our determination that no financial good fortune will be 
squandered unwisely.
    In this budget process, the Council and its standing committees 
devoted many hours of discussion and spent much time and effort in 
judiciously reviewing the agencies' performances in numerous budget and 
legislative oversight hearings. After reviewing and scrutinizing the 
agencies' past budgets and spending patterns during the budget mark-up 
sessions, the committees were challenged to hold the line on 
expenditures, make reductions or enhancements where possible and 
feasible and, yet balance the budget without shortchanging our citizens 
of basic services.
    Thereafter, the Committee of the Whole, under my leadership, 
proceeded to make more revisions in order to bring the budget into 
balance. Be it program enhancements for schools or young people or net 
reductions (and let me reiterate--the Council supported additional 
funding for the schools and directed $2.3 million for youth programs), 
we were able to discipline our spending by allocating some $41 million 
for deficit reduction.
    Prompted by this first unqualified audit or clean bill of health in 
several years, the Council took steps to jump start the rehabilitation 
of the city. For example, we pushed for $7 million worth of public work 
projects to transform our neighborhoods and enrich our living 
environment BECAUSE we care about houses lined up on smooth streets 
sans potholes. We don't care for unsightly garbage and recycled trash 
littering our curbs. We care about better community policing. We don't 
care for criminals and prostitutes lurking around our residences. We 
care about the ``breathing spaces'' for our kids to play and frolic in. 
We don't care for violence and open air drug markets. In sum, we care 
about building an idyllic District because--as one of the most 
overburdened taxpayers in America--we deserve it!
    And for the city employees who had labored to produce the surplus 
and contributed directly with lay-offs and benefit reductions, I am 
pleased to say that we are going to invest in our work force with a pay 
raise, the first since 1994 for most workers.
    In this budget package, we have offered $11 million worth of tax 
relief to residents and businesses and hope to encourage people to move 
to the District by eliminating the Motor Vehicle Excise tax for new 
residents. However, this tax relief is just one small step in our joint 
effort to resuscitate the Nation's Capital. To recharge the District, 
we need to install a new ``economic'' engine. In other words, we need 
to invest the $100 million, as promised by the President, in new 
economic initiatives. More specifically, we need a locally-chartered 
corporation to lure more businesses into the District. We envision a 
new convention center so that the District can compete with other 
cities and stop the exodus of business which, in turn, hurt our 
hospitality industry and ourselves. Not to sound trite or facetious, it 
has been said that other mayors and city councils are happily gobbling 
up Washington's million dollar lunch!
    We need to upgrade some of the city's most deteriorated buildings 
and streets. We need to improve the quality of life in the District. 
PERIOD. All these needs cost money. Given the present improved 
financial situation, this money should be given to us so that we can 
transform the District into a throbbing metropolis with bright gleaming 
buildings. And this goal cannot be achieved without these funds 
because, let's face it, economic development is going to be the 
antidote that propels this city toward fiscal veracity and ``physical'' 
wellness. No doubt, we are in better economic times. But we must be 
prudent and strive to find other resources to establish an accumulated 
surplus to cushion us against the next economic slowdown.
    What I have described in our process is akin to your budget process 
in the Senate. While you strive to fund your priorities, the Council 
did likewise. While you agonize over budget reductions, the Council 
endured the same. While we empathize with your considerations, we 
implore you to recognize the fact that we need more federal funds to 
help change this city. Since this request is a small line item in the 
federal budget, we beseech you to consider favorably the federal fund 
portion of our budget request as you successfully approve a balanced 
budget for our nation.
    Finally, we urge the Congress to grant our $254 million 
infrastructure request. This fund is intended to support the city's 
existing infrastructure needs of over $3 billion. This fund can further 
alleviate our financial and structural burdens so that the District can 
provide and perform efficiently all the state, county, and city 
functions. Mr. Chairman, this is the budget that will move the city 
forward. This is the budget to endorse--because we want you, Mr. 
Chairman, to join the consensus for a better DC.
                          Office of the Mayor

STATEMENT OF HON. MARION H. BARRY, JR., MAYOR
    Senator Faircloth. Thank you, Ms. Cropp, and certainly I 
intend to be. You may remain seated, if you do not mind.
    Our second witness is the Hon. Marion Barry. Mayor Barry 
has dedicated many, many years of service as Mayor of the 
District of Columbia. Mayor, if you do not run again, this may 
be your last statement before this committee in your capacity 
as Mayor. We welcome your comments and what you have to say, 
and certainly wish you well in whatever your career endeavor 
might move on from here. Mayor Barry, you may proceed.
    Mayor Barry. Thank you very much, Mr. Faircloth and members 
of the committee. I want to thank you for this opportunity to 
share my views on District finances and to place in the 
appropriate context the fiscal year 1999 financial plan and 
budget. I would like for my entire statement of about 21 pages 
to be entered into the record, and I will just highlight some 
of those myself.
    Senator Faircloth. Without objection, it will be. Your 
entire statement will be submitted and included in the record.

            introduction of interim chief financial officer

    Mayor Barry. Before I proceed, I would like to introduce 
publicly and officially the newly appointed interim chief 
financial officer for the District. You met him a few minutes 
ago, but I wanted to introduce him formally, Mr. Earl C. 
Cabbell. Mr. Cabbell is a CPA, has served as Deputy Chief 
Financial Officer of Financial Operations and Systems since 
1996. He was previously the deputy director of finance, the 
chief accounting officer for the city of Detroit. He also 
served as director of finance for the State of Maryland's 
Department of Transportation, a position he assumed in 1992.
    We have some able people in the financial management 
cluster. I interviewed many of them and came to the conclusion 
that Mr. Cabbell would best serve us during this period. He has 
indicated a desire to only serve as interim and some of his 
staff wanted to urge him to consider it permanently. We are 
going to start a national search for a chief financial officer.
    Mr. Cabbell.
    Senator Faircloth. Thank you.
    Mayor Barry. Also, Mr. Chairman, the development of the 
budget provides an opportunity to reflect on the past, to 
measure progress and to plan for the future. As you indicated a 
little bit earlier, this 1999 financial plan and budget is the 
last that I will be submitting to the executive and legislative 
branches of the Federal Government in that I have made a 
decision after almost 40 years of public service to move on and 
do other things as opposed to seeking reelection as Mayor of 
our great city.

                washington, dc, No. 1 city on east coast

    Also, Mr. Chairman, some very good news came to the city 
today in the form of Money Magazine. This is a magazine that 
surveys cities all over America and came to the conclusion that 
on the East Coast that Washington, DC, is No. 1. We are ahead 
of Philadelphia, ahead of Boston, ahead of Buffalo, NY, ahead 
of Pittsburgh, and ahead of a host of other cities in the East. 
Our city is on the move, on the grow. Last year, we had a 
record number of visitors, over 23 million people. So another 
outside, independent----
    Senator Faircloth. If I may interrupt a second, I saw it 
also and I believe we came from 132d to----
    Mayor Barry. 162d.
    Ms. Cropp. 167th.
    Mayor Barry. Yes, 167th.
    Senator Faircloth. I thought it was 162d----
    Mayor Barry. No. 1.
    Senator Faircloth. Anyway, whatever. We came a long way 
baby. [Laughter.]
    Mayor Barry. We urge all the people of the Nation to come 
and visit us including your constituency from North Carolina. 
[Laughter.]
    Senator Faircloth. They will be here.

                   fiscal year 1993 home rule charter

    Mayor Barry. Mr. Chairman, before I speak of the 1999 
budget, let me put this in perspective. In 1973, as you know, 
we received our charter to govern ourselves. We were 
enthusiastic about it. But when you examine that, and you have 
done it and others have won it, you find that there was a 
fundamental flaw in the structure of that charter. We were 
charged with a mixed bag of State, county and municipal 
functions, and even Federal functions with no matching revenue 
streams. This is still true today as it was in 1973. In other 
words, the design saddled the District with a full range of 
nonmunicipal responsibilities.
    Part of our charge here is not just to balance our budget 
and not just to deliver quality services--that is very, very 
important--but also we have to continue to examine the 
structure of this government, and it ought to be done by the 
people of Washington. We ought to have a charter commission and 
others that will look at this and make recommendations to the 
citizens. Let there be a referendum and then let the Congress 
adjust whatever it is they want to do based on those kinds of 
dialogs.

                        ``the orphaned capital''

    Carol O'Cleiracain in her book, ``The Orphaned Capital,'' 
stated that:

    The District's tax base is severely constrained because it 
is the Nation's Capital. Forty-one percent of the property tax 
is exempt from property taxes. Sixty-five percent of the people 
who work in the District live elsewhere and do not contribute 
to the income tax base. Congress does not allow the District to 
impose a nonresident tax to help pay for public services 
provided to commuters during their workday. The District does 
not collect taxes on the purchase or income of the large 
numbers of military personnel and foreign diplomats living and 
doing business here. Finally, the Federal Government does not 
pay sales tax on purchases or personal property taxes.

    Which means as the District moves into the new millennium 
we have to also look at the best way to use this 43 percent of 
the land that is available to us, since we cannot gather taxes 
from the other. As you probably know, over 300,000 cars come 
into this city each day beating up our roads and streets.

               15th street resurfaced and potholes filled

    Incidentally, Mr. Chairman, I think since we talked last 
15th Street--I mean, Constitution Avenue has been fully 
resurfaced, you had mentioned that at one point, the potholes, 
and we have filled about 65,000 potholes with another 10,000 to 
go. We are working on that.

          relationship between federal and district government

    We need to continue to look at the relationship with the 
Federal Government and the District Government. Also, Mr. 
Chairman, there is a view among some that the D.C. Government 
in general, and this Mayor in particular, was not committed to 
balanced budgets, and financial discipline, and management 
improvements, and service delivery. We were long before the 
Control Board.
    In my statement, I go through a series of actions that I 
took in 1979 where our books had not been audited in over 100 
years, and I ordered that these books be audited. The auditing 
firm could not do it the first year, but in 1980 we received 
our first balance sheet audit. Lo and behold, we found that the 
Federal Government had left us a deficit of $279 million, which 
has been absorbed by the people of Washington, added to our 
overall deficit. But we were committed.
    On page 6 of my statement, you will see the number of years 
that we went through. Starting in 1981, a surplus of $68 
million; in 1982, $13 million; in 1983, $13 million; on down to 
1988, when we had a small deficit of $14 million; and in 1990, 
$118 million. I had sent over to the City Council a series of 
moves to reduce that to zero, but during that particular year 
there was not much receptivity to that, so we ran a large 
deficit. But as you probably know, Mrs. Kelly was able to 
borrow $331 million in 1991 to retire that deficit.
    During that period, we did go downhill and ended up with a 
$335 million deficit at the end of 1994. In fact, that deficit 
lead us to the point of discussing with the Senate and the 
House and the Treasury how we could borrow money, and thus the 
Financial Management Assistance Authority was born in 1995.

                          summer jobs program

    Also, on page 7, there are a number of things that we have 
done to improve the city not just structurally, but in terms of 
the downtown area. We went from a sleepy southern town to a 
bustling metropolis and a cosmopolitan kind of city, 23 million 
square feet of space. I am most proud of the fact that during 
this period we were able to give and provide opportunities for 
over 100,000 young people for our summer job program. I am sure 
you would agree, Mr. Chairman, that our young people need to 
work, need to learn how to come to work on time, how to dress 
properly for success, et cetera. But it has also been a booster 
for the city.
    In 1995, when I came back into office, I inherited this 
deficit. We went to work on trying to do something about it. 
Obviously, we could not do it all by ourselves. But even before 
the Control Board, we went from a $335 million deficit in 1994 
to only $54 million in 1995, which demonstrated our commitment 
and the Council's commitment to resolving that problem and to 
balancing budgets.
    Also, let me commend our employees, Mr. Chairman, during 
this critical period. They really had their salaries cut by 
almost 12 percent, but they continued to work as hard as they 
could to provide quality services to our citizens. Despite 
these setbacks, we have been able to continue.

              reduction of full-time equivalent positions

    We have done something remarkable, and that is, in the last 
3 years--and Ms. Cropp alluded to this--to reduce the size of 
government by over 7,500 full-time equivalents, for a savings 
of at least $165 million, which represents a 27-percent 
reduction in the size of this government. It took New York City 
4 years to reduce it by 20 percent. When Philadelphia had its 
problem, it did not reduce its payroll or its number of 
employees by any number because they kept the same number. I 
think I would like to just go on the record saying that because 
of our commitment to trying to structurally reform the 
government, at the same time increase the quality of services 
and train our work force, we did that at the same time that 
over 7,500 people left the payroll.
    Our citizens suffered in some instances from that, because 
you cannot reduce that number of people off a payroll and not 
see some reductions in services. Otherwise, they were not doing 
anything. They were working. The people who took it the 
hardest, quite frankly, are the last, the least and the lost--
those who need social services, those who need the help of 
government to be a safety net for them. They are the ones who 
suffered the most during this period. That is why during our 
budget deliberations we tried to begin to build that safety net 
again for all of our citizens who through no fault of their own 
needed the help of government.

                          department of health

    Also, we did something that I think is very important in 
creating the Department of Health which sort of gave us a focus 
on health in this city, and the Public Benefit Corp. which 
saved, in my view, D.C. General and our clinics as our safety 
net situation and also we established a ward-based sanitation. 
I tell you all this so that we can see this in the context of 
facts that the District has done and not just rely on the 
newspapers or television, because you know how they are in 
terms of what they----
    Senator Faircloth. I have an idea. [Laughter.]
    Mayor Barry. Yes; I think you have experienced that a 
little bit, too, about what is happening in our city. So we now 
come to the present in the sense that we are the Nation's 
Capital, the international capital of the world, as well as the 
home for over 550,000 of us who are here.

                  nations' support for capital cities

    I just returned not long ago from a conference a couple of 
weeks ago in Taipei, Taiwan, where mayors from capital cities 
all over the world came--the mayor of Warsaw, Poland, and 
others--where we were talking about capital cities. In most of 
those instances, the nations support their capital cities a lot 
more than the Nation supports the District of Columbia.
    So I am glad to hear you say that it is the responsibility 
of all Americans, it seems to me, to assist us in assisting 
ourselves. We are not looking for a handout, but a hand up. We 
are not looking for--we would rather learn how to fish than to 
give people fish. Because when the fish training session is 
over, you can fish for yourselves. That is my philosophy about 
self-help for our city.
    Also, Mr. Chairman, let me say that even though there are 
some growing pains associated with our new restructuring and 
our new responsibilities, I think it is fair to say that both 
the Mayor, the City Council and members of the Financial 
Management Assistance Board have learned to work together in 
terms of looking out for the best we can get for our city.
    It has not always been easy because when you are elected 
you may come to the table with a different point of view, 
trying to represent the values and views of your constituency, 
whereas when you are appointed you might not necessarily have 
the same kind of interaction and the same kind of points of 
view. But we have come together around a common goal of trying 
to do better.
    On page 16, we talk about some of those things we talked 
about doing together, paying our vendors and some of our tax 
refunds. The most important part of it was our city bond rate 
increased to just less than junk bond. All of us are proud of 
our MCI arena. Incidentally, Mr. Chairman, I am rooting for the 
Capitals over the Detroit Reds, the Detroit team. I hope you 
join us in making sure we bring home the bacon. I am sure you 
have got influence in Detroit as you do in Washington and North 
Carolina.

                         new convention center

    Also, we have a new convention center planned, which is 
going to be a great attraction. As Ms. Cropp pointed out, 
tourism is our No. 1 industry behind government. Over 100,000 
people work in the hospitality industry, we have over 24,000 
hotel rooms, and so our new convention center will enable us to 
expand our tax base and begin to attract more visitors to 
Washington. I hope that at the proper time when it comes over 
to the Senate from the House, if there are any amendments to 
make it work, that you will be very supportive of our 
convention center.
    Mr. Chairman, you will hear from others--Ms. Cropp you have 
heard from--and also Dr. Brimmer, about how we worked together 
on trying to come to a consensus. On page 18 of my statement, 
you will see the 9 or 10 areas that we focused on, which was a 
good process, rather than me sending the budget over to the 
City Council and then it goes back and forth to the Control 
Board. In 1997, I think 18 different budgets were put together. 
It was a mess, I mean. It confused the citizens, it was very 
inefficient.
    There was a flaw in the law that required it to be done. 
This year because of the Revitalization Act, which gave us 
flexibility, we decided that we would not send a budget over, 
the Mayor would not, but we would all sit and look at a base 
budget for 1999. For six different sessions over 4 or 5 hours 
at a session, the members of the Council, the Control Board 
members, myself, and the staff sat and hammered out these 
policy positions.

                 policy positions in developing budget

    No. 1 was eliminating the accumulated deficit through 
budget surpluses and reduction in programs; established a 
positive fund balance; maintained a balance between revenue and 
expenditures, which was a structural balance; moderated the 
debt burden; achieve investment rate bond ratings; fund 
management reform areas that you wanted us to look at; 
developed a labor strategy.

                          performance measures

    As Ms. Cropp has said, our employees have not had a raise 
since 1994. You know and I know that you cannot get the best 
out of employees if they are mumbling and grumbling about the 
fact that inflation has overtaken their pay. We also tied pay 
to performance for the first time, that is: you cannot just 
automatically get a pay increase because you are working for 
the government. You now have to have some performance measures, 
which helps to measure your efficiency, your effectiveness in 
your job before the group of people will get a pay increase.

                        restructuring tax policy

    We also looked at restructuring tax policy. We are the 
highest taxed in this region, as you probably know. One of the 
reasons we are the highest taxed is we cannot tax income at its 
source, so we are losing several hundred million dollars, and 
so the D.C. residents and businesses have to make up that 
difference.

                             receiverships

    We also looked at Federal-District relationships and 
returned receiverships to District control. As you know, we are 
under a number of receiverships. Frank Raines was down at the 
judicial conference last Thursday, where he talked about 
whoever said that lawyers and judges could write programs for 
cities to carry out. We have to find a way to get these 
receiverships back in the hands of the people, at the same time 
ensuring quality services for the category of people that they 
would desire to protect.

                        reform of school system

    Mr. Chairman, this budget reflects a resolution of the 
financial emergency that the city has faced in recent years. We 
still face many difficult choices, many challenges. 
Nevertheless, the basic elements are here, and we urge you to 
support our consensus budget process, to support the efforts of 
Ms. Ackerman in terms of trying to reform our school system. I 
think the last 18 months have not been good for us. I think the 
board did not make the best judgment, and somehow we proceeded. 
But we now think we are on the road to the possibility of true 
reform in our school system.
    Incidentally, during this month I am a proud parent. I have 
a son who is graduating next Tuesday from one of our public 
schools at 10 a.m., June 16, at Constitution Hall. He will be 
going to Hampton University. I am a proud parent.
    But we have got to continue, though, to reform our school 
system to insist that they improve these test scores, that our 
long-term construction program be outlined.
    Finally, Mr. Chairman, I would hope that no one would be 
tempted, including yourself, to take any further local self-
government from us, from local elected officials. I know how 
you feel about these things. We think we have done enough. Let 
us continue with the local officials, with the appointed 
officials. We see that it can work.
    A good example of that is the Metropolitan Police 
Department, which did not come under the management control. We 
had a memorandum of understanding partnership, about 9 of us, 
and we now have the lowest crime reduction in Washington in 20 
years. That process does work.

                           prepared statement

    I urge you and urge your colleagues not to load up our 
budget with what I call Christmas tree ornaments about 
everybody's interests as was attempted in the House last year. 
Again, we urge you to examine this budget carefully, ask all of 
the questions that you need to ask and get good, solid answers, 
but in the final analysis to support this consensus budget 
process.
    Thank you.
    [The statement follows:]

                Prepared Statement of Marion Barry, Jr.

    Good afternoon, Mr. Chairman and members of the committee. I thank 
you for this opportunity to share my views on District finances and to 
place in the appropriate context the fiscal year 1999 financial plan 
and budget.
    First I would like to introduce the newly appointed interim Chief 
Financial Officer, Mr. Earl C. Cabbell. Mr. Cabbell, a CPA, has served 
as Deputy Chief Financial Officer for Financial Operations and Systems 
since 1996. He was previously the Deputy Director of Finance/Chief 
Accounting Officer for the city of Detroit. He has also served as 
Director of Finance for the State of Maryland's Department of 
Transportation, a position he assumed in 1992 after serving as the 
Accounting Systems Director for the city of Baltimore. In the past two 
years, he has successfully handled the challenge of helping to bring 
financial stability to the District.
    The development of a budget provides an opportunity to reflect on 
the past, to measure progress, and to plan for the future. The fiscal 
year 1999 financial plan and budget is the last budget I will present 
to the executive and legislative branches of the Federal Government.
    Before I comment on the fiscal year 1999 budget request, I would 
like to present a contextual framework relative to the inherent 
problems confronting the District and to clarify for the record my 
administration's commitment to management efficiency, quality services 
and balanced budgets.
    In our enthusiasm to govern ourselves, District residents accepted 
a home rule charter twenty-five years ago that was structurally and 
fundamentally flawed. It never drew a clear line between the Federal 
Government's responsibility and that of the new government. We were 
charged with a mixed bag of municipal, county, State, and even Federal 
functions, but no matching revenue streams. This is still as true today 
as it was in 1973.
    In other words, the government design saddled the District with a 
full range of non-municipal responsibilities, especially those 
typically assigned to States, such as Medicaid, pension, and 
corrections. These state functions have produced some of the most 
volatile cost pressures in the public sector, and they have been 
assumed without identification of adequate resources. Carol 
O'Cleiracain clearly states in her book, ``The Orphaned Capital,'' 
that:
    ``The District's tax base is severely constrained because it is the 
Nation's Capital. Forty-one percent of the property tax is exempt from 
property taxes. Sixty-five percent of the people who work in the 
District live elsewhere and do not contribute to the income tax base. 
Congress does not allow the District to impose a nonresident tax to 
help pay for public services provided to commuters during their 
workday. The District does not collect taxes on the purchases or income 
of the large number of military personnel and foreign diplomats living 
and doing business here. Finally, the Federal Government does not pay 
sales tax on purchases or personal property taxes on its equipment.''
    Thus, the structure of the Federal relationship inherently provides 
for unfunded mandates in terms of the services the District is required 
to provide.
    There were, and continue to be, some in Congress who question my 
commitment to sound fiscal and programmatic management practices. My 
record demonstrates the exact opposite. In 1979, I was the District's 
second elected Mayor in modern times. I inherited a stagnant 
bureaucracy, staggering inefficiency and waste. My platform was 
predicated on my commitment to improve city services, improve 
management at all levels, and institute sound financial management 
practices. My administration was able to attract some of the most 
qualified professional managers in the country.
    The Barry administration has always demonstrated its commitment to 
balanced budgets. In 1979, when I first took office, the finances of 
the District of Columbia were in total disarray. They had not been 
audited in 100 years. In 1976, Arthur Anderson had called the 
District's financial management system unauditable. In fiscal year 
1979, for the first time since the enactment of the Home Rule Act, I 
ordered an independent audit of the District's books. The audit 
revealed that the District had an accumulated deficit of $248 million.
    During my tenure, we produced the first audit in 100 years and 
achieved 8 years (out of 11 years) of reducing the accumulated deficit. 
We also achieved a balanced budget by 1981, and continued to balance 
the budget for every year but two between fiscal year 1981 through 
fiscal year 1990, as the following chart demonstrates:

                                         SUMMARY OF GENERAL FUND RESULTS
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                               Bond
                                                                                            sales and   Surplus
                            Fiscal year                              Revenues     Expend    transfers  (deficit)
                                                                                               net
----------------------------------------------------------------------------------------------------------------
9/30/79............................................................       N/A         N/A        N/A        N/A
1980...............................................................     1,732      (1,735)      (102)      (105)
1981...............................................................     1,908      (1,733)      (107)        68
1982...............................................................     2,000      (1,875)      (112)        13
1983...............................................................     2,208      (2,078)      (117)        13
1984...............................................................     2,402      (2,289)       (96)        17
1985...............................................................     2,635      (2,775)       165         25
1986...............................................................     2,815      (2,706)       (89)        20
1987...............................................................     3,055      (2,941)       (94)        20
1988...............................................................     3,364      (3,302)       (76)       (14)
1989...............................................................     3,489      (3,703)       (64)         5
1990...............................................................     3,680      (3,703)       (95)      (118)
----------------------------------------------------------------------------------------------------------------

    It is important to note that the audit in 1980 revealed that the 
Federal Government owed the District approximately $279 million. 
District taxpayers had to assume this debt.
    Nevertheless, during this time, financial discipline was maintained 
and the District received a series of clean audits. The District 
realigned itself structurally, improved its management capacity, 
continued to attract professional managers, and reaped the benefits of 
an economic boom. The Barry administration oversaw an acceleration in 
new construction that led to a radically altered downtown skyline, the 
addition of 23 million square feet of office space in 10 years, and the 
tripling of property tax revenue to $700 million annually.
    When all is said and done, during this ten year period, the Barry 
administration:
  --Helped rebuild the District's downtown
  --Transformed Washington into a thriving metropolis and a 
        cosmopolitan city
  --Gave more than 100,000 young people summer jobs
  --Increased support for senior citizen programs
  --Provided a catalyst for thousands of jobs for African-Americans and 
        others who had been left out
  --Fought constantly and tirelessly for home rule and democracy for 
        the District
  --Was a booster for the city, traveled widely spreading the word 
        about what the city has to offer, and worked closely with 
        business leaders to bring increased commerce and recognition to 
        this, America's first city
  --Encouraged community empowerment and community participation in the 
        operation of government.
    The prosperity of the 1970's and 1980's hid many of the fundamental 
flaws. The lean times of the 1990's not only exposed the cracks in our 
foundation, but have led to dire consequences in service, 
profitability, safety, and other factors that influence families, 
businesses, and tourists.
    Furthermore, during this period, court orders and mandatory 
expenditures were growing at a rate that far out-stripped revenues. 
Expenditures such as the pension liability, debt service, Medicaid and 
AFDC could not be cut. Tax revenues declined as the District lost 
population to the suburbs. Meanwhile, the Federal payment routinely 
fell short of compensating the District for the net impact of the 
Federal presence. Yet, the District's discretionary spending was under 
control and financial discipline was strictly enforced recognizing the 
need for reassessing the operation of government to ensure the 
continued delivery of quality services, and fiscal stability, I 
established the Commission on Budget and Finance Priorities of the 
District of Columbia, chaired by Alice M. Rivlin. The commission's 
report highlighted impending fiscal crisis and recommended management 
reform. Unfortunately, the Kelly administration failed to implement the 
commission's recommendations.
    During the Kelly administration, from fiscal year 1991 through 
fiscal year 1994, mandatory spending remained out of control, with the 
imposition of additional court orders, a failing economy leading to 
higher welfare spending and an ever-increasing pension liability. As a 
result, the deficit ballooned to $335 million by the end of fiscal year 
1994, despite the Kelly administration receiving congressional approval 
to borrow $331 million from the U.S. Treasury to retire the accumulated 
deficit from fiscal year 1990.
    When I returned to office in January 1995, I discovered and 
announced to the citizens the desperate and sorry state of the 
District's finances: The previous administration had overspent by $335 
million, an amount that if left unchecked, would have spiraled into a 
$722 million shortfall. Getting our finances in order was one of the 
highest priorities of my administration. To avoid this deficit that 
would amount to 26 percent of the general fund, several drastic 
measures and strategies were employed. These included:
    1. Reducing agency spending by $229 million which included the 
reduction of personal services expenditures by $79 million by rolling 
back employee wages by 12 percent, and implementing furloughs, 
voluntary separation programs and massive reductions in force.
    2. Restructuring the debt for a $70 million savings.
    3. Most important, a call to the President and the Congress to 
assume some of the non-municipal services that were inherited by the 
District by home rule.
    The fiscal year 1995 expenditure reduction plan was largely 
successful in that the fiscal year ended with a $54 million deficit, 
instead of the potential $722 million shortfall. The annual independent 
audit confirmed a net reduction in expenditures of $151 million from 
the previous fiscal year.
    This represented the largest turn around of any local government in 
the same situation, and for the District, this turnaround represented 
the first time in the history of home rule, that expenditures in one 
fiscal year were lower than those of the previous fiscal year. Mind 
you, this was all before the creation of the District of Columbia's 
Financial Responsibility and Management Assistance Authority and 
Independent Chief Financial Officer.
    After containing the hemorrhaging, my administration embarked on a 
systematic quest to craft a transformation plan. In 1996, approximately 
one year after my return as Chief Executive of the District of 
Columbia, and one year after I exposed the extent of the District's 
fiscal crisis that the District was in, I presented a bold new 
direction for the government of the District of Columbia and the people 
of the District.
    The underlying basis of this transformation was the implementation 
of performance-based principles and programs--both in the budget 
development and execution processes, and in the service delivery 
systems.
    Despite setbacks in the implementation of the transformation plan, 
we made considerable progress. We contributed to balancing the budget, 
and set the stage for management reform. We accomplished much and were 
on the path of reform. we:
  --Reduced the size of government by more than 7,500 FTE's for a 
        savings of $165 million, which also represents a 27-percent 
        reduction in the size of the workforce over a period of two and 
        a half years.
  --Outsourced city services, the most notable being the correctional 
        treatment facility.
  --Reduced AFDC benefits, unemployment benefits and workers 
        compensation costs in an effort to bring them more in line with 
        those of neighboring jurisdictions.
  --Created a Department of Health and a Public Benefits Corporation 
        that dramatically improved health care in the District at a 
        lower cost.
  --Improved public protection by adopting a community policing model, 
        even before the initiation of the MOU process.
  --Established a ``ward-based'' sanitation system and increased the 
        number of solid waste inspectors.
  --Created an Independent, Regional Water and Sewer Authority with the 
        ability to raise the necessary revenues through a much needed 
        rate increase and more importantly, enhanced borrowing 
        authority, resulting in much needed repairs to our drinking 
        water system.
  --Focused on the District's finances, going from ``junk'' bond status 
        to the ability to sell more than $230 million in general 
        obligation bonds at a very competitive rate.
    The District's financial condition has presented dynamics that had 
never been encountered before--i.e. economic downturn experienced by 
most cities, the financial mismanagement of the previous 
administration, and inherently flawed fiscal structure. The Congress of 
the United States responded by enacting the Financial Responsibility 
and Management Assistance Authority Act, and created an Implementing 
Authority. The act also created an Independent Chief Financial Officer 
and empowered the inspector general. It is important to note that 
several actions taken by the Financial Authority were not consistent 
with their original mission as Financial Assistance Advisors or with 
accountability to the citizens of the District--i.e., relegating the 
elected school board to an advisory status.
    Although there have been some ``growing pains'' associated with our 
respective roles and responsibilities, I think that it is fair to say 
that we all share a common commitment and vision of a higher quality of 
life for the residents, businesses, and visitors of the Nation's 
Capital.
    The District's recovery involves much more than a Financial 
Authority and a Chief Financial Officer with independent and broad 
powers. We demonstrated the strong will and ability to reduce personnel 
costs but the cost drivers for the District continue to be mostly those 
functions that are typically performed by a State. Unfortunately, the 
District inherited many of these functions at the inception of home 
rule in 1973. The situation was compounded by the restrictions on the 
District's taxing capabilities mentioned earlier.
    In 1995, I first suggested many of the reforms which eventually 
resulted in the National Capital Revitalization and Improvement Act. 
Many people ridiculed my plan for the District. Yet, two years later, 
much of the plan was adopted by President Clinton.
    However, the citizens of the District did not expect, that as part 
of the Revitalization Act, the loss of home rule. As I have said many 
times since July 1997, it is clear to me that these anti-democratic 
reforms went way beyond what I believe was originally envisioned by the 
various stakeholders. The Financial Authority's actions in most cases 
were in that they failed to work cooperatively with the local elected 
officials. Thus, the Financial Authority has created a fractured 
governance structure of unequal, unelected, independent parts.
    Notwithstanding the governance issues, the assumption of the costs 
for these State functions, coupled with a strong economy, resulted in 
additional funds being available for programmatic and infrastructure 
initiatives.
    Recent accomplishments include:
  --The payment of vendors doing business with the District are within 
        six weeks, not the eight months many complained about 
        previously.
  --The timely remittance of tax refunds within 15 days, rather than 
        four months.
  --The upgrade of the city's bond rating.
  --A skyline dominated by building cranes related to commercial 
        construction.
  --A new convention center is planned.
  --The MCI arena.
  --The return of tourists in rising numbers--22.4 million in 1997, an 
        8-percent increase from 1996.
  --The rise of home sales by 33 percent in 1997, fueled partly by a 
        $5,000 tax credit for first-time buyers.
  --Increased effort in improving municipal services, as evidenced by 
        the management reform program of 1998.
    It is important to note that the act creating the Financial 
Authority mandated a tedious and protracted budget development process 
that resulted in the Mayor and City Council, and Financial Authority 
submitting separate budgets for fiscal year 1998. The Revitalization 
Act sought to remedy the inherent roadblocks in the budget development 
process and stipulated that a consensus budget was to be submitted to 
the President and Congress.
    Thus, the development of the fiscal year 1999 financial plan and 
budget demonstrates that a constructive and future-oriented budget 
results from a collaborative process that supports the mutual goals of 
improved service and financial prudence. Each stakeholder brought their 
own priorities to the negotiations which produced this consensus 
budget. While no one got everything they wanted, the resulting 
consensus budget is acceptable to everyone.
    In February 1998, the Mayor, Financial Authority, and the City 
Council met and agreed upon 10 key budget decisions, the resolution of 
which largely shaped the budget for fiscal year 1999 and beyond. These 
key budget decision are as follows:
  --Meeting financial management targets.
    --Eliminate the accumulated deficit through budget surpluses
    --Establish a positive fund balance
    --Maintain a balance between revenue and expenditure rates 
            (structural balance)
    --Moderate the debt burden
    --Achieve investment grade bond ratings from all three rating 
            agencies
  --Fund management reform
  --Develop labor strategy
  --Restructure tax policy
  --Define District/Federal relations
  --Define capital financing priorities
  --Return receiverships to District control
  --Fund D.C. public schools
  --Define health and human services
  --Adoption of program enhancements and service improvements
    The budget for the District of Columbia reflects a resolution of 
the financial emergency that the city has faced in recent years. The 
District still faces many difficult choices. Nevertheless, the basic 
elements of the budget clearly tell a story of improvement and 
revitalization. The Fiscal Year 1999 Financial Plan and Budget 
estimated revenues of $5.231 billion and total expenditures of $5.189 
billion to achieve a $41 million budget surplus. The surplus is 
projected to be $254 million in fiscal year 1998. Moreover, the 
District is making significant inroads in reducing the accumulated 
deficit that has drained funds and hindered access to capital markets. 
The financial plan and budget projects that, by September 30, 1999, the 
District's accumulated deficit will amount to $37.5 million down from 
an accumulated deficit of more than $500 million on October 1, 1996.
    The stakeholders established certain principles regarding the 
nature of expenditures for fiscal year 1999. Most important was the 
instruction given to agencies that no across-the-board spending 
increases would be approved. Rather, all requests for budgetary 
increases--except those in instances in which such program increases 
were mandated--would have to compete for available funds. Spending 
increases, where justified, were to be granted based on their expected 
contribution to the improvement of public services and municipal 
productivity. The fiscal year 1999 budget also includes a 2-percent 
reduction in agencies' budgets other than for fixed costs and 
transfers. This reduction did not apply to the MPD or DCPS. Agencies 
are expected to continue their current level of service with less funds 
by increasing productivity.
    In accordance with section 202 of the District of Columbia 
Financial Responsibility and Management Assistance Authority Act of 
1995, I will submit to the President of the United States, the District 
of Columbia's official fiscal year 1999 financial plan and budget.
    In conclusion, we urge the Congress of the United States to support 
and adopt the consensus budget of the District of Columbia. This budget 
reflects the understanding of the locally elected and appointed 
officials of the District's real needs. It reflects the true 
appreciation of the needs and concerns of the residents of the 
District. Most importantly, it is a sober allocation of the limited 
resources available to the District.
    Thank you for the opportunity to testify before the committee.
      Financial Responsibility and Management Assistance Authority

STATEMENT OF DR. ANDREW F. BRIMMER, CHAIRMAN
    Senator Faircloth. Thank you, Mr. Mayor. I do plan to study 
it carefully, and I will not be jumping to any conclusions, I 
can assure you.
    Next, we have Dr. Brimmer, Dr. Andrew F. Brimmer. Dr. 
Brimmer, this may be your last appearance also before this 
committee in your capacity as chairman of the Control Board. 
Through your efforts, the District's financial management 
future is much brighter. Dr. Brimmer, I thank you for your 
service to the Nation and to the city for all you have done, 
and we would like to hear your testimony.
    Mr. Brimmer. Thank you very much. Mr. Chairman, good 
afternoon.
    My associates have already described the principal 
dimensions of the budget, so I will not go through those in any 
detail. Instead, I would like to talk about several problems 
that still remain with respect to the budget. But before doing 
so, I would stress again that this is not only a balanced 
budget we are projecting, but it is one that contains and 
expects a surplus. That surplus would be used and would enable 
us to reduce the accumulated deficit as well. In a year or two, 
we expect to eliminate it entirely.

                     projected surpluses very small

    However, I would also stress that the surpluses we are 
projecting over the next few years are precarious; they are 
very small. So we must be careful to assure that expenditures 
will not rise at a rate that exceeds the slow growth in 
revenues that we are projecting. For example, if the 
projections hold, we would end up with an annual budget surplus 
of $24 million, $16 million and $9 million in fiscal years 
2000, 2001 through 2002, respectively. But I stress those are 
precarious.
    Now, the surplus we are experiencing, we did experience 
last year and we expect to experience this year, probably 
reflects the Revitalization Act. But we also had some growth in 
revenues, reflecting the strength of the local economy.
    As we look ahead to 1999, we should expect to see a major 
shift in the sources and uses of local funds. For example, we 
anticipate that we will be shifting the way we finance capital 
improvements. In my testimony, I describe that in some detail, 
but this will represent a major effort. We believe that the 
time has come for the city to devote more of its expenditures 
to its improvement of infrastructure while maintaining 
services, of course, but we believe that infrastructure is a 
serious problem, and we have some suggestions for the amounts 
and how to use that requirement. My colleagues described the 
budgetary process, and I will not go into that in any detail. 
In fact, I will not need to mention that at all.

                      regroup appropriation titles

    What I would like to do next is turn to the broad 
categories of expenditures. We are requesting that more 
simplified appropriation titles be adopted this year. In my 
testimony, on page 11 there is a Table 2 entitled, 
``Expenditures by function.'' You will see that we are 
proposing that we group the appropriation titles so that we 
would have the first category of: government direction, 
finance, safety and justice; we would combine economic 
development, regulation and public works; we would have a 
separate appropriation title for the public education system; 
we would have a more general title for human resource services 
and----
    Senator Faircloth. Excuse me, Dr. Brimmer. What page are 
you? I am trying to follow you and I got lost.
    Mr. Brimmer. It is Table 2. Oh, I apologize. I am reading 
from a reading copy which might be different from the printed 
copy.
    Senator Faircloth. I have it now. It is page 9.
    Mr. Brimmer. Oh. In your version, it is page 9?
    Senator Faircloth. Yes.
    Mr. Brimmer. All right. But the table number is two.
    Senator Faircloth. Yes.
    Mr. Brimmer. Table 2. Well, I will just repeat briefly. 
What we are trying to do is to simplify the appropriation title 
distribution. In the old one that we are now using, we have 
many detailed line item appropriation titles. We believe that 
is not the best way to do it.
    We will propose and are proposing that the Congress adopt a 
budget with a smaller, broader range of appropriation titles 
and that the Congress give the Control Board the authority to 
reallocate funds across appropriation titles. Congress did that 
in 1998. It gave us the authority to reprogram and to use the 
$200 million surplus in order to facilitate the most efficient 
use of expenditures, and we are suggesting that that be done 
this time. I would be delighted to amplify that further, Mr. 
Chairman.

              reductions in full-time equivalent positions

    I also want to call the committee's attention to what has 
happened to personnel costs. Now, in the testimony there is a 
chart called Figure 3, which shows that from September 1995 to 
March of this year we have had over 10,000 reductions in the 
number of full-time equivalents on the payroll.
    Frankly, Mr. Chairman, we feel that over the last 3 years, 
this is one of the major accomplishments of the Control Board 
working with the city. When we came into office in the summer 
of 1995, we were given a budget projected for fiscal year 1996 
which called for 45,000 FTE's. For the year just ending, 1995, 
there were 43,000, and the plan was to go to 45,000. We said 
that was unacceptable.
    The first recommendation we made, which was taken not 
simply as a recommendation but as instruction, was to reduce 
the number of FTE's by 5,600. We did that very early in our 
stay. Actually, during that year we achieved a reduction of 
5,200, and today twice that number of FTE's have been 
eliminated. Specifically, it is down 10,000 or 25 percent, and 
thus 25 percent is essentially the same figure that the Mayor 
had mentioned. We think it is vital that efforts be made to 
hold down personnel expenditures.
    As you look ahead to 1999, there are a couple of other 
areas of the budget to which I would like to call the 
committee's attention, and the first one is the public schools. 
Now, we have made a lot of progress in improving the quality of 
education and safety of the schools. However, much remains to 
be done.

                         public schools budget

    For fiscal year 1999, we are recommending $648 million in 
gross funds for the schools. That is an increase of $81 
million, over 14 percent, from the $567 million appropriated in 
1998. Now, this is the largest dollar increase for an agency in 
the 1999 budget.
    The principal increases in this budget are the result of a 
renewed emphasis on special education programs. Improved 
transportation initiatives and the funding of certain health-
related measures that heretofore were the function and 
responsibilities of the receiver overseeing the foster care 
program. I mention this explicitly because this is a major 
challenge facing the schools and the city. In 1998, special 
education spending was $105 million. The projection for 1999 is 
$156 million.
    Mr. Chairman, that is mandated spending. Court orders, 
receivers, monitors control a substantial portion of the 
program and of the budget of the school system. Ms. Ackerman, 
the recently appointed CEO and superintendent of the schools 
has worked hard to hold down these expenditures, but there is 
no way to avoid it. This is the biggest change in the budget, 
and there is more ahead of us. Sometime I am hopeful that we 
will be able to provide to the Congress a fuller assessment of 
the impact of receivers on the budget. The Mayor mentioned 
them, and I have mentioned them. It is a major problem.

                       department of corrections

    Now I would also like to mention at this time another area, 
Corrections. The Department of Corrections is undergoing vital 
transformation as a result of the Revitalization Act. The 
committee might recall that the Congress--that the 
administration took over the responsibility for sentenced 
felons for funding in the short run. Now, by December 31, 2001, 
the Federal Government will assume total control over most of 
our sentenced felons, and the prison system at Lorton, VA, will 
be closed.
    The temporary management of the D.C. prison system is being 
carried out in part by a Federal Government corrections 
trustee. The trustee has recommended a budget of $185 million 
for 1999. However, we have determined that this amount 
seriously underfunds the projected costs of running the system. 
Consultants to the District's Budget Office have indicated that 
the true cost of running the system for 1999 is approximately 
$204 million, leaving a funding gap of $18.5 million.
    In addition, other direct and indirect costs to the 
District associated with the sentenced-felon population totals 
$25.4 million for a total of $44 million of underfunding. As 
part of the fiscal year 1999 financial planning budget, we are 
asking the Federal Government, which is now responsible for 
this system transfer, to assume the proper costs of 
appropriating an additional $44 million.

              infrastructure and public works improvements

    Mr. Chairman, I will also note, as my colleagues have done 
earlier, that the infrastructure and public works improvements 
are vital. We also believe that there is a vital need to 
promote economic development in the District. We have supported 
the restoration and enhancement of basic services such as bulk 
trash and so on. But we believe that in the long run we need 
additional funding for infrastructure.

                             audit contract

    Mr. Chairman, I would also like to mention that the 
District is faced with a serious problem with respect to our 
ability to get an audit. This is a narrow question. It is 
probably a technical question, but we do need some relief. 
Currently, there is a statutory prohibition on the ability of 
the inspector general to enter into an audit contract for more 
than 3 years. That limitation is proving to be a handicap in 
the effort to recruit competent auditors.
    We are proposing, and, in fact, the inspector general has 
already recommended, to the chair of the Authorization 
Committee in the House that this be changed to 5 years. We 
support that. It has serious, serious implications for the 
budget. We would hope this committee would support the matter 
if it were to come forward.
    Thank you very much, Mr. Chairman.
    [The statement follows:]

                Prepared Statement of Andrew F. Brimmer

    Mr. Chairman and Members of the Subcommittee: Thank you for 
inviting me to testify on the fiscal year 1999 District of Columbia 
Financial Plan and Budget (FPB). This morning I will briefly summarize 
the overall projected results of this budget, discuss the process used 
to formulate the budget, outline some key factors in the revenue 
projections, and present the critical expenditure components of the 
budget.
    I am pleased to report that this budget reflects a resolution of 
the financial emergency that the District has faced in recent years. To 
be sure, the District still faces many difficult choices, and its 
return to fiscal solvency remains precarious. Nevertheless, the basic 
elements of the budget clearly tell a story of improvement and 
revitalization. First, the fiscal year 1999 FPB estimates total 
revenues of $5.231 billion and total expenditures of $5.189 billion to 
achieve a $41 million budget surplus.\1\ This comes on top of a fiscal 
year 1998 surplus projected to be $254 million \2\ in fiscal year 1998. 
Moreover, the District is making significant inroads in reducing the 
accumulated deficit that has drained productive funds and hindered 
access to the capital markets. The budget projects an accumulated 
deficit of $37.5 million--down from a gap in excess of $500 million in 
1996.
---------------------------------------------------------------------------
    \1\ The revenue and expenditure projections incorporate $728.6 
million in Enterprise Funds, including the Water and Sewer Authority, 
the Lottery and Charity Games Board, and D.C. General Hospital.
    \2\ The large surplus projected in fiscal year 1998 is partially 
due to the one-time Federal payment of $198 million that was approved 
as part of the D.C. Revitalization Act.
---------------------------------------------------------------------------
    The development of this budget demonstrates that a constructive and 
future-oriented budget can result from extensive cooperation among all 
principals, and it continues efforts from fiscal year 1998 to improve 
service delivery and maintain fiscal stability. I would note that the 
budget represents the combined views of all parties, a change from 
previous years when the Authority has disapproved the budget submitted 
by the Mayor or the Council. Such a step was mandated if the Authority 
concluded that the budget did not meet the requirements of the District 
of Columbia Financial Responsibility and Management Assistance Act of 
1995 (``Act'') (Public Law 104-8). This year, based on the agreements 
reached on all fundamental issues and changes to the budget process 
contained in the Revitalization Act, the Authority has concluded that 
the fiscal year 1999 budget is in conformance with the Act. The budget 
will promote the financial stability of the District government and 
further the interests of the people of the Nation's Capital.
    The outyear projections, included in the Financial Plan for fiscal 
years 2000 to 2002, show a modest growth in total revenues and 
expenditures. If achieved, this would result in annual budget surpluses 
of $24 million, $16 million, and $9 million in fiscal years 2000, 2001, 
and 2002, respectively. These surpluses would eliminate the accumulated 
deficit by the end of fiscal year 2001 and produce an $11 million 
accumulated surplus by the end of fiscal year 2002. The progress in 
reducing the accumulated deficit is shown in Figure 1.
[GRAPHIC] [TIFF OMITTED] T03JU10.001

    Part of the budget improvement is the result of a more vigorous 
economy, which has provided significant increases in tax revenues to 
the District. The better budgetary climate also comes from structural 
changes in spending that occurred as a result of the National Capital 
Revitalization and Self-Government Improvement Act (``Revitalization 
Act''), enacted in August, 1997. Although that law effectively 
eliminated the annual federal payment of $660 million to the District, 
it did provide a one-time Federal contribution of $190 million plus $8 
million to help pay for Management Reform projects.
    The fiscal year 1999 FPB also represents a major shift in the 
funding of the District's capital improvement plan. Historically, the 
District has primarily funded its capital improvement with long-term 
general obligation bonds and loans provided from the U.S. Treasury. The 
recommended fiscal year 1999 Capital Improvement Budget and Six-Year 
Capital Plan (fiscal year 1999-fiscal year 2000) identifies a variety 
of financing sources to address the huge capital infrastructure deficit 
that exists within the District. The capital budget for fiscal year 
1999 represents $324 million in new funding sources. This includes $172 
million in long-term financing, $65 million in alternative medium- and 
short-term financings, $28 million in equipment leases, $42 
million in revenues generated from the sale and lease of school 
buildings, $5.3 million in federal grants, and $12 million in current 
operating funds (``PAYGO''). The agencies receiving the largest amounts 
of local capital funds are the District of Columbia Public Schools 
(``DCPS'') with $97 million and the Metropolitan Police Department 
(``MPD'') with $47 million.
                           the budget process
    The Revitalization Act also changed the process by which the 
District formulates and approves an annual budget during control years. 
In previous years, a cumbersome process of approvals and rejections 
within set time periods reduced the flexibility of District officials 
to reach consensus in the budget process. The Revitalization Act 
streamlined that process, which now provides for a more effective set 
of procedures to encourage greater cooperation among parties. Under 
this process, the District produced a consensus budget that was 
approved by the Council on May 20, 1998, signed by the Mayor, and 
forwarded to the Authority. On May 28, 1998, the Authority approved the 
fiscal year 1999 FPB and submitted it to the Congress, well in advance 
of the June 15th statutory deadline.
    The Authority, in conjunction with the Mayor and the Council, 
established certain principles regarding the nature of expenditures for 
fiscal year 1999. Most important was the instruction given to agencies 
that no across-the-board spending increases would be approved. Rather, 
all requests for budgetary increases--except in those instances in 
which such program increases were mandated--would have to compete for 
available funds. Spending increases, where justified, were to be 
granted based on their expected contribution to the improvement of 
public services and increased productivity of the City's workforce. The 
fiscal year 1999 budget also includes a 2-percent reduction in 
agencies' budgets other than for fixed costs and transfers. This 
reduction did not apply to the MPD or DCPS. Agencies are expected to 
continue their current level of service with less funds by increasing 
productivity.
                                revenues
    The fiscal year 1999 FPB projects total revenues of $5.231 billion. 
For comparison purposes, figures for fiscal year 1997 and fiscal year 
1998 are also shown in Table 1. For fiscal year 1999, the estimates 
include:
  --Local fund revenues of $2.907 billion,
  --Federal grants of $1,203 billion,
  --Private and other revenues of $304 million,
  --Intradistrict revenues of $88 million, and
  --Enterprise revenues of $729 million.

                       TABLE 1.--REVENUES BY TYPE
                        [In millions of dollars]
------------------------------------------------------------------------
                                                    Fiscal year
                                          ------------------------------
                 Revenue                               1998       1999
                                             1997     Revised  Requested
                                            Actual    budget     budget
------------------------------------------------------------------------
Taxes:
    Property Taxes.......................       688       670        675
    Sales and Use Taxes..................       541       558        565
    Individual Income Taxes..............       753       812        835
    Other Taxes..........................       508       535        547
                                          ------------------------------
      Total Taxes........................     2,490     2,575      2,622
                                          ==============================
Non-Tax Revenue..........................       212       194        217
Other Local Sources......................       123        69         69
Federal Payment..........................       666       198  .........
Federal Grants...........................       888     1,072      1,203
Private and Other Grants.................       196       140        304
Intra-District Revenue...................        99       102         88
Enterprise Funds Revenue.................       661       690        729
                                          ------------------------------
      Total Gross Revenue................     5,333     5,040      5,231
 
------------------------------------------------------------------------
Note: Totals may not agree due to rounding

    The Chief Financial Officer (``CFO'') certified the District's 
fiscal year 1999 local source general fund revenues to be $2.907 
billion. This is a 2.4-percent increase over the $2.838 billion 
expected to be collected in fiscal year 1998. Both of these amounts 
should be compared to $2.773 billion actually collected in fiscal year 
1997, which was a 4.6-percent increase over fiscal year 1996. These 
projections are reasonable-given that most economic forecasts 
anticipate continued growth in the nation's and the District's economy. 
Moreover, there is still room for continued improvements in tax 
administration. Figure 2 shows the source of these local revenues.

        Figure 3.--Source of Local Revenue for Fiscal Year 1999

                                                                 Percent
Income taxes......................................................    36
Other taxes.......................................................    11
Non-tax revenues..................................................     7
Other.............................................................     3
Property taxes....................................................    24
Sales and use taxes...............................................    19

    The financial plan does not address the impact of possible tax or 
regulatory reform on the District's revenue structure. A number of 
studies have argued for comprehensive and extensive tax reform, while a 
comprehensive report to the Authority by the District of Columbia 
Regulatory Reform Project laid out a full menu of regulatory reform. 
The financial plan does not address the potential impact of tax 
increment financing, linked to economic development districts, on 
future revenue growth. Both tax and regulatory reform have long-term 
revenue implications for the District, including a number of 
justifications for federal payment-in-lieu of taxes, which the present 
budget and financial plan do not address. Restructuring the District's 
tax system, improving tax administration, and rationalizing the 
structure and collection of fees, fines, and charges would 
significantly affect the District's ability to remain fiscally sound. 
The Authority will examine seriously all such plans in the context of 
fiscal stability and growth. These tasks remain open for the outyears 
of the current Financial Plan.
                              expenditures
    The fiscal year 1999 gross budget requests $5.189 billion in 
expenditures, which includes $728.6 million in enterprise funds. Table 
2 below shows requested expenditures by function for fiscal year 1999, 
as compared with the two previous years.

                   TABLE 2.--EXPENDITURES BY FUNCTION
                        [In millions of dollars]
------------------------------------------------------------------------
                                                    Fiscal year
                                          ------------------------------
                 Function                              1998       1999
                                             1997     Revised  Requested
                                            Actual    budget     budget
------------------------------------------------------------------------
Government Direction, Financing, Safety,      1,661     1,324     1,418
 and Justice.............................
Economic Development, Regulation, and           332       366       402
 Public Works............................
Public Education System..................       754       683       745
Human Support Services...................     1,788     1,781     1,579
Receiverships............................  ........  ........       319
Productivity Savings.....................  ........  ........       (10)
Financial Authority \1\..................         3         3         8
Enterprise Funds.........................       620       653       729
                                          ------------------------------
      Total..............................     5,158     4,812    5,189
------------------------------------------------------------------------
\1\ The Authority's budget has been increased from $3.220 million in
  fiscal year 1998 to $7,840 million in fiscal year 1999. The line item
  covers the core activities of the Authority and its component Office
  of the Chief Management Officer. Specifically, the Authority's core
  budget is decreased $500,000 to $2.720 million, and its component
  Office of the Chief Management Officer's core allocation is $5.120
  million.
 
Note: Totals may not agree due to rounding.

    Next I will outline some critical components of the expenditures in 
the fiscal year 1999 FPB. The most significant budget driver is the 
cost of personnel. As of March, 1998, the District government had about 
30,449 full-time-equivalent employees. Personnel costs are a 
significant portion of total District expenditures, and they account 
for the overwhelming majority of total expenditures for many key 
agencies, including police, fire, and the schools. Total personnel and 
benefit compensation in the fiscal year 1999 budget is projected at 
$1.8 billion or 44 percent of the District's total General Fund 
expenditures. Effective management of these resources is an extremely 
important component of the District's fiscal and management recovery.
    The fiscal year 1999 budget builds on past progress in reducing the 
workforce as well as on new legislation to improve human resource 
management that was enacted last year. The fiscal year 1999 budget 
begins to address the District's salary disparities and increased 
funding is provided for upgrading the skills of the workforce through 
training and other initiatives. However, the District still must 
develop a comprehensive labor strategy that addresses problems 
resulting from the District's large number of unions and bargaining 
units. In addition, it is critical that the District implement a modern 
automated human resource management system.
    The District has made substantial progress in reducing the number 
of personnel. When we began our service, we were presented with a draft 
budget for fiscal year 1996 that would have raised the District's Full-
Time Equivalents (FTE's) from 43,000 to 45,000. This provision was 
unacceptable. Therefore, one of the first recommendations of the 
Authority in August, 1995, was to reduce the number of FTE's by 5,600. 
During fiscal year 1996, an actual reduction of 5,239 was achieved. To 
date, nearly twice this number of FTE's have been eliminated. 
Specifically, since September, 1995, the District has reduced the FTE 
level 10,285, or by more than 25 percent. Of this reduction, 6,053 have 
been through shifts of programs to independent enterprises or to the 
federal government. More than 4,200 FTE's have been eliminated through 
reductions in on-going District agencies. Figure 3 highlights the 
reductions in the District's workforce.
[GRAPHIC] [TIFF OMITTED] T03JU10.002

    A critical area in which the Authority will continue to focus funds 
and attention is the DCPS. Although much progress has been made in 
improving the quality of education and safety of our schools, much 
remains to be done. For fiscal year 1999, the Authority recommends 
$648.2 million in gross funds, an increase of $81.1 million (14.3 
percent) over the $567 million appropriated in fiscal year 1998. This 
is the largest dollar increase for an agency in the fiscal year 1999 
budget. Principal increases in this budget are the result of a renewed 
emphasis on Special Education programs, improved transportation 
initiatives, and the funding of certain health related measures that 
heretofore were functions and responsibilities of the LaShawn Receiver 
overseeing the foster care program. Other major initiatives include 
increasing staff accountability and continued support of students who 
do not demonstrate basic skills through such programs as expanded 
summer school.
    One of the most essential services a jurisdiction provides is for 
the public safety of its residents and visitors. Recognizing that 
public safety is a prerequisite for a stable, vibrant community, it has 
always been one of the Authority's foremost priorities. For fiscal year 
1999, the Authority recommends $300.3 million in gross funds for the 
MPD, an increase of $30 million (10.2 percent) over the $272.4 million 
appropriated in fiscal year 1998. The Authority, in conjunction with 
the Criminal Justice Coordinating Council (``CJCC''), recently hired a 
new Police Chief for the District. Chief Charles Ramsey will continue 
to focus the MPD's resources on reducing crime and the fear of crime in 
the District. The initiatives range from increased police activity to 
eliminate open-air drug markets to placing more than 400 additional 
officers on the street. Police efforts have led to a dramatic decrease 
in major crime in the District, with homicides at the lowest level in a 
decade. This budget leverages improvements already made in fighting 
crime, and it funds certain initiatives (including an additional pay 
raise) that will expand MPD's capacity to fight crime, and which--in 
turn--will improve the City's quality of life.
    The Department of Corrections (``DOC'') is undergoing vital 
transformation as a result of the Revitalization Act. By December 31, 
2001, the federal government will assume total control over most 
sentenced felons, and the prison system at Lorton, Virginia, will be 
closed. The temporary management of the District's prison system is 
being carried out, in part, by a Federal Corrections Trustee. The 
Trustee has recommended a budget of $185 million for fiscal year 1999. 
However, the Authority has determined that this amount seriously 
underfunds the projected costs of running the system. Consultants to 
the District's Budget Office have indicated that the true cost of 
running the system for fiscal year 1999 is approximately $204 million, 
leaving a funding gap of $18.5 million. In addition, other direct and 
indirect costs to the District associated with the sentenced felon 
population totals $25.4 million, for a total underfunding of $44 
million. As part of the fiscal year 1999 FPB, the Authority is asking 
the Federal Government, which is now responsible for the system 
transfer, to assume the proper costs by appropriating an additional $44 
million.
    We would also note that the Authority considers infrastructure/
public works improvements to be crucial to the quality of life and 
economic development opportunities in the District. The Authority has 
supported the restoration and enhancement of basic services such as 
bulk trash collection, tree trimming, and pothole repairs that are 
contained in the budgets of the Mayor and Council. The operating budget 
for Public Works for fiscal year 1999 is $153 million, an improvement 
of $4 million.\4\ It includes initiatives such as: implementing the 
District's recycling program, replacing street signs, and continuing to 
fix local and Federal streets.
---------------------------------------------------------------------------
    \4\ For fiscal year 1999, the Department of Motor Vehicles has been 
separated from Public Works. In fiscal year 1999, the Public Works 
budget is $140 million and the Department of Motor Vehicles budget is 
$13 million.
---------------------------------------------------------------------------
    In connection with public works improvements, the District's 
capital budget is critically important to the overall upgrading of the 
infrastructure. The District's financial crisis in recent years has 
frequently prevented the District from adequately funding and 
maintaining capital improvements. Thus, infrastructure improvements 
have been routinely neglected or underfunded. The Authority was most 
concerned about the infrastructure deficit that has been amassed over 
the years because of neglect and the lack of appropriate spending on 
capital projects. Immediate improvements are necessary not only in 
vital areas such as streets and bridges, but also in government 
facilities, in major technology-driven systems, and in the public 
schools. To this end, the Authority is requesting that the federal 
government appropriate $254 million to the District for desperately 
needed infrastructure improvements. If this amount is appropriated to 
the Authority, it would be used to finance a range of projects, 
including repairs and modernization of schools, resurfacing and 
reconstruction of local streets, and rehabilitation of police and fire 
department facilities.
    As previously reported in the Authority's report on the fiscal year 
1999 FPB, the Authority has adjusted the amounts to be allocated from 
the District's one-time surplus to support and fund the management 
reform initiatives. The previous reported amount of $130 million 
allocated during fiscal year 1998 has been changed accordingly:
  --$88,902,343 of new fiscal year 1998 Operating Budget authorization;
  --$66,262,311 of additional fiscal year 1998 Capital Budget 
        authorization;
  --$1,340,000 of additional debt service;
  --For an aggregate total allocation of $156,504,654 from the 
        $201,090,000 one-time surplus. The balance of $44,585,346 
        should be available to reduce the accumulated deficit during 
        fiscal year 1998. The management reform program is being 
        coordinated by the Chief Management Officer on behalf of the 
        Authority.
    Finally, it is important to consider the impact that court orders, 
receivers, and special masters have on the structure and effectiveness 
of the District's budget. Through inadequate funding and program 
mismanagement, the neglect of effective public services has forced 
increasingly larger portions of the District's programs to be placed 
under court orders. This situation was exacerbated by the financial 
crisis, which further eroded the level of service provision given to 
populations such as sentenced felons, mental health care recipients, 
special education students, and others. The presence of court-ordered 
receivers and others directing sections of the District's budget 
presents numerous problems for the District in its efforts to plan and 
execute a budget effectively. Today, there are 41 court orders and 
mandates affecting District programs, 22 of which have current 
budgetary impacts. The fiscal year 1999 FPB allocates $319 million to 
the various receivers and other administrators.
    To implement the fiscal year 1999 budget more efficiently, the 
Authority is requesting additional flexibility in the reprogramming of 
funds among District programs. Current law requires most reprogrammings 
of funds between District functions to be approved by the Congress. 
Last year, the Congress allowed the Authority flexibility in 
reprogramming funds from the budget surplus. The Authority used some of 
these funds for debt reduction, collective bargaining agreements, and 
improvements in the schools. Having this flexibility is of vital 
importance to the District, and we strongly urge Congress to provide it 
for fiscal year 1999.
    In summary, the fiscal year 1999 FPB submitted by the Authority 
marks a turning point in the reform effort of the District by 
programming a budget surplus. The fiscal year 1999 FPB also reduces the 
accumulated deficit, meets the objectives of the Act, and adheres to 
the major programmatic objectives of the Authority, the Mayor, and the 
Council. This budget will accelerate the return of the Nation's Capital 
to financial stability and lead to further improvements in the delivery 
of public services.
    Before concluding, Mr. Chairman, I would like to note one other 
issue. The Authority is concerned that statutory limitations on the 
time limit allowed any independent auditor selected to undertake the 
annual audit of the District significantly reduces the interest of 
qualified firms to bid on this contract. Essentially, we have found 
that the legal limitation, which is three years, is having the 
unanticipated effect of limiting competition for this important work. 
Therefore, the Authority respectfully recommends to the Congress that 
the law be changed, and that firms be allowed to conduct the annual 
audit for up to five years instead of the current three-year limit. We 
believe that the additional time period would provide firms with 
greater incentive to bid on the contract, and would increase 
competition.
    Mr. Chairman, this concludes my prepared statement. I would be 
pleased to respond to any questions you or Members of the Subcommittee 
may have.

               Total General Fund Expenditure by Function

            [Fiscal year 1999 (by Old Appropriation Title)]

                                                                 Percent
Public Education System...........................................    18
Public Safety and Justice.........................................    17
Financing and Other...............................................    10
Public Works......................................................     6
Economic Development and Regulation...............................     4
Government Direction and Support..................................     4
Human Support Services............................................    41

    Senator Faircloth. Thank you, Dr. Brimmer. Thank you for 
your statement and what you do for the city.
    I had a number of questions, but I must say the 
presentation has been very thorough. Mr. Mayor, yours was and, 
Ms. Cropp, you have answered a lot of the questions I had.

                         control board's budget

    I noticed, Dr. Brimmer, the Control Board's budget is being 
increased for next year by a substantial amount.
    Mr. Brimmer. Yes, sir.
    Senator Faircloth. Could you tell us what is bringing the 
increase about? Is it management reform, or what is bringing it 
about?
    Mr. Brimmer. It is management reform, Mr. Chairman. You 
might recall that when the Congress proposed transferring 
oversight of the nine departments and four citywide functions 
to the Authority, I said that while we did not seek the 
responsibility, we would certainly accept it. In order to do so 
and carry it out, we would need to engage some assistance, 
professional assistance, because the five board members being 
part-time people could not do that on a day-to-day basis.
    I said we would need to go out and recruit what was being 
called at that time a chief management officer, and that is 
what we did. I also said that we would need to meet the market. 
I warned that the market was very strong. We did recruit such a 
person, and we had to meet the market. We have had to add some 
staff to help carry out that function. It is that increased 
function which is carried out as a part of the Control Board 
that has lead to an increase in the budget. I believe we have 
an amount in the budget in the neighborhood of about--there is 
a table in my testimony which shows that figure.
    You will see, Mr. Chairman, in Table 2 of my testimony the 
Authority has about $8 million. That is composed of the 
following: About $2.7 million is for the other functions of the 
board and about $5 million is to support the efforts of the 
chief management officer. That is the reason, Mr. Chairman, 
that we see the increase. It is to implement that mandate.
    Senator Faircloth. Thank you.
    Mr. Brimmer. Mr. Chairman, as just a digression, I believe 
that the description which I just repeated and which I gave 
earlier was what the committee intended that we would do.
    Senator Faircloth. I am sorry?

                recruitment of chief management officer

    Mr. Brimmer. I believe that the action we took, the 
recruitment of a chief management officer and the payment of 
compensation to attract such a person, were actions consistent 
with the new mandate we got. I worked under the assumption that 
that is precisely what the committee--and in particular you, 
Mr. Chairman--anticipated we would have to do.
    Senator Faircloth. Well, since we are on that subject, it 
would certainly appear that Ms. Barnett has broad support, 
bipartisan support. You, as soon to be ex-chairman of the 
Control Board, would you have any recommendations to the 
Congress as to what we might do or have not done or need to do 
to support Dr. Barnett to make the system work better?
    Mr. Brimmer. Yes; Mr. Chairman, I do. As I have said, the 
steps we took and the way we arranged it are appropriate, and 
it is working very well. Since we have gotten some expression 
of doubt from some sources as to whether we had the power to do 
what we did, I would suggest that we have an amendment to the 
statute incorporated saying we, in fact, just as we have the 
authority to appoint an executive director and to pay her 
compensation, have the authority to appoint a chief management 
officer to carry out the functions we have described and to pay 
compensation required by the marketplace. Such an amendment 
would be very helpful and remove any doubt.
    Senator Faircloth. Thank you, Dr. Brimmer.
    Mr. Brimmer. Yes, sir.

                     school system's budget request

    Senator Faircloth. Mr. Mayor or Ms. Cropp, the District's 
budget, recommended budget, for the District's public school 
system and fiscal year 1999 is $60 million less than the $606 
million that Dr. Ackerman had requested. Would you care to 
comment on the areas of disagreement by the board, the Council, 
the Control Board or the Mayor with respect to Ms. Ackerman's 
request?

                educational emergency board of trustees

    Mayor Barry. Mr. Chairman, I think we are at sort of a--I 
do not know how you would describe it. You had the emergency 
board of trustees where the courts had indicated that they did 
not have the authority to do what they were doing. And the 
budget that we received----
    Senator Faircloth. I am sorry?
    Mayor Barry. That the courts had ruled that the Control 
Board had overstepped its authority in appointing the emergency 
board of trustees to run the school system. It was during that 
period there was no clarity about it. The budget we received, 
quite frankly, came from General Becton via the Control Board. 
In my analysis, I am sure that Ms. Cropp would agree, it really 
was not a good budget.

                        school-by-school budget

    We have been insisting for a long time on a school-by-
school budget so that we can see exactly how much money is 
going into the local schools. This budget did not do that. It 
added money all over the place. When Ms. Ackerman came in and 
presented her desires and her priorities, we found that there 
were some reforms that could be funded. But because of the lack 
of money, because this $81 million is a big growth, 14 percent 
in anybody's budget, we focused on special education.
    The $60 million reduction that they requested was not a 
program budget in the first place the way I look at it. So, 
therefore, I think the Council and certainly myself was very 
scrutinizing of that and came to a conclusion that it is the 
special education portion of it, and some of the reforms that 
Ms. Ackerman wanted to do would be sufficient. I did not have 
much faith in the past administration's budgets, quite frankly, 
and you saw that when all of a sudden $62 million popped up out 
of seemingly nowhere. So it was a matter of credibility, a 
matter of no program but attachments to it. It was not a good 
budget as far as I am concerned.

               increase of $81 million in schools budget

    The $81 million is a lot of money to add to a budget in 1 
year. I am confident that Ms. Ackerman will make sure that it 
is spent properly and that Mr. Rickford, who is the CFO over 
there, will have better accounting of this money than has been 
in the past.
    Ms. Cropp. Mr. Chairman, the Council wanted to make sure 
that the school system was funded.
    Senator Faircloth. Ms. Cropp, if you would, pull the mike 
up.

                     increase for special education

    Ms. Cropp. The Council wanted to ensure that the school 
system was funded appropriately. At the same time, we were very 
concerned that we did not want to just spend money that was not 
needed. Most of the dollars that was going to the school 
system, the additional dollars, were going in the area of 
special education. It has been an area of great concern, and I 
cannot stress to you the level of concern that we have with 
special education. Quite frankly, we have been talking about a 
great need for us to form a task force of the Council, the 
Mayor, the Financial Authority, the school system and some 
parents, just to look at this one issue.

                           special education

    Special education, if we do not take a hard look at it, 
will totally control the school system, and we can see the 
havoc that it played with regard to the city's budget. This 
year that is what happened with a lot of the excess dollars 
that we thought we were going to have to eliminate the deficit 
totally. It is not an issue of whether or not we should provide 
special education. We certainly do believe that, but we want to 
make sure that the dollars are spent wisely.
    We increased the budget, first of all, we increased the 
budget by tens of millions of dollars. We took issue with--I 
believe it was $80 million. I believe that was the figure. We 
looked at it, and it was felt that there was not the 
justification to increase it by the amount asked. Let me give 
you an example.

                       hiring of additional staff

    A lot of the request was based on hiring additional staff 
by September of this year to perform certain needs. There was 
no way that that staff would be able to be hired and 
functioning in the school system by September; however, the 
cost was there. What we suggested that should be done with the 
school system is, yes, we agreed that you needed to have some 
of those individuals, but to look at how many people can you 
hire by September. If you cannot hire them all by September, 
only fund the budget on how many you can hire in September, how 
many you can hire in October and by January.

                   assessment of 300 students a month

    Additionally, what we have been experiencing in the school 
system is for special education we have been assessing, I 
believe the figure is about 300 students a month. Let me say 
that was needed, and the school system ought to be applauded 
for dealing with a backlog in assessments, things that needed 
to be done. I certainly would think and definitely would hope 
that we would not continue with that rate of 300-students-per-
month need for assessment. We are going to run out of students 
at some point and----
    Senator Faircloth. I am sorry. Are you saying 300 students 
per month in special education?
    Ms. Cropp. That is right, the assessment for them, yes.
    Senator Faircloth. This is not an increase? This is----
    Ms. Cropp. This is to assess their educational needs. In 
other words, these are students who are enrolled in the D.C. 
Public School system, but for whatever reason a request has 
been made for them to have an assessment to see what their 
educational need may be, whether or not they needed to have 
some type of special placement.
    Senator Faircloth. 300 a month?
    Ms. Cropp. 300 a month. Now part of this was due to a great 
backlog. Again, I have to say the school system needs to be 
applauded in being able to accomplish that. But I would say to 
you, Mr. Faircloth, we certainly would not continue at that 
level, and we do not need to fund a continuation at that level. 
We raised concerns along those lines.

                           student enrollment

    I have to also say that the Council continues to have great 
concern with regard to the student enrollment. The student 
enrollment is at 77,000 students or thereabout. That is the 
exact same enrollment that has been given probably for the past 
6 or 8 years. We have lost a large number of our citizens from 
the District of Columbia. In the areas where we have lost the 
citizens, that was also the area where we had the largest 
enrollment for our public schools. What did they do, move and 
leave their children behind?
    Something has to happen. Something has to change. We have 
lost population in the city, but our schools have not lost any 
students. I suspect there is a problem with regard to the 
number for the enrollment for our schools. We also would like, 
in fact, the Council has asked for us to have, an audit of the 
census and the population for our school system.
    Mr. Brimmer. Mr. Chairman.
    Senator Faircloth. You mean these areas of town that have 
lost population are maintaining the school enrollment or 
increasing?
    Ms. Cropp. The school enrollment for the city has not 
decreased while the population of the city has decreased. In 
the areas of the city where we have seen the largest decrease 
in our citizen population happens to also be the area where we 
traditionally have the higher number of student enrollment in 
our public schools. But there has not been the--we do not see 
that nexus between the decrease in population and a decrease in 
schools. We feel strongly that we need to get a handle on that.
    Mr. Brimmer. Mr. Chairman.
    Senator Faircloth. Yes; Dr. Brimmer?

                      audit of enrollment figures

    Mr. Brimmer. Sir, I would hope that you would permit me to 
ask Ms. Ackerman to join me at the table to respond to some of 
the questions you have gotten. This is a vital area as I 
mentioned. Special education is the driver, but there is a 
great deal of divergence of views. For example, the question of 
the enrollment in the schools. We have just had an audit of the 
enrollment figures as Congress mandated us to do. We are 
responsible for that now. We did it, and the number came out to 
be in the neighborhood of 77,000.

                       role of special education

    But the role of special education is vital. Our 
recommendation is the figure in the budget for the schools, and 
that is an amount of $545 million in local funds compared with 
$460 million a year ago, an increase of $85 million.
    Ms. Ackerman can share with the committee a complete 
account. She can do it briefly. But I would like very much for 
the committee to hear that testimony from the person 
responsible rather than simply from those of us who have 
oversight. May I call Ms. Ackerman to the table briefly?
    Senator Faircloth. You certainly may.
    Mr. Brimmer. Thank you.
    Senator Faircloth. We would be delighted to hear what Ms. 
Ackerman has to say.
    Mr. Brimmer. Thank you.
    Mayor Barry. Mr. Chairman, I hope you understand Ms. 
Cropp's and my position, the $60 million reduction. What they 
asked for was just not a good budget. So I hope you understand 
our position.
    Senator Faircloth. Yes; I do understand it.
    Ms. Cropp. It was an increase, Mr. Faircloth. We support 
the figure that is in the budget, but we do not support more.
    Senator Faircloth. OK.
    Mr. Brimmer. Ms. Arlene Ackerman, the CEO and 
superintendent.
    Senator Faircloth. Ms. Ackerman, if you would be as 
succinct as you can and brief, we would appreciate it, but we 
want to hear what you have to say.
    Ms. Ackerman. OK. There were a couple of issues that did 
come up in the last few minutes.
    Senator Faircloth. Again, if you would, pull the mike 
forward, real close.
    Ms. Ackerman. Can you hear me now?
    Senator Faircloth. Yes.

                          audit of enrollment

    Ms. Ackerman. OK. There were a couple of issues that came 
up. I would like to start with the enrollment. We did get an 
independent audit, and it did confirm that we have 
approximately 77,100 students. The year before our enrollment 
figures were 78,648, so we are showing a decrease from the 
previous year. I mean, we are not at the same, you know, we are 
not at the same number. We are showing a decrease. So I want to 
say that the audit did confirm that we do know how to count our 
students, and that our count was relatively accurate within 1 
or 2 percent.

          assessing 300 students a month for special education

    The other issue is related to special education, and the 
numbers that we put forward in terms of the cost of special 
education for next year. The special education issue, everybody 
on this panel has already said is the major driver of our 
budget. We spent $105 million. We are assessing approximately 
300 students and placing approximately 300 students a month. We 
anticipate for at least the next year or so we will continue at 
that rate.

              average cost of student outside of district

    We have a current backlog of about 2,500 students, and so 
we are anticipating if we continue with the same kind of 
assessment rate that we will still maintain the need to hire 
new teachers and new staff as we place students in the system. 
Our goal is to develop programs within the system so that we do 
not have to place students out of the District. The average 
cost of a student placed outside of the District is $48,000, so 
it is very important. The average cost per child to be placed 
out of the system, out of the District, is $48,000. So as we--
--
    Senator Faircloth. May I ask about how many you have in 
that category?
    Ms. Ackerman. About 1,400. We anticipate 1,400 next year, 
about 1,200 now.
    Senator Faircloth. 1,400?
    Ms. Ackerman. Yes; students.
    Senator Faircloth. You are paying $48,000 per year?
    Ms. Ackerman. That is the average cost.
    Mayor Barry. Also, Mr. Chairman, a number of these students 
are placed there, by judges or hearing officers way outside the 
city, some as far away as Minnesota and other places, which we 
really want to try to figure out how we get programs locally to 
do that.
    Senator Faircloth. I will have a question on that as soon 
as Ms. Ackerman finishes.
    Mayor Barry. All right.

                      $600 million budget request

    Ms. Ackerman. OK. The other thing that I wanted to say, in 
the original $600 million budget, we did prorate the staffing 
for our special education program knowing that at the beginning 
of the school year we would not place all of those students, so 
it was adjusted for in the budget. I guess I wanted to make 
that clear, that we did not put all of the--while it was 
counted that we would need 1,000 teachers, more teachers, by 
the end of the year--I mean 1,000 more staff to address our 
special education needs. We did prorate that knowing that we 
would need so many per month.
    Mr. Brimmer. Well, Mr. Chairman, thank you for allowing Ms. 
Ackerman to come forward. Again, I would want to stress one 
thing for the committee. Special education is driving the 
District's school budget. Second, special education enrollment, 
all of the procedures Ms. Ackerman described are court mandated 
for the most part. Being required to adhere to standards set by 
the Federal Government, and judges and monitors who are 
interpreting those, is a serious matter. She has no option. If 
she fails to do the testing, and so on, she is brought back 
into court. I want to stress that.
    Senator Faircloth. Well, let me ask. This is something that 
I have heard around the country, particularly as I move around 
North Carolina, that this edict from the Federal Government on 
special education--I believe we call it handicapped or what is 
the term the Federal Government uses? What is the term we use 
here?

                    americans with disabilities act

    Ms. Cropp. The American with Disabilities.
    Ms. Ackerman. Oh, the Disability?
    Senator Faircloth. Yes; this is part of that?
    Ms. Ackerman. Yes.
    Senator Faircloth. This is where that is coming from?
    Ms. Ackerman. [Nodding head.]
    Ms. Cropp. I think it grew out of Public Law 94-192, that 
legislation. Initially, that was probably passed around 1982, 
and it is Public Law 94-182. I believe that is the legislation 
that it initially grew out of, how the placements started.
    Senator Faircloth. Well, Ms. Ackerman, so the problem 
Washington is having might be more accelerated, but you were in 
Seattle I believe?
    Ms. Ackerman. Right.
    Senator Faircloth. Was the problem as severe there as here?
    Ms. Ackerman. Well, it is complicated for sure here because 
of the court mandates, and special education is certainly a 
problem across this country because it is an unfunded mandate 
for many of the school districts. Here, it is complicated 
because of the court mandates that come with it.
    We are under a lot of scrutiny. Dr. Brimmer said that we 
are in sort of a catch-22. We have to assess more students. As 
we assess more students and place them, the goal is to place 
them inside of the school district in programs there, because 
if we do not, the parents and the lawyers can decide to place 
them outside of the school district because there are not 
programs inside. We are caught between a rock and a hard place 
here. We must continue to assess students, and we have to have 
programs inside of the school district to bring down the cost 
of out-of-district placement.
    Ms. Cropp. Mr. Faircloth. Senator.
    Senator Faircloth. Yes?

                               hurt home

    Ms. Cropp. One of the things that needs to happen, I 
suspect here and other places and what we are attempting to do, 
is to also provide the appropriate facility or learning 
environment for our students here. Our goal is to be able to 
bring as many back to the District of Columbia as possible, 
which means that we have to get that type of educational 
environment for them. The Hurt Home is one example of something 
that was done in the District of Columbia probably about 2 or 3 
years ago where we were able to bring several students, about 
20 students, from outside placement back to the District of 
Columbia. We hope to be able to expand our capacity to do that.

                       cost of special education

    Senator Faircloth. I just ran some figures here and I 
cannot believe, I must have counted wrong, but I am looking at 
about $65 million plus, $68 million for special education.
    Ms. Ackerman. Yes; it is $105 million. We anticipate $105 
million spent this year. For next year, we see that it will 
grow approximately $156 million, and that is within what we can 
see as coming. We will spend approximately $24 million on 
transportation for about 2,400 students. That is 10,000 per 
child on transportation. We actually have some students who are 
on a bus with one child, an attendant and a bus driver. We 
have----
    Senator Faircloth. One driver?
    Ms. Ackerman. One driver.
    Senator Faircloth. An attendant?
    Ms. Ackerman. One attendant.
    Senator Faircloth. And a student?
    Ms. Ackerman. And one child.
    Ms. Cropp. We are mandated for that.
    Ms. Ackerman. We are mandated.
    Ms. Cropp. We do not want to do that.
    Ms. Ackerman. That is right.
    Ms. Cropp. We are mandated to do that.
    Senator Faircloth. I understand.
    Well, let me ask. This is not a problem, Mr. Mayor, that is 
peculiar to the District. It is something that we would have to 
address on a national level; is that not right?

                   number of days to assess students

    Mayor Barry. I think it is peculiar, Senator, in the sense 
that we are under this court order, and also we have 50 days in 
which to assess these students, which is really one-half the 
time that you have around the country. In most school 
districts, you have between 125 days from the time a parent 
asks that their youngster be assessed through these various 
psychological tests and other kinds of tests.
    As a result of that, a lot of these lawyers on the 51st day 
or the 52d day represent these parents and get them into these 
very expensive private school settings, where in other places 
in the country within 125 days you have a chance to assess and 
in most instances try to place them in the school district 
itself. So that is what is unique about it. Also, something 
else is strange here.
    Senator Faircloth. Those number of days to assess?
    Mayor Barry. I beg your pardon?
    Ms. Cropp. That was recently changed.
    Mayor Barry. Yes; the Council passed that.
    Ms. Cropp. Yes; we have recently passed legislation to 
change that.
    Mayor Barry. It is not effective yet.
    Ms. Cropp. I am not certain where it is now. I believe the 
Mayor has signed it.
    Senator Faircloth. It is in this budget, isn't it?
    Ms. Cropp. Yes.
    Mayor Barry. In this budget, yes.
    Ms. Cropp. But we have passed it. We have put it in this 
budget to try to expedite the process.
    Ms. Ackerman. Senator, I wanted to say one other thing as 
it relates to special education. We are in a reactionary mode 
for sure with special education. But one of the things----
    Senator Faircloth. What do you mean ``We are in a 
reactionary mode''?
    Ms. Ackerman. Well, I mean we are reacting to the courts. 
We are reacting to the unfunded----

                         instructional process

    Senator Faircloth. We are trying to follow the mandate?
    Ms. Ackerman. That is right. But one of the things I want 
to emphasize is that the original budget did address was 
improvement of the instructional process. Because until you 
improve the instructional process, you will continue to have 
students who fall behind. And when they fall behind, we get 
into again this vicious circle of trying to address their 
individual needs. So the goal was to put more reading teachers 
into our classrooms, more instructional programs that would 
address needs early on.
    Mr. Brimmer. Mr. Chairman, on that point we did insist on 
putting money into this budget so that Ms. Ackerman could get 
started on some of the reforms she has just described. In the 
first version of the proposed cuts that we were discussing when 
we were looking for a consensus budget, the number was cut even 
further. We resisted that, so she does have some money. She 
will be able to get started on some of these more fundamental 
improvements. But I wanted to stress that special education is 
a problem. Hopefully, we can focus on this at a later date.
    Senator Faircloth. Well, I think we will have to. I think 
it has become a lawyer's heyday. I suspect that a lot of 
parents are using it as a way of getting their children in 
different schools, in different situations and what they might 
consider a better school situation. There is not any way that 
any governmental entity can run a bus up and down the road with 
a driver, an attendant and one student. We will look at that 
again.

                 metro station at new convention center

    Ms. Cropp, the President's budget proposal for the District 
includes $25 million for improvements to the Metro station near 
the planned new convention center. I understand that the 
Council and the Control Board have approved the new convention 
center, provided the cost is capped at $650 million. Is there 
any way that we can be sure that the $25 million for the Metro 
station is not used to get around the $650 million cap, or do 
you have any objection to language which would make it clear 
that the $25 million and other Federal funds may not be used 
until the convention center contract is let?
    Ms. Cropp. I certainly believe that we have opportunities 
to ensure that the $25 million will be used for the Metro 
funding, and we do not have any objection to that. I would 
suspect, however, that we would not want to create language 
that would delay the building of that Metro stop if, in fact, 
it needs to be done in conjunction. So if the committee's 
intention is to make sure that the dollars are used only for 
Metro, I would encourage that. But I would not say delay it 
until after other expenditures have been made. Just develop 
language that would limit that $25 million for Metro only. We 
have no problems in doing that.
    Mayor Barry. Mr. Chairman, there has been some 
accountability and guarantees. First of all, it was difficult 
to get this kind of contract. I mean, this is a----
    Senator Faircloth. On the----
    Mayor Barry. On the fixed price. That is difficult and it 
is unusual to happen in this kind of industry because of 
overruns, but they have come to a decision on the amount of 
money. The convention center board has sent to the Council its 
financing based on that. My suggestion would be, if the 
committee is concerned, you put a strong paragraph in the 
committee report as opposed to language--there is no way that 
the city would spend this money except on the Metro stop. It 
may be that the money may have to be spent as part of the 
construction phase of this and long before the convention 
center itself. I would suggest language in the committee report 
expressing concern. But the Council and the Mayor----
    Senator Faircloth. No problem with that.
    Mayor Barry. Thank you.

                        schools opening on time

    Senator Faircloth. I am beginning to wind up my thoughts 
here. But as I mentioned earlier, and anybody can take this on 
that will--you, Dr. Brimmer, Ms. Cropp or Mayor Barry--I keep 
hearing the rumblings, now I cannot attest to them and maybe 
Dr. Ackerman has more--that the schools are not quite ready. 
The boilers have not been fixed, some of the roofs, the bids 
for repairs, the type of things that could delay. In a flat 
word, are the schools going to open on time, all of them?
    Mr. Brimmer. I would rather Ms. Ackerman speak from the 
academic side.
    Senator Faircloth. I would like for Ms. Ackerman to answer 
that question.
    Mr. Brimmer. I would like to speak on the question of the 
repairs, because we have a different setup this year. We at the 
Control Board have responsibility for the overall schools, and 
we have asked the chief procurement officer, Mr. Fike, to take 
on the responsibilities for monitoring those contracts. We have 
asked Dr. Barnett to oversee the functions and activities of 
the procurement officer. She shared with us----

                     status of school construction

    Senator Faircloth. You asked who to do that?
    Mr. Brimmer. Dr. Barnett. She shared with us today at the 
Control Board an interesting report on the status of the 
planning and the contracts for school construction. She assured 
us that they were highly confident that it would be done. 
Again, if you want a few minutes' description from her, I would 
be delighted to ask her to do it.
    Senator Faircloth. All right. I would because this is the 
big question I think we are facing.
    Mr. Brimmer. All right.
    Dr. Barnett.
    Senator Faircloth. Dr. Barnett, if you would not mind, we 
have an extra chair down here. My question is very simple. 
[Laughter.]
    Are the schools going to open on school opening day?
    Ms. Ackerman. And my answer is very short. Yes.
    Senator Faircloth. Dr. Barnett, would you like to 
elaborate?
    Ms. Barnett. Do you want me to add to that?
    Senator Faircloth. Well, I do not know that it really needs 
adding to. But if there is any insight you might give us as to 
assure us that Dr. Ackerman is right, why, I would like to hear 
that--maybe what we would call cold clocked.
    Mr. Brimmer. Mr. Chairman, Dr. Barnett may not--you may not 
want her to do it, but I would want her to do it. I will ask 
her to summarize for the benefit of the committee the report 
she gave us. Because you are absolutely right, there are a 
great deal of rumors around, speculation, and it is doing harm. 
I think we ought to have a clear statement on the record as to 
what the status is.
    Dr. Barnett.
    Senator Faircloth. You will have to pay attention to the 
rumors.
    Ms. Barnett. There are a couple of things that are 
significantly different about the contracts this year with----
    Senator Faircloth. Again, if you do not mind.
    Ms. Barnett [continuing]. Repairing the schools than we had 
last year. One of the most significant things is that we are 
starting earlier. We are about 2 months ahead of where we were 
last year so that we are starting the contracts earlier. We 
expect them to be signed tomorrow or Friday. This will include 
all of the work on all of the schools. Last summer, some 
contracts were started and then some were started later. So all 
through the summer there were contracts being initiated. All of 
the contracts are ready to go, and all are ready and will start 
early.
    Senator Faircloth. You say all work. This means boilers, 
roofs?
    Ms. Barnett. Yes; boilers and roofs.
    Senator Faircloth. Whatever is necessary to open the 
schools?
    Ms. Barnett. Boilers and roofs primarily. There are about, 
I think, 42 schools, and about one-third of the schools are 
involved. About 25 of the schools have roof repairs. We have 
also got the Corps of Engineers working on these repairs this 
year, so our design and construction and our specifications are 
better than they were last year. We also have a group that is 
pretty used to construction helping us with these projects.

                          contingency planning

    For those reasons, I think we have changed the process 
significantly so that we will be able to assure people that we 
will be able to open the schools on time. The other thing that 
we are doing is more contingency planning so that we will be 
awarding additional contracts so that if there are problems 
with performance with any of the contractors, we will have 
substitutes to come in and will not lose any time. For those 
reasons, I concur on Dr. Ackerman's suggestions that we will 
open the schools on time.
    Mr. Brimmer. Mr. Chairman, just further assurance. Under 
our rules and regulations I signed those contracts.
    Senator Faircloth. Yes.
    Mr. Brimmer. I asked Dr. Barnett whether they could be 
delivered so that I could sign them by the close of business 
tomorrow. She assured me they would be, so I will be waiting to 
sign the contracts tomorrow.

                        opening of schools late

    Senator Faircloth. Well, this is good news for the city. 
Because the school system--there are many, many problems with 
the city, but the most embarrassing thing ever was the fact 
that we went for weeks and literally months last year and could 
not open the schools. You mentioned one thing, and this is just 
a housekeeping matter, but have you prepared legislative 
language to change the time line of the District's audit from 
three to five?
    Mr. Brimmer. Yes; we have it and we will share it.
    Senator Faircloth. All right. If you will provide it to us, 
we will go with it.
    Mr. Brimmer. Thank you.
    [The information follows:]

                 Letter From E. Barrett Prettyman, Jr.

                    Government of the District of Columbia,
                                    Washington, DC, April 23, 1998.
Rep. Thomas M. Davis III,
Chairman, Subcommittee on the District of Columbia Committee on 
        Government Reform and Oversight,
Washington, DC.
    Dear Chairman Davis: Three years ago, the 104th Congress enacted 
Public Law 104-8, the D.C. Financial Responsibility and Management 
Assistance Act of 1995. That important piece of legislation contained, 
among other things, provisions substantially revising the powers and 
duties of the Inspector General of the District of Columbia. As the 
current holder of that Office, I am writing to request a modification 
to one of those provisions.
    Under Section 303(b) of Public Law 104-8, the Inspector General is 
responsible for contracting with an independent outside auditor to 
perform an annual audit of the District's financial statement and 
report for each fiscal year. That same section also provides, however, 
that the Inspector General may not award the audit contract to the same 
auditor for more than three consecutive years. Section 303(b) reads In 
relevant part as follows:
    ``The Inspector General shall enter into a contract with an auditor 
who is not an officer or employee of the Office to audit the financial 
statement and report [of the D.C. Government] for a fiscal year, except 
that the financial statement and report may not be audited by the same 
auditor (or an auditor employed by or affiliated with the same auditor) 
for more than 3 consecutive fiscal years.''
    Public Law No. 104-8, Sec. 303(b)(2), codified at D.C. Code Sec. 1-
1182.8(a)(4).
    After careful consideration I have come to the conclusion that 
Section 303(b) should be amended to bar the award of the annual audit 
contract to the same auditor for more than five consecutive years 
rather than three. I am convinced that this change will increase 
competition among firms bidding for the audit contract, reduce the cost 
of performing the audit, and result in substantial savings to the 
District.
    Auditing a large and complex public entity like the Government of 
the District of Columbia is a massive and difficult undertaking. For an 
auditor doing so for the first time, the learning curve--the time and 
effort it takes to ``learn the ropes''--is steep indeed. After the 
first year, however, the audit can be performed more efficiently, and 
at less cost. Thus, the annual cost of an audit decreases with each 
year that the same auditor performs it.
    This point was made in 1988 by the National Intergovernment Audit 
Forum (NIAF), an association of federal, state, and local government 
auditors headed at that time by then-U.S. Comptroller General Charles 
Bowsher. In a widely-consulted handbook designed to help public 
entities procure high quality external audits, NIAF explained that 
multiyear contracts reduce the cost of audit services and therefore 
lower the price of such services:
    ``The first year of an audit engagement usually involves 
significant start-up costs as auditors devote considerable time to 
learning about the entity and its internal control systems. Having 
completed this groundwork, the auditor usually is able to work at less 
cost in the succeeding years. If authorized by law, a multiyear 
agreement--perhaps a 1-year agreement with the option to extend the 
agreement for up to five years--has a dual advantage: It enables an 
auditor to propose a price that takes into account the savings to be 
realized in subsequent years and saves the entity the costs associated 
with repeating the selection process.''
    NIAF, ``How to Avoid a Substandard Audit: Suggestions for Procuring 
an Audit'' 6 (May 1988). See also ``Government Finance Officers 
Association,'' Audit Management Handbook 25 (1989) (making a similar 
observation and noting that, ``[a]s a general rule, multiyear contracts 
provide governments with substantial audit savings'').
    Significantly, my proposal for five-year audit contracts finds 
support in a 1987 report issued by Congress' own General Accounting 
Offing (GAO). In the 1980's, the GAO conducted a survey of the 
procedures used by state and local governments to obtain the services 
of public accounting firms. The GAO concluded that public entities 
should use five-year audit agreements. The GAO report states:
    ``In discussions with us, many of our experts stated that multiyear 
contracts not only provided an incentive for an audit firm to devote 
time submitting a well developed proposal and to establish its learning 
curve in the early years of the engagement but also minimized staff 
resources the entity spent on procuring audit services. In addition, 
according to experts, the audit firm recovers some of its costs and 
realizes a profit in the second, third, or fourth year of the 
engagement. Further, two CPA's on our panel stated that their firms 
could minimize the risk of producing a poor quality audit and make the 
greatest contribution to improving program and financial operations in 
the final years of their multiyear agreements. This is due, in their 
opinion, to the knowledge a firm can acquire over a period of time 
while performing an audit.
    ``During our study, we found that some entities engaged in 
multiyear agreements. These multiyear agreements normally provided for 
annual contract renewal at the entity's option--usually contingent upon 
the audit firm performing acceptable quality work. Although there was 
some disagreement as to the ideal length of a multiyear agreement, most 
of the experts we spoke with indicated a range of from 3 to 5 years. We 
agree that entities should consider using multiyear agreements, 
preferably of a 5-year duration due to the potential cost savings and 
continuity benefits over the long-term.''
    U.S. General Accounting Office, Report to the Chairman, Legislation 
and National Security Subcomm., House Comm. on Government Operations, 
House of Representatives: CPA Audit Quality: A Framework for Procuring 
Audit Services, GAO/AFMD-87-34, at 28 (Aug. 1987).
    A recent study of the auditor rotation practices of public entities 
found that a large majority of those entities responding to a survey--
68 percent--had no law or policy requiring the rotation of auditors. Of 
those public entities with such a law or policy, 20 percent rotated 
auditors after three years, 25 percent after four years, 43 percent 
after five years, and 12 percent after six or more years. See J. 
Wendell, T. Pearson & T. Oregon, ``Auditor Rotation Policies of 
Governmental Entities,'' Government Finance Review 61-62 (April 1998). 
Thus, a majority of the surveyed entities (55 percent) rotated auditors 
after five years or more. A distinct minority (20 percent) required the 
rotation of auditors as frequently as Public Law 104-8 mandates with 
respect to the District's annual audit.
    Three examples illustrate the auditor rotation requirements of 
other governmental entities:
    The City of New York hires a firm of certified public accountants 
to do an annual audit of the City's consolidated operating accounts and 
year-end assets (unless the audit is performed by the state 
comptroller). Chapter 5, Section 95 of the New York City Charter 
provides that ``[n]o firm of certified public accountants shall perform 
any such audit or a part of such audit for more than eight consecutive 
years provided, however, that no audit engagement contract shall exceed 
four years.''
    The County of Milwaukee, Wisconsin, engages outside auditors to 
perform annual financial and compliance audits of the County. Under 
County policy,``an outside firm may provide services regarding a 
particular audit engagement for no more than six conserve years'' and 
``at the discretion of the Director of Audits, one-year extension 
beyond the six consecutive years is permitted.'' Milwaukee County 
Administrative Manual, Policy No. R-373 (Feb. 17, 1983).
    The Council of the City and County of Honolulu, Hawaii, contracts 
for independent annual financial audits of the City's operations. A 
resolution adopted by the Council provides that ``[t]he auditor or 
auditing firm selected shall be retained for [a] four-year period'' 
although ``[a]n incumbent auditor or auditing firm shall not be 
eligible for the subsequent four-year period.'' Council Resolution No. 
86-239 (July 9, 1986).
    Prior to the adoption of Public Law 104-8, D.C. law provided that 
the auditor selected to perform the District's annual audit would 
perform the audit for a four year period, but could not succeed 
himself. See D.C. Code Sec. 47-119. My proposal thus represents a 
partial return to the practice that prevailed in the District before 
1995. Unlike now, however, prior to 1995 the auditor was selected, not 
by the Inspector General, but by the Mayor with the advice and consent 
of the D.C. Council.
    I am concerned that at present too few auditors are bidding on the 
annual audit contract and that too much is being paid by the District 
for the audit. This year only one firm--Mitchell & Titus--submitted a 
proposal in response to our solicitation. During the bidding period, I 
had to inform another firm interested in submitting a bid--Thompson, 
Cobb, Bazilio & Associates--that it was disqualified because for the 
past three years it had assisted the firm that performed the annual 
audit and, under Public Law 104-8, the contract may not be awarded to 
``the same auditor (or an auditor employed by or affiliated with the 
same auditor, for more than 3 consecutive fiscal years.'' (emphasis 
added).
    In a letter dated April 10, 1998, Arthur Andersen, one of the 
largest public accounting firms in the country, explained that one of 
the reasons it did not submit a proposal was the three-year mandatory 
rotation requirement. (The other reason concerned the indemnification 
clause of the audit contract.) In its letter, Arthur Andersen stated 
that ``[t]he frequent rotation of auditors reduces the ability of an 
auditing firm to gain the in-depth understanding of the D.C. 
Government's operations that we believe is required.'' Arthur Andersen 
expressed precisely the same concern when it declined to submit a bid 
last year. We have also been told informally that the three-year 
rotation requirement is one important reason why none of the other 
national public accounting firms submitted a bid this year.
    While few firms have shown interest in the annual audit in recent 
years, the cost of the audit to the District has become considerable. 
KPMG Peat Marwick, which performed the audits for fiscal years 1995 
through 1997, received $2.2 million for each of fiscal year 1995 and 
fiscal year 1996, and $2.8 million for fiscal year 1997--a total of 
$7.2 million over the three-year period. Mitchell & Titus' proposal--
which, again, is the only proposal we received this year--is for $1.8 
million for fiscal year 1998, $1.86 million for fiscal year 1999, and 
$1.9 million for fiscal year 2000.
    It is noteworthy that the District paid much less for the annual 
audit in the years prior to the adoption of Public Law 104-8, when the 
audit contract could be awarded for four years. Coopers & Lybrand, 
which performed the audits for fiscal years 1992 through 1994, was paid 
$931,400 for fiscal year 1992, $946,550 for fiscal year 1993, and 
$1,032,050 for fiscal year 1994. (Although Coopers was initially 
awarded the contract for fiscal year 1995, it did not actually perform 
it.) KPMG was paid approximately $835,000 to $855,000 per audit for 
fiscal years 1988 through 1991. Although several factors are 
responsible for the rise in the cost of the annual audit over the last 
decade, I believe that one important cause of the increase is the 
inability of this Office to award the audit contract for longer than 
three years.
    The rising cost of the annual audit over the last decade is 
reflected in the following chart:

Fiscal year 1988-91 (KPMG) (approx.)....................        $845,000
Fiscal year 1992 (Coopers)..............................         931,400
Fiscal year 1993 (Coopers)..............................         946,550
Fiscal year 1994 (Coopers)..............................       1,032,050
Fiscal year 1995 (KPMG).................................       2,200,000
Fiscal year 1996 (KPMG).................................       2,200,000
Fiscal year 1997 (KPMG).................................       2,800,000

    I understand that the 104th Congress had sound policy reasons for 
insisting that the contract to audit the D.C. Government change hands 
periodically. Rotating auditors every few years can bring a fresh 
perspective and new ideas to the task. Nevertheless, because of the 
efficiencies and cost savings to be gained by longer contracts, I now 
believe that the line should be drawn at five years rather than three.
    Thank you for considering this proposal. I am prepared to provide 
any assistance that you or your stay should require.
            Sincerely,
                                 E. Barrett Prettyman, Jr.,
                                            D.C. Inspector General.

    Senator Faircloth. I want to thank you for, all of you for, 
being here today and for what you have done. Now, certainly we 
are going to study the budget. We will be looking at it and we 
will probably be back talking to you all. But does anyone have 
anything else that we might have failed to give you time to 
say?
    Mayor Barry, any comments you would like to make before we 
close the hearing?
    Mayor Barry. Well, I look forward to coming back up here 
observing next year. [Laughter.]
    Senator Faircloth. We will keep your chair.
    Ms. Cropp.

                            consensus budget

    Ms. Cropp. Only that we look forward to your supporting 
this consensus budget. I think it says an awful lot for all 
three of us and our prospective members to come together on a 
consensus budget that will help make the District of Columbia a 
much stronger and better functioning city. At this point, we 
need for Congress to join us in partnership to make our city 
work. We have put aside all of our own personal ideas sometimes 
to look at what was best for the city. This budget represents 
in our belief, our collective belief, and believe me that was 
not an easy task when you bring the Mayor, the Council and the 
Financial Authority all together.
    We worked extremely hard. We worked on Saturdays, we worked 
on Sundays and we put in an awful lot of time to put together a 
budget that we believe--feel strongly that it is a good budget 
on behalf of the citizens of the District of Columbia that will 
move this city forward. We ask for your support in this budget 
and in our efforts.
    Mayor Barry. Mr. Chairman, let me underscore the 
significance of the three of us coming together. As an elected 
official, you know that your constituency expects you to 
advocate and push certain points of view. It may seem to be 
very easy on the surface dealing with personalities and dealing 
with institutions. But we were able to overcome whatever 
philosophical differences or program differences and 
compromise. Also, I would hope that the Congress would 
appreciate the tremendous amount of flexibility that we came to 
this table with. That was not the case last year, quite 
frankly. We came up with two budgets.
    Senator Faircloth. I am quite aware that it was not.
    Mayor Barry. Well, I wanted to underscore that.
    Ms. Cropp. I would also just like to recognize that I am 
joined here today by two members of the Council, David Catania, 
at-large member, and Hilda Mason, at-large member.
    Senator Faircloth. Would they stand up please so we can 
all----
    Well, let me say there are 535 members of the Congress, and 
I certainly do not intend to speak for but one of them. But the 
role of the Congress and the desire of the Congress, and for 
this point I can speak for the other 534, they want to see the 
best possible Capital of this country that we can have.
    As I said earlier, I do not find a stinginess on the part 
of the Congress when it comes to working with the District of 
Columbia on the financial aspects of what we need to do to 
bring the capital city to what we all want it to be, the 
residents and the country as a whole and certainly the 
Congress. So bear in mind the Congress is not the enemy. The 
Congress is your partner to try to bring the city to the type 
of city we would all be proud of. That is the goal of the 
Congress, too.
    Dr. Brimmer, would you?

                               city audit

    Mr. Brimmer. Two quick points, Mr. Chairman. I mentioned 
that we are reviewing the question of the audit. We have in the 
budget now an amount of money that is in the neighborhood of 
$1.5 million. We may end up having to spend more than that. As 
we make further progress of reviewing this, I might have to 
come to you and say that we need an additional amount as a part 
of the appropriation. I hope you will give me the opportunity 
to do that.

                          infrastructure fund

    Second, in my testimony I spell out a request that the 
Congress appropriate some money in the neighborhood of $200 
million plus for infrastructure. I explain in my testimony why 
we would like to have those funds appropriated by the Congress 
and charged to and given to the Control Board and how we would 
seek to spend it. I spell out in here an attempt to respond to 
some of the things you have raised. You have visited some of 
these police stations. You know what conditions many of these 
facilities are in. We feel we need to get on with trying to 
improve those, and we are asking for some funds to do that. I 
did not mention it in my first go around, but it is in my 
statement.
    Thank you very much.
    Senator Faircloth. Thank you very much, Dr. Brimmer.

                           prepared statement

    I would like to note that Senator Boxer had planned to be 
with us today, but was unable to be here because of conflicting 
committee responsibilities. Without objection, Senator Boxer's 
opening statement and questions will be incorporated in the 
record, along with the answers prepared by the witnesses to her 
questions. So you will get a copy of this.
    [The statement follows:)

                  Prepared Statement of Senator Boxer

    I would like to thank Senator Faircloth for his tireless efforts as 
Chairman of the District of Columbia Appropriations Subcommittee. He 
has spent countless hours on the largely thankless task of addressing 
the District's financial ills, and I am happy that we have been able to 
work together to begin to make some progress for the District. Today, 
the District budget is actually in surplus, which pleases me very much.
    I welcome our witnesses at today's hearing--Mayor Marion Barry, 
D.C. Council Chairwoman Linda Cropp, and Dr. Andrew Brimmer, Chairman 
of the Control Board.
    The Subcommittee is meeting today to hear from our witnesses on the 
proposed fiscal year 1999 budget. The budget proposal submitted by the 
President calls for an appropriation of $486 million, while the budget 
proposal submitted by the District calls for an additional $254 million 
for infrastructure development. I hope that our witnesses today can 
address and explain this discrepancy.
    The budget reflects the changes in government operations which have 
resulted from the federal government's assumption of city functions 
that parallel the responsibilities of a state government. The budget 
also reflects significant investment in implementing management reforms 
and promoting infrastructure development. I look forward to hearing 
from our witnesses about the impact of these changes and priorities on 
the quality of life of the citizens in our nation's capital.
    Unfortunately, I have conflicting commitments today and will not be 
able to personally attend the hearing. However, I have a number of 
items that I would like to have included in the record. With the 
Chairman's approval, I would ask unanimous consent that my questions 
and inserts be placed into the record of this hearing, along with 
responses from the witnesses to my questions.
    I thank the Chairman for his accommodation.

                     additional committee questions

    Senator Faircloth. I want to thank all of you for the 
testimony and for the government service you have rendered and 
are rendering. It is a pretty thankless occupation. I think all 
of us that have been in it can attest to that.
    Your testimony today, I want to ask that anybody that would 
like to submit answers or ask further questions, that the 
subcommittee will keep the record open until 5 p.m., Tuesday, 
June 16. If anybody would like to submit additional questions, 
then we would forward them to you all for answers.
    [The following questions were not asked at the hearing, but 
were submitted to the Departments for response subsequent to 
the hearing:]

                  Council of the District of Columbia

                Questions Submitted by Senator Faircloth

    Question. Several reputable non-profit organizations (Salvation 
Army, YMCA) have reported to the Committee that they have asked the 
Council for funds to assist them in providing services to children and 
those suffering from alcohol and drug abuse, and that they have not had 
much success.
    What is the Council's process for reviewing requests for financial 
support by non-profit groups in the DC community?
    Answer. Non-profit groups in the DC community often make numerous 
requests for financial support to the Chairperson of the Committee on 
Human Services in the DC Council. The Committee's standard procedure is 
to forward the request to the Director of the appropriate agency, i.e., 
the Department of Health, the Department of Human Services, etc., for 
review and consideration. In the event that a particular program is 
believed to deserve assistance, the Chairman meets with the non-profit 
group, visits the program site, and then arranges for them to meet the 
appropriate Department Director who can provide grant funding.
    Regarding the Salvation Army, the Committee Chairperson, Sandy 
Allen did meet with their officials about their Harbor Lights Program. 
She also toured their facility and arranged for them to meet with the 
Directors in the Departments of Human Services and Health. She believes 
that the Department of Health is attempting to collaborate with the 
Salvation Army in this program. As for the YMCA, the Committee has not 
received such a request.
    Question. Is the Council willing to provide some matching funds for 
programs that it considers worthwhile?
    Answer. As the legislative branch of the District Government, the 
decision to make financial awards to individual organizations is not a 
responsibility of the Council. While the Council knows of many non-
profit groups and their laudable and worthwhile programs in substance 
abuse \1\ it is not able to provide any matching funds. Such program 
decisions are handled by the Executive Branch, the Financial Authority, 
and the various departments involved.
---------------------------------------------------------------------------
    \1\ In fact, the Council led an effort to increase funding for 
programs in the Addiction Prevention and Recovery Administration in 
fiscal year 1999.
---------------------------------------------------------------------------
    Question. The District's proposed budget transfers 16 employees and 
$667,000 from the Office of Personnel to the Human Resource Development 
to account for ``performance management initiative.'' Please explain 
for the Committee what is meant by ``performance management 
initiative'' and why they cost $667,000 and take 16 full-time employees 
to implement?
    Answer. The performance management initiative is an effort to 
improve the evaluation of District employees by their supervisors. This 
is consistent with DC Act 12-326, the ``Omnibus Personnel Reform Act of 
1998'' which was enacted by the Council in March 1998 and completed the 
30-day Congressional review period on June 10, 1998.
    The legislation links pay to performance for the first time. 
Managers and employees will have to develop individual performance 
plans and employees will be rated at least once a year according to 
four different levels listed below.
  --(i) ``exceeds expectations''
  --(ii) ``achieves expectations''
  --(iii) ``below expectations''
  --(iv) ``unacceptable''
    In order to receive a periodic step increase, employees must 
receive a rating of ``exceeds expectations'' or ``achieves 
expectations.'' The performance management initiative is designed to 
fund training for managers in the development and monitoring of 
employee performance plans and in the evaluation of employee 
performance. This initiative is a critical part of the District's 
effort to upgrade services throughout the government.
    The fiscal year 1999 budget does not transfer 16 employees from the 
Office of Personnel to the Human Resources Development fund simply for 
a performance management initiative. The 16 employees cover a range of 
issue areas, including several training programs (one for high-level 
managers, one for mid-level managers, and one for entry-level 
employees); benefit programs (including studies of potential changes to 
the District's disability, health insurance, and retirement programs); 
an executive recruitment program; job classification; and, the 
performance management initiative.
    Question. The District plans to almost double the staff of the 
Department of Consumer and Regulatory Affairs from 187 to 346 FTE's. 
What new responsibility does the Department plan to assume to warrant 
this increase in personnel?
    Answer. The agency does not plan to double the staff of the 
Department of Consumer and Regulatory Affairs (DCRA) nor assume any new 
responsibilities in fiscal year 1999. This figure was attributed to a 
computer error in the fiscal year 1998 budget document. The 187 FTE's 
referenced in the fiscal year 1998 budget refer to employees that 
comprised the health regulation and inspection functions of DCRA. When 
those employees were transferred to the Department of Health in fiscal 
year 1998, they remained in DCRA agency code, ``CR.'' All of DCRA's 
remaining employees converted over to the (``EB'') agency code, thus 
the discrepancy in the FTE number. For fiscal year 1999, 346 FTE's is 
the correct figure of employees allocated to DCRA.
    Question. Last week the Council passed legislation approving 
construction of the new Convention Center at the Mt. Vernon location. 
As part of this legislation, the Council voted to cap expenditures at 
$650 million.
    If midway through construction of the Convention Center, the 
contractors tell District leaders they will need a few more million 
dollars to put the roof on to complete the project, what will be the 
Council's options?
    Answer. The Washington Convention Center Authority (WCCA) reached 
agreement with its Construction Manager (CM) on a Guaranteed Maximum 
Price (GMP) of $550.6 million for construction of the new convention 
center. The CM, a joint-venture of Clark Construction Company and the 
Sherman R. Smoot Construction Company, will construct the new facility 
at the Mount Vernon Square site for an amount not to exceed this GMP. 
The attached schedule of construction risks and liabilities (see Chart 
1) indicates responsibilities for completion of the project.
    Since mid-February 1998, the CM, the WCCA, and its architect/
engineering team have engaged in an intensive design review process. As 
part of the process, the parties have done the following:
  --(i) engaged in value engineering to minimize the cost of 
        construction;
  --(ii) validated the design;
  --(iii) clarified ambiguities and inconsistencies in the design;
  --(iv) agreed upon the CM's scope of work; and,
  --(v) reviewed the design for ``constructibility'' and coordinating 
        issues.
    The drawings and specifications for the project incorporate the 
results of this design review.
    As WCCA moves forward, the CM will be required to participate in 
the periodic design and budget reviews in order to continue the value 
engineering process and to insure that the final design is consistent 
with the GMP and the project's scope of work. He has developed a 
construction schedule that calls for completing the building in March 
2003. If there are any delays in meeting this schedule, i.e., if the 
building is not occupiable by this date, Clark/Smoot will incur 
liquidated damages in the amount of $50,000 per day for every day 
beyond the agreed upon completion date.
    The GMP does not include the costs of two activities that will 
occur off-site. As you know, President Clinton's fiscal year 1999 
Budget allocates $25 million to the Washington Metropolitan Area 
Transit Authority (WMATA) for the reconfiguration of portions of the 
Mount Vernon Square metrorail station. Because the federal funds will 
be transmitted under separate contract, this task has been removed from 
the CM's scope of work. Also, costs for off-site utility relocation 
will be offset by $10 million in federal funds provided to the District 
through the Community Development Block Grant program of the U.S. 
Department of Housing and Urban Development.
    Question. Realistically, what protection does the cap give the 
District from cost overruns?
    Answer. The process of reaching the GMP for construction of the new 
convention center has been thorough and rigorous. The WCCA has now 
achieved guaranteed construction costs that allow the WCCA to stay 
within its $650 million total projected budget. The Council voted with 
confidence in the WCCA's negotiated guaranteed maximum price, yet 
maintains several avenues of resolve should unanticipated costs arise. 
These include requiring the contractor to maintain an adequate amount 
of insurance, periodic project oversight review, and approval of annual 
operating and capital budgets.
    Question. The consensus budget recommends $18 million for the 
Information Technology Initiative within the Metropolitan Police 
Department.
    Please describe these proposed initiatives and explain the goals to 
be achieved if these initiatives are funded?
    Answer. This Information Technology Initiative (ITI) is a 
$17,900,000 capital recommendation made as a result of the Booze-Allen 
management reform study mandated by Congress. This initiative is to 
provide officers with timely, accurate, and comprehensive information 
to identify and apprehend suspects. This system should reduce the time 
officers spend processing paperwork, which will translate into more 
police on the street. Systems included in the ITI are the 
infrastructure, mobile data computer, SWISS intelligence system, Public 
Works mobile reporting, automated dispatch, and a records management 
system. The overall goal is to improve the information technology 
capability of the police department and thereby, increasing the 
efficiency of the citywide policing.
    Question. The Department of Corrections (DOC) budget restores 
funding for 53 teaching positions for an in-house education program.
    Please explain this program and function.
    Answer. The in-house education program provides courses taught by 
DOC employees as well as University of the District of Columbia staff. 
These programs include adult basic education, general high school 
equivalency, and vocational education courses. Educational activities 
include the testing and recommendation for the placement of inmates in 
various academic and vocational programs according to their interests, 
aptitude, and sentence structure. Additionally, inmates are encouraged 
to enroll in correspondence and other self-study courses.
    Question. What is the cost of this program?
    Answer. The projected fiscal year 1999 cost for education is $2.5 
million. In fiscal year 1998, the agency planned to privatize education 
and contract with a vendor for the services. The fiscal year 1998 
budget included $2.1 million in severance costs for planned staff 
reduction in force (RIF) and $3.5 million for the education contract, 
for a total education budget of $3.6 million. After the passage of the 
President's Privatization Act, this agency--in conjunction with the 
Corrections Trustee--decided not to privatize education and RIF 
educational employees as facilities closed. This resulted in a net 
decrease in the fiscal year 1999 education budget of $1.1 million.
    Question. The newly-established Corrections Trustee Office is 
budgeted to reimburse the District $185 million for costs related to 
the care and custody of the sentenced adult felon population. The 
District's budget projects the actual costs to be $203.5 million, which 
is a difference of $18.5 million. Does the DOC proposed budget include 
the additional $18.5 million?
    Answer. The DOC local budget does not include this funding. 
However, the fiscal year 1999 federal reimbursement amount (Trustee's 
budget) proposed by the District for DOC does include funding for $18.5 
million. 
[GRAPHIC] [TIFF OMITTED] T03JU10.003

                                 ______
                                 

                          Office of the Mayor

                Question Submitted by Senator Faircloth

    Question. During the June 10, 1998 hearing, you testified that the 
District could develop methods of ensuring that the $25 million 
proposed for transportation improvements for the Washington Convention 
Center project, if appropriated, would only be used for those 
improvements and not be used for the construction of the convention 
center.
    Please identify the methods the District could adopt to ensure that 
any appropriated funds would be used for their intended purpose.
    Answer. The President's proposed budget which provides $25 million 
for improvements to the new convention center Metro station states that 
those funds will go directly to WMATA for the design and work for the 
station improvements. Apart from the Metro station work, WMATA has no 
role in the construction of the new convention center. Consequently, 
there is no possibility that any of those funds could be used for the 
construction of the new convention center.
                                 ______
                                 

District of Columbia Financial Responsibility and Management Assistance 
                               Authority

                Questions Submitted by Senator Faircloth

    Question.The District's proposed budget contains a request for 
$254,000,000 for infrastructure repairs to be used to improve the 
District's schools, roads and police and fire stations.
    Please provide an explanation of this proposal and a spending 
schedule for the requested funds.
    Answer. The National Capital Revitalization Act of 1997 
(``Revitalization Act'') gave the District of Columbia the opportunity 
to achieve a balanced operating budget. By enabling the District to 
align revenues with expenditures, the Revitalization Act created the 
potential for balanced operating budgets over the long-term. However, 
because of years of inadequate funding, the District still faces a 
massive infrastructure deficit.
    While the exact size of the District's infrastructure deficit has 
not yet been determined, it will be measured in the billions of 
dollars. While the deficit in transportation and public schools 
infrastructure are well documented, there are other deficits. For 
example, police and fire facilities range in age from 20 to 50 years. 
They suffer from the same deferred maintenance that was identified in 
schools. Libraries and parks are in poor condition.
    In April, 1997 the Authority issued a report, ``Toward a More 
Equitable Relationship: Structuring the District of Columbia's State 
Functions'', that addressed the relationship between the District of 
Columbia and the national government. A part of that report dealt with 
roads and bridges. It concluded that, while the District receives a 
proportional amount of federal funding to maintain its federal-aid 
highway routes, these routes comprise only 40 percent of the District's 
roadways. The remaining 60 percent of the roadways are locally 
designated roads and do not have a viable source of funding. The 
District's motor fuel tax revenues are currently used to meet the 
required local matching share of federal funds. In fiscal year 1997 
those revenues were only approximately $28 million. This situation is 
not likely to improve. Between 1977 and 1990 the number of gas stations 
in the District decreased from 270 to 136, a 50 percent decrease. 
Another mitigating factor is the proximity of the Maryland and Virginia 
suburbs. In most cities when customers purchase gasoline in suburban 
locations they are still paying the state gas tax, and the state may 
distribute those funds as needed. That option is not available to the 
District when purchases are made in Maryland and Virginia. Finally, the 
District does not possess such options as tolls or other direct user 
charges for the use and maintenance of its roadways and bridges.
    The following table illustrates how the $254 million would be 
spent.

              Proposed National Capital Infrastructure Fund

                        [In thousands of dollars]

District of Columbia Public Schools...........................   132,000
Local Streets.................................................    87,000
Metropolitan Police Department................................    25,000
Fire and Emergency Medical Services Department................    10,000
                    --------------------------------------------------------------
                    ____________________________________________________

      Total...................................................   254,000

    Question. Funds for this proposal were not included in the 
President's proposed budget, and the Subcommittee's allocation does not 
include sufficient funds to pay for this request. Do you recommend that 
other components of the President's request not be funded in order to 
provide funds for infrastructure repairs?
    Answer. The District of Columbia Financial Responsibility and 
Management Assistance Authority does not recommend that any of the 
items contained in the President's budget request be reduced or 
eliminated in order to accommodate this request. The request for 
support of an appropriation for the National Capital Infrastructure 
Fund is based upon the inability of the District to generate sufficient 
capital funds to maintain the infrastructure, without the support that 
other cities receive from their state governments. We hope that the 
Congress will consider the above discussion, the April, 1997 report and 
the arguments contained in the fiscal year 1999 operating budget 
justification material (page VII-1) and provide the District with the 
needed assistance.
    Question. In 1997, Congress amended the Federal Payment 
Reauthorization Act to require the Control Board to develop a 
Performance Accountability Plan for all District departments, agencies 
and programs. The plans were to be submitted to Congress by March 1, 
1998. The Committee received a report this spring on Performance 
Accountability, but it was more a road-map for performance management--
not the detailed plans required by law.
    When can Congress expect to receive performance plans for each of 
the District's departments and agencies?
    Answer. As part of the District's Performance Management System 
that was outlined in the report submitted to Congress on March 2, 1998, 
the District of Columbia is in the process of developing the annual 
Performance Accountability Plan. It is expected that a draft of the 
Performance Accountability Plan will be submitted to the relevant 
committees no later than, July 31, 1998. The final Performance 
Accountability Plan will be submitted no later than, September 30, 
1998.
    Members of the staff of the Chief Management Officer and the 
Authority have met with Committee staff, and with representatives from 
the General Accounting Office to discuss the status of the District's 
Performance Management System. A timeline was developed. It is our 
intent to develop a Performance Accountability Plan that not only 
complies with the requirements of the law but that also allows us to 
implement a management system through which District government 
managers, residents, and the Congress, can assess the effectiveness of 
the services provided by the government. The Performance Accountability 
Plan will contain specific outcome and customer satisfaction 
performance measures. Additionally, the Performance Accountability Plan 
will incorporate measures of the improvements in service delivery 
resulting from the Management Reform Initiative that was part of the 
National Capital Revitalization and Self Governance Improvement Act of 
1997.
    Our work to implement the Performance Management System is 
proceeding on this schedule.
    Question.The District's proposed budget recommends a reduction of 
12 full-time equivalent positions from the Office of City 
Administrator.
    Given the transfer of responsibility of 9 major agencies to the 
Chief Management Officer, how does the Control Board justify funding 17 
positions in this office for fiscal year 1999?
    Answer. The consensus budget developed by the Authority, the Mayor, 
and members of the Council provides for a reduction from 29 full-time 
equivalent positions (FTE's) and $4 million to 17 FTE's and $1.16 
million. The number of personnel remaining are provided to assist the 
Mayor in evaluating overall policy questions.
    Question. Could the District better use the $1.16 million for 
infrastructure repairs of the District's schools and roads or for 
management reforms?
    Answer. The District needs to take advantage of every opportunity 
to address its multi-billion dollar deferred maintenance and 
infrastructure needs, however, it is also important that policy 
questions are thoroughly considered and alternatives are explored. To 
that end these resources will be valuable to the management reform 
efforts of the District government.
    Question. Did the District of Columbia receive any funds in the 
recently passed highway bill passed by Congress?
    If so, how much did the District receive, and what was it ear-
marked for?
    Answer. Under the federal-aid highway program, the District of 
Columbia receives apportionments as if it were a state. Under the new 
Transportation Equity Act for the 21st Century (TEA 21), Public Law 
105-178 signed by the President on June 9, 1998, the District's 
apportionment for fiscal year 1998 totals $87,933,000.
    The District's Department of Public Works estimates that the 
required matching funds required under the TEA 21 legislation will 
exceed the total revenues available to the District's Transportation 
Trust Fund. Primarily, these are comprised of amounts collected from 
motor vehicle fuel taxes. This amounts to $5 million to $7 million 
annually. The Trust Fund currently realizes approximately $30 million 
annually.
    Section 1225 of the TEA 21 Restoration Act provides that the 
Secretary of Transportation may approve substitute highway and transit 
projects in lieu of the construction of the Barney Circle Freeway 
project. The effect of this provision is to extend, for up to four 
years, the amount of time that the District has to match and make use 
of the $173 million in funds withdrawn from the interstate system 
project.
    Question. In reviewing the District's budget, it appears that as of 
December 20, 1997, the District employed 34,681 full-time equivalent 
positions.
    The budget tables show a projected work force in fiscal year 1999 
of 34,169 full-time employees. This is a reduction of only about 500 
employees.
    Can you confirm for the Committee how many full-time equivalent 
positions were employed by the District in fiscal year 1998?
    Answer. While the fiscal year 1998 budget does not contain a 
limitation on the number of FTE's, the current estimate is that the 
District government will employ 32,885 FTE's, on a gross budget basis, 
excluding FTE's funded by intra-District transfers. Of this number 
25,819 are funded from local funds.
    Question. How many full-time equivalent positions are you proposing 
to employs for fiscal year 1999?
    Answer. The consensus budget does not include a limitation on FTE 
positions, the Authority believes that it is more important to control 
expenditures and monitor service delivery levels rather than to 
regulate the number of personnel. However, the District Office of 
Budget and Planning estimates that the fiscal year 1999 budget will 
support 32,891 FTE's, of which 24,683 are funded from local funds.
    Question. In which departments are you reducing staff, and in which 
departments are you increasing staff?
    Answer. Attached is a copy of ``Government of the District of 
Columbia Fiscal Year 1999 Proposed Full-Time Equivalent Employment 
Authority--Local Funds''. This was included in the District's operating 
budget document listing the estimated changes in FTE employment from 
the current fiscal year.
    Question. This year's budget appropriates $319 million for 3 
agencies under court-ordered receivers.
    Why did the budget drafters separate the receivers into a separate 
budget function?
    Answer. For fiscal year 1999 the proposed budget includes a 
separate appropriation account for three of the receiverships that are 
operating District of Columbia government agencies. Returning those 
receiverships to District control is of vital importance because of the 
loss of coordination over key governmental management and budget 
functions. This results in the District government not achieving 
various policy and program objectives. The lack of budgetary 
independence is a liability for the District because the receivers have 
historically claimed that they are under-funded and demand additional 
resources as a requirement for improved service delivery. This is often 
to the detriment of services not under the courts' control.
    To address this risk, the District must develop a comprehensive 
strategy for ensuring the timely return of these agencies back to the 
control of the District. Court orders mandate minimum service levels or 
timely action to remedy inadequately managed programs. These orders 
contribute to the District's high fixed expenses and they limit budget 
flexibility. Providing acceptable service levels and the resulting 
return of these receiverships to the control of the District is 
essential to the long-term fiscal recovery of the District.
    The fiscal year 1999 budget funds the receiverships at levels that 
are necessary to meet the requirements set by the courts. This required 
larger increases in local funding, for agencies under court-ordered 
receivers.
    Question. Why did the District's budget not include the housing 
receiver budget in this category?
    Answer. The Superior Court of the District of Columbia appointed a 
receiver to operate the Department of Public and Assisted Housing 
(``DPAH'') in May, 1995. DPAH and the receiver operate primarily with 
federal grant funds. These funds are used to manage and maintain the 
public housing operations. The only District funds included in the 
fiscal year 1999 budget total $2.1 million for the Tenant Assistance 
Program, which is being phased out by the District. A decision has not 
been made to include the housing receiver in the new appropriation 
account. There is a need to develop an exit strategy for the housing 
receiver.
    Question. Since the receivers can demand additional resources at 
any time, are these budget figures for the receivers merely estimates?
    Answer. All amounts in the proposed budget should be considered 
estimates. However, the amounts requested for the various receiverships 
were developed in cooperation with the receivers. The total represents 
significant increases over fiscal year 1998. Therefore these amounts 
are expected to adequately address the needs of the receiverships 
during fiscal year 1999.
    Question. Last year, 11 schools in the District were closed in an 
effort to put limited resources into fewer facilities. The goal was to 
improve only those schools that are needed to educate the District's 
school children.
    Given the continued crisis in the District's public schools and the 
lack of adequate funds to solve the crisis, does the Control Board 
expect that more schools will be closed during the next school year?
    Answer. Currently, no plans exist to close additional schools 
during the next school year. However, given the declining student 
population and the competing demands for scarce resources, the number 
of schools should be reduced. The Superintendent/CEO, with the 
assistance of the Emergency Board of Trustees, is revising the Long 
Range Facilities Plan, which will establish criteria for determining 
the utilization of the facilities and the space requirements of D.C. 
Public Schools. The Authority expects to receive, as part of the long 
range facilities planning process, recommendations regarding school 
closures.
    The Authority is mindful of the difficulty of these decisions. The 
Superintendent and the Emergency Board of Trustees understand the 
importance of involving the community in developing closure 
recommendations.
    Question. Does the District's proposed budget include any funding 
for the recycling program?
    If so, what is the amount of funding?
    Answer. The proposed budget for fiscal year 1999 provides $4.2 
million for recycling. In addition, $165,000 will be available from 
fees collected from private haulers at the District's waste handling 
facilities.
    Question. Please describe the proposed recycling program for fiscal 
year 1999.
    Answer. The Department of Public Works anticipates that residential 
recycling will resume by September, 1998, after a contract is executed 
to provide recycling collection services for all residential buildings 
in its service population (approximately 102,000 buildings). The 
recycling program will provide for the collection of materials 
including glass and metal; food and beverage containers; plastic 
containers with recycling codes # 1 and # 2; aluminum foil; newspapers 
(including inserts); magazines and catalogs; corrugated cardboard; 
brown paper bags; office paper; and telephone books.
    The new residential recycling program will provide several 
noticeable service enhancements over previous efforts. It is designed 
to make recycling customer friendly. The enhancements include:
    Increased frequency.--The proposed program calls for weekly 
recyclable collection service. The previous program offered bi-weekly 
collections.
    Same point of collection for recyclables and trash.--The proposed 
program will collect recyclables from the same point of collection as 
that used for trash--a mix of curbside and alley collections throughout 
the city. Previous programs offered curbside service only.
    Equitable treatment.--Same day collection of recyclables and trash 
at one point of collection across the city's eight wards to provide 
more equitable treatment.
    New recycling bins.--All houses in DPW's service population will 
receive a new, larger 18 gallon recycling bin. The bins will be 
imprinted with the recycling logo, the sanitation information center 
phone number, and instructions on how to prepare recyclables for 
collection.
    These service enhancements will be partnered with an aggressive 
public information campaign to encourage program participation. It is 
DPW's goal to reach a 30 percent participation rate by March, 1999. 
Strategies to increase participation include securing pro bono 
advertising services from public relations firms and beverage industry 
groups, as well as launching an education campaign in the public 
schools and community organizations.
    Question. The District's budget states that District leaders have 
planned an additional $25 million for management reform in fiscal year 
1999, and the President has recommended $25 million in management 
reforms to improve the District's economic development infrastructure.
    If the District is appropriated $25 million for management reform, 
for what type of management reforms would the funds be used?
    Answer. The $25 million included in the President's budget for 
fiscal year 1999 will be used primarily for capital investments and 
departmental management improvements, including:
    Asset management.--Funds are required to develop a comprehensive 
database for real property information and to develop an automated 
integrated tax system.
    Department of Consumer and Regulatory Affairs (``DCRA'').--
Additional funds are needed to streamline the building permit and 
zoning processes.
    Department of Health.--Funds will be used to continue the transfer 
of DCRA environmental health administration function to the Department 
of Health.
    Department of Public Works.--Management reform funds are required 
to consolidate the waste transfer station operations, improvement of 
right-of-way management, and to improve fleet management services.
    Metropolitan Police Department.--Funds will be used to support 
critical information technology for the improvement of public safety.
    Question. Please provide the Committee with a complete list of all 
non-profits currently using District public school facilities, as well 
as a schedule of hours for each non-profit.
    Answer. There are non-profit entities using all 146 public school 
buildings. These non-profits include community groups, who use the 
buildings for meetings, to early childhood programs that lease space in 
surplus buildings. The D.C. Public Schools realize approximately 
$500,000 in rent from these activities each year. The attached list 
denotes school facilities that are occupied by non-profit tenants or 
District government agencies that do not pay rent.

       District of Columbia Schools Occupied by Government Agencies or Non-Profit Entities Paying no Rent
 
                       School facility                                         Occupying entity
 
Addison School, 3210 O Street, NW.....................  Department of Human Services.
Bundy School, 429 O Street, NW........................  Department of Human Services.
Blair School, 6239 Eye Street, NE.....................  Department of Human Services--Homeless shelter.
Bryan School, 1325 Independence Avenue, SE............  Department of Human Services (Vacating July, 1998).
Crummel School........................................  Department of Human Services.
Galludet & Kendall Streets, NE........................  Homeless shelter (Proposed sale of property, homeless
                                                         trailers will be allowed to stay for one year from the
                                                         date of settlement).
Emery School, Lincoln Road & Prospect Street, NE......  Department of Human Services--Homeless shelter.
Grimke School, 1923 Vermont Avenue, NW................  Fire and Emergency Medical Services Department and
                                                         Department of Corrections headquarters.
Hamilton School, 610 Brentwood Parkway, NE............  Superior Court of the District of Columbia.
Madison School, 10th and G Streets, NE................  Department of Human Services--Homeless shelter.
Nicholas Avenue School, 2427 Martin Luther King         ARCH/CEEP Training Program--Property will be proposed
 Avenue, SE.                                             for sale by September, 1998.
Pierce School, 14 and G Streets, NE...................  Department of Human Services.
Randall School, 820 Half Street, SW...................  Department of Human Services.
Reno School, Howard & Fessender Street, NW............  Department of Human Services.
 

    Question. Recently the General Accounting Office issued a report 
titled ``Software Acquisition Process for a New Financial Management 
System'' (AIMD-98-88, April, 1998). Have you reviewed the final report, 
and do you have any comments?
    Answer. The GAO report measured the District's source selection 
process against a standard that was not used in its selection, 
therefore the GAO overstates the weaknesses of the District's process. 
The Chief Financial Officer for the District, in a reply that is 
contained in the GAO report, notes that the issues cited are being 
addressed. On June 2, 1998, the Chief Management Officer provided the 
Executive Director of the Authority with comments on the GAO report. A 
copy of that letter is attached.

                   Letter From Camille Cates Barnett

         District of Columbia Financial Responsibility and 
                                             Management    
                                      Assistance Authority,
                                      Washington, DC, June 2, 1998.
Mr. John W. Hill, Jr.,
Executive Director, District of Columbia Financial Responsibility and 
        Management Assistance Authority, Washington, DC.
    Dear Mr. Hill: I appreciate the opportunity to review the report 
prepared by the United States General Accounting Office, Software 
Acquisition Processes for a New Financial Management System for the 
District of Columbia. Let me begin by noting that this report makes 
several important, if somewhat critical, observations regarding the 
state of software acquisition in the District.
    Although the report found more strengths than weaknesses in the 
District's FMS acquisition process, it emphasized weaknesses in 
requirements development, management and evaluation. While it is fair 
to challenge the FMS acquisition process in these areas, Mr. Williams, 
in his reply to the report, is correct in pointing out that many of 
these problems are being addressed. Moreover, as you noted, the absence 
of any major software purchases by the District in recent years has 
contributed to the lack of written policy in the software acquisition 
area. Nevertheless, I believe the report somewhat overstates the 
weaknesses in the FMS procurement.
    The reason the report overstates the weaknesses is quite simple: 
GAO utilized a tool--the Software Engineering Institute's (SEI) 
Software Acquisition Capability Maturity Model (SA-CMM)--which has very 
specific requirements for achieving a particular ``maturity'' level. It 
is unlikely that any software acquisition project would score well on 
the model, in the absence of prior knowledge of its specific 
requirements. Moreover, a single weakness--such as the absence of 
written policies, procedures or guidelines--negatively affects the 
respondent's score in virtually every key process being evaluated. 
Finally, the model seems best-suited for ensuring proper development 
and implementation of very large, complex custom-designed software 
applications--such as those developed for the Department of Defense 
(DOD).
    In contrast, many municipal applications are largely ``off-the-
shelf'' products, albeit with some modifications. Unlike many DOD-type 
applications, they typically are products that have been tested 
previously in the real-world. Consequently, risk management, while 
important, is not as critical as in the development and implementation 
of new and complex custom applications. Fully 29 percent of the 
weaknesses noted in the GAO report for FMS, were in the risk management 
area.
    The SA-CMM model may set a good standard for the District to follow 
in future software acquisition. However, I have some concern as to 
whether this is the best model for the District to use, or to use in 
all cases. Other standardized software acquisition protocols also may 
be available. It is my recommendation that the District review the 
various protocols available and select those which best suit the City's 
needs. It may be that different protocols are appropriate for different 
types of purchases.
    I will follow-up on this with the District's Interim Chief 
Technology Officer. If you have any questions, feel free to contact me.
            Sincerely,
                              Camille Cates Barnett, Ph.D.,
                                          Chief Management Officer.

   Budgeted and Actual Expenditures for the Current Fiscal Year, for 
               District of Columbia Public Schools [DCPS]

    Question. Please provide precise information, with supporting 
documentation, as to the confirmed amount of the financial discrepancy 
between DCPS' budgeted and actual expenditures.
    Answer. As of May 31, 1998, the projected deficit for DCPS was 
$26.818 million. This includes a projected Personal Services (``PS'') 
deficit of $39.056 million and a Non-Personal Services surplus of 
$12.238 million.

      TABLE I.--FISCAL YEAR 1998 BUDGET AND PROJECTED EXPENDITURES
                              [Local funds]
------------------------------------------------------------------------
                                         Fiscal year 1998
                                     ------------------------   Under/
           Budget category             Budgeted                 (over)
                                        amount   Expenditure    budget
------------------------------------------------------------------------
Personal Services...................   $366.076    $388.523    ($22.447)
    Teamsters' Settlement...........  .........      14.769     (14.769)
    Premium Pay.....................  .........       1.840      (1.840)
Non-Personal Services...............    128.803     116.565      12.238
                                     -----------------------------------
      Total.........................    494.879     521.697     (26.818)
------------------------------------------------------------------------

    Personal Services Deficit.--The projected $39.056 million PS 
deficit can be broken down as follows:
    A. $22.447 million is the projected PS expenditures through 
September 30, 1998.
    B. $14.769 million is the net amount required to fulfill the 
Teamsters' settlement through fiscal year 1999. This net figure 
represents the total liability for DCPS of $25.4 million in the 
settlement, less a reserved amount of $10.6 million. These are the 
details of the settlement:
  --$1.75 million for a 5 percent one-time payment which was paid in 
        December of 1997.
  --$1.43 million for an additional one-time payment which was paid in 
        March of 1998.
  --$2.78 million for a March 1, 1998 pay raise which remains an 
        element of the DCPS deficit.
  --$19.4 million for three payments of $6.45 million for total back 
        payments for the period fiscal year 1993-1997. The first two 
        payments are due in fiscal year 1998. The third payment will be 
        due in fiscal year 1999.
    C. $1.840 million is premium pay from June 1998 through the end of 
the fiscal year. This amount was calculated based on the actual costs 
of additional gross pay from the prior fiscal year and based on the 
current freeze in place.
    Non-Personal Services Cost Savings.--As a result of the increase in 
budget authority and the Non-Personal Services (``NPS'') spending 
freeze, DCPS anticipates $12.238 million in NPS cost savings. 
Initially, DCPS identified a $9.6 million shortfall in NPS, includes 
$8.1 million due to a court-mandated transportation program and $1.5 
million to support additional academic enhancements. Since many of the 
academic enhancements represent productivity and management 
improvements, the Authority authorized management productivity funds to 
DCPS. In addition, DCPS has frozen all NPS accounts, with exception of 
those funds that are bound by contractual obligations or used for 
emergency requests approved by the Superintendent and the CFO of DCPS.
    Question. Provide the spending elements which have contributed to 
the purported discrepancy between budget and expenditures. For each 
spending element, include the budgeted and actual spending amounts and 
the factors utilized in determining those amounts.
    Answer. The components of the projected deficit can be classified 
as either personnel overspending, program enhancement, or court-
mandated spending. The DCPS Superintendent introduced several academic 
enhancements that were critical to carrying out academic reforms in 
fiscal year 1998. Additionally, court mandates related to Special 
Education required several unbudgeted expenditures. Personnel 
overspending will be addressed in the Authority's response to inquiry 
number four.
    The following table shows the components of the deficit in 
thousands:

                  Table II.--Components of the Deficit

        Components                                               Deficit
Fiscal Year 1998 Personal Services (PS) Budget................ $366.076 
                    ==============================================================
                    ____________________________________________________
Actual YTD Expenditures (Group 6 (10/1/97 through 4/30/98, <14 
    pay periods)) (Groups I and 2 (10/1/97 through 5/9/98, 
    <15.8 pay periods))....................................... (260.521)
Projected Expenditures (Regular Pay and Benefits--11, 12, 14):
    Group 6 @ 14,030 x 6 remaining pay periods................  (84.184)
    Groups I and 2 @ 3,621 x 10.3 remaining pay periods.......  (37.298)
    Group 6 Summer Payroll....................................   (6.000)
    Step Increases............................................   (0.520)
                    --------------------------------------------------------------
                    ____________________________________________________

      Total Actual and Projected Expenditures adjustments..... (388.523)
                    --------------------------------------------------------------
                    ____________________________________________________

      Subtotal (Actual and Projected v. Fiscal year 1998 
      Personal Servi- 
      ........................................................
        ces)..................................................  (22.447)
                    ==============================================================
                    ____________________________________________________
Additional PS Funding Requirements:
    Backpay for Teamsters' Union..............................  (14.769)
    Premium Pay/Additional Gross..............................   (1.840)
                    --------------------------------------------------------------
                    ____________________________________________________

      Additional Adjustments Total............................  (16.609)
                    ==============================================================
                    ____________________________________________________
      Total PS Potential Deficit..............................  (39.056)

    Question. Provide specific information as to staffing levels at the 
beginning of the school year and presently. Detail levels of personnel 
for administrative, school-based v. non-school-based, classroom v. non-
classroom, school support and another employee classifications that 
constitute the DPCS employment total. Numbers of full-time and part-
time employees must also be identified in the total and definitions of 
each employee category should be provided.
    Answer. Detailed below is a report on current staffing levels and 
staffing levels for the beginning of fiscal year 1998.
                          employee categories
    Central.--Employees who support local schools in administrative 
areas such as budget and finance, human resources, and Management 
Information Systems (``MIS'').
    Instructional Support.--Employees who have supervisory, 
coordinating, and planning responsibility in academic instructional 
areas. Programs like media and library services are included in this 
category.
    Instructional.--Employees who provide instruction for elementary, 
junior high/middle, or senior high school. This category also includes 
special education and adult education.
    Support Services.--Employees who perform services related to the 
physical plants within the school system including custodial services 
and building maintenance, building repairs and improvements, and 
capital projects development.

                                      TABLE III.--DCPS STAFFING BY FUNCTION
----------------------------------------------------------------------------------------------------------------
                                                                                No. of FTE's \1\
                                                              --------------------------------------------------
                                                                 Beginning of fiscal         As of 5/31/98
                                                                      year 1998       --------------------------
                                                              ------------------------
                                                                        Non-            Local    Non-     Total
                                                                Local   local   Total            local
----------------------------------------------------------------------------------------------------------------
Central......................................................     228     413     641     260      438      689
Instructional Support........................................     433     401     834     463      499      962
Instructional................................................   6,394     164   6,558   6,564      166    6,730
Support Services.............................................   1,632      19   1,651   1,598       25    1,623
                                                              --------------------------------------------------
      Total..................................................   8,687     997   9,684   8,885    1,128   10,013
                                                              ==================================================
Full-Time....................................................   8,121     707   8,828   8,329      727    9,056
Part-Time....................................................     566     290     856     556      401      957
                                                              --------------------------------------------------
      Subtotal...............................................   8,687     997   9,684   8,885    1,128   10,013
                                                              --------------------------------------------------
Less: RIF....................................................  ......  ......  ......    (147)  ......     (147)
                                                              --------------------------------------------------
      Total..................................................   8,687     997   9,684   8,738    1,128    9,866
----------------------------------------------------------------------------------------------------------------
\1\ FTE--Full-Time Equivalent.

    Regarding the overspending in personal services, by June 30, 1998, 
637 employees will be separated from DCPS through a system-wide 
reduction-in-force. In addition, DCPS will release another 100-300 
employees by September 30, 1998. These personnel reductions will result 
in approximately $2.5 million in savings.
    Question. Provide empirical evidence to address whether the 
personnel costs contained in the approved budget were based on an 
accurate representation of the annual costs for those respective 
employment classifications, including full-year and partial-year 
employment contracts. In addition, document the method for constructing 
the baseline budget for personnel costs.
    Answer. The fiscal year 1998 total budget request was $614.8 
million, including $525.8 million in local funds and $89 million in 
non-local funds. The request supported a total of 10,009 Full-Time 
Equivalents (FTE's)--8,623 from local funding, 1,251 from federal 
funds, and 135 from private, intra-District or other funds.
    The fiscal year 1998 budget was comprised of two parts.
  --The school-based staffing model was used to determine the number of 
        FTE positions needed to fund school-based personnel.
  --DCPS did not to complete the analysis necessary to determine the 
        actual number of central overhead personnel required. As a 
        consequence, the non-school-based portion of the budget was 
        funded at fiscal year 1997 levels.
    DCPS budget allocation for fiscal year 1998 left a 440 FTE gap 
between the 9,063 FTE's authorized in fiscal year 1997 and the 8,623 
FTE's requested in the fiscal year 1998 budget. The budget required the 
elimination of 400 positions of school-based staffing or the 
implementation of alternative offsetting FTE reductions within central 
administration.
    Question. As related to Inquiry No. 4, please advise as to what 
impact these matters will have on the budget currently being developed, 
and how that impact will be addressed.
    Answer. The fiscal year 1999 PS budget is comprised of a school-
based budget, using average salaries for each pay plan and grade. The 
PS budget in fiscal year 1999 will reflect changes driven by staffing 
requirement assessments, corrections to a head count of personnel, and 
reductions-in-force. Additionally, the actual expenditures for fiscal 
year 1999 will be closely monitored. As a result of the implementation 
of an integrated personnel and payroll data management system, DCPS 
will have more accurate and timely personnel budget and expenditure 
information.
    Question. Provide information on the costs of the special education 
program, particularly transportation requirements. This information 
should include the number of students receiving special education 
services, the congressionally approved budget versus the revised budget 
(actual expenditures through April 1998, plus projected expenditures of 
the balance of fiscal year 1998) separate for special education, 
administration, assessment, instruction and support services and 
transportation.

                               TABLE IV.--FISCAL YEAR 1998 SPECIAL EDUCATION COSTS
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                   Fiscal                               Total
                                                                    year       Actual     Projected  (Actual and
                        Special education                           1998    expenditures   thru  9/   projected
                                                                   budget    thru 5/8/98    30/98     exp.) \1\
----------------------------------------------------------------------------------------------------------------
Administration..................................................  ........       0.378        0.270        0.648
Instruction.....................................................  ........       7.501        5.587       13.088
Support Services................................................  ........       9.052        6.891       15.943
Assessment......................................................  ........       0.826        0.463        1.289
Benefits (est. 8.5 percent).....................................  ........       1.439        1.084        2.523
Total-Personnel.................................................    40.592      19.196       14.295   \2\ 33.491
Total OTPS......................................................    20.070      23.195       20.610       43.805
Local Funds Total...............................................    60.662      42.391       34.905       77.296
----------------------------------------------------------------------------------------------------------------
\1\ Assumes 10 remaining pay periods.
\2\ Data reflects employees coded to the special education division. Personnel information is still being
  updated and corrected to accurately reflect employees' work locations. Therefore, these expenditure
  projections will change as the information is updated.


                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                  Fiscal
                                                                   year       Actual       Projected     Actual
                         Transportation                            1998    expenditures  expenditures     and
                                                                  budget                               projected
----------------------------------------------------------------------------------------------------------------
Grant (Non-local)..............................................     3.508       1.421         2.087        3.508
Medicaid (Non-local)...........................................     6.200       5.000         1.200        6.200
                                                                ------------------------------------------------
      Non-local Total..........................................     9.708       6.421         3.287        9.708
Transportation (Local).........................................    24.800      13.023        11.777       24.800
----------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
                                                      No. of   Projected
            Special Education population             students   no. thru
                                                     (5/4/98)   9/30/98
------------------------------------------------------------------------
DCPS...............................................     6,758      8,682
Tuition Grants.....................................     1,421  \1\ 1,497
                                                    --------------------
      Total........................................     8,179     10,179
Transportation required by:
    Public School Students.........................     1,760      2,261
    Private Schools Students.......................       893        941
                                                    --------------------
      Total Students...............................     2,653  \2\ 3,202
------------------------------------------------------------------------
\1\ Growth factor is 19 students per month, based on special education
  data of students placed in private schools over a twelve month period.
 
\2\ Projection based on the proportion of students receiving services as
  of 5/4/98.

    Question. Please provide information as to the effect of the Summer 
School program, if any, on the budget discrepancy. Please include the 
source of funding of what is estimated to by $10 million expenditure 
requirements.
    Answer. To date, DCPS has received a $10.3 million in Federal grant 
funds for the Summer School program. Therefore, there will the Summer 
School program will have no impact on the local deficit since all 
funding has been provided through grant sources.

                     Table V.--Summer School Funding

        Funding Source                                            Amount
S.T.A.R.S. Grant (White House)................................    $4.997
Impact Aid unobligated fiscal year 1997 carry-over............     0.449
Title I unobligated fiscal year 1997 carry-over...............     3.567
Title II unobligated fiscal year 1997 carry-over..............     0.396
Title IV unobligated fiscal year 1997 carry-over..............     0.228
Title IV unobligated fiscal year 1997 carry-over..............     0.910
Title VI unobligated fiscal year 1997 carry-over..............     0.595
                    --------------------------------------------------------------
                    ____________________________________________________

      Total...................................................    10.323

    Question. Provide clarification of the supervisory oversight 
responsibility and accountability related to these matters. Please 
describe department and agency roles in budget development and 
implementation for DC Public Schools. Specifically, who has 
responsibility for the development and implementation of the annual 
budget for DCPS once it has been approved?
    Answer. The Authority is responsible for the performance of DCPS. 
The CFO for the District of Columbia is responsible for the performance 
of the CFO for DCPS. As with all other District agencies, the 
management of the finances is independent from the management of the 
program. The CFO for each agency must implement financial control 
mechanisms to restrict unwarranted spending.
            office of the chief financial officer monitoring
    CFO's for agencies are required to submit monthly reports on the 
financial status of their agencies The Financial Review Process 
(``FRP'') shows the agency's year-to-date expenditures on a monthly 
basis. The Deputy CFO for Budget and Planning for the District requests 
agency CFO's to submit FRP's by the fifteenth of each month. The FRP 
report includes:
  --Summary and projection of local and non-local funds;
  --PS forecast assumptions regarding hiring and attrition, overtime, 
        reductions-in-force, and on board FTE's;
  --NPS spending assumptions, including fixed costs, contractual 
        service obligations, subsidies and transfers, and supply and 
        equipment purchases;
  --Intra-District transfers, including payments and collections;
  --Revenue shortfalls; and
  --Requests for procedural assistance.
    The FRP is an effective tool for the CFO to monitor the spending of 
District agencies. Expenditure data from the District's Financial 
Management System (``EMS'') is used to project spending throughout the 
fiscal year. Together, the FRP and FMS provide OBP with a framework for 
reconciling data, reviewing analytical assumptions, and testing 
methodologies.
    DCPS' Monthly Financial Report is submitted to the Congress, the 
Authority, the Council of the District of Columbia, and the Mayor 
fifteen days after each monthly reporting period, as required by the 
School Reform Act of 1995.
    Question. What actions will DCPS take to ensure a reliable and 
credible budget process that ensures resources are available to sustain 
a public education system in the District of Columbia that meets the 
expectations of DCPS parents, communities and the taxpaying public?
    Answer. The fiscal year 1999 budget for DCPS was developed based on 
programmatic requirements. The budget was implemented in such a way 
that each school, department, or program will have a budget plan and 
improved monitoring tools. This will allow DCPS to hold individual 
managers, accountable for budget implementation. Some of the highlights 
of the new budgeting process follow:
    1. The overall appropriated budget is now categorized into two 
major portions, school-based expenses and supporting functions. The 
school-based portion of the budget was developed using a new ground-up 
staffing model, which consistently allocates school staff and local 
school management to each school, based on enrollment size and other 
criteria. The staffing model will reflect the new enrollment figures, 
school closures, and revised staffing criterion. This school-based 
budget allows each school to be empowered as well as accountable, for 
the costs in the school.
    2. The supporting functions of DCPS have been redesigned, 
reflecting the new organizational structure implemented by the 
Superintendent. Each program manager has identified base funding needs 
associated with core programs, and determined amounts needed to fulfill 
the mission of each program. With the fiscal year 1999 budget, each 
program manager will meet with the budget office to provide an 
implementation plan for personal services and non-personal services 
costs. With the development, and reorganization of the departments, 
each program manager will be solely responsible for carrying out their 
budget plan, as well as having more accurate financial information.
    3. With the implementation of the District's Central Automated 
Personnel and Payroll system, the District's personnel budget and costs 
will be more accurate. This new payroll and personnel control system 
will prevent DCPS from hiring in excess of the authorized FTE limit for 
each department, to more quickly enter new personnel, and personnel 
changes in to the accounting system, and to eliminate or greatly reduce 
reliance on the DCPS supplemental payroll system.
    4. With the implementation of the District's new EMS system, DCPS 
program managers and principals will have on-line information on their 
budgets and related expenditures. They will have the ability to monitor 
budgets, procurement and payments.
    DCPS and the CFO are instituting actions to address the projected 
shortfalls in fiscal year 1998. DCPS will comply with the approved 
fiscal year 1998 budget. The Authority will ensure that the necessary 
systems are implemented to ensure that the budget for fiscal year 1999 
will be implemented within the constraints of the appropriated budget.

                         Conclusion of Hearings

    Senator Faircloth. If there is no further business, the 
subcommittee is recessed.
    [Whereupon, at 3:45 p.m., Wednesday, June 10, the hearings 
were concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]


       LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                              ----------                              
                                                                   Page
Barnett, Dr. Camille Cates, chief management officer, Financial 
  Responsibility and Management Assistance Authority.............     1
    Prepared statement...........................................     7
Barry, Hon. Marion H., Jr., Mayor, Office of the Mayor...........   113
    Prepared statement...........................................   119
Boxer, Hon. Barbara, U.S. Senator from California:
    Prepared Statement...........................................   150
    Questions submitted by...................................49, 52, 65
Brimmer, Dr. Andrew F., chairman, Financial Responsibility and 
  Management Assistance Authority................................1, 125
    Prepared statement..........................................17, 128

Cropp, Linda W., chairman, Council of the District of Columbia...   105
    Prepared statement...........................................   111

Faircloth, Hon. Lauch, U.S. Senator from North Carolina, 
  questions submitted by...........................45, 50, 53, 151, 155

Prettyman, E. Barrett, Jr., D.C. Inspector General, Government of 
  the District of Columbia, letter from..........................   146

Schlein, David J., national vice president, District 14, American 
  Federation of Government Employees, prepared statement.........    67

Williams, Anthony A., Chief Financial Officer, Financial 
  Responsibility and Management Assistance Authority.............     1
    Prepared statement...........................................    25


                             SUBJECT INDEX

                              ----------                              

                          DISTRICT OF COLUMBIA

                  Council of the District of Columbia

                                                                   Page
Balanced budget..................................................   105
Deteriorated buildings and streets, upgrade of...................   109
Fiscal year:
    1997 operating surplus.......................................   107
    1999:
        Budget and financial plan................................   107
        Consensus budget, hearing on.............................   105
Infrastructure needs over $3 billion.............................   110
Local chartered corporation......................................   109
Management reform, use of funds for..............................   106
Pay adjustments for employees....................................   109
Public works projects............................................   109
Repairs to school buildings, progress of.........................   106
Tax relief.......................................................   109

      Financial Responsibility and Management Assistance Authority

Accounting system................................................    35
Additional staff, hiring of......................................   137
Americans with Disabilities Act..................................   140
Assess students, number of days to...............................   142
Audit contract...................................................   128
Authority, agencies reporting to.................................    12
Balanced budget..................................................    22
Booz Allen study.................................................    30
Borrowing........................................................    15
Budget process...................................................    24
Capital deficit..................................................    24
Cashing checks...................................................    22
Chief management officer.........................................    13
    Recruitment of...............................................   135
Chief, authority delegated to....................................    31
City Administrator, Office of....................................    13
City:
    Audit........................................................   149
    Delivers services, overhaul of the way.......................     2
    Employees, number of.........................................     2
    Not providing services.......................................    43
Clean audit......................................................    21
Consensus budget.................................................   148
Consultants......................................................    40
    Services of..................................................    14
Consumer and regulatory affairs..................................    15
Contingency planning.............................................   145
Crime rate.......................................................     3
Control Board's budget...........................................   134
Customer service survey..........................................     7
Department of Corrections........................................   127
Educational emergency board of trustees..........................   136
$81 million in schools budget, increase of.......................   136
Enrollment figures, audit of...................................138, 139
Financial Authority responsible for management and fiscal 
  recovery.......................................................    43
Financial management system......................................    36
Financial operations.............................................    39
Financial reporting..............................................    23
Fiscal year 1997, surplus for....................................     3
Full-time equivalent positions, reductions in....................   126
Goals and projects, completion of................................    35
Hurt Home........................................................   141
Infrastructure and public works improvements.....................   128
Infrastructure fund..............................................   150
Instructional process............................................   142
Investment grade.................................................    23
Life of project, funds available for.............................    35
Management improvement projects..................................    34
Management reform................................................     4
    Implementation of............................................    41
    Progress in implementing.....................................     1
    Teams........................................................    12
Management reform plans..........................................    13
    Implementation of............................................    12
Management reform programs, implementation of....................    16
Managment Reform Act.............................................    11
Medical malpractice reform.......................................    39
Memorandum of understanding......................................    29
    Members of group.............................................    30
    Partnership..................................................    33
    Win-win situation............................................    32
Mental health and child welfare receivers........................    42
Motor vehicles...................................................    15
New convention center, Metro station at..........................   143
Opening of school late...........................................   145
Payroll, deceased retirees on....................................    38
Performance contracting..........................................     6
Performance management system....................................     5
Personnel reform legislation.....................................     6
Police Chief:
    Chauffeurs                                                       30
    Search for...................................................    32
Police department................................................    29
    Run by committee.............................................     3
Positive financial news..........................................    21
Press coverage...................................................    29
Projected surpluses very small...................................   125
Projects underway................................................    35
Public schools budget............................................   127
Receivers budgetary implecations.................................    44
    Or trustees, number of.......................................    42
    Pursuing their own fix.......................................    43
Receiverships....................................................    25
    Status of....................................................    41
Receivers--......................................................    44
Regroup appropriation titles.....................................   126
Revitalization Act...............................................    24
Risk management..................................................    36
Schools:
    Construction, status of......................................   144
    Opening, delay in............................................     2
    Opening on time..............................................   144
    System's budget request......................................   135
School-by-school budget..........................................   136
Service delivery deficit.........................................    24
$600 million budget request......................................   140
Special education................................................   137
    Assessing 300 students a month for...........................   139
    Cost of......................................................   141
    Increase for.................................................   136
    Role of......................................................   138
Strategic plan...................................................     5
Student enrollment...............................................   138
Student outside of District, average cost of.....................   139
Tax:
    Deficit......................................................    23
    System.......................................................    22
Three goals......................................................     4
300 students a month, assessment of..............................   137
Year 2000 complaint..............................................    34
Youth detention..................................................    44

                          Office of the Mayor

Capital cities, Nation's support for.............................   117
Department of Health.............................................   116
Developing budget, policy positions in...........................   118
Federal and District Government, relationship between............   115
15th Street resurfaced and potholes filled.......................   115
Fiscal year 1993 Home Rule Charter...............................   114
Full-time equivalent positions, reduction of.....................   116
Interim chief financial officer, introduction of.................   113
New convention center............................................   117
Performance measures.............................................   118
Receiverships....................................................   118
Restructuring tax policy.........................................   118
School system, reform of.........................................   118
Summer Jobs Program..............................................   115
``The Orphaned Capital''.........................................   114
Washington, DC, No. 1 city on east coast.........................   114

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