[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
   THE DISTRICT OF COLUMBIA SCHOOL REFORM ACT OF 1995--BLUEPRINT FOR 
             EDUCATIONAL REFORM IN THE DISTRICT OF COLUMBIA
=======================================================================

                                HEARING

                               before the

                SUBCOMMITTEE ON THE DISTRICT OF COLUMBIA

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 7, 2001

                               __________

                           Serial No. 107-128

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform






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82-565                        WASHINGTON : 2002
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                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida         EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California             PATSY T. MINK, Hawaii
JOHN L. MICA, Florida                CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia            ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia                    DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida                  ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California                 DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky                  JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia               JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania    THOMAS H. ALLEN, Maine
DAVE WELDON, Florida                 JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida              DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho          STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia                      ------
JOHN J. DUNCAN, Jr., Tennessee       BERNARD SANDERS, Vermont 
------ ------                            (Independent)


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                     Robert A. Briggs, Chief Clerk
                 Phil Schiliro, Minority Staff Director

                Subcommittee on the District of Columbia

                CONSTANCE A. MORELLA, Maryland, Chairman
TODD RUSSELL PLATTS, Pennsylvania    ELEANOR HOLMES NORTON, Washington, 
THOMAS M. DAVIS, Virginia,               DC
------ ------                        DIANE E. WATSON, California
                                     STEPHEN F. LYNCH, Massachusetts

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
                     Russell Smith, Staff Director
                 Howie Denis, Professional Staff Member
                           Shalley Kim, Clerk
                      Jon Bouker, Minority Counsel
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on December 7, 2001.................................     1
Statement of:
    Chavous, Kevin, chairman, Committee on Education, Libraries 
      and Recreation, Council of the District of Columbia; Peggy 
      Cooper Cafritz, president, District of Columbia Board of 
      Education; Paul Vance, superintendent of schools, District 
      of Columbia; Josephine Baker, chairwoman, Public Charter 
      Board; and Gregory McCarthy, deputy chief of staff, Policy/
      Legislative Affairs........................................    12
    Gandhi, Natwar, chief financial officer, District of 
      Columbia; and Charles C. Maddox, inspector general, 
      District of Columbia, accompanied by William J. Divello, 
      CFE, assistant inspector general for audits................    89
Letters, statements, etc., submitted for the record by:
    Baker, Josephine, chairwoman, Public Charter Board, prepared 
      statement of...............................................    54
    Cafritz, Peggy Cooper, president, District of Columbia Board 
      of Education, prepared statement of........................    25
    Chavous, Kevin, chairman, Committee on Education, Libraries 
      and Recreation, Council of the District of Columbia, 
      prepared statement of......................................    15
    Gandhi, Natwar, chief financial officer, District of 
      Columbia, prepared statement of............................    93
    Maddox, Charles C., inspector general, District of Columbia, 
      prepared statement of......................................   114
    McCarthy, Gregory, deputy chief of staff, Policy/Legislative 
      Affairs, prepared statement of.............................    65
    Morella, Hon. Constance A., a Representative in Congress from 
      the State of Maryland, prepared statement of...............     4
    Norton, Hon. Eleanor Holmes, a Delegate in Congress from the 
      District of Columbia, prepared statement of................     9
    Vance, Paul, superintendent of schools, District of Columbia, 
      prepared statement of......................................    36


   THE DISTRICT OF COLUMBIA SCHOOL REFORM ACT OF 1995--BLUEPRINT FOR 
             EDUCATIONAL REFORM IN THE DISTRICT OF COLUMBIA

                              ----------                              


                        FRIDAY, DECEMBER 7, 2001

                  House of Representatives,
          Subcommittee on the District of Columbia,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:15 a.m., in 
room 2154, Rayburn House Office Building, Hon. Constance A. 
Morella (chairwoman of the subcommittee) presiding.
    Present: Representatives Morella and Norton.
    Staff present: Shalley Kim, staff assistant; Matthew Batt, 
legislative assistant; Robert White, communications director; 
Heea Vazirani-Fales, counsel; Russell Smith, staff director; 
Howie Denis, professional staff member; Jon Bouker, minority 
counsel; and Jean Gosa, assistant minority clerk.
    Mrs. Morella. We've been patient because of the sound 
system, but it sounds to me like it must be operating.
    Good morning. I want to welcome you all to our last hearing 
of the first session of the 107th Congress. This, in fact, is 
the 10th hearing conducted by the Subcommittee on the District 
of Columbia during this session.
    You know, as I was driving in this morning, I was reminded 
of the fact that this is the 60th anniversary of Pearl Harbor, 
that day of infamy, and you remember the slogan, ``Remember 
Pearl Harbor.'' For most of you, it was from a history book 
that you heard that. So now also it was 3 months ago, too, that 
we had another day of infamy, ``Remember 9/11.'' And as we look 
at that as an overlap, we can see how important education is, 
and that is what this hearing is all about.
    There is no more important task for a municipal government 
than providing quality education for its children. Good schools 
not only produce better citizens, the ones who become our next 
generation of leaders, but they make a city more attractive for 
businesses to locate and for people to live. Good schools make 
for a better community with less crime, a more stable tax base 
and strong home sales.
    Over the years, repeated efforts have been undertaken to 
improve the District of Columbia public schools. Frankly, the 
results have been mixed. Unlike just a few years ago, the city 
now opens its schools on time each fall, but many of those 
schools are in dire need of repairs.
    Five years ago, nearly three out of every five D.C. public 
school students performed mathematics at a below basic level 
for the grade. Today, that figure has been reduced to a little 
more than one in three--better, but not good enough. So today 
we're very interested in learning how the reform efforts, led 
by the superintendent, Paul Vance, and the Board of Education 
president, Peggy Cooper Cafritz, are proceeding.
    Special education, including transportation costs, continue 
to be a nagging problem, and there are clearly fiscal and 
management problems that are lingering. I must say, we were all 
shocked to learn in September that the school system had 
overspent its budget by $80 million. But I was even more 
stunned to learn that the Chief Financial Officer now says that 
the deficit was in fact more than $98 million. The CFO is 
already projecting an $108 million budget shortfall in fiscal 
year 2002, which just started in October. And we in Congress 
just approved the D.C. appropriations bill yesterday, and 
already the numbers don't add up.
    This is unacceptable, plain and simple. How are parents 
supposed to have confidence in a school system that can't 
balance its own books? How are children supposed to learn when 
their academic year is being cut short by 7 days because of 
fiscal and program mismanagement?
    I know Superintendent Vance says he was embarrassed by the 
disclosure of the deficit, and I trust the superintendent and 
the school board president will tell us today what steps 
they've taken to ensure that it does not happen again.
    I know we're going to hear today that the recent budget 
problems show that the D.C. Public schools need more money, or 
perhaps even a dedicated schools tax. Let me make clear that 
money alone does not determine the success of a school 
district. According to a U.S. Department of Education report 
published in October, the District of Columbia already spends 
more per pupil than Montgomery County, MD or Fairfax County, 
VA. And while those school districts do, of course, receive 
some funding from their respective States, neither has a 
dedicated revenue source.
    Before I conclude, I want to point out some of the positive 
things that are happening in the district schools; and, believe 
me, this is just a partial list. More students than ever are 
taking advanced placement courses, a sign that a culture of 
achievement is taking hold in D.C. schools. Literacy programs 
have been beefed up, as have summer courses. The school 
district has gotten creative in looking for new teachers 
through its D.C. Teaching Fellows Program that has transformed 
about 100 professionals from various fields into public 
schoolteachers. Dozens of charter schools are offering 
alternative educational opportunities. And, finally, nearly two 
out of every three District of Columbia public school students 
who graduated in 2001 enrolled in a 2 or 4-year college, many 
of them through the assistance of the District of Columbia 
Tuition Act Program, of which I in this committee am very proud 
to be an original cosponsor and Congresswoman Norton, who is so 
very active in that enactment.
    The bottom line is, D.C. schools are making progress, but 
we will not settle for mere progress. We want and the students 
and the parents of the District of Columbia deserve excellence 
in education.
    So I thank you all for being here today, and it's now my 
pleasure to recognize the distinguished ranking member of this 
subcommittee, Congresswoman Eleanor Holmes Norton, for her 
opening comments.
    [The prepared statement of Hon. Constance A. Morella 
follows:]
[GRAPHIC] [TIFF OMITTED] 82565.151

[GRAPHIC] [TIFF OMITTED] 82565.152

    Ms. Norton. Thank you very much, Mrs. Morella. I very much 
appreciate that you've called this hearing. It turns out to be 
timely indeed. I know you've wanted to have this hearing for 
some time.
    I want to welcome all of today's witnesses, and I want to 
ask everyone to excuse my voice, which is rapidly fleeing from 
my body, as I have a cold.
    It is too easy to look at the problems at the District of 
Columbia schools and conclude that the system has a long way to 
go. I look at where the system was 11 years ago when I first 
came to Congress, and I can see how far it has come. The 
progress has come from many sources but especially from where 
it has always come when improvement occurs in public schools in 
this country, from the system's leadership.
    We saw significant changes in the DCPS for the first time 
in many years beginning with Superintendent Arlene Ackerman, 
who was so good that she was stolen by San Francisco. In a 
stroke of plain good luck, Superintendent Paul Vance, who had 
recently retired from the very good Montgomery County school 
system, moved out of retirement and was persuaded to bring his 
outstanding professional experience and reputation to the 
district.
    In addition, the voters approved a new configuration for 
the school board, and the new board is off to a good start. It 
has put aside the quarrels and competence and interference with 
the superintendent's prerogative to run and manage the schools 
that had been the board's trademark for years.
    The subcommittee is naturally interested in the overall 
condition of the DCPS. However, we would be most useful if we 
concentrate on areas most related to our Federal jurisdiction.
    Special education is the one area of local school budgets 
where the Federal Government has promised significant help. To 
its discredit, Congress has continuously broken that promise. 
Help may be on the way as events are developing with our new 
education bill, which is still a work in progress. However, 
every school system in the country is in the hole for special 
education, and no matter what we do in the Congress public 
schools will continue to have a tiger by the tail, given the 
disproportionate increases in special education costs, unless 
innovation and skillful management take hold.
    A large financial management failure has added to DCPS 
special education costs that were already out of control. Then 
a dispute surrounding a deficit that kept growing threatened to 
throw the DCPS back to the bad old days, with several of the 
actors threatening their own audits until reminded that they 
were endangering the CAFR, or comprehensive annual audit of the 
District of Columbia budget.
    If all of this were not unmanageable enough, we have just 
finished the D.C. appropriation, held up in part because the 
D.C. government failed to develop a sensible and internally 
consistent home rule position on whether there should be any 
limits or caps on fees paid to attorneys who represent children 
seeking special education benefits. Eight D.C. council members 
sent a letter to Congress asking for no caps, while the Board 
of Education felt that there should be limits on fees.
    Since I have a strong and unalterable position to always 
uphold the position of the home rule government on local 
matters, I am placed in an untenable position if there is no 
unified D.C. government position. All the cap that the council 
members and schools accomplish by communicating contrary 
positions to the Congress is to toss a local decision to a 
Federal body, a posture hugely at odds with their view that 
local decisions for the District of Columbia should never be 
made by Congress.
    The council has an obligation to work out its differences 
with the board and vice versa, especially when another $10 
million in attorneys fees that are not in the school's budget 
for next year may result, as they now have. The leadership of 
the board and the council need to solve the fee cap dispute 
once and for all at the local level. The dispute caused a 
bitter fight among both House and Senate Members.
    It is something close to a fluke that the no-caps position 
prevailed this year, unlike prior years. I am, therefore, 
asking the home rule government responsible for education, 
namely the Mayor, the council, the school board and the 
superintendent to make sure that whatever position you take 
next year, it is not a two or three-headed monster.
    I promise to fight to uphold the position of the D.C. 
government, no matter how controversial. All I need is a 
position from the D.C. government.
    Finally, this subcommittee has a major interest in 
increasing college attendance in the city, because jobs with 
decent income and benefits in this highly educated region 
virtually require college education today. This year, the 
subcommittee passed important improvements in the D.C. College 
Access Act of 1999. As it turned out, about the only bill we 
could pass here in the Congress that could be as popular as the 
D.C. College Access Act would be voting rights itself. The act 
gives our students what no others in the country enjoy, the 
right to attend any public college in the United States at low 
in-state tuition in order to receive $2,500 dollars to attend 
any private college in the city or region.
    Mrs. Morella and I will carry the new amendments entitled 
the District of Columbia College Access Improvement Act to the 
floor next week. These amendments are expected to pass the 
Senate as early as today. They will significantly expand the 
original D.C. College Access Act of 1999 in three ways.
    First, the original College Access Act only allowed the 
stipend to go to those who attend HBC--I'm sorry. The original 
College Access Act only allowed the stipend to attend HBCUs in 
the region. Now residents will receive a $2,500 stipend to 
attend any historically black college or university in the 
country. Over 600 D.C. residents are expected to take advantage 
of this provision in the first year of enactment alone.
    Second, originally students who were somewhat older, 
because they graduated prior to 1998, were not included in the 
College Access Act because of the Senate's fear that funding 
would be insufficient. We have now persuaded the Senate to 
allow tuition benefits to two groups of older students. The 
first group is D.C. residents currently enrolled in college, 
regardless of when those students graduated and regardless of 
the amount of time it took those students to enroll in college. 
This change will enable approximately 1,000 students previously 
denied in-State tuition, including many older students, to 
qualify next year alone.
    Third, the bill allows older students to take advantage of 
the bill by removing a requirement that a student enroll in a 
college no longer than 3 years from high school graduation. The 
Senate was persuaded to remove the 3-year constraint 
prospectively to allow older students to qualify no matter when 
they graduated, as the House bill allowed.
    Consequently, the first group of students who took longer 
than 3 years before enrolling in college can begin taking 
advantage of the College Access Act benefits as early as next 
year, and more and more older students are expected to receive 
tuition assistance in the years to come.
    These amendments to the College Access Act will provide 
assistance to thousands more D.C. residents left out of the 
original act and will expand college education opportunities 
for many of our residents. The timing of this hearing thus 
provides a coincidental but important opportunity to let the 
committee know of the new and improved D.C. College Access Act.
    These unique education benefits depend largely on the 
preparation and encouragement our young people get from the 
D.C. Public School System. The D.C. College Access Act means 
little if D.C. students are not well prepared to enter good 
colleges and remain until they graduate. I am very encouraged 
by current statistics showing a significant number of DCPS 
students going to college. Apparently, 64 percent of the class 
of 2001 went to college, compared to 43 percent nationally. At 
Banneker, 100 percent went to college, and School Without 
Walls, 96 percent.
    When I went to Bruce Monroe, Banneker when it was a junior 
high school and Dunbar, it never crossed my mind that we would 
not go to college, would matriculate and graduate forthwith. 
That was the standard set for students and accepted by them, 
regardless of income, in the segregated schools of the District 
of Columbia. It is, therefore, difficult for me to accept a 
school system today that cannot at least meet the standards of 
generations ago.
    I see real progress. I congratulate Superintendent Vance; 
the school board chair, Peggy Cooper Cafritz; and the board; 
and especially the principals, teachers and staff on the 
progress they are making as they engage literally in rebuilding 
the public school system of the city.
    Thank you, Madam Chair.
    [The prepared statement of Hon. Eleanor Holmes Norton 
follows:]
[GRAPHIC] [TIFF OMITTED] 82565.153

[GRAPHIC] [TIFF OMITTED] 82565.154

[GRAPHIC] [TIFF OMITTED] 82565.155

    Mrs. Morella. Thank you, Congresswoman Norton.
    I'm going to ask the first panel to come forward, and that 
is Kevin Chavous, chairman of the Committee on Education, 
Libraries and Recreation, Council of the District of Columbia; 
Peggy Cooper Cafritz, president of the District of Columbia 
Board of Education; Dr. Paul Vance, superintendent of schools 
for the District of Columbia; Josephine Baker, chairwoman of 
the Public Charter Board; and Gregory McCarthy, deputy chief of 
staff, Policy/Legislative Affairs.
    Don't sit down and get comfortable, because I'm going to 
swear you in. It is the policy of the full committee and all 
the subcommittees to ask those people who testify before our 
subcommittee to take an oath of office. And let me ask our 
State education officer, Connie Spinner, to be sworn in.
    [Witnesses sworn.]
    Mrs. Morella. The record will indicate a favorable response 
from all.
    I'm going to ask you if you would keep your testimony to 5-
minutes, knowing full well that your total testimony will be 
included in the record, and that way you'll give us a chance to 
ask questions before our second panel.
    So if it is all right, we'll proceed in the order in which 
you are seated.
    We'll start off with you, Councilman Chavous. Thank you for 
being here.

STATEMENTS OF KEVIN CHAVOUS, CHAIRMAN, COMMITTEE ON EDUCATION, 
LIBRARIES AND RECREATION, COUNCIL OF THE DISTRICT OF COLUMBIA; 
PEGGY COOPER CAFRITZ, PRESIDENT, DISTRICT OF COLUMBIA BOARD OF 
 EDUCATION; PAUL VANCE, SUPERINTENDENT OF SCHOOLS, DISTRICT OF 
 COLUMBIA; JOSEPHINE BAKER, CHAIRWOMAN, PUBLIC CHARTER BOARD; 
AND GREGORY MCCARTHY, DEPUTY CHIEF OF STAFF, POLICY/LEGISLATIVE 
                            AFFAIRS

    Mr. Chavous. Thank you very much, Chairwoman Morella, 
Congresswoman Norton and members of the committee. I appreciate 
having this opportunity to testify at this hearing today on the 
current status of the District of Columbia Public School System 
and the progress our government is making in implementing the 
requirements of the District of Columbia School Reform Act of 
1995. I am here on behalf of my colleagues on the council, as 
well as our chairperson, Linda Cropp.
    As you both have stated, we are in the midst of major 
school reform here in the District of Columbia. With the 
selection of Dr. Paul Vance as superintendent, the composition 
of the new school board, the act of involvement of the Mayor 
and the council, I am more optimistic about the future of 
public education here in the District of Columbia than ever 
before.
    As education stakeholders, we have all formed an intimate 
partnership that includes regular contact, meetings and 
discussions and, ultimately, policy consensus in most areas. 
Specifically, the Council of the District of Columbia, through 
my committee, has been instrumental in providing both 
legislative and budgetary support for our schools, as well as 
aggressive oversight over their activities. Over the past 4 
years, we have added nearly $300 million new dollars to public 
education, and this amount includes new money for our charter 
schools, of which I've been one of the stronger proponents.
    In addition, I have introduced a couple pieces of 
legislation that ultimately became law, and it contributed to 
the far-reaching school reform effort that we're in the midst 
of in this city. For example, the new school board is 
comprised--is based on the composition in legislation I 
introduced. We now have a composition of appointed and elected 
members, and they are working and moving forward toward 
resurrecting the dismal history of previous boards.
    Additionally, my legislation created the State Education 
Office, which was designed to be an independent monitor of 
State-related functions administered by both the District of 
Columbia public schools and the District of Columbia public 
charter schools.
    These successes demonstrate that we are poised to continue 
to implement the reform efforts in public schools.
    I do want to relate one other council initiative based on 
legislation I introduced earlier this year that I am extremely 
excited about. That is legislation that will lower the 
compulsory school attendance age from age 5 to age 3. The 
legislation will buildupon the success that has been 
experienced by the Office of Early Childhood Development; and 
to explore the viability of this unprecedented piece of 
legislation, the first of its kind in the country, I have 
created the Commission on Primary Education Reform and have 
partnered with American University under president Ben Ladner 
to develop a blueprint for it implication.
    I am also pleased to parenthetically add that the Mayor, 
superintendent Vance and Peggy Cooper Cafritz all are 
supportive of this effort.
    Now let me address the current financial crisis facing our 
schools. As you are aware, this fall our chief financial 
officer for the District of Columbia, Dr. Natwar Gandhi, 
announced that the DCPS would experience spending pressures 
initially estimated at $80 million, and you've indicated now 
that they are up to $98 million.
    At the core of these spending pressures was a failure to 
recover Medicaid revenue, overspending the special education 
programs and special education transportation costs.
    Before I speak on the special education Medicaid problem, 
let me inform you of the council's efforts to identify the 
scope of the problem. As you know, we have engaged the services 
of the Office of the District of Columbia Auditor. We've asked 
the auditor to look at these spending pressures and to 
determine whether they are systemic in nature. This audit will 
assist us in deciding what corrective measures to employ in 
addressing the problem for fiscal year 2002.
    Like many of you, I'm concerned about cutting 7 days from 
the school calendar, and that should be a last resort. But we 
should not begin that effort until we know exactly the full 
extent of the problem.
    With respect to special education, as chairman of the 
Committee on Education, Libraries and Recreation, we are now 
holding monthly hearings on special education programs, 
spending and transportation. We are also meeting with special 
education parents, providers and educators. Most of what we 
learn from these hearings and meetings has been presented in a 
special council Committee on Special Education's final report, 
which was issued earlier this year. But, working with these 
stakeholders and the superintendent, we are committed to 
finding solutions to the special education problem that has 
plagued the system for so long.
    At bottom, the real solution to solving special education 
here in the city really means a deeper commitment to providing 
services to our children within the city's borders and a more 
concerted approach to addressing special education 
transportation costs.
    Finally, with respect to Medicaid, we are working with Dr. 
Gandhi, who has formulated a governmentwide solution to the 
Medicaid reimbursement problem. We all know that the city is 
losing millions of Federal reimbursement dollars in the 
Medicaid area, but I am confident that this collaborative 
partnership, headed by our CFO, will move to addressing the 
problem and allowing us to capture those dollars that we have 
not been able to capture this the past.
    In conclusion, though many problems do persist, I am, as I 
indicated earlier, very much optimistic about where we're 
headed with D.C. public education. It is of paramount 
importance that the good work that has been accomplished by the 
educational stakeholders in the District not be overlooked, nor 
minimized. The council, the Office of the Mayor, the 
superintendent of schools and the president of the board, along 
with all of the board members, are committed to transforming 
the state of public education in the District of Columbia, and 
we will succeed.
    Once again, thank you for the opportunity to address this 
subcommittee this morning.
    Mrs. Morella. Thank you very much, Mr. Chavous.
    [The prepared statement of Mr. Chavous follows:]
    [GRAPHIC] [TIFF OMITTED] 82565.001
    
    [GRAPHIC] [TIFF OMITTED] 82565.002
    
    [GRAPHIC] [TIFF OMITTED] 82565.003
    
    [GRAPHIC] [TIFF OMITTED] 82565.004
    
    [GRAPHIC] [TIFF OMITTED] 82565.005
    
    [GRAPHIC] [TIFF OMITTED] 82565.006
    
    Mrs. Morella. Now I'm pleased to recognize Peggy Cooper 
Cafritz, who is the president of our D.C. Board of Education. 
Thank you for being here.
    Ms. Cafritz. Thank you very much.
    Good morning, Chairwoman Morella and members of the 
subcommittee, particularly our own Congresswoman Norton. I am 
Peggy Cooper Cafritz, president of the District of Columbia 
Board of Education. I am here today on behalf of my colleagues 
on the board and with their unanimous support and on behalf, of 
course, of the children of the District of Columbia.
    When this new board took office, we did so with a mandate 
from the citizens for change. The citizenry of the District has 
been very clear in that it wants to see reform, and it wants to 
see it now. Both the board and the superintendent are committed 
to that and have spent the last 10 months working to rebuild an 
infrastructure which will produce tangible results and which 
will lead to achievement. To that end, this new administration 
and board has accomplished things that haven't been achieved in 
decades.
    For example, the administration has broken ground for five 
new schools this year, when no new schools have been built in 
35 years.
    With public input, the board developed and approved a 15-
year master facilities plan to improve our dilapidated school 
buildings. We will work to do all we can to compress those 15 
years.
    The administration has transformed the nine lowest-
performing schools with the staff and materials necessary to 
turn them into high-performing schools over the next several 
years.
    The board recommended to Mayor Williams that, for better 
coordination and more efficient spending, city agencies and 
schools integrate the social services provided to children. As 
a result, wrap-around services are being provided to our 
transformation schools to ensure that all students' needs are 
met seamlessly. This is a pilot. We hope to extend this wrap-
around plan to all of our schools over the next 3 years.
    The administration proposed and the board approved a 
central office transformation plan that will improve central 
office efficiency, while also saving the school system $17 
million annually.
    This board has provided stability to the school system by 
agreeing to give Dr. Vance a 3-year contract.
    The board brought in McKinsey and Co. on a pro bono basis, 
following the example of the superintendent, to assess how we 
could improve our operations so that we could most effectively 
parse with the goal of the superintendent's transformation 
plan.
    The board hired an executive director for charter schools 
who has extensive charter school experience. In fact, we stole 
her from the other charter school board. She is charged with 
performing careful oversight of board-chartered schools and 
providing, when necessary, technical assistance.
    The board has also been very careful and is working very 
hard to bring its charter schools into full compliance with all 
charter school regulations. We approved only 2 of the 11 
charter school applications submitted to us, 1 on a provisional 
basis, in an effort to ensure that all approved applicants are 
capable of providing District students with a quality 
education.
    We voted to close three charter schools for fiscal and/or 
management malfeasance. One is closed. The other two have us in 
court, testing the constitutionality of our procedures. The 
board and the superintendent are cooperating with the other 
charter board to improve a relationship that previously 
evidenced great animus.
    The board and the superintendent are creating partnerships 
with entities who can, in a new use of charter school 
legislation, create facilities for the many children we must 
now send away to residential facilities outside of the 
District.
    The administration and the board approved a reconciliation 
of the DCPS fiscal year 2002 budget to be responsibly prepared 
for any definitive amount of our deficit.
    The board is working with the city's CFO, the Mayor and the 
city council to align the school's budget with the city's in a 
way that best serves the school's needs and meets the city's 
requirements.
    The board and the administration have made a commitment to 
increase student achievement through the development of 
standards and core curriculum.
    The board and administration have made a commitment to the 
development of a strong vocational education program. The 
superintendent has assembled some of the best high school 
reform and vocational experts in the country. They are still in 
the planning phase.
    The administration developed, and the board approved, a 
fiscal 2003 DCPS budget that realistically takes into 
consideration what our children need to get, not a Cadillac 
education, but one that builds the foundation for our children 
to receive an equitable education, making them competitive with 
students in the surrounding jurisdictions.
    Our students must be provided with a chance to have that 
kind of preparation, which is the kind of preparation needed to 
compete with the best students from any school district in 
America.
    The astonishing thing on the board, if you know something 
about our history in Washington, is that all of these issues 
have been dealt with by unanimous vote by this board. And that 
is a major accomplishment. Nine people with a collective will 
can mightily contribute to the revolutionary change of our 
education system's needs. Before I elaborate on the fiscal year 
2000 budget, let me give you a little history of the D.C. 
Public School System.
    In the late 1960's, the city made a conscious decision to 
grow the black middle class in the city, and toward that end, 
they hired many new positions in the city government and in 
schools, but because the city had not prepared the 
infrastructure necessary to absorb this new middle class, they 
took their new middle class checks and proceeded to build what 
is now the wealthiest African American county in America, 
Prince George's County, which we affectionately call Ward 9. As 
the city plunged deeper and deeper in debt with a more bloated 
bureaucracy, then schools became the easy whipping boy, because 
children and the poor have no voice and cannot protect 
themselves.
    Year after year, the post 1960's school system eroded and 
decimated by lack of money, will and skill turned out children 
and adolescents whose need for social services far outstrips 
the cost of even an Exeter education.
    I assure you that there is not a Congressman or a Senator 
who would dare send his or her children or grandchildren to 
school under such conditions. Until 1990, the Department of 
Public Works control the capital contracts for school buildings 
in the city. The level of their neglect is legendary. When this 
function was given back to DCPS, the buildings and playgrounds 
were in great disrepair. Can you imagine thousands of children 
being expected to learn with no sunlight coming into their 
prison-like schools? This is our children's everyday reality 
still on December 7, 2001.
    Further, when the Uniform Per Pupil Funding Formula was 
established in 1977, the recommended foundation funding level 
was $6,260. An agreement was made by city officials afraid of 
growing budgets, to change the amount to $5,500 and to restore 
the base when times got better. Boom times came, but the 
promised adjustment and the uniform for pupil funding formula 
never followed. District of Columbia public school children 
were never invited to the party. We are now in a position to 
rectify this unacceptable situation and to do right by our 
children.
    With the new leadership in the city and the school system, 
we can save more money in the long run by investing in our 
children instead of making victims of young adults. If we do 
not do this, our rapidly growing social cost, such as crime, 
illiteracy, alcoholism, drug abuse, teen pregnancy, mental 
illness and foster care will return the city to its precontrol-
board state faster than you can say ``money.''
    Simply adding the cost of social expenditures in the city's 
2002 budget reveals that we're already spending 
disproportionate sums and social costs. The only reason I can 
deduce for this fiscal imbalance is our disproportionate 
commitment to social services, caused by underfunded schools 
and undereducated citizenry breeds social service costs with a 
vengeance. Montgomery County spends 51 percent of its annual 
budget on education; Fairfax County, 50 percent; Arlington, 35 
percent; Alexandria, 34 percent; and in Washington, an anemic 
20 percent.
    We are already imposing high expectations on our children. 
They have been undereducated for so long that we cannot 
honestly expect them to meet our expectations unless we give 
them the tools to do so. Our expectation and obligation and our 
children's right is that all students in the D.C. Public School 
System will receive the same quality education as any student 
in the Washington metropolitan area.
    As we go forward, we're going to push to have the system 
funded in a way that is equitable with other jurisdictions. The 
first time you see this will hopefully be when the city council 
forwards our next fiscal year budget to you. Fixing the D.C. 
schools will be expensive, because in many ways, Dr. Vance and 
his testimony are charged with building a school system from 
veritable scratch in a city that is 37 percent illiterate.
    We must make this investment. We cannot continue. The level 
of negligence that has consistently been leveled against a 
majority of our children for three decades. It runs counts to 
every element of President Bush's education agenda. The Board 
of Education and the administration have built a real budget 
based on real figures and real needs of real children. Dr. 
Natwar Gandhi, the city CFO, has committed himself to work with 
us to address the structural flaws in our approach to funding 
education, as well as the fiscal autonomy necessary to the good 
governments and administration of DCPS.
    Please join with us in the endeavor to educate our 
children. You have an opportunity to show your commitment to 
the youth of the city when you consider our fiscal 2003 budget. 
I hope you keep in mind the American ideal of education for all 
and the Presidential ideal of leave no child behind. The 
children of the Nation's Capital certainly deserve no less.
    And in closing, I would like to say of Dr. Vance for the 
first time in a very, very long time, we have a seasoned 
superintendent who knows what he is doing and who has assembled 
and is assembling a team that is competitive with any school 
system. These people know what they are doing. They're very, 
very good. We must give them the tools that they need to make 
this happen. Thank you very much.
    Mrs. Morella. Thank you, Ms. Cafritz.
    [The prepared statement of Ms. Cafritz follows:]
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    Mrs. Morella. Well, Dr. Vance, she already introduced you, 
but all I can say is we seasoned you in Montgomery County, and 
I want to thank you for bringing your expertise and your 
commitment and your hopes to the District of Columbia Public 
School System, and I recognize you now for your comment, sir.
    Mr. Vance. Thank you. Good morning, Chairwoman Morella and 
Congresswoman Norton.
    Good morning, Madam Chairman Morella and Congresswoman 
Norton, and members of the subcommittee. I'm Paul Vance, 
superintendent of the District of Columbia public schools. 
We're appreciative of this opportunity to discuss school reform 
in Washington, DC, and our progress under the leadership of the 
school board president, Ms. Peggy Cooper Cafritz, and vice 
president, William Lockridge, and other members of the board.
    This is my second year as superintendent in Washington, DC, 
but I have been a close neighbor in Montgomery County for many 
years. I came to the D.C. schools, have been a teacher, school 
administrator and superintendent. I believe in public 
education. I advocate for urban schools and I believe fervently 
that we have the capability to improve the quality of public 
education for all children. I came with a philosophy that 
education is a community enterprise and a community 
responsibility. I came with a commitment to stay the course, to 
make the tough decisions and to move our school district 
aggressively forward on the path of school reform. And I have 
found in our city broad-based community determination and a 
commitment to public education that will make school reform a 
magnificent reality in due time.
    In addition to our written testimony, which is a bit longer 
than the oral presentation, we have submitted a briefing 
document that describes in greater detail our progress toward 
reform.
    The rumblings, you may have heard on Capitol Hill, are the 
sounds of new school construction. Lights turning on after 
school, the lively discussion of strategic planning sessions 
and parent forums, the roar of school buses and the boisterous 
pride for the mighty good teacher and students who led the 
Washington, DC, team to their victory, first place, in the 
prestigious Panasonic Academic Challenge, busting schools from 
39 States in our country.
    This was a particular joy to me, because in my past life as 
superintendent of Montgomery County public schools, always came 
in first and second, never lower than second. And we busted 
them. They came in third this year with Florida--State of 
Florida coming in second. So that was a joyous event for all of 
us.
    Congresswoman Norton shared in that joyous moment with us. 
I want to thank her again. What you hear is change, change in 
progress right now.
    Mrs. Norton. We noticed that Mrs. Morella did not attend 
that event.
    Mr. Vance. Oh, I forgot myself and got carried away. I'm 
sorry. Reform is moving the school district forward, even if 
the pace has been slowed by instability. We have built upon the 
work of the last three superintendents, Dr. Franklin Smith, 
General Julius Becton and Mrs. Arlene Ackerman, as we set out 
to transform schools and permanently improve the way we do 
business. Our business plan for a strategic reform will support 
students and staff and will move us significantly closer to the 
school reform and world class status envisioned by the authors 
of the School Reform Act of 1995. The plan covers 3 to 5 years, 
has six transformational goals, three phases, was developed 
with broad community input and is the product of one of my 
first undertakings as school superintendent.
    The goals, when accomplished, will ensure an excellent 
teaching staff, first-rate learning environments, rigorous 
curricula and strong academic programs. Our goals are to create 
a service oriented, cost effective central administration that 
directs resources to schools and student achievement who will 
have energized parents and community involvement and 
strengthened partnerships with city agencies.
    We're well into the implementation of phase 1 of the 
business plan, in which we are tasked to get the fundamentals 
right, because we must get the fundamentals right once and for 
all, including our budget and finances, if we are to keep 
moving forward.
    I would list our many accomplishments in this phase, such 
as our aggressive work with curricula, standards and 
assessment, our new D.C. teaching fellows program, our 
principal leadership institute, our blue ribbon panels and 
senior high schools, our 7-point plan for reforming special 
education, our $4.2 million reading excellence grant 
initiative, the multimillion textbook adoptions, our 
afterschool programs, our comprehensive Summer STARS/SEAS, our 
expanded programs for women's athletics, our new advanced 
placement office, our new principal for the new technology 
school at McKinley. These and many more accomplishments and 
activities and progress are referenced in the written testimony 
and the briefing report.
    Later this month, we begin the realignment of central 
administration. The organization will not only create the first 
phase of an administrative structure required to support local 
school needs and better implement the business plan, but will 
also net approximately $14 million in savings, which are 
essential in light of the current budget challenges. The 
people's software that will soon come online will effectively 
integrate and manage our personnel and financial data as 
example of administrative reforms underway. Our personnel 
office is being revamped with a strategy of total work force 
development and focus on quality service delivery.
    The communications office is proactive in getting 
information to the community and promoting community engagement 
activities. Our new transformation, what we call the T-9 
schools, identified at the end of last school year, represent 
turning points for our school district as a first step in the 
children-first initiative. We have assembled new instructional 
and administrative teams for these schools that will be 
accountable for the implementation of proven reform programs. 
The T-9 schools will serve as a model for what all schools 
should eventually be, true community schools that are 
distinguished by their onsite educational, social, public 
health and recreational wrap-around services for students and 
parents and eventually by their expanded school building 
facilities. We are pleased that the first education of sill 
have I's master plan, completed by the school district in over 
30 years, provides the framework for all decisions regarding 
the improvement and utilization of school facilities. It calls 
for modernization or replacement of 143 facilities over a 10 to 
15-year period at a cost of $2.4 billion. A phenomenal capital 
undertaking.
    The one that is sorely needed to provide the state-of-the-
art nurturing learning environments that are needed for our 
schools to become quality educational centers.
    Special education continues to be one of our major 
challenges, one that we must solve as a critical ingredient to 
restoring stability to the school district. Our assessment 
shows the parents' systemic shortcomings that we believe may be 
contributing factors in the growing percentage of special 
education students in our slightly declining overall school 
enrollment. We have adopted a 7-point plan for the strategic 
reform of special education. A copy of the plan is included in 
the briefing report.
    Pages 2 and 3 of our business plan will solidify the work 
in progress and build on what we have aggressively begun. 
Details of the business plan are also contained in the briefing 
report. It is my intention to meet all challenges head on. Hard 
work, support and leadership will sustain our progress and 
build needed momentum. The road will be bumpy and steep but it 
leads to the other side of the rainbow for students who still 
dream of the other side.
    I thank you for this opportunity to provide testimony. I 
will be more than pleased to answer your questions, and thank 
you.
    [The prepared statement of Mr. Vance follows:]
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    Mrs. Morella. Thank you very much, Dr. Vance, and please 
know, as I said early on, that your entire testimony, which I 
know is very extensive, will be included in the record. I also 
note that we have imported Steve Seleznow now from Montgomery 
County also to be part of the team. You see, we have a 
regional--we all care about education.
    I am now pleased to recognize Josephine Baker, who has the 
awesome task of being the chairwoman of the Public Charter 
Board. Thank you, Ms. Baker.
    Ms. Baker. Good morning, Congresswoman Morella and 
Congresswoman Norton. I am Josephine Baker, chairperson of the 
District of Columbia Public Charter School Board. The board 
welcomes this opportunity to share with the committee the many 
accomplishments this board has made in establishing charter 
schools. There are many challenges that public education in 
general and charter schools in particular face. We believe the 
charter schools are part of school reform and it is in that 
light that we function as we do.
    The District of Columbia Public Charter School Board was 
established as an authorizing board in February 1997. Since 
that time, we are indeed pleased with the track record that we 
have been able to establish.
    The board is now responsible for oversight of 20 schools on 
23 campuses, which provide educational services to 7,792 
students from prekindergarten to adult education. It is 
important to emphasize that the students attending charter 
schools mirror the overall student population of the District 
of Columbia, and many charter schools are serving a 
disproportionate number of low income students as well.
    The philosophy that charter schools are available on an 
equal basis to all who apply is rigorously implemented by the 
schools chartered by the board.
    The schools administer the SAT-9 to the students in the 
spring of each year and some schools elect to administer the 
fall test and use it as a diagnostic tool. The board reports 
not only the test scores that we receive from the publisher, 
but we use a statistical analysis to evaluate the gains 
students make from 1 year to the next. These gains are computed 
based on the scores of the previous year, with year one 
providing a benchmark from which subsequent results are 
evaluated.
    Research supports the fact that it takes time for changes 
to make a difference in the academic performance of students. 
We have seen progress in student achievement in many of our 
schools. Some schools are still working to start the upward 
trajectory that will show that the academic needs of students 
enrolled in these schools are being met, and they are indeed 
sharing those plans with us.
    Our process for oversight involves monthly/quarterly 
financial reporting, monthly attendance and contact with the 
schools that is both supportive and collaborative. Finance is a 
known area of difficulty for charter schools across the Nation. 
And the board has a contract with an accounting firm that looks 
at the monthly and quarterly finance reports so that any 
irregularities or concerns will be red flagged early.
    Schools are also reviewed by a team of monitors who gather 
information about the schools' progress in implementing its 
accountability plan, and that is one of the things that we 
consider extremely important, the accountability plan. The 
school has provided feedback on this information. A high level 
of performance is expected and schools exhibiting difficulty 
are required to execute an MOU that articulates what actions 
they will take to remedy identified problems. Subsequent 
reviewers will look for the elimination of the identified 
problems.
    Charter schools continue to encounter problems, finding 
adequate space within which they can effectively conduct their 
programs at a reasonable price. As the total enrollment of 
charter schools continues to expand, not only with new charter 
schools, but also with planned growth of existing schools, the 
growing need for space at an average of 75 to 100 square feet 
per student is served by a diminishing supply of affordable and 
suitable space. There are some concrete examples in my full 
testimony.
    Obtaining financing is an additional problem. Most schools 
have little or no equity to be invested in a major property 
investment, and they do not have the established track record 
of academic and financial success to become eligible for long-
term bond financing.
    Charter school facilities financing has been improved by 
the establishment of the Credited Enhancement Fund of $5 
million set aside through the House Subcommittee on District 
Appropriations in the 2000 budget. This fund is managed by the 
Office of the Mayor and an appointed Credit Enhancement Board. 
There is an opportunity for greater use of this approach if 
more money is made available for the fund, and there is 
concerted effort by the charter community to make lending 
institutions more aware and committed to support charter school 
facilities financing.
    In spite of these handicaps or the handicapping conditions, 
our residential charter school is one example of an ability to 
raise funds to renovate an old DCPS school that had been closed 
and also to build one dorm, with plans to build a second dorm. 
That school, of course, is the only residential charter school 
in the Nation.
    The D.C. Public Charter School Board believes that the 
independent public schools that it has authorized are indeed 
making a positive difference in the public education of 
children in the District of Columbia. We use the 3 A's as a 
concept worth promoting, autonomy, accountability and 
achievement. There is a fine line between autonomy and 
accountability, and the oversight process we have developed is 
designed to support both. Our collaborative approach and 
diligent implementation of the law are set on course to bring 
about the desired achievement.
    Thank you for the opportunity to testify, and look forward 
to any questions you may have.
    [The prepared statement of Ms. Baker follows:]
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    Mrs. Morella. Thank you very much, Ms. Baker. And I am 
pleased to recognize Gregory McCarthy, deputy chief of staff 
for policy and legislative affairs, pretty much a surrogate for 
the Mayor this morning.
    Mr. McCarthy. Thank you very much, Mrs. Morella, 
chairwoman, and Mrs. Norton, my own Congressperson. It is a 
pleasure to be here representing Mayor Williams, who's 
attending the National League of Cities conference. Otherwise, 
he would certainly be here.
    I know later on we are going to talk about a lot of the 
problems and challenges facing the schools, and the 
superintendent has certainly outlined some of the wonderful 
successes we've had but I think it is worth posing a very basic 
question: Are schools better off than they were 10 years ago? I 
think the answer is absolutely, yes; 5 years ago? Absolutely 
yes. And even 1 year ago? Absolutely yes.
    And I think one of the things I need to stress that has 
changed is that you have now elected and appointed leadership, 
the Mayor, the council, the elected and appointed school board, 
the superintendent and his top staff all in strong positions 
and ready and able to do the heavy lifting that is required to 
turn around our schools. And at the core of this synergy is a 
strong policymaking board and a seasoned superintendent 
providing day-to-day leadership as well as wonderful teachers 
and parents who are on the front lines every day working 
extremely hard for our children.
    The Mayor has acknowledged the centrality of improving our 
school system to broader citywide efforts. In fact, our broader 
efforts to attract new residents, grow the economy, create jobs 
and even promote public safety and public health will not be as 
successful as they can be if we don't turn around our school 
system and provide a reason for people to come and live in this 
city.
    The Mayor's role in education involves supporting the good 
works underway at DCPS and also marshalling the resources under 
the executive to support them and other initiatives. The Mayor 
has thus far focused on supporting the superintendent's efforts 
at turning around low performing schools, attracting top-notch 
teachers and principals and modernizing facilities. He is also 
a supporter of a vibrant charter school system and has expanded 
early childhood intervention to newborn infants and young 
children, so at the time they enter school they are ready to 
learn. He is also working to provide wrap-around services to 
children already in school and of course regularize and 
standardize cooperation among executive branch agencies to 
support the work at the public schools.
    The School Reform Act of 1995 has succeeded in two very 
important ways. It has established an environment where public 
charter schools have thrived, and it also established the 
uniform per pupil funding formula. It has provided a stable and 
predictable funding for schools and also ensured equity in 
terms of funding for public schools and charter schools.
    Ms. Baker has already talked about our charter school 
system. It's also worth noting that we have a total of 36 
charters opening on 39 campuses, enrolling more than 10,000 
students.
    The funding formula again has provided at least a basis for 
steady increases in school funding. In the appropriations bill 
that this body just passed this week, we appropriated $669 
million to the D.C. Public School System and an additional $142 
million to the Public Charter School System, increases 
respectively of $39 million and $37 million over the year 
before. In fiscal year 2001, indeed the public education system 
here received an increase in excess of $100 million. And under 
the leadership of Mayor Williams and Councilman Chavous, who 
heads the council's Education Committee, public education 
funding for K through 12, has gone up 43 percent since 1999.
    Another major focus of the Mayor of course is aligning his 
agencies to support the reforms of the superintendent. To 
support his low performing schools transformation initiative, 
the deputy mayor for children, youth and families has launched 
an initiative to locate critical family services such as family 
literacy, health and recreation programs at or near some of the 
nine schools that the DCPS is focusing for intensive work.
    As already acknowledged, Councilman Chavous provided the 
leadership last year to create the State Education Office, 
which is performing limited State level functions that affect 
children in all educational settings, most notably management 
of the USDA summer feeding programs. And this year the council, 
under Chairman Chavous's leadership, also transferred 
management of the D.C. tuition assistance program to that 
office.
    Recently the SEO has completed a study about revising 
upwards the funding formula, and later on its director, Ms. 
Connie Spinner, can answer questions about that. And I'm 
delighted to also say she was confirmed unanimously by the 
council this week in her new job.
    Obviously there are some profound challenges before the 
school system. The problem of the deficits is very alarming. As 
we have already noted, these are likely driven by Medicaid 
overruns and special ed. The superintendent has a seven-point 
plan he is ready to implement, and the Mayor will be there 
supporting him in every single way.
    We are also helping to identify sites in the city where we 
might locate special ed schools so we can bring some of our 
kids into the city. And there's also a citywide task force on 
Medicaid cost recovery that the superintendent is leading.
    Obviously, in the course of all this, we are going to have 
a broader discussion of the structure and the amounts of 
overall funding for the schools. The solutions are certainly 
going to involve maximizing local resources that we can for the 
school system, increasing efficiencies within the school 
system, and perhaps even restructuring the financial system. 
And it also should involve, I think, some increased Federal 
support.
    As you know, Chairwoman, this city has a limited tax base. 
We have the responsibilities of a city and a county and a lot 
of State functions, and the tax base and ability to generate 
revenues, that doesn't come anywhere near that. So I think the 
Federal Government is going to have to help us in terms of 
upping some State costs in funding the schools. In fact, I saw 
a report earlier that said that in some municipalities, upwards 
of 44 percent of special ed funding comes from the State 
capital. And indeed in our case, that is a burden that falls 
solely on the backs of the city.
    And I always like to take the opportunity to mention the 
tuition assistance grant program. And thank you for all you've 
done to shepherd that. And if you like, I'd be happy to arrange 
a session where some of the more than 2,000 people who 
benefited from that can tell you personally how it has changed 
their lives, and there are dozens, if not hundreds, of children 
who would not have gone to college had that act not been in 
place.
    So thank you, Mrs. Morella and Congressman Davis, who also 
had an important role in that. And I'd be happy to answer any 
questions you have.
    [The prepared statement of Mr. McCarthy follows:]
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    Mrs. Morella. Thank you. Speaking of that possible meeting 
on the D.C. tuition access, it might be something that all of 
Congress should be invited to. It may muster up even more 
support about what can be done.
    I want to thank you all for your excellent testimony 
concerning your plans and recommendations. I am going to get to 
the bottom line. One of the reasons I particularly wanted to 
have this hearing, and Congresswoman Norton agreed, was the 
fact that we were embarrassed, as the superintendent has said, 
only several weeks before the end of the fiscal year that we 
discovered there was an $80 million deficit and it was like how 
come you didn't know about this deficit. Where did it suddenly 
come from, particularly with the concept the control board was 
going out of existence at the end of that fiscal year and we 
were preparing legislation to give the District of Columbia 
autonomy, as I think they should have, over their own finances, 
a bill which incidentally we have submitted and has passed this 
subcommittee, and we hope to get some movement on that in the 
next session. And then we hear the $98 million projection and 
the fact that it may go even beyond that to 108 million. And 
then somebody, who myself as a former educator and has had many 
kids go through public school and believe that education is the 
key to find out that the school year may well be shortened by 7 
days--that is like a week-and-a-half--at a very time when we 
talk about expanding the school year, expanding the number of 
hours that kids have with this supervision and guidance and 
inspiration. So if I could ask you all this question, and you 
can give me brief answers. And if you feel that someone else 
should answer more extensively, fine. I know we have Dr. Gandhi 
on the next panel.
    Specifically, with all the great achievements that you 
have, all the plans you have, how are we going to come to grips 
with why we didn't know that we had a shortfall that was 10 
percent of the budget at a time when it was the end of the 
fiscal year and will we not have a reduction of the number of 
days in school? I mean have we decided that we are not going to 
go about that--of 7 days? Dr. Vance, do you want to start, or 
Ms. Cafritz is ready.
    Ms. Cafritz. I think that part of that is due to 
information and communication, and we have worked with and come 
to an agreement with Dr. Gandhi on how to fix that part of it. 
But the special education, you know, definitely had cost 
overruns, no doubt about it, and that is going to continue 
until we remove ourselves from court order and we bring the 
functions that we are now paying enormously for outside of the 
city and to private sources back into the city.
    The superintendent is working very, very hard on that, is 
assembling the right people. And I think, you know, you will 
see results. It is going to take 3 to 5 years to get it fixed, 
but you will see results.
    Now the budget overall, we worked very closely with 
McKenzie, the best in the world. And we have scrubbed this 
budget to the bone. And we do not have enough money to do what 
we need to do. We have, I mean--and even going forward into 
2002, our children are going to have about $5,000 fewer than 
charter school children. And we have got to be able to bring 
into balance with all their social needs and with all the 
disarray and the erosion that is taking place in the school 
system and understand why it might apparently cost more. But if 
you look at the services that kids get comparatively, teacher 
salaries, facilities, they are not equitable.
    Mrs. Morella. Anyone else who wants to comment on that? I 
am also curious. Are you really going to make the school year 7 
days shorter or is that just a trial balloon?
    Ms. Cafritz. First of all, William Lockridge, who is the 
chairman of our Fiscal and Facilities Committee, spent 24 weeks 
working on this with the superintendent and his people. I spent 
quite a few hours myself. And the board spent at its last 
meeting when we made this decision 7 consecutive hours 
examining every possible penetration of savings, and this is 
what we came up with that would affect people the least. If we 
did, we looked at a 6 percent across the board cut. That would 
require us to fire or RIF almost 500 teachers. Those 500 
teachers, because of union rules, would come from those 
teachers we have just worked so hard to hire as we move toward, 
you know, full certification and a stronger work force. So we 
thought that was a very bad idea.
    We looked at it in terms of 3 percent plus adding some 
other things. What will harm the kids the least. It's horrible. 
We feel terrible about it. But we don't see any other way out. 
But we were surprised as anyone about having to do this.
    Mrs. Morella. Would this mean that the teachers would also 
not be paid for that week-and-a-half or 2 weeks? Is it a ripple 
effect that is going to affect your teaching force?
    Ms. Cafritz. No one would be paid. But the superintendent, 
you know, wisely I think, looking at a plan which would spread 
the pain across time, you know, adding a day to Christmas 
vacation and a day to Easter instead of clumping it at all in 
one pay period.
    Mr. Chavous. Madam Chair, it is the council's collective 
position that we view the 7-day reduction of instruction time 
as the absolute last resort, and frankly my committee is going 
to hold a hearing to make sure that we know what other avenues 
are explored to deal with this problem. So we have strong 
feelings against that. But we need to know what machinations 
the school board went through to come up with that approach.
    One thing about how we got here not knowing the information 
for several months, my committee as well as Dr. Vance requested 
of the school CFO monthly spending reports. That's one way that 
we're all able to track what's coming in and what's going on 
and we weren't able to receive them.
    Frankly, I think there was an incredible disconnect between 
the chief financial officer's office and the school system. And 
you know, we agreed with having a centralized financial system 
and a centralized procurement system, but we have found that 
there are some instances where it isn't practical nor does it 
work, and one is in education. That is why we transferred 
procurement authority back to Dr. Vance. And we really need to 
look closely to fashion a way to give Dr. Vance or any 
superintendent greater control over the financial shop. It just 
doesn't make sense to have such a disconnect, particularly in 
the education arena, and I do think to Dr. Gandhi's credit we 
are now working more closely together. The systems are being 
integrated. The communication lines are opening up, but the 
reason why we got here, frankly, is you had the one hand not 
knowing what the other hand was doing.
    Mr. McCarthy. Mrs. Morella, may I add something briefly? 
Obviously, the Mayor shares the concern that will be a very 
terrible outcome to have to shorten the school year. And one of 
the things that he offered to do right away to help the school 
system alleviate this or other pressures was to commit $60 
million to help stem the funding gap that was identified, and 
this was a commitment that was made in fact before September 
11th. And obviously since then the hits to the city treasury 
are quite concerning, but the Mayor is still making that 
commitment to provide the school system through reprogrammings 
and other cost savings elsewhere in the government $60 million 
to help cover some of the projected deficit.
    Mrs. Morella. So what I hear is that you're all going to be 
coming together and you're going to have a public hearing. The 
Mayor is going to try to assist. You now have communication, so 
you don't have this shock occurring as it did. So you're 
telling me that you're working your way out of the situation 
like this so it will not happen again. Ms. Baker, did you want 
to comment on that?
    Ms. Baker. My comment is not really on the deficit itself 
but on the comment that I heard that charter schools somehow 
are receiving an inequitable amount of money. And I am not sure 
how those figures were devised, but I believe the system that 
the money is received is very fair. And I certainly would like 
to have further conversation about how that statement can be 
made because I think the distribution of the funds is a very 
fair one. We don't see our schools swimming in money. They are 
fighting to try to stay above the flow just like everybody else 
is. So I just wanted to testify my concerns.
    Mrs. Morella. Mr. McCarthy mentioned uniform per pupil 
formula.
    Ms. Baker. Yes, exactly. We get the same X number of 
dollars. They have a small facilities allotment, but of course 
DCPS does not get that because they have facilities and they 
don't pay rent and they don't pay a lot of other things that 
charter schools have to figure out how to pay. So I think it is 
a statement that I do have some concern about. That's all.
    Mrs. Morella. And I think Ms. Cafritz mentioned the fact 
that the per pupil--or the amount of money from the budget is 
much less in the District of Columbia than it is in Montgomery 
County, but not the per pupil expenditure. So there is that 
distinction?
    Ms. Cafritz. Yes, because it is categorized as an 
enhancement. But the increase that the city is giving to 
charter schools in 2002 is $37 million for 7,700 students and 
to the school system $28 million for, you know, 68,000 or 
69,000 kids.
    Mr. Vance. One factor that impacts that ratio, and it's 
quite alarming, is that 32 percent of the operating budget goes 
for the education of 16 percent of our student population. That 
is our special needs population, the special education 
population. We just sent entirely just far too many children 
into the outer areas of Maryland and Virginia to attend private 
schools to receive special education services. And not only 
have the costs of tuition escalated but likewise the cost and 
problems associated with transportation. I don't think that 
other school systems, Baltimore, Chicago, notable for the 
problems they had in special education, had a problem 
comparable to the one we had.
    So our major effort in our plan is to reduce those costs 
and to bring a sizable number of those youngsters back to the 
District and educate them per the legislation in schools in 
their community and not deprive them of that right and 
responsibility and provide the appropriate programs and 
facilities and staff for those young people and likewise to 
engage in more private and public partnerships and expand those 
that are currently in the District and to encourage others who 
are not in the District to locate or relocate in the District. 
We see that as a major cost saving initiative on our part.
    And in that regard, we are recently engaged in discussions 
with persons who have done that elsewhere in the Nation. Doctor 
Thomas Hare, who did that in Chicago is currently teaching and 
doing research at Harvard University and has agreed to come in 
for a brief period of time to support us in that area. And 
likewise, Mrs. Morella, you may know Linda Bluth, who is one of 
the officers in special education in the State Education Office 
in Maryland. And Linda was the one who primarily worked on 
those problems in Baltimore City and came away being quite 
successful. And we believe with Tom and Linda helping us and 
with the very able support of our current superintendent for 
special education doing the day-to-day and operational things, 
we will embark on a path that will not only save money but will 
abide by the law and will service those youngsters in a manner 
in which should have been serviced all along.
    Mrs. Morella. I appreciate your comments, and in our second 
round I do want to pursue that concept, what can we do with 
regard to special ed and transportation particularly, which is 
such a tremendous responsibility. But you also were shocked 
with the budget shortfall, weren't you?
    Mr. Vance. Yes.
    Mrs. Morella. And you are going to be a major stakeholder 
in pulling this all together. I am now pleased to recognize Ms. 
Norton.
    Ms. Norton. Well, I want to pick up where the Chair left 
off in discussing this shortening of the school year notion 
that shocked the whole city. I certainly understand enough 
about budgets so that I can understand why this is certainly 
the easiest thing to do. You lop it off. You lop off 7 days. 
Voila, you saved the money. All of us took a hit and some of us 
won't get as much money and the children won't get as much 
education, we go on with the next thing. I regard this as not 
the school board's problem, not the CFO's problems, not the 
council's problem, not the Mayor's problem. I regard it as a 
D.C. government problem that has not been fixed for this 
reason.
    Apparently this is Medicaid money. The notion that Medicaid 
money would pop up here again is an outrage. And let me just 
say for the record, the reason there is no D.C. General 
Hospital now is in large part because the Mayor when he was CFO 
and then when he was Mayor and the present CFO and the control 
board and the entire council let D.C. General go knowing full 
well that the Medicaid money was the most broken part of the 
D.C. government and was not, in fact, being received and the 
council just--and the Mayor and the CFO just continued to give 
money, and of course when Washington, D.C. General went down 
they acted as rescuers except for the Mayor who took the hit, 
and the control board.
    But the fact that the council sat there and continued to 
let D.C. General Hospital be run by managers who were not 
collecting the Medicaid money and then everybody ran to the 
rescue and we had one of the worst fights in the District of 
Columbia, and the fault was the fault of the government. So bad 
as that was, with people even running up here where the 
Congress favored what the Mayor was doing. We had members of 
the council coming up here where the Congress was in favor of 
what the Mayor was doing. At the very least I thought with all 
the demagoguery going on that somebody had fixed the Medicaid 
system.
    With the Medicaid problem from D.C. General hopping over to 
the school system, this committee has every reason to be 
outraged, because if the collapse of D.C. General at the hands 
of the council and the Mayor and the CFO and the control board 
did not get the government of the District of Columbia to 
fixing the Medicaid system, what will?
    Now we are having the collapse of a second institution, and 
it is not the school board's fault. It is the fault of the 
council and the fault of the Mayor, because you went through it 
with D.C. General Hospital.
    And the notion that this would happen again with the school 
system, what other institution is going to come up next, ladies 
and gentlemen? Is it going to be the welfare system? What other 
part of the D.C. government which uses Medicaid has not been 
fixed? Medicaid is a Federal program. And I am going to ask the 
Chair, given the fact that this problem has crossed over from 
D.C. General after all we have gone through now to the school 
system, I am really afraid because Medicaid is a part of many 
programs of the District of Columbia. And now it's about to 
bring down or at least cause serious disrepair to a second part 
of the D.C. government at least as important to us to the part 
that we are on the way down because of Medicaid. And at this 
time I don't want anybody running forward saying we are going 
to save it at the end. We are going to save it now because we 
are going to fix Medicaid in this city once and for all.
    Now the notion of--the Chair says well, we tried 6 percent, 
we tried 3 percent. The problem is when you do these kinds of 
cuts in the Congress we always resist across the board cuts, at 
least some of us do. They are all analytical cuts. They are the 
easy way to do it. Everybody gets hurt. And you end up 
reserving things that should have been cut anyway. The bad gets 
preserved with the good that way.
    Now part of this, of course, can't be helped because it has 
to do with Medicaid and not with anything anybody in the school 
system has done in particular with respect to education. But I 
do want to ask you, and I'm here not talking to the school 
system alone. I think the fact that the council and the Mayor 
and the CFO let this happen with Medicaid, this is not 
overspending on the other part of their special education. It 
means that you have got to help them find an alternative. And I 
don't simply mean sit down and bicker with them. I'm saying you 
who are financial experts, you and the council, who have to 
make all kinds of analytical cuts all the time. I am asking you 
to sit down with the school system and look for other slices of 
the pie.
    All they have looked at, at least the Chair says they have 
looked at various gradations of cuts by percentage. Even on a 
temporary basis, people who know budgets and know the finances 
of the school system may be able to find something that--or 
some other parts that could be cut and at least save us some 
more days unless you are telling us that 7 days don't matter to 
these children. It seems to be a huge number of days, a whole 
week or more. I think we have an obligation to do more, and I 
would ask that you do that and submit to the Chair within a 
month an alternative that is not put together by the school 
board alone. It's not their problem that has everybody around a 
table, the CFO, the council, the Mayor, and of course, the 
school board and superintendent. Let's try to make a more 
analytical cut. If you can't do it, you can't do it. But submit 
to this committee within 30 days what your options are so we 
can see at least what other options are besides percentage 
across the board cuts, which almost never make it in the 
Congress because, as I said, somebody has just decided to do it 
the easy way.
    Now let me ask this, since this is a shared problem, the 
D.C. Public School System, people who were supposed to keep the 
Medicaid records didn't keep it. The CFO depended on them to 
keep it and yet he's the one who had all the responsibility for 
records, so he should have made sure that they kept it. The 
council, which had oversight, didn't know about it. OK. So it's 
everybody's problem. Now I want to know what you think, whether 
everybody has made a contribution to the solving of the problem 
thus far. Has the council come forward with an amount of money? 
Has the Mayor come forward with an amount of money? And have 
the schools done so? I would like to know that, please.
    Mr. Chavous. Well, Congresswoman Norton, to answer your 
last question, yes, we have. We've had a number of meetings and 
have agreed on a consensus approach. The first order of 
business, of course, is to ascertain the real extent of the 
problem, and we are in the process of doing that.
    Second, we are working on a plan that would help rectify 
the situation financially and from a management perspective. 
But I dare say that we all are together in terms of trying to 
find some collaborative approach to solving the problem.
    Ms. Norton. 7 days----
    Mr. Chavous. We don't agree with the 7 days. We are going 
to have a hearing. I said that. We don't agree with that. That 
is an absolute last resort. And I vow to you this, between the 
council and the Mayor we are going to make sure that doesn't 
happen. We do not support that in any way.
    But Congresswoman Norton, you raised the Medicaid issue. I 
think with all due respect, there is not the same type of 
analogy that you are making to D.C. General, and if there were 
Members of Congress who were so firmly committed to the Mayor's 
point of view, frankly they were either ill-informed or ill-
advised.
    Ms. Norton. I don't want to rediscuss D.C. General.
    Mr. Chavous. You brought it up.
    Ms. Norton. I do want to say this. The only reason I raised 
D.C. General is that the Medicaid problem of the District of 
Columbia has not been fixed, and I am going to have a separate 
hearing on that. I don't mean to say that what happened to D.C. 
General is what is happening to the school system, but it is 
the failure to collect Medicaid money. These are children 
entitled to Medicaid money. Once it happened to D.C. General, 
that was a huge alarm bell that said let's take this system and 
let's concentrate on fixing this system. It is part and parcel 
of the same system. I am not going to reargue D.C. General 
here.
    Mr. Chavous. Well, Congresswoman, you brought it up, and I 
dare say I am going to comment on it because I think the 
analogy doesn't apply. Now with respect to Medicaid, clearly we 
have a problem with capturing Medicaid funds. Part of the 
reason is that the system has been broken across government 
lines. During my testimony I alluded to the fact that to Dr. 
Gandhi's credit he has put in place and he will testify to 
this, I'm sure, a governmentwide approach to recapture Medicaid 
dollars. And the council and the Mayor are all involved, 
particularly the Chair of the Human Services Committee, Council 
Member Allen, who has the lion's share of the Medicaid dollars. 
But I can tell you this and assure you this, since you raised 
the analogy, please take comfort in the fact that Medicaid is 
not going to shut down our schools. Whatever problem exists 
with Medicaid, it is small in comparison to the other problems 
the school system is facing and it is not going to rise to the 
level where we will shut down the doors of our public schools.
    Ms. Norton. But the fact that it would cross over at all is 
very disturbing, and I know it is disturbing to you as well. 
And I don't say that the whole system is for your committee, 
God knows, to fix. You're right. Most of that money isn't with 
the school system. But the notion that you would now find it 
yet in another committee, it could not be more disturbing to me 
because--and surely you must feel as well, Mr. Chavous, that it 
must be other places that are having the same wide problem.
    Mr. Chavous. Clearly it is a governmentwide problem and we 
are taking a governmentwide approach, and I am sure we will 
solve the problem. I do think we are well on our way to doing 
that. If you look at the deficit, while Medicaid is a big 
problem, frankly the biggest problem is special education. And 
that is the one that drives our budget, and that is frankly 
because the court situation is something we can't necessarily 
control. Medicaid is something we can control better, and I 
agree we need to do that.
    Ms. Norton. You raise an important point when you say the 
other part is special education. I haven't gotten the good 
sense from the testimony given here today how much about the 
rising costs generally of special education and whether if you 
left aside the Medicaid part of it, whether we are getting a 
handle on that or even how much Medicaid pays for special 
education. Could you give me some sense of whether or not this 
is just one part that has slipped out of control?
    Mr. Chavous. That is a fair question. It is all complicated 
by the court situation where we have to provide court 
transportation--I mean bus transportation to and from school 
for a number of children. And we have had extreme examples 
where one child gets on one bus with two aides and goes as far 
as Baltimore to receive services and is transported back and 
forth in that matter all because of the court order. It is an 
extremely expensive proposition. It is also complicated by the 
fact that we have so many out of State placements in private 
facilities outside the city.
    So we have conducted these monthly hearings and that 
follows up on a special committee that the council impaneled a 
year-and-a-half ago which issued a report earlier this year, 
and now we have reinstituted regular monthly hearings where we 
are looking at let's bring our children back into the city. We 
have a primary obligation to educate our children. They are our 
children. We should not be sending them out to California, 
Utah, Baltimore.
    Ms. Norton. Let me ask Mr. Vance because that is--the 
council has raised that over and over again. We know that some 
of these children need very special services that no city could 
provide. But could I ask you in response to what Mr. Chavous 
said, what proportion of our special education children are 
educated here in the District of Columbia? What plan do you 
have in what proportions to bring back children who are now 
educated outside the District of Columbia? You and Ms. Cafritz.
    Mr. Vance. We have set a rather ambitious target for 
ourselves for this school year to return 800 children who are 
placed in private tuition-based special education schools to 
the District to programs which we are currently in the process 
of developing. That is my immediate response.
    Ms. Norton. 800. And how many are going to schools outside 
the District of Columbia today?
    Mr. Vance. That is just a moving figure, and let me turn 
around and ask Ms. Gay. 1,829 private day programs.
    Ms. Norton. 1,800 actually have to travel outside the city 
and be brought home every night.
    Mrs. Morella. I have a figure on a chart here that I was 
going to ask about. The chart has 2,506 nonpublic placements 
versus 9,102 in public placements. The difference in price 
allocation per student for the public placement is $17,000 
versus $34,000 for the nonpublic placement. So it seems to me 
that is key coming to grips.
    Ms. Cafritz. In addition, if I might add--we have 12,000 
students, 21 percent of our student population is in special 
ed, which is the highest--I mean 17 percent--17 percent. And 21 
percent of those are on private tuition grants, and this is 
extremely high.
    Ms. Norton. Nancy--if we were in a State, the State I take 
it would take up part of that tuition grant?
    Ms. Cafritz. They would pay for all the transportation. 
They would take care of all of the administrative costs related 
to filing for Medicaid. They would take care of many, many 
other costs in terms of special services to this population.
    But we have no place to go.
    Ms. Norton. Just let me say, I think that, even doing the 
best you can do, it would be very hard to come up against that.
    I am going to be putting in a bill to get more State 
functions moved to the Federal Government. This is not a--I 
don't--and, you know, and with education in general, everybody 
considers that a local function. If you get for me the State 
function such as the transportation, the part of it that the 
State would pay for special education, I will make sure that is 
a part of this bill.
    I think, doing the very best you can, you're not going to 
be able to do much better, given these costs.
    Ms. Cafritz. We really applaud your efforts on that and 
your challenge to work with everybody.
    But one thing I do want to say on behalf of the school 
board, we have already made about $35 million of extremely 
analytical cuts. We had to make about $9 million more worth of 
cuts, and that is how we came to the furlough, but only after 
we had gone through our budget line item by line item from, you 
know, janitors to nurses to paper.
    Ms. Norton. We're not--Mr. Chavous, when I said perhaps 
that there needs to be a contribution by everyone, you know 
that they are going to have $10 million added because of the--
there's no caps, and there's good--there's a reason for it.
    Mr. Chavous. Yes.
    Ms. Norton. But it means $10 million on top of a flood of 
deficit already. Do you think that the council is going to be 
able to help with that, inasmuch as a majority of the council 
apparently wrote and said they think that was a necessary 
expense for the school board to have, even given this large 
deficit?
    Mr. Chavous. Yeah. Well, Congresswoman Norton, you're 
right. The council is taking the strong position about the 
caps, and I had supported over the years. I will say, though, 
that this year I did sign a letter with the Mayor indicating 
that we need to look at some caps for the past situation 
because of the escalating financial circumstances. We are 
working on this issue. We've clearly, clearly need to address 
it, but it is driving our budget. And I'm concerned about why 
we have to preserve the rights of those children who aren't 
getting services. I am somewhat concerned about people who are 
taking advantage of the system, and that is a reality we've got 
to face.
    I do want to thank you and applaud your suggestion that you 
look at the State functions on special education, and I will 
convey some of the research we've done. I think that is a role 
for the Federal Government, to help supplement these clearly 
State-related costs. We're the only municipality in the country 
that has to bear these costs in special education, and it will 
go a long way toward reducing these escalating deficits.
    Ms. Norton. If you were perfect, you couldn't get out of 
that one.
    Yes, Mr. McCarthy.
    Mr. McCarthy. I don't know if you were here before, but in 
my testimony I mentioned that we have a study that says, for 
some municipalities, upwards of 44 percent of their special 
education costs are borne by the State Capitol. And here, with 
our limited tax base, that is something that we bear all 
ourselves.
    Ms. Norton. Would you believe that the States are here 
crying bloody murder because they are having to pay special 
education costs, and here the District of Columbia has a burden 
that is simply impossible to bear. We've got to do something 
about that.
    Mr. McCarthy. That's why I'd like to add, Mrs. Norton, in 
terms of the contributions that you're talking about, as I said 
earlier, I think the Mayor and the council have agreed to find 
savings in the main city budget, use limited reserves or make 
cuts in other programs to give schools an additional $60 
million this year to cover some of these problems. In fact, the 
budget that was passed yesterday has some reserve relief. The 
reserve requirement was reduced, and the only part of that was 
actually allocated for any use was $12 million for public 
education. So that's a----
    Ms. Norton. Could I ask this? I'd like to know, what is the 
ethnic background and income level of students using out-of-
State and private schools for special education in the District 
of Columbia?
    Ms. Cafritz. We have done a survey of just the, I think, 
four most expensive schools; and of the student population, 
which is privately placed there, they come from, with very 
minor exceptions, the most expensive ZIP codes in the city and 
in complete disproportion to their presence in the school 
system.
    Ms. Norton. Y'all are sitting ducks. Come in and get your 
legal fees paid, and then send your child to the most expensive 
schools. Move in from Montgomery County. I have heard of 
instances in which that has happened, Madam Chair. I'm not just 
using your county pejoratively at this time.
    Ms. Cafritz. The other thing on spending pressure to be 
aware of, the $60 million that the Mayor is contributing to 
this solution is taken into account in the cuts that we made. 
So that doesn't affect the cuts that we've made at all. I mean, 
it affects that we would have had to have made more, but----
    Ms. Norton. I have a few more, but I'm going to pass on to 
the Chair now.
    Mrs. Morella. I want to pick up on that same issue. It 
seemed--and, yes, there are special need students who do go to 
Montgomery County because they can get the education that the 
law says they should have. I would hope that you would have 
some plans to incorporate within your schools the classrooms, 
the environment that is necessary for special education. Maybe 
you need to do some dazzling things like certain scholarships 
to get teachers trained. You know, maybe there would be a 
startup cost you would need.
    But, you know, what I understand also is that even the 
transportation, that you have bus drivers who are at the behest 
of the recipients' families, so they stop Monday and Tuesday 
one place. Wednesday, they go to a different place. Thursday, 
it may be a different place. I mean, this is very expensive. It 
seems, again, that could be streamlined so that in the long run 
you could come up with a plan--I'm sure that in the Federal 
Government we would try to assist if we knew that this was a 
program that was going to take your nonpublic placements to 
bring them into public placements, and the District of Columbia 
could be a model. I know you have more students with special 
needs than other jurisdictions.
    I know this is an enormous challenge, but I believe you're 
up to it. I mean, we have a great board of education, a great 
superintendent, the council, the support services, charter 
schools. They're off the wall in terms of numbers. Why? Because 
people must be sensing that they are just not getting it in the 
public school system, other than charter schools. I'm not 
sure--you have a good question about space, what are you going 
to do about it? But do you see what I'm saying? The bottom line 
is that we've got to make plans and accommodations so the 
District of Columbia can be able to educate within the public 
placements.
    Does anyone want to comment on that?
    Ms. Cafritz. Congresswoman, we would love to have--perhaps, 
Dr. Vance and Mr. Sellas now come up and do a briefing for you 
on our plans to address some of the very things that you 
mention, and I think emerging from that will be some things 
that we can certainly work on together, perhaps even 
legislatively.
    Ms. Baker. I might also say that I guess it was back in 
1998 when charter schools were really beginning to evolve that 
it was a kind of thought that it might be one way to provide 
service to children in the special ed population. So that might 
still be a resource. Yes, it would have to be handled by people 
who really understood and knew what they were doing, but there 
are a lot of people out there who might take on that challenge, 
which would provide another resource for actually providing 
special education to children through the public arena in a way 
that would be very cost effective.
    Let me also say that, early on, we talked a little bit 
about enrollment or whatever, but, in 1998 or 1999, that was 
the first time in the District of Columbia that the actual 
enrollment numbers overall for public education increased, 
because charter schools brought back students whose parents had 
elected parochial or private schools, not in huge numbers, but 
what we're saying is that all kinds of reform can make that 
kind of difference, and that same kind of reform in special ed 
could also make that kind of difference.
    Mrs. Morella. Which is why you should also be involved in 
any plan that is undertaken.
    Dr. Vance, do you want to comment on that?
    Mr. Vance. No.
    Mrs. Morella. I would be happy to meet with you and Steve 
and maybe Ms. Cafritz, and I know that Congresswoman Norton 
would join me. We could have a little briefing on what your 
plans are to do that kind of thing, and then we'd----
    Mr. Vance. We'll be delighted to make those arrangements, 
and perhaps we can set a date or two before we leave here 
today.
    Mrs. Morella. And, Mr. Chavous, you agree, too, don't you?
    Mr. Chavous. Yes, absolutely. I think that is an excellent 
suggestion. We are working on a plan; and one thing about it, 
Congresswoman Morella, we're going to be making sure that, once 
the plan is set, that we'll have regular hearings to drive the 
implementation, which is always problem. We've made a lot of 
great plans in the city in a lot of areas, but if you don't 
drive and ride herd on it day in and day out, you may not be 
followed.
    Mrs. Morella. Absolutely. That is one of the reasons for 
this hearing, too.
    I'm going to defer now to Ms. Norton for maybe the last 
round of questions. We'd like to submit some further questions 
to you, but we need to get on with the second panel, and we 
held you for a long enough time, but we do plan to continue. 
Ms. Norton.
    Ms. Norton. Yes. Could I ask the superintendent if you 
would submit to this committee within 30 days the ethnic 
background and income level and school of children using 
private or out-of-State schools in the District of Columbia. 
That must be already available someplace. I'm not trying to 
cause you any extra work, but we need to know that.
    Mr. Vance. Yes, we will.
    Ms. Norton. Thank you very much.
    I'd like to ask a question about an old issue that has come 
up that we thought had been satisfied. It's mentioned in Mr. 
McCarthy's testimony. It has to do with enrollment. Indeed, Ms. 
Baker mentioned enrollment having increased. We were fairly 
surprised at the first enrollment audit, and, frankly, it did 
not seem to us entirely credible, but, you know, they said they 
did it, and that is that. That's good, enrollment not going 
down. And I certainly do believe that there would have been 
children attracted by the charter schools.
    If I may say so, Ms. Baker, who started from literally 
nothing and created a very credible charter school board--a 
charter school department right off, did, it seems to me--and 
the school board quickly got itself to the point where it, too, 
was drawing people. So there's no question that there may have 
been people who were drawn.
    But in Mr. McCarthy's testimony, he says, prior to this 
year, the enrollment audit included only a sample of students 
in DCPS schools and all students in public charter schools. 
That's the first I've ever heard of that.
    Ms. Cafritz. Would you repeat that?
    Ms. Norton. It said that the enrollment audit included only 
a sample of students in DCPS schools, and all students, of 
course, the public charter schools.
    Mr. McCarthy. That is true, Ms. Norton. And prior to the 
creation of the SEO, the audit of the DCPS enrollment was just 
that. It was just a sampling of a few students here and there 
to come up with the number.
    One of the reasons to have the SEO was to improve that 
process and structure it, and Councilman Chavous made sure that 
indeed now DCPS have an enrollment audit that was a census 
audit student by student. The SEO--Ms. Spinner can talk about 
that--has just undertaken the first one of that kind. And what 
can you say?
    Ms. Spinner. As has been indicated, for the first time we 
have undertaken a contracted full audit of the school system's 
enrollment process, where every school in the district of the--
every public school in the District of Columbia is being 
counted, and the records are in fact being audited. And it is 
true that in the past, while the charter schools did undergo 
100 percent count, the public schools went through a sampling 
process. This was the first year that the council did in fact 
require that we do this, and we are even as we speak learning 
from that process. We have completed that process and look 
forward to being able to use those numbers and that audit count 
to really accompany the recommended full funding formula to 
come up with the most accurate assessment of costs.
    Ms. Norton. What's the number? How many children are there 
in New York--in the D.C. public schools, please? Somebody tell 
me, please. I mean--well, she says the audit has been done.
    Ms. Spinner. The audit has been completed. We will receive 
our final report toward the end of December.
    Ms. Norton. You don't have any number you could give this 
committee?
    Ms. Spinner. I don't have a number for combined that I can 
give you, but certainly----
    Ms. Norton. I want to know for the D.C. public schools. How 
many children are there in the D.C. public schools?
    Ms. Spinner. We will get you a number before close of 
business today.
    Ms. Norton. You don't have a number?
    Ms. Spinner. I don't have it in my head right now.
    Ms. Norton. It's December, and you don't have a number. Do 
you have a number in Montgomery County?
    Ms. Spinner. No. Mrs. Norton, let's be clear. The D.C. 
Public School System did in fact do its count in October, as it 
is prescribed to do. What we don't have is a final audit count, 
because there is a resolution process that you go through 
around enrollment. Once you do the count, you then verify that 
these young people are in fact residents of the District.
    Mr. Vance. Our report, which we submitted to the Board of 
Education as of October 5, 2001, reported 68,449 students 
enrolled in the District of Columbia.
    Ms. Norton. Thank you for your candor.
    First of all, I appreciate--whenever you come before this 
committee--first, let me say to Mr. Chavous, because I guess it 
was your committee that really looked behind this and 
discovered the truth----
    Mr. Chavous. Yes.
    Ms. Norton [continuing]. I want you to know that it was 
never reported to this committee that a sampling was done. Of 
course, this committee is not the oversight committee, sir. You 
are, and you have done your job. And you've made the school 
system do for the public schools what, of course, they were 
requiring of the charter schools. The number that said there 
wasn't a single child lost in the public schools and that we 
had the same number of children growing, growing, just didn't 
seem credible to us, and nobody said they were doing a 
sampling.
    So it's really important to do what the superintendent just 
did. He gave you the number he had. He's going to be willing to 
submit, if the audit finds that there are other numbers, but 
that's what you do when you come to a hearing, ladies and 
gentlemen. You give your best information.
    Ms. Cafritz. Congresswoman, I just want you to know, our 
numbers are not based on a sampling. What the superintendent 
has presented are the numbers----
    Ms. Norton. I know.
    Ms. Cafritz [continuing]. For October--OK.
    Ms. Norton. I know. That's right. Because in Mr. McCarthy's 
testimony, it said for the first time you did, apparently, 
pursuant to the city council mandate, a real audit. And of 
course that's what every other school system in the United 
States does.
    Mr. Chavous. If I may quickly----
    Ms. Norton. Yes, please.
    Mr. Chavous [continuing]. On that. You raise an excellent 
point. We introduced the legislation for the State Education 
Office for that purpose. We did not think it was fair, nor was 
it appropriate when we're going to a per pupil funding basis to 
evaluate how we fund public education, for one to have a 
sampling, the other to have a complete audit. And so----
    Ms. Norton. It's apples and oranges.
    Mr. Chavous. Yeah. And so we wanted to have uniformity, and 
we wanted to have an independent monitor, and that's why we've 
created that office. And I'm very pleased with the work the 
State Education Office has done. I'm looking forward to the 
audited numbers. You will never have a question as to how many 
students are in--being educated in our public schools, because 
we will have the real count and an audited real count, and 
that's what the legislation intended to do.
    Ms. Norton. It's such an important step forward. This 
committee took--had a GAO report, went through the whole ball 
of wax just to try to find out how many students.
    I'd like to ask a question on scores, and I'd like to ask 
it of Ms. Baker as well as of our school officials. I'd like 
you to--you haven't said much about scores here today. I'd like 
to know, over the past 3 or 4 years, have scores in every one 
of the classifications gone up or down? The ones that of course 
are the lowest, you'd want to go down. The ones that were the 
highest, you want to go up. That's the first question.
    The second question is, would--I have read in the 
newspapers--and I need clarification--on the notion that the 
scores for our D.C. Public school system children are--have 
been consistently higher than the scores for our public charter 
school system. So would all of you who are relevant discuss 
that, please.
    Mr. Vance. While the standard for nine test scores indicate 
that we have significantly reduced the percentages of students 
scoring in the below-basic-proficiency level, over the past 4 
years, Congresswoman Norton, our student's performance in 
reading, mathematics achievement is still deficient, where 
we've made--I'm reluctant to call it a gain--is where we've 
reduced the number of youngsters who have moved from that below 
basic to the basic level. But we are still, in terms of 
youngsters reading on grade level development tally, terribly 
flat and deficient.
    Ms. Norton. We are flat?
    Mr. Vance. Flat. The scores are just flat there. We cannot 
detect any progress in moving those youngsters along, and 
that's a major initiative of ours this year.
    Ms. Norton. Ms. Cafritz.
    Ms. Cafritz. Oh, another thing that I would like to point 
out, because I think the SAT 9s, you know, reflect on it, 
because so much has been made of them. But I think that, in 
terms of our student's reputation, even more important are the 
SAT scores, and they are awful. And you have in place a team 
here who readily admits that they're awful and who----
    Ms. Norton. Can I ask you a question on that, Ms. Cafritz? 
We had a program here right at the time that the city went down 
that offered children SAT score help, and we had a person who 
made tremendous progress, and he was the first to go. You can 
understand, they had to just save the basic schools. Do we have 
any such program in the District of Columbia now?
    Ms. Cafritz. I think the programs that you have in the 
District of Columbia, which you've had for years, are becoming 
real. OK? But when we start at our high school for the gifted 
and talented--and, quite frankly, any charter school you can 
name--where the scores are--we have many scores in the 700's 
and 800's at Banneker, so you can imagine what it must be like 
in the rest of the system. I mean, that's what we're up 
against, and that's what we're facing when I address the 
question of equity.
    Mr. Vance. We have expanded the service you've mentioned. 
We're currently using in our high schools the Kaplan plan, 
we're using the Sylvan plan, and we're using the Princeton 
plan.
    Ms. Norton. Well, those are good plans.
    Mr. Vance. Outstanding plans.
    Ms. Norton. Of course, it assumes the children have been 
educated to the point where they can absorb those plans.
    Mr. Vance. Precisely. And we are beginning working with 
them. We made a presentation to the board on our effort to 
expand those plans in each of our senior high schools. We did 
have a representative in from ETS, an Educational Testing 
Service, and they indicated their willingness to work with us 
to reinforce what we were doing and also expand it to our 
intermediate, that is, our middle and junior high schools. So 
we're in the process this year of implementing that in every 
one of our high schools.
    Likewise, we did create an office for honors and advanced 
placement classes in all of our high schools.
    Mr. Chavous. Ms. Norton, quickly, if I may, if you would 
indulge me, I'm convinced we will not improve test scores just 
through education alone. The biggest problem is the social 
conditions our children live under, and we are embarking on an 
initiative to integrate some of those wraparound services with 
what the education folks are doing. I think it's going to make 
a tremendous difference.
    One of the reasons why our children aren't reading or they 
don't operate and do math at basic is because they have little 
or no reinforcement at home. And I think with the early 
childhood initiative, the compulsory attendance level that I'm 
going to introduce and the commission we put in place, working 
with the Mayor and Carolyn Graham as deputy mayor in this area 
I believe that we can put in place a program that will give our 
young people the support beyond that 8-hour school day or 6-
hour school day that will make a huge difference. And then we 
will see that bear out in test results down the road.
    Ms. Norton. Could I encourage you--Mr. Chavous, I think 
that your early childhood initiative is an excellent one. D.C. 
has one of the best essentially childhood programs in the 
country as it is, because the council and the Mayor moved ahead 
of other jurisdictions, and all kinds of children in early 
childhood, they could not be in other jurisdictions. And I know 
you're going through a very thoughtful process, working with 
American University and the rest, but particularly as hard 
times set in, I would just look to encourage you, since there's 
already so much experience in the D.C. Public school system 
with early childhood, one of the great success stories of the 
D.C. Public school system, I would like to encourage you to 
move that program along even more quickly, and I would like to 
challenge you to have at least part of your program in place by 
September.
    That is just how important I think what you just said is. 
If you start there, then by the time we get to the Kaplan or 
the D.C. college access program and, God knows, the high 
schools, the job will be much easier, and we won't be asking 
the principal and the teacher to do everything.
    Mr. Chavous. Well, indeed we expect to have a report by the 
end of January. We'll have hearings.
    And then I can also say that this is a collaborative 
effort. The Mayor, the superintendent, the school board and I 
are working together, the council, and Carolyn Graham has been 
working with the superintendent's office. We're talking about 
some pilot programs in the fall. So we're really on the same 
page with where you are.
    Ms. Norton. Excellent. Ms. Baker did not get to answer the 
question on the difference in scores between the charter 
schools and the D.C. public schools.
    Ms. Baker. Right. I think that there was actually a flaw in 
the process that was used, and I guess that--a year or so ago 
in terms of that comparableness. I think that one of the things 
that if you start going into statistical analyses you have to 
look at if you are comparing 500 students to 5,000 students, 
you've got to make some adjustments, because that is not a 
clear----
    Ms. Norton. Yeah, but they know----
    Ms. Baker. No. Mathematicians and--in one case that was not 
done, is all I'm saying. That was not done. It was just a--you 
know, you add this up and you add that up and you don't make 
any allowances, and that does not work.
    But I would also say that, yes, we still have a good deal--
number of students who are, yes, below basic, but we also chart 
gains, and I think that's clear in the complete report that I 
did leave with you. And that is that it's important to see how 
much growth has occurred in children over the course of a year, 
and we do have a company that does that for us so that we look 
very carefully at whether--and what percentage of the students 
gains were in the school so that----
    Ms. Norton. Are you saying that the schools are comparable 
now or not?
    Ms. Baker. I don't know that there has been an analysis--an 
actual comparison.
    Ms. Norton. Well, I wish you would report to this committee 
on that so we could know the truth on that, rather than read it 
in the newspaper.
    Ms. Baker. Well, I don't know--I just question----
    Ms. Norton. Fair is fair. The fact is that I am a strong 
supporter of the charter schools. It was my bill that was the--
--
    Ms. Baker. Right. I understand that. I'm not denying a 
comparison, but I just think that the comparison that we make 
needs to be sure that we compare apples to apples. I don't 
believe that we need to take X number of students and compare 
them just--I think you need to break it down, is what I'm 
saying.
    Ms. Norton. I think statistically, you need to look--you're 
absolutely right on this. You need to look at the composition 
of the income and other compositions of those students--they 
might be skewed in some way or the other--and compare that 
with----
    Ms. Baker. There are a number of things that you ought to 
take into account, yes.
    Ms. Norton. Finally, I just want to get on the record one 
way or the other on this. The IG wrote to all of you and sent 
copies to all of us, and this is about the--and let me quote 
him. As a result--and he was referring back to possible audits 
by the D.C. public schools and the council. Then he goes on to 
say, timely completion of the CAFR is at risk. He said, I am 
recommending that all efforts other than the CAFR to audit DCPS 
financial records for 2001 be suspended until completion of the 
CAFR on February 1, 2001. Have all audits--how have the parties 
responded to his recommendation?
    Mr. Chavous. Well, earlier this week, the IG, the CFO, the 
superintendent, Ms. Cafritz, the Mayor and I and also KPMG, the 
D.C. auditor, we were all in the same room. The Mayor chaired 
the meeting to deal with that very issue. We have come to a 
meeting of the minds as to how to proceed in a way that would 
not be disruptive to the CAFR. The council needs to have an 
audit done, and now the request that the school board made has 
been folded into the work of our auditor.
    The reason why we need to have the audit is we need to 
understand how we got in this mess, which just follows up on 
the questions that Congresswoman--Chairwoman Morella 
indicated--I mean, asked on. But we aren't going to get in the 
way of the CAFR. We're going to make sure that, working with 
KPMG, the city's auditors and the IG, that we'll work in tandem 
and we don't get in the way of that effort, because that is a 
top priority of the city. But we do need to make sure as well 
that the city auditor is able to do her work so that, as we 
build the 2003 budget, we don't repeat any mistakes in the 
past.
    So we're--we have a working group. We're working through a 
memorandum of understanding, and we will make sure that the 
CAFR is done in a timely manner.
    Ms. Norton. That is exactly the way to do it. Thank you 
very much.
    Mr. Chavous. Thank you.
    Mrs. Morella. Thank you, Ms. Norton. I know we've been 
keeping you----
    Ms. Cafritz. One last thing I wanted to point out. It's so 
important that we realize that all of these children are public 
school children, and there is not one panacea that is any 
better than another panacea. It's going to take a lot of hard 
work.
    The public school system is beginning work with Richard 
Wayne, who is a well-known researcher in the charter school 
area, and I think it's--the 21st Century Schools is the name of 
the company, to do a joint study on all the charter schools' 
scores and DCPS scores in a way that they are appropriately, 
statistically disaggregated. So, you know, we will be able to 
bring you across the board, you know--and I think that everyone 
is participating in that as far as I know.
    Ms. Baker. Our board has already used Rich and Joyce's 
strategies as a--for the analysis that we get annually, and so 
then they will be folding in those as well.
    Ms. Cafritz. We couldn't afford that. We had to wait till 
they got a grant.
    Mrs. Morella. That's good that--I was going to ask that 
kind of question. But just one final question. Do you have 
full-time kindergarten as a demonstration program or 
requirement?
    Ms. Baker. Full time.
    Mrs. Morella. You have full-time?
    Ms. Cafritz. Full-time, universal.
    Mrs. Morella. Excellent. Because that is, you know, your--
following up on your preschool education has been found in some 
recent studies----
    Ms. Cafritz. We also have universal pre-K.
    Mrs. Morella. Yeah, universal pre-K. Excellent. Good.
    It's interesting, because your wraparound schools very much 
are like linkages to learning, where you need to bring all of 
the facilities together if you're going to give that kind of 
background and environment to the students.
    I have looked at the Stanford 9 tests in reading and 
mathematics, and it is true, as you have indicated, the 
improvement is very slight, particularly over the last few 
years. There's been some significant improvement from many 
years ago, but the last few years when you have 36 percent 
below basic, and basic is 36 percent with regard to math, and 
25 percent below basic, and 46 percent just basic when it comes 
to reading--and so it just seems to me that there are programs 
you must be offering that start from the very beginning, not 
just SATs. When they're ready to take the preSATs or the SATs, 
they're going to help to develop this. And, again, I look 
forward to hearing more about what you are planning to do.
    I just want to ask our State education officer--
congratulations on your appointment, Ms. Spinner--are you doing 
any evaluation of test scores?
    Ms. Spinner. At this point, we haven't undertaken any 
evaluation of test scores, but it's important, I guess, that I 
say that at this point in time that the State Education Office 
in the District of Columbia came about, as you all know, 
through a legislative process that makes it a bit different 
from other State education offices. We really are focusing on 
monitoring and oversight and the kind of research and 
information gathering that will allow for better data-driven 
decisionmaking across the city. We're very hopeful that this 
time next year we'll be coming back to you with the kind of 
information about not just one set of our public schools but 
all of our public schools that will inform what you know and 
how you know it.
    Mrs. Morella. So are you planning to do an evaluation?
    Ms. Spinner. Yes, we are, and we'll be doing that in 
cooperation with our public schools.
    Mrs. Morella. Very good. Splendid.
    I want to thank the panel. We will be forwarding some 
questions to you. You know, education opens doors, but it also 
prepares people to go through those doors, and you are working 
with the potential leaders for the future. Thank you all very 
much for being with us.
    Dr. Gandhi and Mr. Maddox will be coming forward, and I 
think you were going to have Mr. DiVello--before you sit down, 
too, I'll swear you in. So if you would raise your right hands, 
gentlemen.
    [Witnesses sworn.]
    Mrs. Morella. Thank you. Affirmative response, for the 
record.
    Well, you've heard our long morning deliberation, the 
statements, the questions, the responses. So I think that 
you're all ready for us, and we're certainly ready for you. 
Thank you again for your patience in waiting so long to be able 
to testify. So we'll start off, then, again, in our usual way.
    Dr. Gandhi, you're a familiar person who appeared before 
this subcommittee, and so you know that your entire testimony 
will be in the record, and look forward to hearing from you, 
sir.

STATEMENTS OF NATWAR GANDHI, CHIEF FINANCIAL OFFICER, DISTRICT 
OF COLUMBIA; AND CHARLES C. MADDOX, INSPECTOR GENERAL, DISTRICT 
OF COLUMBIA, ACCOMPANIED BY WILLIAM J. DIVELLO, CFE, ASSISTANT 
                  INSPECTOR GENERAL FOR AUDITS

    Mr. Gandhi. Thank you very much, Madam Chair. Good morning, 
Chairwoman Morella, Congresswoman Norton and members of the 
subcommittee.
    I am Natwar M. Gandhi, chief financial officer for the 
District of Columbia, and I'm here to discuss the financial 
management of the District of Columbia public schools.
    First, let me address the District's commitment to the 
children. The record is clear that Mayor Williams and the 
council have made a commitment to put children's education 
first in the District of Columbia. Because of this commitment, 
there has been a need to increase our investment in schools, 
and over the past few years this has been done.
    The combined operating budget for D.C. public schools and 
D.C. Charter Schools has increased from $568 million in fiscal 
year 1999 to about $801 million in fiscal year 2002. This is a 
41 percent increase over a 4-year period, while during the same 
time total enrollment in schools has increased from about 
79,000 to 82,000, a 4 percent increase.
    The public education local source budget for fiscal year 
2002 constitutes about 23 percent of the total D.C. budget.
    As the chief financial officer, I can tell you that, in 
today's revenue environment, the District cannot continue this 
trend of an annualized 10 percent growth to this budget without 
radical change in the District's commitment to other components 
of its budget. Therefore, the long-term financial viability of 
the DCPS is substantially dependent on structural change in the 
management of its program and cost profile.
    In that cost profile, as we just heard, special education 
is the cost driver. The District's special education program, 
comprising about 16 percent of the student population, accounts 
for one-third of its operating budget. When we compare the 
fiscal year 2000 budget for special education to the fiscal 
year 2002 budget, we find a 38 percent increase in costs. Over 
the same period, the number of students requiring special 
education services increased by 11 percent.
    Others have already spoken about underlying problems with 
the special education program itself that contribute to making 
it so costly and why changing this cost will take some years to 
correct. Most of the costs are tied to compliance with Federal 
mandates, and the District has no control over these expenses 
and only a limited ability to anticipate them.
    Now let me turn to fiscal year 2001. The projected fiscal 
year 2001 financial deficit at the schools has unfortunately 
generated much controversy over the past few months. I fear 
that a good portion of this controversy stems from inadequate 
and untimely communication between the Office of the Chief 
Financial Officer and the superintendent and the Board of 
Education, a failing which I deeply regret. At the end of the 
day, however, what matters for the schools and the District is 
the audited financial statements and not our projections. We 
have gone over the books for fiscal year 2001 and the 
independent audit is in full force.
    The actual figures provided to the District's independent 
auditor show deficits of approximately $60 million after the 
gap closing measures of $38.2 million. Had no action been 
taken, the deficit would have been $98.2 million.
    It is important to note, however, that although this 
shortfall presents us with challenges as we enter the new 
fiscal year, it will not impact the District's goal of 
financial viability. Our financial forecasts for fiscal year 
2001 included provisions for unanticipated spending pressures 
of potential revenue shortfalls, and this gives us the ability 
to manage unforeseen budgetary challenges.
    In the current fiscal year, the schools have major 
financial problems that could result, because the problems 
identified in fiscal year 2001 continue in fiscal year 2002. 
Before corrective actions are taken, we project a deficit of 
about $108 million in fiscal year 2002.
    The Board of Education has voted to make structural changes 
in fiscal year 2002 operations that will reduce costs by about 
$44 million. We have taken on the challenge of addressing 
Medicaid revenue shortfalls District-wide. We have also 
proposed that, in addition, $40 million be reallocated from 
other accounts in the city to the schools. The District's 
proposal approved by the Congress will make an additional $9.7 
million available for the schools. Along with these and the 
cuts of new programs at the schools, these items will bring 
back solvency to fiscal year 2002 in the schools.
    Let me now turn to what I believe is a major source of 
friction between the schools' leadership and my office, the 
method the District uses to manage the financial affairs of the 
public school system. From a financial standpoint, the schools 
are managed by the District in the same manner as other 
agencies of the District government. It receives its budget on 
an October/September fiscal year; its financial flexibility is 
governed by the same reprogramming restrictions applicable to 
other agencies; it operates only partially through the 
District's financial systems, and its financial personnel 
report to the chief financial officer.
    Both the school board and the superintendents have 
contended that this model is not a good fit for the public 
school operations and point to the models of surrounding 
jurisdictions that have much wider latitude for independent 
action by the school management. The District already has moved 
to give the DCPS greater independence but not as a part of a 
comprehensive plan. For example, DCPS exercises independent 
personnel and procurement action. Also, steps are under way to 
give schools their own payroll system, and the Mayor has 
recommended changing the school's fiscal year to a July/June 
basis.
    As each of these incremental changes is made, the current 
financial operating matter becomes progressively less viable. 
For example, DCPS intends to integrate its personnel and 
payroll operations in a software package that includes budget, 
procurement, payroll and accounting. Even if the accounting 
module is well integrated with the District's accounting 
system, financial personnel would need to operate on both 
systems simultaneously, a cumbersome and expensive mode of 
operations the District does not have funds to support.
    I believe this would be a good time for the Mayor, the 
council, the Board of Education, the chief financial officer 
and, of course, the Congress to jointly review what model makes 
sense for managing the schools' finances going forward. I 
believe it is possible to devise a system that would give 
schools much greater financial flexibility, while at the same 
time protecting the District's Treasury from unauthorized 
spending.
    Moving in this direction could actually contribute to more 
efficient program operations by giving the schools both the 
authority and responsibility to manage their financial affairs. 
Here are what some of the components might be of that 
arrangement.
    One, establishment of the schools as a component unit of 
the District government, somewhat similar to the University of 
the District of Columbia.
    Two, creation of a statutorily binding DCPS maximum fund 
allocation for the fiscal year that cannot be exceeded. A 
binding limit would protect the District's Treasury and, at the 
same time, encourage innovative program solution to solve 
financial issues. Under such a binding limit, I can envision 
the establishment of the Office of the Chief Financial Officer 
at the schools as a unit of the schools.
    Three, implement at the Federal level a schools capital 
fund, to free up the District's debt service funds to cover 
necessary maintenance on new capital projects. The school's 
facility master plan cites capital improvement needs for up to 
$2.2 billion between fiscal year 2002 through 2007, but the 
District's capital improvement program funds only $868 million 
over the same period. In addition, the program has no funding 
for charter schools, and the District has no budgetary 
flexibility to fund routine maintenance for new buildings.
    Four, changes in the DCPS fiscal year to a July/June basis. 
Operating on a fiscal year that does not coincide with the 
school year is a unique handicap for the schools.
    Five, devise an oversight structure to periodically review 
both programs operations and financial statements.
    And, finally, amend the provision regarding the public 
charter school oversight to require audited financial 
statements by the District's independent auditor.
    Madam Chairman, this concludes my testimony, and I request 
that my written testimony be made part of the record. I'll be 
prepared to answer any questions you may have. Thank you.
    Mrs. Morella. Yes. Without objection, your statement in its 
entirety will be in the record. We thank you, Dr. Gandhi.
    [The prepared statement of Mr. Gandhi follows:]
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    Mrs. Morella. I'm now pleased to recognize Mr. Charles 
Maddox, inspector general for the District of Columbia. Thank 
you, Mr. Maddox.
    Mr. Maddox. Good afternoon, Chairwoman Morella and 
Congresswoman Norton. My name is Charles Maddox. I am the 
inspector general for the District of Columbia.
    Accompanying me this afternoon is Bill DiVello, who is the 
assistant inspector general for audits. Mr. DiVello was also 
the Chair of the CAFR Committee during the course of the CAFR 
audit.
    I appreciate the opportunity to appear before you today to 
discuss issues that relate to continuing efforts by the 
District of Columbia to improve its public school system.
    Today, I would like to provide you a brief summary of work 
performed by the Office of the Inspector General since the 
enactment of the District of Columbia's School Reform Act of 
1995. Specifically, I would highlight some of our work 
concerning current financial matters and special education. In 
addition, I will discuss some concerns regarding our ability to 
conduct audits of charter schools.
    We have expended considerable audit and inspections 
resources regarding facilities maintenance, property 
management, the capital improvement program and procurement. I 
am willing to provide information about these efforts according 
to your interests after this testimony.
    In the latter part of fiscal year 2001, the chief financial 
officer for the DCPS identified revenue shortfalls from 
Medicaid and other obligations that, while still subject to a 
final accounting, negatively affected operations of the 
District of Columbia's Public School Systems. The amount of the 
shortfall and spending pressures estimated recently at a 
combined total deficit of $80 million was initially disputed by 
the president of the Board of Education. In an attempt to 
resolve these matters, the OIG issued a management alert report 
requesting that the District's CFO provide details surrounding 
the possibility of all overobligation, including a 
determination whether an Antideficiency Act violation has 
occurred.
    Additionally, to address growing concern over the deficit 
and to determine the effect of the apparent deficit on the 
city-wide Comprehensive Annual Financial Report [CAFR], we 
decided to expedite the portion of the CAFR audit that involves 
D.C. public schools. We expected the audit work to be completed 
by the end of December, and it will be distributed immediately 
so that policymakers will have the benefit of our findings for 
short and long-term planning.
    In addition, we have expressed great concern about 
indications that the D.C. auditor and a firm hired by the DCPS 
independently to conduct their own assessment of the deficit--
specifically, we are concerned that such efforts could 
compromise timely completion of the CAFR.
    Furthermore, we are concerned that those efforts could 
violate appropriations language which restricts spending of 
appropriated funds for purposes of auditing the city's 
financial statement. Specifically, section 132 of public law 
106.522 prohibits the use of such funds, ``unless the audit is 
conducted by the OIG.'' Accordingly, any audit efforts that 
would duplicate those performed by the District's CAFR auditors 
under contract to the OIG may not be financed by district 
funds.
    On November 7th and 9th, we notified the Congress and 
District leaders of our concerns and recommended specific 
actions, including both the recommendation that the D.C. 
auditor and DCPS suspend their efforts until completion of the 
CAFR on February 1, 2002. Copies of those transmittals are 
provided for the record.
    On a daily basis, I will continue to work with District 
leaders to monitor developments in this area so that we can 
avoid the potential conflict.
    We have issued findings on 17 audit reports and related 
inspections. Although I cannot comment on pending 
investigations, I can say that we are also have and continue to 
investigate a range of matters at DCPS. A list of the audit 
inspection reports is included as an attachment for the record.
    We have consistently reviewed programs and operations at 
DCPS, because DCPS delivers key services to many District 
residents and because many of the existing challenges at DCPS 
threaten the fiscal viability of the District.
    With regard to special education programs, we have 
completed two audits. The first was completed in calendar year 
1999 and second in calendar year 2000. In our 1999 audit, we 
found that DCPS was not in compliance with Federal or District 
regulations in the administration of special education program.
    Specifically, DCPS did not do the following: Evaluate and 
place special education students in a timely manner; conduct 
due process hearings or implement determinations made by an 
independent hearing officer in a timely manner; provide 
student-remitted services specified in their individualized 
education programs; and report activities of the program 
annually to the Board of Education.
    We also noted that DCPS did not properly maintain Medicaid 
records. As a result, DCPS did not timely submit requests for 
Medicaid reimbursements, which totaled $14 million. This delay 
resulted in a loss to the District of approximately $1 million 
in interest.
    Our calendar year 2000 audit focused on transportation 
costs within the special education program. This audit 
disclosed that DCPS experienced difficulty in meeting the 
demands of providing transportation services to its special 
education students. This situation had been exacerbated in part 
because of the nationwide shortage of school bus drivers. 
Moreover, DCPS had not implemented measures to reduce 
transportation costs. Such measures include devising pair 
shared bus routes, implementing staggered bell times, 
establishing neighborhood schools special education programs 
and designing efficient and economic bus routes.
    Similar types of measures have been implemented in other 
school jurisdictions with significant savings in transportation 
costs. Implementing such measures could save the District at 
least $2.4 million annually.
    We also identified the following deficiencies in the 
administration of the special education program. They include 
an inaccurate data base of special education students, an 
inadequate review of special education tuition payments, and 
insufficient monitoring of nonpublic based schools and 
residential schools.
    As a result of insufficient monitoring, we found that 
students were attending schools that did not have special 
education programs or that did not meet the requirements for 
providing special education. We were able to confirm that DCPS 
paid over $175,000 for tuition costs to schools that did not 
meet the standards for providing special education programs.
    Factors causing these conditions include internal control 
weaknesses such as insufficient policies, procedures and 
personnel, and the failure of personnel to comply with 
regulations.
    In an effort to ensure that DCPS implements the 
recommendations they agreed to in our reports we are including 
DCPS in an ongoing, District-wide followup audit of actions by 
several agencies. We have completed field work on the followup 
audit and plan to issue our report by end of January 2002. In 
addition, we have included in our fiscal year 2002 audit and 
inspection plan a reaudit of the special education program, 
because we know that major challenges remain. We believe that 
there is an increased need for performance audits and for 
inspections of charter schools in order to address the risks 
for fraud, waste and mismanagement.
    Unfortunately, my office has no independent authority to 
initiate an audit or inspection of public charter schools 
because of the following restrictions: Section 2855(b) of the 
Reform Act, which limits the opportunities to conduct 
performance audits of charter schools, to request from the 
consensus commission section 2002, 10(a) of the Reform Act, 
which defines the term District of Columbia government, thereby 
establishing the parameters of the OIG's jurisdiction; and, 
second, 2002, 10(b) of the Reform Act, which specifically 
states that public charter schools are not included within the 
definition of the District of Columbia government and therefore 
not subject to the OIG's jurisdiction.
    Section (b) provides in part that the consensus commission 
may request the inspector general of the District of Columbia 
to audit the records of any public charter school to ensure, 
monitor and evaluate the performance of the charter school with 
respect to the contents, standards and District-wide 
assessments described in the act.
    In addition, D.C. Code section 38-1802.04(c)(3)(b) states 
that a public charter school shall be exempt from District of 
Columbia statutes, policies, rules and regulations established 
for the District of Columbia public schools by the 
superintendent, Board of Education, Mayor, District of Columbia 
Council or Authority except as otherwise provided in the 
school's charter or the subchapter.
    If this legislative impediment were removed, I would 
initiate an audit which would include a review of such areas as 
staff qualifications, tuition reimbursements and procurement. 
Improvements in these areas would likely have a major fiscal 
impact and improved service delivery for many students.
    In summary, Madam Chairman, I believe that the work 
conducted, ongoing and planned, by my office addresses 
important control areas that directly affect the quality of 
life for many residents
of this great city. I look forward to working with District 
leaders to continue doing all we can.
    At this time, Mr. DiVello and I will be pleased to respond 
to any of your questions.
    [The prepared statement of Mr. Maddox follows:]
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    Mrs. Morella. Thank you very much, Mr. Maddox and Dr. 
Gandhi.
    You know, if I were doing this hearing again or I could 
start off again this morning--I think the hearing has been 
excellent, and I appreciate your patience--I would have started 
off with you, Mr. Maddox, because I am shocked to learn from 
your testimony the violations by the District of Columbia 
public schools. I mean, you have enumerated here the fact that 
they haven't been responding, they paid over $175,000 for 
tuition costs to schools that did not meet the standards for 
providing special education programs. Transportation is 
mentioned here by you as something that needed some special 
attention.
    You call it a list of--in your list of deficiencies, they 
have also an inaccurate data base of special education 
students, inadequate review of special education tuition 
payments, insufficient monitoring of nonpublic day school 
residents. They have not implemented measures to reduce their 
transportation costs.
    It goes on and on. They are not in compliance with Federal 
or District regulations in the administration of the special 
education program.
    Now, we will be meeting with those principals to talk about 
this special education reform that they are hoping to put 
together. I hope that will be at the table. Certainly we will 
have--we will get back to them with the list of your deficiency 
recognition, and that's just part of it. But do you see 
yourself as having a role at the table?
    Mr. Maddox. I think that, as always, when asked do I see 
the IG having a role in helping to shape policy or to answer 
questions, there is a reluctance in a part of the planning 
process, because then I have to sit down, make the evaluation 
of that same process that I am an equal partner in. I think 
there may be a limited part that the IG can play. We just have 
to see.
    Mrs. Morella. I understand what you're saying, and I know 
the role of the inspector generals. I'm a big supporter of 
inspector generals and have met with many of them. I know 
you're reticent, and you don't feel you make policy. That's 
true, but you have some accountability of an assessment of 
those policies in terms of are they accurate and where do you 
see problems. So I'm not saying you would be involved in the 
policymaking but that you would scrutinize the plans or the 
proposals to make sure that they reflect what you know in terms 
of the best management principals. Is----
    Mr. Maddox. I certainly agree with that, Madam Chair.
    Mrs. Morella. Do you agree with that?
    Mr. Maddox. Yes.
    Mrs. Morella. Because I'd certainly like to know that you 
were there in some way to make sure they're not violating these 
problems and that they are responding. You even mention the--
what is it--the deficiency--you know, the nondeficiency--or 
discrepancy law that we have, that they in fact have been 
violating that.
    Now your turn, Dr. Gandhi, to respond to that, and then I 
have some other questions I'd like to ask you, sir.
    Mr. Gandhi. Madam Chair, I simply see my role to be in 
sitting down with them, and I have been doing that. And I do 
not want to beat on the special education situation, but I do 
need to point out one more time, and I think Dr. Vance already 
pointed it out, that roughly 16 percent of the student 
population is absorbing one-third of the budget. So, there is 
an incentive in the District to have one's child qualified in 
special education, primarily because it provides transportation 
and that you get to send your child to the best available 
school in the region, if not in the country.
    Let me just give you some numbers about the size of it, 
which is to say the formula. The foundation level per student 
is $5,907. Then we have some add-on to that, about $4,000. But 
then once you get into the special education, just to give you 
some estimate here, if you have a level 4 child, then per 
student you add on $18,903. We have 177 students like that. If 
you have a level 3 child, you add on $10,220 per child.
    And then moving to the charter schools, we have about 90 
students where we spend $55,000 more as an add on to the 
foundation formula.
    So what we want to note is, that this portion of our total 
population is expanding over the last 4 years. It has grown by 
41 percent, and there are thousands of cases lined up here. So 
to think in terms of our education and not to go after special 
education aggressively, effectively and now, it's like playing 
Hamlet without the prince, and as a student of Shakespeare, you 
will appreciate that.
    Mrs. Morella. That's right. Things without remedies should 
be without regard. What's done is done, but we need to move 
forward, because we can work on it. It is not a done deal. And 
we have to.
    And I agree with you and you've given me all these 
statistics, but let me ask you, the inspector general issued 
reports in June 1999, November 2000 that identified management 
deficiencies. We see even in the statement given now by the 
Inspector General private placement payment billing and 
Medicaid recordkeeping were two of the problems. What is the 
status of the recommendations that were made to correct these 
problems?
    Mr. Gandhi. As far as the financial function at the schools 
is concerned, I regret to admit that the financial function has 
failed at the school primarily in terms of the communication 
with the program people, the superintendent and the school 
board. We have taken effective action immediately, and removed 
top management plus certain personnel in their financial 
function. But the program statistics are a function of the 
program side of the house, and we also find a lot of problems 
in collecting and assembling that information.
    Mrs. Morella. And I noticed in today's paper Mr. Molina has 
changed his job. Do you want to comment on that?
    Mr. Gandhi. Yes. Mr. Molina has provided excellent service 
to the schools. He has performed brilliantly. His only problem 
was that he was there to give bad news.
    When I found that the earlier CFO and his management at the 
school was not performing up to my expectation and failed to 
report to me, to the city officials, as well as to the school 
officials the extent to which we were facing deficits, I 
removed him and his colleagues. I put a mole there. He joined a 
few months ago there. As soon as he went in there, he started 
digging, and what we found was an $80 million problem as of 
September 6th. At that time, it was an estimate.
    As I indicated in my testimony, we have finished the work 
at the school. He has finished his work at the schools. We 
completed the books, closed the books, given the numbers to 
KPMG for audit. So Mr. Molina's work has been done over at the 
schools.
    I expect all of us in the CFO cluster to work closely and 
cooperatively with the program people, and it was not happening 
at the schools. That was not the level of trust that should 
exist between the CFO and the program management. Consequently, 
I decided to remove Mr. Molina from the schools; and, indeed, 
given his excellent credentials--he was a CFO at the Milwaukee 
school district, a much larger school district, a senior 
accounting officer in the city of Houston and other places--I 
asked him whether he would be kind enough to accept the 
position of the deputy chief financial officer for budget and 
planning, meaning director of the budget for the entire city.
    Actually, this is a promotion for Mr. Molina. He will 
indeed be in charge of the whole city's budget, and I have 
great confidence in him. I must say the school's loss is the 
city's gain.
    Mrs. Morella. It appears as though what was neglected were 
the, essentially, warning signs.
    Mr. Gandhi. Yes.
    Mrs. Morella. And you have accepted some of the blame for 
that. I think it goes beyond that, and I hope that will be 
remedied.
    You did give us a dire report, mentioning that, in the 
future, $108 million; and I guess that says that we need to 
look at special education, but we also want to make sure, Dr. 
Gandhi, that we have the best management tools and 
implementation. How do you feel about that?
    Mr. Gandhi. I think it is extremely important. You're right 
on mark there, Madam Chair, that, in the ultimate analysis, the 
CFO is a bean counter. All one can do as a CFO is to tell the 
number. It is for the program people to manage this program 
effectively and efficiently. For that, of course, they need 
good information, and we have committed to Ms. Cafritz and Dr. 
Vance and other management at the schools that we would provide 
them information, as much as they want.
    I personally would brief the school management once a month 
at the minimum. So there will not be any dearth of information 
from CFO's side, but it is still they and they alone would have 
to manage it.
    Mrs. Morella. Uh-huh. And you will have to make sure that 
you're there to oversee it or to know something more about the 
management.
    Mr. Gandhi. Absolutely right.
    And I want to state one point further. Given the experience 
of the schools and given that in 2002 we do not have the 
revenue flexibility, I've written to the superintendent and the 
school board that I need a spending plan for fiscal year 2002, 
meaning I would like to know how much they would spend month by 
month. This is the concept of apportionment, and I would 
provide available cash on a quarterly basis. If I were to judge 
that in a given quarter they are spending more money than they 
should be spending, then I would simply alert them, and, if 
need be, we would cut the cash off.
    Mrs. Morella. Are you using the apportionment authority?
    Mr. Gandhi. Yes, ma'am.
    Mrs. Morella. Very good.
    I will now recognize Ms. Norton.
    Ms. Norton. Thank you, Madam Chair.
    With Mr. Gandhi and Mr. Maddox at the table, let me just 
start with the umbrella issue I raised for the next panel, and 
that is to say the Medicaid problem in the District of 
Columbia. With a great deal of effort, we were able to get the 
Medicaid percentage to the District of Columbia raised from a 
killing 50/50 to something like 70/30. We still are higher than 
any city in the United States, and it still is a killing amount 
of money, even if they were to pay every bit of it.
    As you know, while there's a District matter, and therefore 
I did not--you didn't hear from me on it--I do regard it as a 
failure of the entire government that not only did Medicaid 
send D.C. General down, but nobody blew the whistle. Nobody. Or 
if they did, they sure didn't blow it loud enough. So now we 
have, as I said before, this problem skipping to yet another 
and perhaps--God knows what other department.
    Mr. Chavous indicated, well, there's some differences. 
There's really not a dime's worth of difference, not a dime's 
worth of difference. It's the same problem. The agency does not 
apply for Medicaid money do it from the Federal Government. As 
a result, the agency is in the hole.
    You know, Mr. Chavous is right. It won't take the school 
system down, because somehow all the taxpayers of the District 
of Columbia and the rest of us will somehow rush forward. But 
it bothered me no end to see this problem crop up in the school 
system, because of what it said to me is that the Medicaid 
problem of the District of Columbia is still entirely broken. 
So, as I sit here today, I have no confidence that what we saw 
at D.C. General, what we now see in the school system is not to 
be found in each and every department of the D.C. government 
which receives or should receive Medicaid money.
    Can you assure me that is not the case? And, if not, what 
are you going to do about it, each of you, please?
    Mr. Gandhi. You are exactly right, Ms. Norton. This is 
exactly the message and our problem. They did not want me to 
tell them that the Medicaid money was not coming to them, and 
when the CFO----
    Ms. Norton. You just kept giving them money until the 
overobligation--I don't even see how--how did what 
overobligation go on for so long, Mr. Maddox? This was a 
straight-out overobligation, violation of Federal law, 
violation of D.C. law.
    Mr. Gandhi. Because we kept a fiction on our books of 
counting assets that were not realizable. We had a----
    Ms. Norton. How could you do that? I thought that the law 
says you have to spend what your budget says you have to spend. 
So each time--if they were on a monthly basis putting--adding 
money to the D.C. General budget, so everybody with his eyes 
wide open----
    Mr. Gandhi. And that is why we put them on apportionment. 
From now on, we're not going to keep writing the checks on D.C. 
General.
    But coming back to the Medicaid problem, you're absolutely 
right. It is a city-wide problem. It is $1 billion issue, 
because it's about $1 billion of the city's budget that is in 
Medicaid. It's 20 percent of our budget----
    Ms. Norton. Do you have any idea what percentage of that 
money we do not get back each year?
    Mr. Gandhi. Well, you are right in that it's a problem not 
only at the schools. It is in health, mental health, child and 
family services, and other agencies. So what we have decided 
and have already been doing the last 2 months is to have a 
city-wide task force headed by me and Mr. Koskinen. We have the 
agency director sitting in there. We have a very effective way 
of making sure that we would be very aggressive in, first, the 
billing and then retrieving every dollar that is coming to us.
    And, again, all of these Medicaid dollars that I'm 
questioning here, we're not going to give up on those dollars. 
We are going to hire the best available lawyers to get that 
money back. We're going to seek your help, Ms. Norton, to get 
that money back.
    But from an accounting perspective, when an auditor tells 
me that money is not coming, I cannot put it up on the books. 
We are not going to let that happen, and I can assure you that 
Medicaid is a top priority. The Mayor is aware of that. The 
council is aware of that. I have personally briefed the Mayor, 
Mr. Koskinen, Mr. Chavous, Ms. Allen, and Ms. Cropp. So we are 
all on board. We have an effective program ongoing on that 
front.
    Ms. Norton. Mr. Maddox, have you ever done an audit of the 
Medicaid system cross government? Not just in one or the other 
place that it has a problem, but the receipt and--of Medicaid 
funds and the filing for Medicaid funds by the District 
government?
    Mr. Maddox. Congresswoman Norton, if it pleases the 
committee, I'm going to have Mr. DiVello speak to you on that 
issue.
    Mr. DiVello. Good afternoon. It's a pleasure to appear 
before you today.
    My name is Bill DiVello. I'm the assistant inspector 
general for audits for the District of Columbia.
    No, we've never really done a cross-agency review. We've 
been looking at the agencies on an agency-by-agency basis. For 
example, in the area of special ed in 1999, we reported that 
there was problems with Medicaid documentation. Now, that 
causes a real problem, because the latest information I got--
we've received back in the area of special ed is that because 
of either poor documentation or a cost that was submitted to 
the Fed for reimbursement, the Fed took a look at it. Now the 
District has got to pay them back $17 million. So that's a 
problem that we've reported as far back as----
    Ms. Norton. Mr. DiVello, shouldn't there be a 
governmentwide approach to how to file for Medicaid funds? I 
mean, what is the point of going agency by agency if you find 
that you have a systemwide problem in the entire government?
    Mr. DiVello. Well, let me say this. I don't disagree with 
that. The more we can tackle different audits from a systemic 
approach, the more bang we get for our buck. I'm absolutely on 
board with you.
    I would tell you this, that we're trying to get some of the 
big-ticket item, and that's an approach we'll consider, but 
we're looking at the Department of Mental Health right now. So 
I would----
    Ms. Norton. Well, could I just ask Mr. Maddox, could I ask 
that you give priority--first of all, I think anybody that uses 
Medicaid money that has not been audited, you're right, you've 
got to do this first. You've got to do this first agency by 
agency, and then you've got to figure out or recommend 
something approaching a systemwide approach.
    And everybody is going his own way and nobody is collecting 
enough money.
    Could I ask that there be audits done of each and every 
agency that does--that files for Medicaid funding, so we can 
get a handle on this problem before it becomes a governmentwide 
disaster for us?
    Mr. Maddox. Yes, we will.
    Mr. DiVello. May I add that in our CAFRs we've also given 
some early warnings. If you look at our comprehensive annual 
financial report and you look at the accounts receivable, when 
KPMG or whatever auditor that we hire, they take a look at the 
receivables and they determine what's the collectibility; and 
those receivables are written down because our financial 
auditors that we hire have concern based on cost reports that 
we might not get back all this money from the Fed.
    So there has been indications. But I do understand your 
point.
    Ms. Norton. Well, I'm going to ask that the recommendation 
of the audits be hooked up with the CFOs so that we can fix the 
system system-wide and not continue to run these terrible 
deficits. What's the use of getting all this new money from the 
Federal Government if we are continuing to have to pay large 
amounts from the pockets of the taxpayers in the District.
    Would you please submit to us a plan for which agencies are 
going to be audited, that have not yet been audited on 
Medicaid? I recognize you can't proceed to fix it system-wide 
unless you know what's happening to all the agencies that in 
fact use Medicaid.
    Mr. Maddox, are you satisfied with what we heard from the 
last panel, that there was an MOU, an agreement, about these 
multiple audits? Are you satisfied that no audits that will 
interfere with the CAFR are being performed?
    Mr. Maddox. I can't sit before you right now and tell you I 
am 100 percent satisfied.
    Ms. Norton. You weren't at the table at that meeting, I 
take it?
    Mr. Maddox. Yes, I was. I was there when we all agreed, No. 
1, that the No. 1 priority was to make sure that the CAFR would 
proceed unimpeded and that it would be completed on time.
    Now what took place at that meeting also was what role the 
D.C. auditor and possibly the law firm of Hogan and Hartson 
would play with auditing requests from the president of the 
school board. What came out at the end of the meeting was that 
the parties involved were to sit down and map out a memorandum 
of understanding as to what process they would use, taking into 
consideration that whatever the process was, it would not 
interfere with the ongoingness of the audit.
    That is still going on. We still have not come to closure 
on that.
    Ms. Norton. When are you going to come to closure on that, 
Mr. Maddox? After all the CAFR is due out in February.
    Mr. Maddox. I think you can take some comfort in knowing 
that, so far, as we speak today, nothing has interfered with 
the CAFR. We are moving along on schedule. It is just a matter 
of keeping everybody true to their word, and I'm watching it 
very carefully.
    Ms. Norton. Mr. Maddox, there is, by statute, a D.C. 
auditor. And of course if the school system or any agency--you 
can understand the school system finding itself with a surprise 
deficit would want to find out what happened.
    Now the D.C. auditor is a statutory office of the District 
of Columbia. And we can understand why the council would want 
to have its own auditor. And you cite stuff here that I don't 
consider relevant at all. No appropriated funds would be used 
for purposes of auditing the city's financial statement. Well, 
it is neither the auditor of the council nor whoever it is that 
the school system is hiring that is interested in auditing the 
city's financial statements. And the Congress never meant to 
say that people who find themselves overspending should not try 
to find out what was wrong. Where they may have gone awry is in 
the controversy that developed between them and those charged 
officially, the CFO.
    Nobody is interested in anybody else's audits ultimately 
except the CFO and the CAFR. But I don't think we want to say 
to agencies, if you find that there is a problem in your agency 
that you did not know about and should have known about, that 
you shouldn't try to find out what the problem is. It could be 
a management audit. It could be some kind of substantive audit 
to find out what was wrong. But I don't see how it would 
necessarily interfere with what you're doing, since they're not 
auditing the city's books. They are trying to find out what 
happened in their own agency, which I think as auditor, or as 
IG, you should want them to try to do.
    Mr. Maddox. You are absolutely correct, Congresswoman 
Norton, that if that were the case--you are absolutely right. 
The problem is, we don't know what the scope--we asked that 
question time and time again, what is the scope of the probe. 
And what we're saying is, my interpretation of the law is that 
if another audit is asking the same questions, going over the 
same documents, financial statements and auditing the same work 
that is contracted to the independent auditor, then that 
shouldn't be.
    The problem we are concerned with is--if I could, the 
problem we are concerned with is that the number that the 
independent auditor comes up with is the number.
    I think the Mayor----
    Ms. Norton. And no matter what they do, that's the number. 
No matter what they do, there is an official audit and there 
is--Mr. Maddox, I don't want to belabor this. All I want to do 
is to say that for years when a government that--when mistakes 
like this were made, say, OK, let's go on to the next joke. And 
to the extent that somebody wants to find out what happened, it 
seems to me we ought to encourage this.
    I hope they are not spending money to find out. I hope that 
they are not interfering with the CAFR. And I think it is 
outrageous for them to get involved in arguments with the CFO 
or with the official auditor. If they want to do an internal 
audit that does not interfere or put people to multiple layers 
of work, then it seems to me that we ought to find a way to do 
that. I certainly don't think we ought to repeat your work, but 
I suppose I have been so used to the opposite that I don't want 
to discourage people moving forward.
    I do want to ask you a question about this rising special 
education deficit. OK, it is $60 million now. Before it was 
$98.2. And it is going to rise to $108 million next year. And 
so far as I can tell, the school system still doesn't accept 
that number; although it has to, because it doesn't have any 
special education money to make up for it, so that's the 
number.
    So I don't think--that kind of foolishness isn't even worth 
spending time on. You can have those kinds of discussions in 
your own kind of internal meetings. But to have those come out 
and be a whole big number is kind of silly and makes people 
look silly.
    But what bothers me is that if the number keeps going up, 
how can you assure this committee that the deficit is under 
control, Mr. Gandhi? Is it under control? I think you testified 
that by 2002, that will be the end of it? It wouldn't go up 
anymore?
    Mr. Gandhi. If the school board is effective enough to take 
those actions that they have promised--after all, they promised 
that they would cut $40 million, and those measures have to be 
implemented soon enough--effectively and efficiently, then you 
do realize that savings. That's one.
    Two, on special education, we expect improvement to show 
sooner and faster, so we can contain that spending, and we can 
contain that overspending. But again, in many ways, this is a 
moving target. If you do not do what you promise, then it is 
going to go on. For example, in other parts of the city they 
say we are going to RIF people. But the date by which you RIF, 
if you do not RIF by that day, or do not reduce your payroll by 
that day and extend into the next quarter, there is more money 
to be spent and it takes longer to get to the people. So the 
issue that this number is dependent upon, and contingent upon, 
is a series of actions that had been promised.
    We are currently evaluating the school's promise to pay 
back as much as $40 million, and we hope that those are the 
right measures in terms of the numbers. And again, we are not 
telling them what to cut. It is their decision.
    Ms. Norton. Well, you will know whether they're the right 
numbers because you're the CFO and you've got your own guy 
there to find out.
    Mr. Gandhi. Right. But again, these measures have been 
doubled basically by the school system itself and because of 
the breakdown of the communication that had existed there.
    But as Ms. Cafritz pointed out, I met with them last week 
several times; and we are working together at all levels with 
the schools to come up with these gap-closing plans. We're 
going to work on the 2003 budget. And we have extended all the 
available resources of the chief financial officer both at the 
schools level and the city level to meet these challenges.
    My overall assessment is that if this works out--and I 
think the city has committed to provide 60 percent, or $60 
million roughly, toward the solution; and the schools some $40 
million--I think we should be able to manage this.
    Ms. Norton. I am going to ask this one last question before 
closing off this round.
    We have a school deficit--unexpected, very large. We have 
the September 11th revenue shortfalls, and we have a tax cut 
still to be implemented. Do you think this city can correct 
this deficit, live with the September 11th revenue shortfalls 
and implement the tax cut that is supposed to go forward this 
year?
    Mr. Gandhi. In the Tax Parity Act, the overall impact is 
about $325 million annually when finally phased in.
    Ms. Norton. How much annually?
    Mr. Gandhi. $325 million.
    Ms. Norton. That is a school deficit right there. Go ahead.
    Mr. Gandhi. The next installment is $60 million.
    Now, at each year, there is a threshold. The threshold says 
that if in its winter forecast, the CBO--Congressional Budget 
Office, were to come out with a prediction of a 1.7 growth in 
the real GDP, then that trigger is alerted, the threshold is 
met, and the next installment of the Tax Parity Act, which is 
$60 million, is postponed.
    Now, what I have seen in the blue chip forecast, which has 
come out the last 2 weeks, is an expectation that the trigger 
will be met, the threshold will be met. Unless the CBO comes up 
with a higher forecast, you will have to postpone the next 
installment of Tax Parity, meaning you would have about $60 
million available in the 2003 budget to manage it.
    For the fiscal year 2002 budget, I don't see that as a 
remedy. However, given that we have $120 million of budget 
reserves and have already have accumulated $100 million of cash 
reserves as I speak here today, and given that the council and 
the Mayor met just last Friday on how this can be met, we 
should be able to manage ourselves.
    A lot depends upon the loss of revenue. If the economy were 
to stabilize or perform as well as it has in the last 2 weeks, 
then our losses may not be $100 million; it may be less than 
that. We will have much better estimate by early January as to 
how we are doing. On February 1st, we will also provide you an 
official forecast for the revenues for fiscal year 2002 and 
going forward.
    But we are not waiting, as I said. I am working very 
closely with the Mayor and the council. I have shown them where 
the pressures are and I have also shown them where the 
resources are. The Mayor's office has already told me to 
prepare a package to forward to the council. So the city is 
busy working, meeting these pressures. And I am quite 
confident, quite confident, that the city will not accumulate 
deficits in fiscal year 2002 citywide.
    Ms. Norton. Thank you.
    Mrs. Morella.
    Mrs. Morella. We hope your projections are correct in terms 
of being able to resolve it. And that's why we gave you some 
independent authority, at least till July, and we hope before 
that time to have our legislation enacted to make it permanent.
    Mr. Gandhi. Madam Chair, I appreciate your leadership and 
Ms. Norton's leadership on the Morella-Norton bill. I think 
that really has given a great deal of assurance to the 
financial markets, where they're really worried about the 
status of the chief financial officer.
    Mrs. Morella. Also going back over your testimony, Mr. 
Maddox, I noticed, since we talked a lot also during this 
hearing about charter schools, you indicated that you do not 
have the authority to conduct performance audits or inspections 
over the charter schools? Am I understanding that statement?
    Mr. Maddox. That's correct.
    Ms. Norton. Would the gentlelady yield? I have some 
background on that, because the idea is entirely correct.
    There was a provision put in our charter school law, the 
Federal charter school law, that assumed there would be 
something called a ``consensus commission,'' which never in 
fact occurred.
    I wasn't for that in the first place; I was for putting 
everybody under the same auditor. And what I will do--and I 
will ask the Chair to cosponsor with me--I would put it in a 
bill to simply to take that out. It is obsolete. It never 
occurred, and you should have been able by now to do an audit 
of the charter schools.
    Sometimes you bring to me things that I think maybe the 
city government should do. This is something that had not been 
brought to my attention, or we would have had this out already.
    So I'm very pleased to do this. Please bring things like 
this to my attention.
    Mrs. Morella. We don't need to pass legislation.
    Ms. Norton. I think we just to need to erase it.
    Mrs. Morella. I am glad you pointed that out in your 
testimony. It just seemed like a glaring difficulty.
    And I would be happy to be involved with that legislation.
    I guess I want to ask you, Mr. Maddox, when you perform 
these audits and you point out, as you have, to us, you know, 
there are weaknesses with the internal controls, insufficient 
policies, failure to comply with existing policies, inaccurate 
data bases of special ed students, problems with 
transportation, tuition payments, not looking at the standards 
of the schools where these students are going, do you just 
ignore it?
    And I don't know if Mr. DiVello also wants to add to that.
    But what's happening? Why has it stopped? You conduct the 
investigation. You give your report, and I suppose they look at 
it. And then do they just put it aside? Do they get back to 
you?
    Mr. Maddox. I don't think that we're being outright blown 
off so to speak. What we do as far as our process, once we make 
recommendations to agencies--not so much D.C. public schools, 
but in all agencies--we give them a certain amount of time to 
comply with the recommendations or to give us reasons why that 
recommendation is inadequate and another solution is more 
appropriate.
    Then we do what we call a ``followup audit,'' and we look 
at those specific recommendations to see if there's compliance. 
In some areas with respect to the D.C. public schools, we are 
going to do a reaudit, which means it's a little better than a 
followup audit because not only do we look at those 
recommendations that everyone agreed to that they would change, 
but we do the entire thing all over again.
    But to answer your question directly, I would say, on 
balance, we do get cooperation from the agencies to make those 
corrections.
    Mrs. Morella. It just seems that so many of the statements 
that have been made should certainly be part of an overall 
policy trying to address the concern and the challenge of the 
special education--special education and the funding of special 
education and giving the very best to our young people.
    I did notice you said you were going to have a District-
wide audit in January, ongoing District-wide audit in January 
2002, right?
    Mr. DiVello. What that is is what Mr. Maddox was referring 
to.
    I would tell you this, and I feel I need to say it: The 
cooperation from the school, at least new people that have been 
in special education, they readily accepted our 
recommendations, and I think they are working hard toward them. 
The disappointing thing sometimes is, when we point to a 
condition in 1999 and we see the same condition in 2000. But I 
don't think there's any malintent there. That's how I feel. 
That's just a personal thing.
    I would tell you what we're doing as a check and balance, 
and the city, including the deputy mayor's office has adopted 
this readily, we're taking a look at all our audit reports 
dating back to 1998 through 2000, the 3-year period we're 
looking at; and we are selecting audits across the District to 
see if the agencies are implementing the recommendations that 
they agreed to. We're using that as a performance measure for 
us.
    In addition, the--and I am giving you the indicators before 
the final is out, but I think this is OK.
    So what I want to say, like, for example, we noted that the 
District didn't have a tracking system itself for making sure 
at the top management levels that recommendations were 
implemented similar to the Federal model and OMB circular 850. 
Well, John Koskinen has adopted that, and they're implementing 
such a system. So that will make sure that the deficiencies 
that are pointed out, they are tracked and they're acted upon.
    So I feel really encouraged by that. And our final report 
will be out the end of January on that.
    Mrs. Morella. I note that you will share it with us. And I 
know there is no malintent; everybody wants it to work. It's 
just sometimes things are dismissed because there is just too 
much of a problem at that moment, and they say, we'll do it 
later on.
    I wanted to give you each an opportunity for any final 
comment you want to make before we adjourn.
    Mr. Gandhi. You know, what I have found in Superintendent 
Vance and his top team there is an absolutely first-rate group 
of people, struggling with some of the most difficult problems 
of an urban school district. I cannot imagine you will find a 
better team or group of people. So the District is very lucky 
to have that group of people there. And this is as good a board 
as you can find. Working with them, I am quite confident that 
the city will be able to resolve many of the problems that we 
discussed here.
    Mrs. Morella. Mr. Maddox, any final comments?
    Mr. Maddox. I would like to go back to one of the points 
that Congresswoman Norton had asked me about with regard to the 
situation with the CAFR.
    I think you need to understand what was going on in our 
minds at the beginning when the question of the numbers came 
up. We were concerned because we did know what areas the other 
auditors wanted to look at--that we thought at least the CFO--
and I thought that if his auditors were tied up serving two 
masters, meaning to answer questions, provide documents, that 
would have a direct adverse effect on the timing of the CAFR. 
That was the one issue.
    And the second issue that really caused me to lay out for 
the record all of the rules and regulations with regard to this 
process was that the auditor advised me in writing, per their 
counsel, that if any auditing was going on covering the same 
areas prior to February 1, that they would refuse to give an 
opinion. It would be an unqualified opinion.
    That raised a lot of concern with me. That's why I thought 
it was important to alert everybody what the rules were and 
what the adverse effect would be.
    Mrs. Morella. Mr. DiVello.
    Mr. DiVello. No, thank you.
    Mrs. Morella. I want to thank you for your excellent 
testimony and especially for the work that you're doing; and I 
hope that you know that we are open to any suggestions you may 
have on our role in the Federal Government, because we all have 
a stake in the educational system of the District of Columbia. 
We will comment on some items to be part of the record.
    I do want to indicate our thanks to our staff on the 
minority side, Jean Gosa and Jon Bouker. On the majority side, 
Shalley Kim, Matthew Batt, Robert White, Heea Vazirani, Howie 
Denis and Russell Smith. Thank you all for being here.
    Thank you. The subcommittee is now adjourned.
    And I'm going to ask that--without objection, I want to add 
into the record a GAO report, number GAO 01963, and the record 
of the public hearing held at the Department of Education dated 
Tuesday, November 13, 2001. The hearing was convened to gather 
information to be used to determine whether a compliance 
agreement with the District of Columbia public schools is 
appropriate to allow DCPS additional time to develop an 
assessment system that meets the requirements of title I of the 
Elementary and Secondary Education Act, the largest Federal 
educational program, providing financial assistance to school 
districts.
    DCPS received $26.2 million in title I funds for the 2001-
2002 school year.
    The meeting is now adjourned.
    [Whereupon, at 1:30 p.m., the subcommittee was adjourned.]
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