[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]




 BUDGET AUTONOMY FOR THE DISTRICT OF COLUMBIA: RESTORING TRUST IN OUR 
                            NATION'S CAPITAL

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

                                HEARING

                               before the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 13, 2003

                               __________

                           Serial No. 108-36

                               __________

       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


                                 ______

88-505              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana                  HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California                 DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky                  DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia               JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia          CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee       LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma              C.A. ``DUTCH'' RUPPERSBERGER, 
NATHAN DEAL, Georgia                     Maryland
CANDICE S. MILLER, Michigan          ELEANOR HOLMES NORTON, District of 
TIM MURPHY, Pennsylvania                 Columbia
MICHAEL R. TURNER, Ohio              JIM COOPER, Tennessee
JOHN R. CARTER, Texas                CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota                 ------
MARSHA BLACKBURN, Tennessee          BERNARD SANDERS, Vermont 
                                         (Independent)

                       Peter Sirh, Staff Director
                 Melissa Wojciak, Deputy Staff Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
              Philip M. Schiliro, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 13, 2003....................................     1
Statement of:
    Cropp, Linda, chairman, District of Columbia Council.........    16
    Gandhi, Natwar, chief financial officer, District of Columbia 
      Government.................................................    32
    Williams, Anthony, Mayor, District of Columbia Government....     9
Letters, statements, etc., submitted for the record by:
    Cropp, Linda, chairman, District of Columbia Council, 
      prepared statement of......................................    19
    Davis, Chairman Tom, a Representative in Congress from the 
      State of Virginia, prepared statement of...................     3
    Gandhi, Natwar, chief financial officer, District of Columbia 
      Government, prepared statement of..........................    34
    Norton, Hon. Eleanor Holmes, a Delegate in Congress from the 
      District of Columbia, prepared statement of................     7
    Williams, Anthony, Mayor, District of Columbia Government, 
      prepared statement of......................................    11

 
 BUDGET AUTONOMY FOR THE DISTRICT OF COLUMBIA: RESTORING TRUST IN OUR 
                            NATION'S CAPITAL

                              ----------                              


                         FRIDAY, JUNE 13, 2003

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:04 a.m., in 
room 2154, Rayburn House Office Building, Hon. Tom Davis 
(chairman of the committee) presiding.
    Present: Representatives Tom Davis of Virginia, Carter, Van 
Hollen and Norton.
    Staff present: Peter Sirh, staff director; Melissa Wojciak, 
deputy staff director; Keith Ausbrook, chief counsel; David 
Marin, director of communications; Scott Kopple, deputy 
director of communications; Mason Alinger, professional staff 
member; Teresa Austin, chief clerk; Joshua E. Gillespie, deputy 
clerk; Shalley Kim, legislative assistant; Leneal Scott, 
computer systems manager; Rosalind Parker, minority counsel; 
Earley Green, minority chief clerk; Jean Gosa, minority 
assistant clerk; and Cecelia Morton, minority office manager.
    Chairman Tom Davis. Good morning. The committee will come 
to order.
    I want to welcome everyone to today's hearing to discuss 
options for expediting congressional consideration of the 
District of Columbia's local budget. After issuing six 
consecutive balanced budgets, receiving clean, unqualified 
financial audits and building up a general surplus and cash 
reserves of over $1 billion, I believe the time has come for 
Congress to consider relaxing some of its oversight controls 
over the Nation's Capital, having been instrumental in setting 
up those controls originally.
    The District's government has come a long way since March 
1995 when this committee issued a report declaring that the 
District of Columbia is insolvent, the city does not have 
enough cash to pay its bills. It's spending at a rate in fiscal 
year 1995 that would exceed its mandated expenditure limits by 
more than $600 million, nearly 20 percent above its 
congressional appropriation.
    Through legislation written in 1995 by me, along with 
Representative Eleanor Holmes Norton, called the District of 
Columbia Financial Responsibility and Management Assistance 
Act, Congress established a financial control board and a Chief 
Financial Officer essentially to take over city operations 
until the District could stand on its own. I am pleased to say 
that, at a time when most municipalities throughout the country 
are resorting to massive budget cuts in order to balance their 
budgets, the District has managed to stay its course of 
relative financial stability.
    Now, after 6 years of governance under the financial 
control board and 2 years in a fairly stable post-control board 
environment, it is time for Congress to reconsider its 
oversight of the District. Every year the District submits its 
roughly $5.8 billion budget of locally raised funds to be 
approved by the U.S. Congress in conjunction with approximately 
$500 million in Federal contributions that Congress 
appropriates to the District annually. While Congress's 
involvement in the District's budget matters is the result of 
Congress's responsibility to ensure the financial well-being of 
our Nation's Capital, the unfortunate reality is that the 
city's local budget can get tied up in political stalemates 
over congressional appropriations that rarely have anything to 
do with the District's budget. In essence, we become part of 
the problem sometimes, and that is what we are trying to remedy 
today.
    Now, we have worked with the Senate side, we have worked 
with some of our appropriation colleagues who have some 
concerns about this legislation as we move forward, but I think 
we are going to be able to bail out of here that will give you 
autonomy--if Congress doesn't act, will give you the 
protections that you need as a city that every other city in 
the United States has. You have gone through some tough times. 
We know the budget is still a little bit out of whack, as they 
say; there are structural issues. I might add that there are 
cities--our Commonwealth of Virginia has a structural issue as 
well that forces us to look at new strategies, and we will be 
working alongside with you on that.
    So, we are pleased to have you here today. I think you have 
earned, the city has certainly earned, the right that other 
cities have to budget autonomy particularly over its own 
budget, and Ms. Norton and I are determined to move forward in 
a most expeditious manner.
    [The prepared statement of Chairman Tom Davis follows:]

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    Chairman Tom Davis. And I yield to my colleague from the 
District, Eleanor Holmes Norton.
    Ms. Norton. Thank you very much, Mr. Chairman. I am pleased 
to welcome today's witnesses, congratulate them on the budget 
they have just finished sending to the Congress. And I thank 
you, Mr. Chairman, for convening this hearing on budget 
autonomy for the District of Columbia, a measure of great 
importance for the city.
    In 30 years of home rule, the city has made many changes 
and reforms on its own and many others required by the 
Congress. However, the Congress continues to use essentially 
the same oversight processes it has used since the District was 
created as a functioning city more than 200 years ago. I cannot 
think of a single significant change Congress has made in its 
own processes, not even changes that would help the District 
improve its own management in all that time.
    The approach to budget autonomy we have outlined would be 
an important first step for the Congress and for the District. 
The approach you and I first announced in February, Mr. 
Chairman, would still not resemble the self-contained and more 
efficient procedures used by every State and locality in our 
country; however, this step would take the city a great 
distance toward functional budget autonomy and away from a 
congressional process that adds large dollar costs and 
incalculable waste and inefficiency directly traceable to the 
congressional appropriations process.
    I have called this step toward fuller budget autonomy 
functional budget autonomy not only because it would 
significantly streamline and untangle the process, it also 
would eliminate the most inefficient and demeaning impediment 
to the local control every other jurisdiction enjoys; namely, 
that the budget of a local jurisdiction, the District of 
Columbia, is enacted by the Congress of the United States just 
as Congress enacts the budgets of Federal agencies such as the 
Interior Department and the Labor Department.
    For most of my service in Congress, the enactment 
requirement has usually kept the District from having a local 
annual budget with which to operate and manage the city for 
months at a time. The requirement of our bill that the D.C. 
budget always become operative at the start of the fiscal year 
in October would have large effects on everything from the 
District's bond rating to its ability to more efficiently 
manage every function of the D.C. government.
    The irony is that Congress almost never changes the 
District's locally raised core budget. Even at its most 
intrusive, Congress has realized that when it comes to the 
complexities of budget decisions for city agencies, Congress is 
in foreign territory. This is only one of the reasons I think 
some Members of the House and Senate have been open to the 
changes we propose. I appreciate the support this approach is 
already receiving in the Senate.
    For years, Congress has seen the D.C. budget wreck the 
larger appropriation process for the country. Too often the 
District appropriation, the smallest of the 13, has been, at 
worst, the largest impediment to the entire appropriation 
process and, at best, a major cause of delay.
    I am especially grateful for the way Chairman Bill Young 
has worked with me to remove obstacles and often to rescue the 
D.C. budget altogether. And Speaker Dennis Hastert and former 
Speaker Newt Gingrich have become involved as a last resort 
when only they could make the decision. I very much appreciate 
that they have always responded when I have asked for their 
help. However, the local balanced budget of a great city should 
not need extraordinary action by House Speakers or full 
appropriation Chairs.
    Despite a national economy that has left States and local 
jurisdictions on their knees, the District has balanced its 
budget without raising taxes and without using its cash reserve 
funds. Because the Mayor and the city council have been 
cautious and conservative in their management of city finances 
and operations, the District has avoided the budget chaos that 
plagues many jurisdictions today. Most analysts agree that the 
District has managed its budget shortfall better than most 
jurisdictions, including those of our neighbors.
    After 200 years of unchanged procedures here in the 
Congress, the city's record and the bill we are considering 
today should be the beginning of scrutiny and improvement of 
congressional processes in aid of greater efficiency for the 
D.C. government. Even full city autonomy over its local budget 
would not deprive the Congress of the right to make changes by 
legislation. If the District's local budget did not come to 
Congress at all this very day, congressional control would 
still resemble today's processes because the Revitalization Act 
requires the Federal Government to fund courts and prisons. 
Congressional control enactment of home rule after a century of 
struggle was a major breakthrough. However, Congress has made 
no major step toward self-government since 1973. Surely the 
place to begin is with the city's budget process, the most 
critical feature for financial and operational efficiency.
    Today must mark a long-awaited step toward equal 
citizenship and equal treatment by the Congress. At the very 
least, the District is owed a congressional response in kind to 
the very substantial improvements the city has made in its 
financial and operations for 6 years. The way to begin is by 
matching the District's greater efficiency in managing its own 
finances and operations with the same in our own processes. The 
way to begin is with budget autonomy.
    Thank you very much, Mr. Chairman.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Hon. Eleanor Holmes Norton 
follows:]

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    Chairman Tom Davis. If there are no other statements, we 
will give Members 5 legislative days to submit opening 
statements for the record.
    We now move to our distinguished witnesses. We have the 
Honorable Anthony Williams, the Mayor of the District of 
Columbia. Tony, it is great to have you back here again. 
Honorable Linda Cropp, chairman of the District of Columbia 
City Council. Good to have you back again as well. And Dr. 
Natwar Gandhi, the chief financial officer of the District of 
Columbia.
    It is the policy of the committee that we swear all 
witnesses before they testify. Would you rise with me and raise 
your right hands.
    [Witnesses sworn.]
    Chairman Tom Davis. Thank you very much.
    In order to allow time for more questions, if you'd try to 
limit your testimony to 5 minutes, we do have one panel today, 
we will be flexible on that to make sure you get your points 
across. But we have read the submitted testimony, that is all 
part of the record, and we want to get right into questions.
    We will start with you, Mayor Williams, and move right 
down. And, again, good to have you back.

  STATEMENT OF ANTHONY WILLIAMS, MAYOR, DISTRICT OF COLUMBIA 
                           GOVERNMENT

    Mayor Williams. Thank you, Mr. Chairman, Congresswoman 
Norton, Congressman Carter. Thank you all so much. I will 
abbreviate my remarks, recognizing they have been submitted for 
the record, so we can have time for questions and answers.
    I just leave you with the thought that, historically the 
District has had the dual identity of being a local government 
and a Federal agency. And in our Federal system of government, 
this one-of-a-kind structure has created one-of-a-kind 
challenges. And at the root of all these problems is the need 
identified by you, Mr. Chairman, and certainly by Congresswoman 
Norton for the appropriate level of managerial discretion and 
flexibility for a government like the District.
    We are at the front line of service delivery like local 
governments are across the country, and we need the ability to 
respond quickly to locally changing needs, to locally changing 
economic circumstances.
    I, along with Congresswoman Norton, certainly want to 
salute Speaker Hastert, former Speaker Gingrich, full committee 
Chairman Young for their working with us to get their budgets 
through. But she is right, it shouldn't take extraordinary 
action for regular government practice to move forward.
    How does this requirement affect us? It affects us in a 
number of ways. First of all, the requirement now for this 
extensive review lengthens the time between the period of 
identifying a service need and implementing a solution. In 
fiscal year 2001, for example, we began cracking down on owners 
of slum properties to improve living conditions there. As we 
did so, however, we noted that residents of these properties 
needed to be relocated during the renovation process. Because 
of our lack of autonomy, however, we had to wait for over a 
year for the Federal Government to approve this budgetary 
change in the local budget.
    Service improvements are delayed by the continuing 
resolutions. In recent history the average congressional delay 
has been almost 3 months, which is almost a full quarter of the 
fiscal year. During these delays, critical new investments 
can't be funded. In fiscal year 2002, for example, these 
delayed investments included new school nurses, prescription 
drug benefits, police equipment and staffing. In fiscal year 
2003, the delay--the congressional delay is planned through--
lasted through February, was almost half a year. And 
ironically, as Chairman Cropp, has noted, the delay in this 
last fiscal year actually prevented us from operating at a 
lower level than the continuing resolution called for, which is 
quite ironic and paradoxical, given the demand that we be 
fiscally responsible with our funds.
    Midyear budget reallocations require an act of Congress and 
disrupt service delivery. You, Mr. Chairman, and certainly 
Congresswoman Norton have spoken often about that. I am sure 
that CFO Gandhi will talk about the effect this has on the 
marketability of district bonds. They are looking for 
flexibility and the ability to move quickly in this certain--
and the current restrictions certainly hamper that.
    Finally, the lack of budget autonomy also has a paradoxical 
impact on us in that, perversely, program managers must use or 
lose funding at the end of the fiscal year. Congressional 
approval for spending expires at the end of the year, which 
punishes program managers who save funds by allowing those 
funds to carry forward. You know, the old traditional 
conventional use it or lose it is a rule, and that is certainly 
not good government.
    Mr. Chairman, you mentioned the fiscal crisis at the 
District base. One of the things I'm proudest of, if you look 
at our city, Cleveland, Philadelphia, New York, and other 
cities, I think when you look back 50 years from now, you will 
see a city that has rebounded; it is in the front rank of 
American cities. And I think people will look back and they'll 
say, you know, one thing about the District during that time is 
they managed to get out of that fiscal crisis, certainly with 
the tremendous help of the 1997 act, but they did it without 
ever resorting to borrowing, to finance, their deficit. They 
basically paid that deficit down the old-fashioned hard way. 
And I think that is to our credit. I think, more than anything 
else, I think that demonstrates our ability to be prudent, to 
be responsible, and, as you have said, to earn budget autonomy. 
Thank you.
    Chairman Tom Davis. Thank you very much, Mr. Mayor.
    [The prepared statement of Mayor Williams follows:]

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    Chairman Tom Davis. Chairman Cropp.

   STATEMENT OF LINDA CROPP, CHAIRMAN, DISTRICT OF COLUMBIA 
                            COUNCIL

    Ms. Cropp. Thank you very much, Mr. Chairman. And to 
Congresswoman Norton and Congressman Carter, let me say good 
morning to all of you, and thank you very much, Mr. Chairman, 
for holding this public hearing and for cointroducing with 
Congresswoman Norton the legislation under consideration here 
today to provide greater autonomy to the locally elected Mayor 
and council over the locally funded portion of the District of 
Columbia budget. We also very much appreciate the support of 
the President for this proposal and your efforts to make it 
happen.
    I am just thrilled that we are here talking about this 
particular piece of legislation. If enacted, it would be the 
first real advancement of home rule in the District of Columbia 
since congressional enactment of the limited home rule 30 years 
ago. And, let me add, it is about time.
    Submitted with my testimony is a proposed resolution signed 
by all 13 members of the council in support of budget autonomy 
for the District, which I will not read, but ask that it be 
included as part of the record.
    Chairman Tom Davis. Without objection, it will be.
    Ms. Cropp. As you've requested in your letter of invitation 
to this hearing, let me provide you with a few examples of the 
fiscal discipline exercised by locally elected officials since 
the Financial Authority became dormant and the mechanisms and 
safeguards in place to prevent the District from lapsing into a 
fiscal crisis.
    This past February we received the annual CAFR, which 
certified that the District's fiscal year 2002 budget that 
ended on September 30 was our sixth consecutive balanced 
budget. Of course, it was the fourth consecutive surplus 2 
years ago that caused the dormancy of the Financial Authority. 
Nonetheless the District is struggling to maintain the current 
fiscal year 2003 budget and keep it in balance primarily 
because of two factors beyond our control: One, the continuing 
revenue loss, particularly income, but also sales tax losses, 
due to the national downturn of the economy, and also due to a 
continuing aftermath of September 11, the anthrax, sniper, and 
terrorist alert; second, the continuing structural inequities 
in the District's financial relationship with the Federal 
Government, which has been verified recently in the report 
released by the U.S. General Accounting office, and which still 
exists despite the budgetary benefits provided to the District 
under your leadership, Mr. Chairman, due to the passage of the 
1997 Revitalization Act.
    In the face of these challenges, however, we have been able 
to work together in closing a $323 million budget gap that 
occurred within a short period after we had passed our budget 
last year, and then we did it in record time in the 3-week 
period. Then on April 1, 6 months into the fiscal year, once 
again the council took emergency action after the Mayor's 
recommendation to close a $134 million hole in this year's 
budget. Of course, our counterparts in Virginia, Maryland, and 
across the Nation face the same and similar challenges, 
although we think in the District that we have acted more 
quickly, effectively, and responsibility to balance our budget 
without gimmicks or one-time savings in a very quick way.
    Almost two-thirds of the District's initial revenue 
shortfall, or about $195 million, this year was closed through 
spending reductions, and the remainder was closed through 
revenue increases, but no increase in income, general sales, or 
occupied property taxes. We looked in areas where we had not 
made increases in a long time. The most recent budget pressures 
and revenue shortfalls this year required further programmatic 
reductions, a hiring freeze, suspension of pay steps, and other 
measures; but we took whatever measures were necessary to make 
sure that we stayed in place.
    The council will continue to squarely face the challenge of 
fiscal discipline and strict oversight of financial management 
while continuing to fulfill our commitment to targeting 
expenditures and investments on critical priorities. In the 
fiscal year 2004 budget that we just forwarded to Congress, my 
colleagues and I, along with the Mayor, worked extremely hard 
to avoid any tax increases. We scrubbed the budget to identify 
surgical reductions in the growth of spending and in the growth 
of consulting contracts to a level closer to 4 percent of our 
budget.
    For fiscal year 2005, we've mandated that there is limited 
growth within the local funds expenditures not to expend more 
than 3.5 over the budget. So we are very careful to make sure 
that we do not spend money more than what our revenues will 
bring in.
    We have been vigilant in our oversight responsibilities, 
holding more oversight hearings than ever before in an effort 
to keep all of us accountable and living within our means while 
delivering the services that are budgeted to deliver to our 
residents, our visitors, and our businesses. The Chief 
Financial Officer has instituted an early warning system that 
notifies the council and the Mayor of budget pressures, whether 
on spending or on the revenue side of the ledger, and enough 
time to consider and take the necessary actions on various 
identified options to address these pressures before it is too 
late, and this has been going on constantly.
    Another mechanism utilized by the District has been the 
pay-go funding, which allows appropriated dollars to be spent 
only after certain performance or other measurements are 
realized and certified. We have also worked with the Mayor and 
the CFO to craft local legislation to assure the continued 
independence of the Office of the Chief Financial Officer 
within the home rule context, which requires amendments to the 
Home Rule Act, and we hope that you will consider this.
    Congressionally imposed reserve requirements, both budgeted 
and cash reserves, have also served to cushion the impact of 
budget shortfalls or to meet unanticipated needs in the 
District. Nonetheless, we think that the positive aspect of 
these reserves can be realized with somewhat more flexibility 
in how these reserves are set up and operated, and hopefully we 
can look at that in the future.
    Perhaps the best evidence of the fiscal discipline that has 
been continually exercised by District officials for several 
years is that we have finally been recognized and rewarded on 
Wall Street. And, as you know, the District's bond rating was 
recently upgraded from stable to positive, and there is 
expectation for further upgrading. This achievement, which will 
result in significant savings in our borrowing costs, has 
occurred at a time when other jurisdictions throughout this 
country, their bond rating has been downgraded. Our bond rating 
upgrades are occurring due to the hard work and positive image 
of the District that has been fostered by local officials 
working in partnership with our congressional counterparts and 
business community.
    Mr. Chairman, although I think the District of Columbia has 
clearly demonstrated that we have earned the right to local 
budget autonomy, let me say, and I hope you would agree, that 
the fundamental right of self-determination in a representative 
democracy should not have to be earned by good behavior, 
however. Indeed, to be governed by the consent of the governed 
is the founding principle of the United States of America, and 
it is what this country preaches around the world as a basic 
human right that is worth fighting wars about. In fact, 
increased autonomy for locally elected officials, budget 
autonomy, as well as legislative autonomy, which we also hope 
you will consider, will necessarily increase accountability of 
the locally elected officials for their actions. Autonomy and 
accountability are what our form of Constitutional government 
is supposed to be all about.
    Having the District's local funds of $3.8 billion in 
locally raised revenues be subject to the Federal 
appropriations process, where we do not have a vote, and the 
process of the Senate, where we do not have an elected voice, 
highlights undemocratic, separate, and unequal treatment of the 
District by the Federal Government. No other local or State 
jurisdiction in the United States is burdened by having the 
expenditure of its locally or State-raised revenue subject to 
congressional review of approval. But even if local or State 
government budgets are subject to congressional approval, at 
least the citizens would have voting representation in the body 
controlling their own pursestrings.
    The current budget process is not only undemocratic, which 
should be enough reason by itself to enact budget autonomy 
legislation, the existing process is also a bad way to run 
government, as the Mayor has stated.
    I am going to put most of it into the record for the rest 
of my testimony so that we can have time for questions and 
answers. But I would say in summary, because the congressional 
review and approval of the District's locals funds budget and 
local legislation is undemocratic, unnecessary, and runs 
counter to the principles of good government, I urge this 
committee and Congress to take expeditious action to provide 
both budgetary and legislative autonomy to the Mayor and 
council of the District of Columbia.
    We really do appreciate this hearing and your leadership in 
this regard. We thank you again for holding this hearing today 
and for the opportunity to testify in favor of greater self-
determination for the citizens of the District of Columbia. 
Thank you.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Ms. Cropp follows:]

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    Chairman Tom Davis. Dr. Gandhi.

 STATEMENT OF NATWAR GANDHI, CHIEF FINANCIAL OFFICER, DISTRICT 
                     OF COLUMBIA GOVERNMENT

    Mr. Gandhi. Thank you, sir. Good morning, Mr. Chairman, Ms. 
Norton, Mr. Carter. I will be very brief in my oral comments. I 
request that my written testimony be entered into the record.
    Chairman Tom Davis. Without objection.
    Mr. Gandhi. At the outset, let me say as both a citizen of 
the District and its senior financial manager, I wholeheartedly 
endorse expanding the District's authority to manage its own 
financial affairs.
    Currently, as you pointed out, Mr. Chairman, Congress 
authorizes all District of Columbia spending through the 
Federal appropriation process, irrespective of the source of 
revenue underwriting such spending.
    In the District in fiscal year 2003, the budget was roughly 
$5.5 billion, of which 3.8, or 68 percent, was comprised of 
revenues raised through local taxes, fees, fines, and user 
charges. Of the remaining $1.76 billion in Federal funds, about 
$1.7 billion was comprised of Federal transfer payments and 
grants. Only $47 million was uniquely and especially 
appropriated from Federal revenues for programs and projects 
peculiar to the District of Columbia.
    Were the Congress to modify the current law, a range of 
possibilities remains to exercise oversight over the District's 
budget and operations. These might include periodic audits, 
after-the-fact review of the District's locally enacted budget, 
or review of the District's locally enacted budget by the 
appropriate oversight group in the Congress. Also, the Federal 
funds directly appropriated to the District would remain within 
the Federal appropriation process.
    There are several benefits of the autonomy to the District, 
and I will mention just a few. First, faster enactment of 
budgets. Because the District currently receives all its 
authority to spend funds through the Federal appropriations 
process, the District cannot enact its locally approved budget 
until Congress passes and the President signs its 
appropriations bill. This situation guarantees a 5-month lag 
between local approval and Federal enactment. In practice, 
Federal appropriation bills are often delayed beyond this 
period.
    There are adverse consequences for the District since it is 
tied to the Federal appropriation cycle. Bond rating agencies 
take the uncertainties of the Federal process into account in 
assessing the District's finances, and discount to a degree 
whatever ratings the District might otherwise receive. In the 
case of new or expanded programs approved and financed locally, 
no implementing action can be taken until the Federal 
appropriation bill is enacted. This delays program initiation 
and guarantees programs will not be executed as planned. Also, 
the more elapsed of time between the formulation of a budget 
and its execution, the more likely the operating assumptions 
underlying that budget will not hold true.
    Second, the Federal appropriations cycle runs on an 
October/September fiscal year, a fiscal year cycle unsuited to 
local government. Were the District to have autonomy to 
appropriate its own funds like other local jurisdictions, my 
recommendation to the Mayor and the council would be to revise 
the fiscal year to a July/June cycle. This would have two 
immediate advantages. First, it would conform the fiscal year 
to the school year, greatly enhancing the ability of the D.C. 
public schools and the University of the District of Columbia 
to manage their funds effectively. Second, it would more 
closely conform the District's fiscal year to its revenue 
cycle. The annual income tax payments are due in April, and the 
first semi annual real property tax payment is due on March 31. 
Data on these payments is used to update revenue projections 
for the upcoming fiscal year. Were the District to execute its 
fiscal year budget beginning in July, it would be proceeding on 
the most recently available and, therefore, most accurate 
revenue information.
    Finally providing the District with authority to direct the 
spending of its locally raised revenue would substantially 
increase the District's ability to react to changing program 
and financial conditions. Under the current law, the District 
follows the Federal supplemental appropriations process to 
appropriate additional revenues or to make any significant 
realignment in resources among its appropriations. Program 
plans premised on supplemental appropriations are held in 
abeyance while Congress considers the request. The same problem 
is encountered on the other financial transactions. For 
example, all reprogramming of funds from one object class of 
the expense to another in excess of $1 million requires 
congressional review of 1 month before enactment.
    The District has the financial infrastructure to permit it 
to manage its local funds effectively. We have a strong 
accounting system linked to our budget oversight processes. 
Monthly closings and cash reconciliation are in place. 
Financial managers have a clear understanding of expectations. 
Clean audit opinions by the District's independent auditors 
have become routine, and the number of management findings are 
substantially reduced.
    The Office of Chief Financial Officer provides an 
independent assessment of key financial data--comprehensive 
annual financial reports, revenue estimates, fiscal impact 
statements, and all other consequential financial data. I 
believe a necessary corollary to increased local financial 
authority and autonomy is the inclusion of the authorities and 
responsibilities of the Office of Chief Financial Officer in 
organic law. Taken together, this legislative framework is 
sufficient to ensure fiscal discipline without the added 
complexity of putting local spending plans through the Federal 
appropriation process.
    Mr. Chairman, that concludes my oral comments. I will be 
pleased to answer any questions you may have. Thank you, sir.
    [The prepared statement of Mr. Gandhi follows:]

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    Chairman Tom Davis. First of all, because of the Federal 
involvement, the District of Columbia's budget plans are not 
even congruent with the school budget fiscal year. Is that 
right? You've set up different cycles to conform to Federal 
mandates in this case that probably no other city or State in 
the Commonwealth that I'm aware of has to conform to. Then you 
conform to that, and then we still don't give it to you on time 
usually because of issues unrelated to the District of 
Columbia, partisan bickering, fights between Congress and the 
President. And, you know, the image up here that some Members 
have that go back to the sheer impracticability barrier, that 
is not where the city is today. They don't understand that the 
number of employees have been reduced dramatically. There are 
certainly problems running a big city, we read about them every 
day here in the Washington Post, as there are in any city in 
the United States.
    But let me ask you, Dr. Gandhi, this is a different city 
than we had a decade ago markedly, isn't it, fiscally?
    Mr. Gandhi. Absolutely right, Mr. Chairman. Just to give 
one example, and the Mayor often mentions this--I am just 
appropriating from him, you know--in the mid 1990's we had 
roughly one-half billion dollars in deficits in our fund 
balance. Today, we have about $865 million of positive fund 
balance. That is about a $1.3 billion turnaround for the city. 
I think it speaks volumes of the effort that the elected 
leaders have made to really lift the city from insolvency to a 
financial height that is unparalleled in the records of the 
cities that have gone through the same experience.
    Chairman Tom Davis. Now, we have done some things up here 
that have been helpful. The unfunded pension liability issue we 
addressed is a significant monkey off the back.
    Mr. Gandhi. Absolutely.
    Chairman Tom Davis. And realigning the felony prisoners and 
Medicaid. But still, as you look at it, the city has a lot of 
issues, as do most cities. But I think you have done well by 
and large.
    Mr. Gandhi. And one more thing I would point out. I think 
in the last year, we have gone through a substantial decline in 
the revenues, and the Mayor and the council basically faced up 
to the challenge. As Ms. Cropp pointed out, within record time, 
just about 3 weeks, we brought back the budget of 2003, sent it 
back with the reconciliation of a $323 million problem.
    Chairman Tom Davis. Well, let me give you my view, and it's 
not maybe one that is not shared across here, but, you know, 
democracy is not an automatic. We give democracy to a city, and 
then we second-guess every decision you make. And for it to 
work, you have to be allowed to make mistakes, the autonomy has 
to be there and the responsibility for people making decisions, 
good decisions and bad decisions. And one of the difficulties 
here is if we don't get the budget out on time, the city can't 
let its contracts out that you need to do, you can't hire new 
police officers, you can't hire teachers. All of these things 
are held up because of the uncertainty. And, you are right. 
From a bond rating perspective, this could end up costing 
taxpayers more money because of the reluctance of bond houses, 
and that's, one of the telling issues here.
    We are going to do something. I can just tell you that 
right now. Ms. Norton and I are determined. We have been 
meeting. There is opposition to everything here. This area, 
Congress, is more bureaucratic sometimes than any other--and 
full of turf fights and everything else. But this is, in my 
opinion, a very modest but common-sense step to take to give 
the city more autonomy, more authority over its own budget.
    Ms. Cropp, it is not just that you've earned it. You are 
right, this is a fundamental right. This is the capital of the 
free world here in the District of Columbia, and we talk about 
we bemoan the fact that when Hong Kong goes over to China and 
the city council is changed, that in Iraq, setting up 
democracy; and here in the capital of the free world, it is not 
what it is in any other place in the United States for a lot of 
reasons.
    But this is just a very modest step forward, as Ms. Norton 
noted, to return some authority to a city that not only has 
earned it, but has fundamental rights to it at this point, and 
I don't think we are taking a chance in doing that. We don't 
theoretically give up any oversight responsibility. That stays 
with us under the Constitution. But we are saying to the local 
officials, we could have confidence in the job you are doing.
    And, Tony, I think as Mayor you have been a breath of fresh 
air on a lot of these, and Ms. Cropp has as chairman of the 
council. It has been a good team. I know you don't always agree 
on everything, but we are getting the essential job done. The 
fights are really over minutia items.
    Mayor Williams. I also think, Mr. Chair, actually the fact 
that we have a strong council is to the city's benefit. I hate 
to say that, but it's true.
    Chairman Tom Davis. It's not always to your benefit, but 
that's the way it goes sometimes.
    Mayor Williams. Definitely to the city's benefit.
    Ms. Cropp. If I could add, Mr. Chairman, I have said that I 
think that this council is an excellent council. And, Mr. 
Mayor, if it is any good feelings, it's hard on the Chair, too, 
to keep the council together. But the fact that it is such a 
hard-working council, it is to the benefit of the city.
    And let me also put on the record, when we do have 
disagreements between the council and the Mayor, we understand 
that the most important issue is for us to run the government. 
After a very highlighted disagreement we had with regard to an 
issue of the inspector general, that very same day the Mayor 
and I were working together on another very important issue. We 
were sitting down, trying to resolve the issue. So, our 
disagreements, even though the media may highlight it, I think 
all of us understand the importance of good government and 
working together for that, and we are still doing that.
    Mr. Gandhi. And if I may add a point, Mr. Chairman. I think 
one thing about which both the council Chair and the Mayor are 
in complete agreement is the financial viability and the 
financial credibility of the city. There is no doubt about 
that. And I can say that from personal experience over the last 
year, the way they have managed the revenue decline of $300 
million plus.
    Ms. Cropp. Mr. Chairman, you mentioned today--it is part of 
my testimony, but I do want to highlight this issue for those 
in Congress who may be a little--drawing back a little bit from 
supporting this. As you stated, and my testimony has very 
clearly, Article I, section 8 still is in effect. So if this 
bill passes, it does what is right, but it still leaves 
Congress with power.
    Chairman Tom Davis. Absolutely. We don't--but what it does 
do is, if we delay, you don't--but you don't get caught up in 
these other petty squabbles. That is really what it does. It 
also moves things on a timeframe where, if we want to act, we 
can act. But if we don't act in time, life goes on, and you are 
not held up while we're trying to make our decision or somebody 
puts a hold on something in the Senate or something like that.
    Ms. Cropp. Do you know that there are--have been times--if 
I just may add----
    Chairman Tom Davis. Sure.
    Ms. Cropp. It really is important. There have been times 
that because we have not had the congressional enactment on our 
budget, we have had to go out and borrow money. So it is 
actually costing the District money with the fact that our 
budget may not have been passed on time.
    Mr. Gandhi. And the amount of money, to supplement Ms. 
Cropp's point, is about $3 million in borrowing cost for short-
term borrowing.
    Chairman Tom Davis. And I think the idea that it cuts your 
whole schedule in terms of not just contracting out, but hiring 
police officers, hiring teachers. There is a ramification now. 
In terms of hiring these meter maids, you can postpone that; 
I've had my clashes with that office, and if I could write an 
amendment into that, I would do that. But I think fundamentally 
that is right.
    There is another issue that is below the surface here that 
we need to face head on; and that is that Members--we all come 
from different districts. Ms. Norton's district is far 
different from mine out in Fairfax and far different from Judge 
Carter's down in Texas. And the view of the world that comes 
from Judge Carter's district in Texas is a different view of 
the world than comes from my constituents in Fairfax and is far 
different from Ms. Norton's. And whenever the D.C. bill comes 
up to Congress, someone puts an amendment on. And to defend a 
vote back home, D.C. wants to do things different than my 
constituents do or Judge Carter's, and when we try to impose 
our values, Members end up having to vote their home values 
instead of the city's values. That is just the way it is. That 
is politics. If you don't, somebody attacks you back home.
    You know, we went through this domestic partners, which I'm 
not a big fan of, but I ended up over time--Congress split its 
time and said, if that's what the city wants to do, you've got 
hundreds of other cities across the country doing it. Why are 
we standing in the way of allowing this city to make that 
decision and basically make insurance more available to its 
employees and families than you would otherwise? And so, to me, 
it's a local government issue, not necessarily my affirmation 
of this or not, and I have mixed feelings about it, but Members 
having to go back home could be faced in a primary or 
something, but they voted. And that makes it unattractive.
    This still gives us the authority to do that, but I think 
it's less meddlesome when we have this time period on here than 
when we would take our time before.
    I think that the writers that have traditionally been on 
abortions at the hospital and that kind of issue, which 
traditionally cities have taken different views than suburban 
and rural constituencies, will probably stay. And I think we 
all understand that, and this legislation allows that. But some 
of the more meddlesome issues that come up at this point, I 
think if they are not addressed quickly, life goes on in the 
city. And I am not sure that we serve democracy when we start 
applying those values.
    Now, there is the issue, it is the Nation's Capital ought 
to represent the values. You know, we go through all that every 
day, and you have to understand that is an issue that may 
surface to a lot of Members when we start giving this up and 
trying to strike the appropriate balance.
    But this legislation, as Ms. Cropp knows, doesn't take any 
authority away from Congress, but if we don't act in a timely 
manner, life goes on, and you can go ahead and hire your police 
officers and keep the city safe. You can hire your teachers, 
get these kids the education they deserve. You can get your 
contractors out there so they can improve your computer systems 
and those kinds of issues, and it's not held up, and you don't 
have to borrow and go out to the bond houses and just good 
things result.
    I don't think there is any downside for critics the way the 
city runs, and we are going to work hard getting it through 
here. I think the chances are pretty good for success.
    So I want to thank each of you for the job you are doing. 
Thanks for being up here today. We've got other contentious 
issues on the city that we'll be facing over the next year here 
on this committee, but this is one from, I think, Ms. Norton's 
and my perspective and from our leadership that I think is 
going to get resolved in fairly short order.
    Ms. Norton.
    Ms. Norton. Thank you very much, Mr. Chairman. It seems to 
me your comments were so much to the point both as to 
efficiency and to democracy that my inclination would be to 
stop while I am ahead and rest on what you've said. And I 
really don't think I could have offered a better analysis.
    I think really what I ought to do is to simply allow the 
witness to elaborate some of the more important points that 
you've made.
    For example, Mr. Mayor, I don't think anybody up here, 
perhaps except Tom and me, know--and you did, and you said it, 
but it is so profound that I wish you would elaborate on it. 
You indicated--and I remember when this happened, I think it 
was last year--that you were prepared to operate at a lower 
level than I believe the continuing resolution allowed, but you 
had to operate--no, I'm sorry. You were prepared to operate at 
a lower level, but you had to operate under continuing 
resolution and at that level. Would you explain and lay that 
out on the record so that we can understand how the local 
jurisdiction wanted to reduce its costs, but, by maintaining 
its budget up here, the Congress forced it to operate at higher 
level of cost?
    Mayor Williams. Right. And I will ask the council Chair on 
that to join with me. But essentially, as we all know, with a 
continuing resolution you go to the previous year's budget 
mark. Obviously, in a difficult fiscal situation, you are 
trying to reduce that previous year's mark. If you are held at 
that previous year's mark all the way through January, you are 
essentially operating at a higher level than you should be, and 
that's what happened here in 2003. Knowing in 2003 that we had 
a problem, we reduced it from 2002 to lower marks in some 
levels, and then we adjusted it again, as council Chair Cropp 
has said, what, in October. But here we were in January still 
operating back at the 2002 level, which doesn't make any sense.
    I might also add, as you know, Congresswoman Norton, you 
have taken a lead along with Majority Leader DeLay and others 
in getting us to improve--and Senator DeWine is another one--to 
improve children and family services. This is another example 
that Chairman Davis is talking about. Everybody is saying 
improve children and family services, improve children and 
family services. In the budget, we had a provision for hiring 
more social workers to reduce the number of cases, you know, 
the social worker/client caseload, and we were unable to do 
that because of the continuing resolution.
    Ms. Norton. Mr. Mayor, that was going to be one of my 
questions. We had a hearing--I mean, the Chairman testified 
indeed on a GAO report on this very issue. Yes, Mr. DeLay and I 
had a bill so that Congress has continuing interest in this 
area. And your testimony says that for 6 months, almost half a 
year, you couldn't hire the critical personnel. And of course, 
social workers are among the most critical personnel. And so 
here we call you up and say, why haven't you done what you are 
supposed to do on foster care? And the budget process is never 
mentioned. I'll bet it was never mentioned in that, during that 
hearing, because Congress is simply unaware of the consequences 
of its own actions.
    By the way, your budget goes to the President of the United 
States before it comes here, right?
    Mayor Williams. Right.
    Ms. Norton. He never does anything with the budget, does 
he? He just sends it up here. The President supports the budget 
autonomy that we are requesting; is that not correct?
    Mayor Williams. That is correct.
    Ms. Norton. Well, here we have, one example of how the 
budget might be handled here. It's not as if the Congress 
couldn't double back on the budget, but it could simply pass 
the budget through and double back in its own time if that's 
what it wanted to do.
    Dr. Gandhi, I could not have been more intrigued than by 
what you said, what you indicated in your testimony about the 
possibility of changing the District's budget year to the same 
budget year that everybody else in the United States uses, July 
to June, capturing, therefore, the great problems that our 
schools have. Here is another agency that time and time again 
has been hit over the head and shoulders, but of course it must 
operate on the school year budget, and we are the only 
jurisdiction that operates on a different budget year from our 
school year.
    First let me ask you, does your testimony imply that you 
think this could be done even with the bill before us--sorry, 
with the bill before us now, or that you think this is where we 
ought to move toward?
    Mr. Gandhi. Well, I think what I would propose, if you have 
budget autonomy, then I would recommend to the council and the 
Mayor that we should have a budget cycle which is more attuned 
to places where the local funds flow. One of them, of course, 
is the schools, and 20 percent of our budget is education. And 
so what we need to do is to make sure that we handle our cash-
flows according to that line. Further----
    Ms. Norton. Well, let me stop you, because, you know, that, 
of course, would be an extraordinarily important change. Now, 
the way in which this process would work under even our budget 
autonomy bill is that the final approval would still come 
through September 30.
    Mr. Gandhi. Well, we would have to work out those details. 
But all I'm saying is, the financial realities are such that 
our cash-flows are more attuned to local government than the 
Federal appropriations process, like our real property inflow 
of cash, and income taxes. All that basically has to be 
reconciled on a local basis. So we will simply have to work out 
the details with the committee on that.
    Ms. Norton. I would like to invite you to look at that 
issue.
    Mr. Gandhi. Sure.
    Ms. Norton. And look closely at that issue on what we could 
do either to this bill or to move us to that very important 
change. And that, of course, has implications for your 
testimony with respect to how long in advance you have to--how 
far in advance you have to forecast budgets. Could I ask you 
how you're able to do that?
    Mr. Gandhi. You only have help on that front, to some 
extent, in our ability to ``advance'' money to the schools at 
10 percent of their appropriation for the next fiscal year. But 
that really messes up our accounting to some extent, so we will 
have to sort those things out.
    Ms. Norton. Well, what I don't understand--let me ask you 
all what you do about contractors. Let's say you look at your 
contracts. You understand that your payments go up every year 
with inflation, so a contractor is due an increase, let's say, 
for the next fiscal year, but you are held here, let's say, on 
a continuing resolution. Are you able to meet your contractual 
obligations if, in fact, you are held to last year's contract 
in effect? And what does that do with respect to your legal and 
contractual obligations to these contractors?
    Mr. Gandhi. If I may comment on that, Ms. Norton. We cannot 
start any new programs. We can continue at the level of the 
last year. But initiating new----
    Ms. Norton. See, I understand that with respect to city 
programs. And as the Mayor said, with many of the programs, 
foster care is--some of the foster care programs are examples. 
I'm talking about now somebody outside the government that you 
have contracted for and he has a program, it is not a new 
program.
    Ms. Cropp. I would suspect that if it's part of the next 
year's budget, that approval rate would not go into effect 
until the budget has been approved, and it may mean that later 
on we may have to go back once the budget is approved and make 
adjustments. But we may have said that we are going to fund 
this particular agency at this level based on the approval of 
the budget, but until that budget is approved, we can't make 
any changes in that funding level.
    Ms. Norton. So here we are jeopardizing small businesses 
that do business with the District as well.
    Ms. Cropp. Very much so in the sense that, in some 
instances, particularly in the human services area, over the 
past several years we have reduced their contracts 
significantly. And there are areas, when we finally do increase 
the contracts, they may need it very desperately in the sense 
that they may be going from payroll to payroll. And some 
businesses have said that if they could not get the increases 
just to meet their costs, that it may make them go under. So 
that is a twofold problem if that occurs. Not only are we 
jeopardizing a business, but if, in fact, they go under, then 
it's a service that we may need that we will no longer have; 
and how do we deal with the constituents who need that 
particular service?
    Ms. Norton. And the whole cost of then going out and 
getting somebody else to do the service, contract and 
competing--I mean, competing for contracts and so forth is just 
another cost that the Congress would have put on you.
    Mr. Mayor, I was very interested in what you had to say 
about the use it or lose it notion. You know, you'd better 
hurry up and use this money because you are coming to the end 
of the congressional fiscal year. What would be the alternative 
to that? And what would you desire as the alternative to the 
use it or lose it?
    Mayor Williams. Personally I think that we should keep our 
strong cash reserve. I think it's a sign of good fiscal 
standing, and it has definitely helped us on Wall Street. I 
think we should keep some restrictions on our accumulated 
balance so that keeps us on a conservative track. But year to 
year, if there are funds that are left over from year one, like 
every other State and local government in the country, our 
government ought to be able to prudently use those funds for 
business tax incentives. Maybe we can use them for critical 
reserves. Maybe we can use them for schools and education.
    Ms. Norton. What kind of change would that require us to 
make? Would this bill help that or solve that, or would we need 
other changes to solve that?
    Mayor Williams. I think this bill would do it.
    Ms. Cropp. If not, we would ask that----
    Mayor Williams. That would do it.
    Ms. Cropp. Yeah, that it would do it; that no other 
business cannot carry over funds from 1 year to the next year.
    Ms. Norton. So tell me how you operate then. What do you do 
if you are fortunate enough to have some funds at the end of 
the year that you know you need somehow in the District of 
Columbia?
    Mayor Williams. I can tell you as former CFO and now as 
kind of chief program manager, if you will, if you are running 
an agency, and you are down into now--and this happened when I 
was in the Federal Government. If you're down into, say, July, 
and you know your agency still has funds that are going to 
lapse, you--unfortunately, you just start spending them on 
things that are colorable and plausible under your different 
allocations, and so you end up with not the smartest spending. 
So, in other words, you spend 9 months managing well, and then 
the last 2 or 3 months trying to throw everything you can into 
spending so you don't end up losing something.
    Ms. Norton. So, here, the Congress is making you spend 
money that you might otherwise reserve for more prudent uses by 
holding it over to another period.
    Mayor Williams. That is correct.
    Ms. Cropp. The other side of that, Congresswoman Norton, is 
that, you know, at some point you can be cash rich and service 
poor. The government has been extremely prudent in trying not 
to increase taxes and trying to live within our means, but if 
money keeps falling to the bottom line, at what point do we 
have too much money? We have 7 percent of our money in cash 
reserve. I would suspect that no other government in the 
country has that much money in cash that is just sitting there. 
But in addition to the cash reserve of 7 percent, it's saying 
that any extra money you have, you have to keep it in the 
bottom line in the fund balance, which is growing at this 
alarming rate somewhat when we need to be able to provide the 
service. It is just bad business sense, bad government, and bad 
for our constituents in the District of Columbia when they may 
have needs for something, and the money is sitting here, and we 
say, well, we'd like to do it, but we can't carry this excess 
money from 1 year to the other.
    Mr. Gandhi. And just to give some numbers to what Ms. Cropp 
is saying here, we have as of now about $250 million in cash 
reserves. By 2007, we would have $420 million in cash reserves. 
So, roughly 57 percent of our fund balance will be in cash, 
pure cash. So the issue here is that to what extent----
    Ms. Norton. This has to be an unintended consequence.
    Ms. Cropp. I think it's an unintended consequence of the 
District being at one point an agency of the Federal 
Government, but not treating the District, and I think it was 
just an unintended consequence, and it is just bad business.
    Mayor Williams. Well, the goal of having a cash reserve and 
strong budget reserves, as you know, Congresswoman Norton, that 
was a real push by Senator Hutchison when she was a Chair, and 
we actually all agreed that we needed to take a strong prudent 
position. But the unintended consequence now is that we have 
set this trajectory, and we really haven't checked it. And now 
so as Nat and I go around saying we are a reserve-happy 
jurisdiction, we have a lot of reserves; we've got these cash 
reserves, accumulated fund balance, we've got a budget reserve 
of $50 million that we carry on top of this--which we haven't 
even--I will give you an example. The recommendation to the 
council with the State bail-out money that's come from the tax 
bill, we are putting a lot of that money into reserves to take 
a conservative course. But, you know, while we may disagree on 
how conservative we may be, I think at some point you've got to 
be able to put this money back into tax incentives, put it back 
into critical services that your city needs above a certain 
level.
    Mr. Gandhi. And the conditions of using those reserves are 
so onerous; that is, you have to put it back, replenish it the 
following year.
    Chairman Tom Davis. Well, let me ask. We're just talking. 
Do you know any other city that has that level of reserves? We 
always had a balance reserve in Fairfax that we budgeted, and 
we kept our triple A bond rate, but it wasn't to this extent.
    Mr. Gandhi. And we have done some surveys of that. I do not 
know of any city with that kind of reserves in cash. Only one 
State, Mississippi, has a 7.5 percent requirement. But, again, 
the replenishment conditions are never as onerous as we have it 
here. Basically what this means is that the cash is untouchable 
unless you have a real emergency, like a FEMA-type energy.
    Ms. Norton. Well, for example, Mississippi is it that you 
don't have to replace the whole thing?
    Mr. Gandhi. Not immediately, as we have to do it.
    Ms. Norton. And you have been unable to get any relaxation 
on that?
    Mr. Gandhi. Right. We have a very strict access 
requirement.
    Ms. Cropp. One of the----
    Chairman Tom Davis. We don't want you to emulate 
Mississippi. That's not a Federal mandate here. I just want to 
say that.
    Ms. Cropp. The council did introduce a bill, and the Mayor 
and the CFO, we've been talking about a bill, that on our 
replacement requirement--it is not part of this year's budget, 
but we are looking at it--that we look at a replacement that 
would make much better sense, that instead of having to replace 
it the next year--if there is a financial crisis that loomed 
ahead quickly, more than likely you're--the scene, the 
environment is not going to change in a very short period of 
time. So we are looking at a longer period where we have to 
replace it; maybe not immediately the next year, but perhaps in 
a couple of years, 2 or 3 or 4 years, that we should be able to 
replace it.
    Ms. Norton. I would request that you look at--often there 
are model laws. I mean, I'm not even sure. Still it continues 
to accumulate apparently ad infinitim. There must be a point at 
which one is held, based on the budget itself, to have a good 
and sufficient accumulated reserve. There must be examples of 
model laws that we could pattern on, and I'd very much like to 
work with the city. I think the chairman would work with me on 
that with the Appropriations Committee.
    Ms. Cropp. Ms. Norton, there is one other issue I think 
that is important. We all know that a good bond rating is 
extremely important, and to the extent that our bond rating 
goes up, our debt service goes down, and we can take money that 
we would just be paying for borrowing money to provide services 
to our citizens, this budget process that we have is really an 
impediment for our bond rating getting improved. Every time we 
go to Wall Street, the one thing that they cite that is 
detrimental to the city's getting a higher bond rating, would 
you believe, is our process of our budget coming through 
Federal Government each year.
    Mr. Gandhi. And again, to supplement Ms. Cropp's point, 
over the last 10 Federal budgets, only twice were they on time, 
enacted 1995 and 1997. Those were the years where we were on 
time.
    The other fundamental point that we still want to keep in 
mind here about our bond rating is that as long as the 
structural imbalance is there, to the tune of $500 million to 
$1 billion, as GAO pointed out recently, we will have that 
fundamental issue hanging over us from the bond agencies.
    Ms. Norton. We certainly don't need to add to it through 
the congressional appropriation process.
    Would you explain, Dr. Gandhi, what's happened to the 
District bond rating? One of you indicated in your testimony 
that it had recently gone into positive. We thought it was 
positive before that. So would you explain what has happened to 
the District's bond rating in recent years?
    Mr. Gandhi. Right. As Ms. Cropp and the Mayor pointed out, 
that during our control period we were basically junk bonds. 
Since then we had two upgrades. Now we are triple B plus, 
investment grade--investment grade rating from the bond 
agencies, bonds rating agencies.
    Again, what we want to remember, this is a time when 
hundreds of municipalities, States and counties are put on a 
negative outlook, meaning possibly leading to a downgrade, and 
several have been already downgraded. At that time the city, 
the District of Columbia, is put on a positive outlook, which 
may mean that next time we go borrow, there be an upgrade to an 
``A'' category. I think it is a great tribute to our elected 
leaders that they are able to manage the city's finances in 
such a responsible fashion.
    Ms. Norton. You recommend kind of as a safeguard to move us 
forward toward budget autonomy that you, Mr. Gandhi, Dr. 
Gandhi, would recommend that we adopt existing Federal 
appropriations law for local use. What do you mean by that, and 
how would that be different from what you are already doing? 
How would that add any safeguards?
    Mr. Gandhi. I think we have already begun that process, Ms. 
Norton. The council just passed and Mayor signed a local 
antideficiency law, which supplements the Federal 
antideficiency law and is far stricter. The Mayor has already 
issued an administrative order alerting all agency managers of 
their responsibility--the senior manager as well as the middle-
level manager, and the chief financial officers of each of 
these agencies--that they would be held personally liable in 
terms of their performance if the agency were to come up with 
deficits at the end of the year. So they are monitoring on a 
quarterly basis, to make sure that this kind of budgetary 
situation which results in deficits, does not occur. So we have 
already begun that process of emulating the Federal 
appropriation process.
    Ms. Norton. It was Ms. Cropp's--is it Ms. Cropp's 
testimony--yes--that you outlined council rule 443(c), which 
sounds very stringent to me, that there has to be a fiscal 
impact statement on every bill that comes through the council, 
including what its effect will be 5 years up the line. Is this 
council rule essentially taken from what the control board did 
during the control period?
    Ms. Cropp. No, it is not. I am pleased to say that this is 
the council rule that the council placed on itself. When the 
council was trying to get a handle of why we had so many 
problems in the District of Columbia, one of the things that 
came to mind was that legislation would be passed that was 
unfunded. So in order to make sure that the council would not 
be a part of future problems, as in the past, we passed a law 
ourselves on ourselves that said that any piece of legislation 
that would move forward must be funded and must have a fiscal 
impact statement, that we couldn't just pass a law without 
coming up with the dollars to finance it.
    Ms. Norton. Were you able to do that without substantial 
delay to go through that process with each and every bill? 
Because it's very extensive. Identification of revenues 
currently and would be available up the line, you are able to 
do that quickly?
    Ms. Cropp. We do that with each and every bill, and if 
something comes forward that is questionable, if my budget 
director or if the CFO says there are problems, I have ruled it 
out of order and taken it off where we could not vote on it. 
The council has policed itself very strictly on that.
    I will say that there is one issue. It still holds true 
that we don't pass unfunded bills, but we will add, in some 
instances, subject to the availability or the appropriation of 
funds, so that a piece of legislation will not go into effect 
until the funding has been appropriated.
    Ms. Norton. So there are no unfunded mandates from the 
council?
    Ms. Cropp. Not at all. I will rule them out of order. 
Sometimes I will allow a discussion and a debate on them. We 
have one, for example, that is before us right now where I have 
enabled a debate, but as we talked about it on the debate, I 
very clearly stated that I will rule it out of order unless I 
saw the financing, and the council has been very strict on 
policing itself on that.
    Mr. Gandhi. If I may supplement, we just don't look at 1 
year. It is a 5-year process, so----
    Ms. Norton. The next 4 fiscal years, it says.
    Mr. Gandhi. Yes. So we have a long-term----
    Ms. Cropp. And not only that, there is another very 
important point to that we also look at, and the Mayor and the 
council have been very strong on this issue. We have been 
looking at money as to whether or not it is one-time money or 
whether or not it's money that will continue, and if it's one-
time money, we have been extremely strict in making sure that 
we do not build those costs into the base. We would have to 
look for some type of program or product or something that will 
also be one time.
    Ms. Norton. This really may have gone a long way from 
saving you from being a victim of the roaring economy of the 
late 1990's the way some jurisdictions have been. If they've 
done this, it may have stopped them from going ahead with 
programs that they enacted without sufficient thought.
    I have only one more question. And while we are on 
legislative budget autonomy, I'd like you to discuss the kind 
of autonomy that I think would be even easier for the Congress 
to grant, and that is legislative autonomy. I'd like to know 
what difficulties are posed for the city that you do not have 
legislative autonomy, and what it means not to have legislative 
autonomy.
    Ms. Cropp. Well, a city sometimes needs to act extremely 
quickly in order to resolve a problem. If--without legislative 
autonomy, our bills have to come up here, they have to have 
layovers, and sometimes we just can't get the appropriate 
action taken immediately. It does not enable us to meet the 
needs of our citizens and our constituents in a timely manner, 
and it's extremely important that the locally elected 
leadership with legislation that the Mayor may introduce and I 
then introduce it on his behalf, that we be able to enact the 
laws that would be able to help us move this government along.
    Ms. Norton. If I could just indicate, Mr. Chairman, you and 
I have not, in fact, overturned D.C. law and even--before you 
became chairman, there were only three or four D.C. laws 
overturned. So this looks like a law that's obsolete on its 
face, and to the extent that the District--Congress thinks it 
needs some fail-safe, I would like to work with the chairman on 
legislative autonomy in the same way that he and I have worked 
on budget autonomy.
    Mayor Williams. Just to add to that, Congresswoman Norton, 
periodically the aide comes to my office with a packet of bills 
to sign, and I just say to myself, have we just enacted the 
Great Society or something, because you'll have like 20 or 30 
bills, 40 bills. I'm saying, Lord have mercy, what is going on? 
Most of these bills are basically we've got to pass an 
emergency, and we've got to pass a temporary, and then we've 
got to pass a permanent. We just go through this cycle over and 
over and over, an enormous amount of paperwork, in order to 
meet this requirement.
    Ms. Cropp. You would----
    Mayor Williams. From alley closings all the way up to big 
things.
    Ms. Cropp. You would probably be surprised to just look at 
the legislative agenda of the council and sometimes see the 
enormous number of bills that have congressional review, and 
it's just that we've passed it once, we have to come back and 
pass it again, because the time period or whatever reason we 
did not have the appropriate congressional review, come back 
again, the same bill. We pass it two or three times. It's also 
difficult for--sometimes people see some of the bills just keep 
coming, coming, coming, but it's congressional review.
    Ms. Norton. Mr. Chairman, one of the ways to deal with 
this, in this bill we do not have--in the bill you and I are 
considering, the District's budget would go into effect in 30 
days. It does not say 30 legislative days. It is the 30-day 
legislative day problem, I think, that is at the center of this 
issue.
    Chairman Tom Davis. My counsel would be let's get this bill 
done; then we'll talk about the next one. I don't want to take 
my eye off this. You want to move the ball down the field here, 
but I want to get a win here. But I think your points are well 
taken.
    Ms. Norton. Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you very much.
    Judge Carter.
    Mr. Carter. Thank you, Mr. Chairman.
    This is a new world to me, so I'm looking at this from the 
eyes that I bring from Texas. You've heard about those eyes 
before. And at first glance I think I need to start by 
commending you. I know what it takes to get a bond rating up. 
It means that somebody has been doing some good management. So 
you ought to be commended for that because I used to be in the 
practice back when I was practicing law now almost 30 years ago 
of working with a lot of bond counsel, and we worked hard to 
bring the bond ratings up on projects that we were working on. 
I know how difficult that is and what that entails. So I want 
to first congratulate you on being able to do that. I think 
that's great.
    And, Mayor, I want to tell you that if you figure out a way 
to get government to get away from the use it or lose it 
mentality, I hope that you will lecture governments around the 
United States so that--because since the first day I got in 
government right out of law school, almost 40 years ago now, I 
was shocked by the lose it if you don't use it mentality that 
we passed down to our departments, and our departments say 
you've got to spend it or you're going to lose it. It looks 
like to me sometime somebody ought to figure out how to save 
it.
    So if you can get this worked out, God bless you. I hope 
you do, and teach us how to do it, because every government 
I've ever been involved with has had a problem with that, and I 
commend you for at least setting that as a target to not only 
get out of that situation as you deal with us, but hopefully as 
you deal with those under you, you will also be able to figure 
out a way to get out of that situation, because I've found that 
appalling since I was a young dumb lawyer straight out of law 
school.
    And finally, anybody that can get themselves out of deficit 
spending is to be congratulated by the folks up here; so I want 
to congratulate you on that. From what I've been able to hear 
today, it sounds like to me this is a bill that needs to be 
done, and it needs to be done right away. It's interesting--and 
as I told the chairman, I'm not going to say a whole lot 
because I'm in the learning process here, and I've learned a 
lot today. It's interesting how your relationship with the 
Federal Government is peculiar to you and you alone, and you 
have to work your way through it. I think your management is 
well in good hands, and I think you've done a good job. My only 
comment is to commend you.
    I will support this bill, and I think it's long overdue. We 
need to get this going. I would hope, and I think you've got it 
in place, that this type of management will be continued and 
will be encouraged to continue, and you establish it, and it's 
so well entrenched that it will continue on as the political 
process and the waves of political process change in the 
District so that we lock it in and continue the good management 
process.
    So those are the only comments I'd like to make as it looks 
like to me you're doing a good job, and somebody needs to say 
thank you; so I'm doing it. Thanks.
    Mayor Williams. Thank you, Congressman.
    Chairman Tom Davis. Let me just thank all the Members.
    Mr. Van Hollen just walked in. Do you have any questions, 
any comments you'd like to make?
    Mr. Van Hollen. Yes. Thank you, Mr. Chairman.
    First I want to welcome an old friend, the Mayor of 
Washington, DC; and the chairman of the city council Ms. Cropp; 
and Dr. Gandhi. Congratulations to all of you on your work over 
the years, really, to put the District of Columbia on sound 
financial footing. I think you all deserve a tremendous amount 
of credit, and I want to thank Ms. Norton for her leadership 
over so many years on this. And I'm really here just to say to 
Ms. Norton and Mr. Davis that as the other Representative--as 
the Representative representing the other neighboring area in 
the State of Maryland, neighbor of the District of Columbia, I 
wholeheartedly support this legislation and look forward to 
working with you to see it through. So thank you for your 
initiative.
    Chairman Tom Davis. Thank you very much.
    Let me just add one other item. We're going to probably 
need to use--how do you envision the CFO being structured and 
statured as we go forward with this bill? Because as we move 
out of--the CFO, in noncontrol board years we need to look at 
reauthorizing that, and I just want to know how you envision 
this. Any thoughts?
    Ms. Cropp. Yes. Mr. Chairman, actually we have a bill that 
I believe is before you. It's up here in Congress, and our 
intent is for us to have an independent CFO. And we did the 
bill I believe it was a couple of years ago, so we are ready to 
move on having a strong CFO, having an independent CFO is what 
we want, and we would ask that as you pass this piece of 
legislation, that you also pass the independent CFO piece of 
legislation that the council passed and that the Mayor signed 
and is up here waiting.
    Mayor Williams. I would agree. I ultimately think that 
offices like the CFO ought to be independent in the charter. 
They're that important to the city and provisions in local law, 
honored year by year, as Congressman Carter was saying, beyond 
us, conservative estimate of expenditures and revenues as well, 
it's absolutely important.
    Ms. Norton. Mr. Chairman, we've also been talking with the 
Senate about this. To the city's credit they have enacted a 
stronger CFO law than the Congress enacted in the control board 
statute, a term, for example, for the CFO which we did not have 
before, and we are only waiting for the appropriate vehicle. We 
had thought this bill might be a good vehicle.
    Chairman Tom Davis. We'll discuss that.
    Thank you all for testifying.
    I've just got one other thing to say. Today is a very, very 
important day, of course, because it's Ms. Norton's birthday, 
and I just wanted to, on behalf of all of us here, wish you a 
happy birthday, Ms. Norton.
    And we thank our witnesses, and the hearing is closed.
    [Whereupon, at 11:24 a.m., the committee was adjourned.]
    [Additional information submitted for the hearing record 
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