[Senate Hearing 108-304]
[From the U.S. Government Publishing Office]
DISTRICT OF COLUMBIA APPROPRIATIONS FOR FISCAL YEAR 2004
----------
WEDNESDAY, JUNE 11, 2003
U.S. Senate,
Subcommittee of the Committee on Appropriations,
Washington, DC.
The subcommittee met at 10:07 a.m., in room SD-192, Dirksen
Senate Office Building, Hon. Mike DeWine (chairman) presiding.
Present: Senators DeWine and Landrieu.
DISTRICT OF COLUMBIA
STATEMENTS OF:
HON. ANTHONY A. WILLIAMS, MAYOR
LINDA W. CROPP, CHAIRMAN, COUNCIL OF THE DISTRICT OF COLUMBIA
NATWAR M. GANDHI, CHIEF FINANCIAL OFFICER
OPENING STATEMENT OF SENATOR MIKE DEWINE
Senator DeWine. Good morning. This hearing will come to
order. Today we will hear testimony regarding the District of
Columbia's fiscal year 2004 local budget request. Mayor
Williams, Council Chairman Cropp, and Chief Financial Officer
Gandhi will present the city's budget and will discuss the
District's requests for Federal resources.
I want to first note that this past Friday, the General
Accounting Office released the results of its 18-month long
review of the financial health of the District. This important
study presents a troubling picture of the long-term structural
imbalance of the District's economy. This imbalance represents
a gap between the District's ability to raise revenue at
reasonable tax rates and its ability to provide services of
reasonable quality to its residents.
I recognize that the structural imbalance is driven by
expenditure requirements and revenue restrictions which are
beyond the control of the District's leadership. Clearly, the
city's revenue capacity would be larger without constraints on
its taxing authority, such as its inability to tax Federal
property or the income of nonresidents.
I agree that the city faces a troubling problem in the long
term. This report is the catalyst for serious discussions here
on Capitol Hill about how the Federal Government should protect
the financial health of our Nation's capital. Indeed, many of
the problems facing the city result from it being the seat of
the Federal Government. Therefore, to do nothing is not
acceptable. As chairman of this subcommittee, I will work hard
to ensure that we start exploring ways to avoid a financial
catastrophe for the District.
Now, let me turn to the District's fiscal year 2004 budget.
Before introducing our distinguished panel, I want to discuss
some of my priorities for this bill. First, I hope to provide
resources to improve the city's foster care system so that more
children have the opportunity to enjoy safe, permanent, and
loving homes. The hearings we have held this year on the foster
care problem have highlighted ways that we can help improve the
situation. I know that the Mayor and Ranking Member Landrieu
share this desire and I look forward to partnering with them on
this initiative.
Also, I would like to continue a Federal investment in the
city's Combined Sewer Overflow project. This multi-year project
will revamp a system that was constructed at the end of the
19th Century and which overflows 50 to 60 times every year,
dumping raw sewage into the Anacostia River. Given the demands
the Federal Government places on this system, we clearly have a
responsibility to contribute to its much-needed renovations. By
cleaning up the Anacostia River, we will expedite the Mayor's
proposed Anacostia waterfront development initiative, which I
wholeheartedly support. This development will ultimately
provide recreational and commercial opportunities for D.C.
residents and visitors.
I also want to ensure that efforts to construct
biodecontamination and quarantine facilities at Children's
Hospital and Washington Hospital Center continue to proceed.
These are a few of my priorities for this bill. Now I look
forward to hearing what the District's priorities are for
Federal funding and how the city has used the funds we recently
provided in the fiscal year 2003 appropriations bill.
Clearly, there are many worthy activities which will place
demands on the always-limited resources in the D.C.
Appropriations Bill. But I look forward to working with these
city leaders to continue to make life better for all who live,
work, and visit this capitol city.
Witnesses will be limited to 5 minutes for their oral
remarks. Copies of your written statements will be placed in
the record in their entirety.
Senator Landrieu, would you like to make an opening
statement?
STATEMENT OF SENATOR MARY L. LANDRIEU
Senator Landrieu. Thank you, Mr. Chairman. I would like to
welcome our witnesses, and thank Chairman DeWine for calling
the annual hearing on the District's local funds budget. I look
forward to hearing from the city on the status of the
District's economy, current Federal funding priorities, and a
summary of the fiscal year 2004 local funds budget.
At this time, almost every city in the country is
struggling to maintain a balanced budget, much less deliver
adequate or even good services to their citizens. I am pleased
to see that the District has been careful to look ahead and
address looming budget pressures while maintaining priority
services. The city is in good fiscal standing, and I trust that
this environment will continue. However, long-term outstanding
economic pressures on the city and continued service challenges
in such areas as public education and child welfare will
require a new partnership with the District.
Under the temporary State fiscal relief package included in
the tax cut passed last month, the District will receive $94
million over 2 years. Considering current spending pressures of
approximately $50 million, I would be interested to learn how
the city is planning to spend these new funds.
In addition, substantial Federal funding was provided to
the District in fiscal year 2002 and fiscal year 2003 ($122
million in direct response to requests made by the Mayor, out
of a total $512 million in the D.C. appropriations bill for
Federal responsibilities). The last 2 years have been
unprecedented in the amount of discretionary Federal dollars
that have gone to the city, as well as an increase in
congressional confidence in local leadership, resulting in
increased autonomy for the District of Columbia. Fiscal year
2004 has a much more conservative outlook as the committee
attempts to reconcile a weak economy, few proposed increases
for Federal discretionary programs and growing needs across the
Nation, as well as in the District. Chairman DeWine and I share
a commitment to the restoration of the Anacostia Waterfront,
assistance for charter schools, and enhanced security this
year. In this hearing, I hope we can identify the city's main
priorities and how best to address them with very limited
funding.
A more broad challenge was confirmed last week when the
General Accounting Office released a landmark report finding
that the city faces an annual deficit of $400 million to $1
billion between their revenue capacity and cost of providing
average services. The report, requested by Congresswoman Norton
and myself, found the underlying reason for the structural
imbalance in the city's budget is due to the high cost of
providing services in the District of Columbia.
The District is uniquely situated and requires a unique
relationship with the Federal Government; however, right now, I
am not convinced that more money is the answer. Many options
for funding have been discussed: a renewed Federal payment,
changing the tax collection ability of the District, or funding
directed to specific infrastructure in the District of
Columbia.
In this hearing I would like to discuss how to maximize the
benefit of existing Federal funding, such as Medicaid and
education. As I stated last week, we need to create a new
partnership with the District. We must examine the underlying
issues that create an imbalance and take a multifaceted
approach to addressing it, before the District goes back to
years of deficit.
One major benefit for the District, with no budgetary
impact, endorsed by President Bush, is to release the local
budget from annual Congressional approval. The concept of
budget autonomy for the District's local budget is building
momentum on the Hill and I hope it will be approved this year.
These are funds derived from locally generated tax dollars. The
last word on how the city's budget is expended should be made
by locally elected leaders, just like any other city. I urge my
colleagues to examine the benefits of this proposal as
legislation makes its way through Congress.
I would like for the Mayor and Council Chairman to comment
on how current and future general provisions--limitations on
spending local and Federal funds--will be addressed under
budget autonomy. I respect the city leaders' diligence in
implementing and upholding these ``social riders'' through the
years, against local pressure. I expect this same degree of
respect for the law will be maintained in the future. There are
legitimate means for Congress to provide guidance to the city;
however, it is my hope that at some point in the future
congressional interest in imposing riders will wane.
The committee has also held hearings this year on child
welfare in the District and discovered disturbing gaps in
service and care. Through Chairman DeWine's leadership I hope
we can discuss options for addressing this area as well. I
appreciate your attendance today and look forward to continuing
our partnership for growth and success of the city. The General
Accounting Office released a landmark report finding the city
faces an annual deficit, a structural imbalance, of $400
million to $1 billion. This amount is the difference between
the city's revenue capacity and the cost of producing average
services. The GAO report outlines definitively that there is,
in fact, a structural imbalance of the management and
efficiencies of the District. They are still constraints beyond
what is in your control to solve it, so I want to support the
chairman's concepts that he outlined this morning, whether we
have an internal study group or an external group, to come up
with some specific solutions. There are some ideas that have
been presented, but I hope that in your testimony this morning
perhaps you all would have some suggestions, and then we could
follow the chairman's lead in establishing a more specific
commission to come up with some solutions that Congress could
indeed take up.
I also want to support the chairman's efforts as we work
together to enhance and strengthen the foster care system. As
Mr. Mayor, you know, are I think painfully aware that the
District of Columbia is not the only entity by far in the
Nation that is struggling with this tremendous challenge. Just
yesterday there was a front page article in the New York Times
about the deplorable conditions of the New Jersey child welfare
system. I have to say that in Louisiana this is a tremendous
challenge for our State Government to keep the finances and the
management of a foster care system in a way that temporarily
removes children from homes so that they can be safe and
secure, and then re-engage or place them back with those
families or to move them to a permanent home through adoption
or through a foster family that looks as much like a real
family as possible, and that is something that the chairman and
I are firmly committed to working with you all, and we have had
several good hearings.
The only other two things I would mention briefly, I am
very interested in how we proceed in the future to provide
every child in this District with an excellent education. There
are any number of ideas that have come forward, work that is
underway, progress that has been made, but challenges that
remain. It is going to be a key focus of mine, Mr. Chairman, as
we move forward to see what the options are in providing an
excellent education system for every child, and to have the
Federal Government live up and stand up and step up to its
responsibilities in that regard. Again, the District of
Columbia is not in many instances that different from other
cities and States struggling to do the same, but I want to stay
focused on that.
And finally, parks and recreation does not always receive
the attention, and perhaps in some people's minds, in the
scheme of things relative to economic development and education
and health care it does not always take the priority that I
think it should deserve, because we have got to give our young
people something to say yes to, and it really underlines the
quality of life issue for the District, and while we have more
green space here than in many cities, and we are fortunate
because of the Federal Government, we still, I think, lack some
recreational opportunities for children, for young people, and
for adults that the suburbs in this area seem to have in
abundance, and I think that is a real problem when it comes to
economic development, attracting people back to the city,
keeping children and families engaged and productive in
positive expenditures of their time, so I want to continue--I
am glad the chairman agreed with me, and we invested some
direct Federal dollars to work with your local dollars in that
regard, but it is not just throwing more money, it is the
management and the way that the parks system will provide
recreational opportunities for children.
So I thank you, Mr. Chairman, and I am going to give you
your seat back and go find----
Senator DeWine. You can stay there if you want to.
Senator Landrieu. All right. Well, I will stay here then.
Senator DeWine. Just don't get too----
Senator Landrieu. I won't get too--well, look, it's so
comfortable, I mean----
Senator DeWine. Don't get too comfortable there or too
accustomed to that.
I am glad I got the gavel back.
Senator Landrieu. You got the gavel back, and the chair.
Thank you.
Senator DeWine. Let me introduce our panel. Anthony
Williams was inaugurated as the fourth Mayor of the District of
Columbia on January 4, 1999. This past January, of course,
Mayor Williams began serving his second term in office.
Linda Cropp was sworn in on August 8, 1997 as the first
woman to chair the Council of the District of Columbia after
serving on the council for 7 years.
Dr. Gandhi is the Chief Financial Officer for the District
of Columbia, and is responsible for the city's finances,
including his $5.4 billion operating budget and bond
obligations.
Mayor, why don't you start off.
STATEMENT OF HON. ANTHONY A. WILLIAMS
Mr. Williams. First of all, I want to thank you, Mr.
Chairman, and thank the Ranking Minority Member Landrieu, and
thank the other members of the committee for this opportunity
to testify on the District's 2004 budget and financial plan,
and wherever possible I will try to abbreviate my remarks,
recognizing that they have been submitted in whole in the
record.
This subcommittee has been a partner in our city's
revitalization over the last few years, and as Mayor, I think I
represent all of our citizens in saying that we are gratified
for the support and encouragement offered by the previous chair
and other Members, and certainly are pleased now to be working
with you, Mr. Chairman. Your support and encouragement for our
efforts to make our city shine are deeply appreciated and, in
particular, your devotion to our children at risk has been both
a consistent and long feature of your service, and it's a
welcome signal of Congress' joint bipartisan commitment in this
important area, recognizing Senator Landrieu's commitment in
this area as well.
In fact, this committee's members bring very valuable
experience in State-level management, and that gives you all a
unique appreciation for the challenges and constraints under
which the District must operate. I think we can rest assured of
a strong and vibrant relationship with you.
As you know, many cities and States across the Nation are
facing their worst budgetary challenge of the last 60 years,
and the District is no exception. Due to the economic downturn,
we experienced a decline in revenues of almost $370 million in
the first half of fiscal year 2003. This decline equates to a
10 percent loss in our local operating budget. Because the
economy has not yet recovered, these challenges have continued,
as you know, into the 2004 fiscal year, and we began
formulation of the budget with a projected gap of $114 million.
In facing these challenges, we not only continued our
record of sound fiscal management, we achieved, I think, a
level of responsible and conservative budgeting found only
among the most fiscally prudent governments in our country. As
a result, the fiscal year 2004 budget transmitted today is
balanced in current and future years. I am not saying it is
pretty, but it is balanced, and we can talk about that.
More notably, the District's leaders balanced this budget
entirely through budget reductions. No tax increases were
adopted, and not one dollar of the $250 million in cash
reserves, one of the strongest ratios of cash reserves in the
country, was used. In many instances, we were able to reduce
spending by using existing funds more wisely. In many other
areas, however, significant sacrifices were required. Most
notable among these is a deferral of key infrastructure
investments.
In making these sacrifices, we preserved existing funding
for existing schools and libraries, but could allocate no new
funding for the next phase of modernization. As a result,
current 10-year plans for renovating neglected schools and
libraries must be scaled back dramatically, leaving major
challenges in the education of our children. This sacrifice,
coupled with even greater reductions in roads, bridges, and
other buildings to me presents one of the greatest challenges
that we face today, and have not addressed, as you have
mentioned in your opening remarks, Mr. Chairman, in the
foreseeable future. In short, we have a significant problem.
Now, the Federal Government requires that the District
provide services like a State, but unlike every other State in
the Nation, we are prohibited by Congress from collecting a
nonresident income tax. This takes a tremendous percentage of
our potential tax base offline. As a result, the District must
fund expenditures far greater than the revenues provided
through a reasonable level of taxation. As you put it, it is
very, very difficult to maintain a reasonable level of service
at a reasonable rate of taxation.
Faced with this clash between needs and revenue capacity,
we have maintained a balanced budget through overtaxing of our
citizens and a deferral of critical investments which continues
to damage the viability of the District as a place to live and
operate a business, and I might add by way of operating a
business, the disproportionate taxation of our businesses is
actually far larger than the disproportionate rate of taxation
of our citizens, not to say that that is acceptable, either,
but for businesses it is particularly stark.
In specific terms, the amount of the structural imbalance
is between $400 million and $1.1 billion per year. This
estimate has been thoroughly analyzed and documented by the
Rivlin Commission, the Brookings Institution, and McKinsey &
Company. To independently assess this matter, the Members of
Congress, including Ranking Member Landrieu of this
subcommittee, requested that GAO conduct a full-scale analysis.
I would like to quote as Mayor several key findings that are
particularly significant to me.
1. The District faces a substantial structural deficit in
that the cost of providing an average level of public services
exceeds the amount of revenue we could devise by average tax
rates.
2. The District's per capita total revenue capacity is
higher than all State fiscal systems, but not to the same
extent that costs are higher. In addition, our revenue capacity
would be larger without the constraints on our taxing
authority, such as the inability to tax Federal property or the
income of nonresidents.
3. Addressing management problems, which we are committed
to doing, would not offset the District's underlying structural
imbalance, because this imbalance, as the Ranking Member has
said and you have said, Mr. Chairman, is determined by factors
beyond our direct control.
And finally, again as you have mentioned, if this imbalance
is to be addressed in the next term, it may be necessary to
change Federal policies to expand the District's tax base or to
provide additional financial support or some combination
thereof.
Through these findings that the independent--I want to
stress, independent--GAO has confirmed that the District cannot
compete, or--well, we cannot compete in the long term, and we
certainly cannot complete our financial recovery under our own
power. Instead, we must somehow address the Federal policies
that could force the District back into insolvency, which I
think would be a tragedy of just overwhelming proportions.
Congresswoman Eleanor Holmes Norton has introduced the
Federal Fair Compensation Act, which I believe would go a
long--well, which I believe would address the situation, and I
believe that, as Congress moves through this study, it ought to
look first to the Federal Fair Compensation Act as a way to
address the problem.
Now, of course, the city must do its part in terms of
better management of existing resources. Special education and
Medicaid present two areas that need concentrated attention.
The subcommittee I think should be pleased to know that we are
making some headway, along with city councilman and chair of
the Education Committee on the Council Kevin Chavous, I am
chairing a Special Education Task Force that brought together
all the Government entities that have a role in special
education.
After intensive meetings over several months, we were able
to agree on a cost-reduction plan that the CFO certifies will
yield $20 million in savings in fiscal year 2004, while at the
same time improving the educational experience offered to
children in special ed.
Last month, I appointed the first Government-wide Medicaid
czar who will bring similar direction and unity of purpose on
how we draw down Medicaid funds. In addition to this matter of
finances, we also face a procedural barrier in the Federal
appropriations process. I will not go into a long list of
details, but I would urge this committee's support for budget
autonomy legislation that is now emerging in the Congress. We
certainly welcome the partnership with this committee. We
certainly welcome and certainly endorse wholeheartedly the
oversight by this committee of Federal funds, but we believe
that, like every other State and city in the country, we should
have the autonomy and have the discretion to use our own funds
as they are developed and derived from local sources.
There are specific funding requests in the fiscal 2004
budget before the committee. As I have shared with you, Mr.
Chairman, and also with the Ranking Member, I am alarmed that
the President's overall request for the D.C. appropriations
bill in 2004 is 17 percent below the 2003 level. A cut of this
magnitude jeopardizes ongoing projects already funded by the
subcommittee, many of which both of you have mentioned. In
particular, Congress allocated $50 million for the CSO,
Combined Sewage Overflow Project, which was matched with local
funds. This was a very welcome down payment on a billion-
dollar-plus multi-year project for an antiquated, outdated
system, as you have mentioned.
Updating this system, which was built originally by the
Federal Government, pollution of which is--I think a majority
of which is from the Federal Government, is an integral part of
our Waterfront Initiative. Therefore, we are seeking that
additional $50 million. The President's budget includes $15
million for this purpose and another $10 million for the bike
trail. I strongly urge this subcommittee to accept the
President's proposal, but add the additional dollars to match
last year's commitment.
In 2003, Congress provided $4 million for a family literacy
program. Since receiving this payment just 3 months ago, we
have an ambitious program underway that will soon have at least
20 literacy leaders dispatched around the city to help
community-based providers, Government agencies, the faith-based
community expand the network of adult learners.
We also have a training symposium this summer to begin to
train the trainers. With an additional $4 million in fiscal
year 2004, this subcommittee can sustain this effort. This is
in a city where 40 percent of our city has a learning challenge
and is reading at below adequate level.
Because education for our children is so critical, I
strongly urge the Congress to add new funding beyond last
year's level to support our public schools and expand
opportunities for parents to consider nonpublic education
settings. We believe that this three-sector approach will allow
the city to leverage its best assets among the public schools,
the public charter schools, and the private parochial schools.
We are strongly committed to expanding the menu of school
settings for our children both within the public system and
outside of that system, but all as part of a coordinated
effort.
And on a related matter, I want to acknowledge the concerns
that have been raised by this subcommittee regarding Child and
Family Services in the District. As a former child in foster
care, this is important to me, and I know it is important to
both of you and the members of this committee. Historically,
this whole Child Welfare System has been extremely troubled and
although I believe substantial progress has been made,
including the creation of the family court and the newly
unified agency, there still remain, undoubtedly, challenges
that we must continue to address. The CSA Director and I are
redoubling our efforts to complete the reform process in
serving our most vulnerable youth, including a more seamless
approach in how we relate to children at risk.
The subcommittee's ongoing interest in supporting efforts
to recruit social workers, promote early intervention in case
work for children and families, support foster parents, is all
part of this effort.
PREPARED STATEMENT
I might add, Mr. Chairman, that my appointment of a Senate
nomination to the council, of a new corporation counsel, one of
the key factors in my mind in sending the nomination to the
Council of Robert Spagnoletti was his experience in the U.S.
Attorney's Office in bringing together and getting on the right
track domestic abuse in the U.S. Attorney's Office, and he
evinced a strong interest in doing the same thing as it relates
to child support and core council support for all these family
matters, and I believe that he will help us accelerate and
promote the efforts that I know you want to see, and we are
committed to.
In short, we welcome this committee's partnership and
oversight, and look forward to working with you in the days and
months ahead in the challenges facing our city.
[The statement follows:]
Prepared Statement of Anthony A. Williams
Thank you Chairman DeWine, Ranking Minority Member Landrieu,
Senator Hutchison, Senator Brownback, and Senator Durbin for this
opportunity to testify on the District's fiscal year 2004 budget and
financial plan. This subcommittee has been a partner in our city's
renaissance over the last few years. As Mayor, I am grateful for the
support and encouragement offered by the previous chair and others
members, and I am pleased to now be working even more closely with
Senator DeWine. His support and encouragement for our efforts to make
our city shine are deeply appreciated. In particular, his devotion to
our children at-risk has been both consistent and strong, and is a
welcome signal of the Congress' commitment in this area.
This committee's members bring very valuable experience in State-
level management, and that gives you a unique appreciation for the
challenges and the constraints under which the District must operate.
The citizens of our national capital can rest assured that the city's
relationship with this subcommittee continues to be strong and will
serve us well as we strive together to address the pressing needs of
the District.
Specifically, this session of Congress could be pivotal in the
evolution of the Federal-District relationship:
--fiscal challenges posed by the serious structural imbalance are
becoming more acute, and there are a number of proposals to
help address the issue;
--the disruption of service delivery caused by problems with the
congressional approval process can hopefully come to an end
through proposed legislation;
--the education of our children can be enhanced through new
partnerships between the District and Federal Governments; and
--important infrastructure projects are at critical junctures that
require additional Federal support. These include the Combined
Sewer Overflow system, the Unified Communications Center, and
the Forensics Laboratory.
With all these advances hopefully in our grasp, it is indeed a time
of great opportunities and great challenges. As you know, cities and
States across the Nation are facing the worst budgetary challenge of
the last 60 years, and the District is no exception. Due to the
national economic downturn, the District experienced a decline in
revenues of approximately $370 million in the first half of fiscal year
2003. This decline equates to a 10 percent loss in our local operating
budget. Because the economy has not yet recovered, these challenges
continued into fiscal year 2004, and the District began formulation of
that budget with a projected gap of $114 million.
In facing these challenges, however, the District not only
continued its record of sound fiscal management, we achieved a level of
responsible and conservative budgeting found only among the most
financially prudent governments. As a result, the fiscal year 2004
budget transmitted today is balanced in the current and future years.
More notably, the District's leaders balanced this budget entirely
through budget reductions. No tax increases were adopted, and not one
dollar of the $250 million in cash reserves was used.
Just as significant is the fact that this budget protects core
services. In times of tight resources, some would set their goals aside
in order to weather the storm, but I believe the opposite must be done:
in these difficult times we must focus on our goals more than ever so
that we may protect them and continue making forward progress.
The proposed fiscal year 2004 budget reflects this approach by
focusing resources in the areas of highest priorities for our
residents. These are (1) education programs, including early childhood
education, school choice, and adult literacy; (2) public safety, which
includes providing greater police presence in neighborhoods and a
vastly improved 911 emergency communications system; and (3)
opportunity for all, which includes the housing, job-readiness, and
health care needed for all residents to become productive and healthy
members of the community and economy.
In order to protect these priorities, however, some reductions had
to be made in other areas of the budget.
sacrifices made to preserve budgetary balance
In many instances the District was able to reduce spending by using
existing funds more wisely. In many other areas, however, significant
sacrifices were required. Most notable among these is the deferral of
key infrastructure investments. In fiscal year 2003 the District
eliminated funding for $250 million in approved capital construction,
including transportation investments, recreation facilities, and
important technology investments. An additional $87 million of funding
for such projects was eliminated in fiscal year 2004.
In making these sacrifices the District preserved existing funding
for schools and libraries, but could allocate no new funding for the
next phase of modernization. As a result, current 10-year plans for
renovating neglected schools and libraries must be scaled back
dramatically, leaving a major challenge for the education of our
children. This sacrifice, coupled with even greater reductions in
roads, bridges, and buildings, present one of the greatest challenges
that the District faces today and, if not addressed, into the
foreseeable future.
Is this challenge purely the result of our national economic woes?
In fact, it is not. Even during times of economic growth, the
District's can not support the level of investment required to
compensate for the many decades of neglect from which our
infrastructure has suffered. This is true not because of any factor
under the District's control, however, but because of the uniquely
unfair constraints placed on the District's tax base by the Federal
Government.
FEDERAL CONSTRAINTS ON REVENUE COLLECTION RESULTING IN STRUCTURAL
IMBALANCE
The Federal Government requires that the District provide services
like a State, but unlike every other State in the Nation, the District
is prohibited by the Congress from collecting a non-resident income
tax. As a result, the District must fund expenditures far greater than
the revenues provided through a reasonable level of taxation. Faced
with this clash between expenditure needs and revenue capacity, the
District has maintained a balanced budget through several strategies
that have provided solvency in the short term, but cannot be
maintained. These strategies are:
--Producing service improvements within existing constraints.--The
District has aggressively improved service delivery through
more focused use of existing resources. Having capitalized on
the major opportunities for such efficiencies, however, the
District cannot expect to solve its structural imbalance
through this strategy.
--Taxing local residents and businesses at high levels.--With a
severely limited tax base, the District has had no choice but
to rely on local residents and businesses to provide revenues
for government services, resulting in many tax rates that far
exceed those of surrounding jurisdictions. This translates into
additional hurdles to attracting and retaining residents and
businesses that could help stabilize our fragile economic base.
--Deferring spending on critical infrastructure and services.--At
present, the District is deferring each year hundreds of
millions of dollars in critical investments. These include
funding for school buildings, transportation systems, water and
sewer projects, economic development, and social services.
Although these strategies have temporarily addressed the imbalance
between expenditures and revenues, they cannot be employed much longer.
The overtaxing of our citizens and deferral of critical investments
continue to damage the viability of the District as a place to live and
operate a business. As a result, the financial and operational recovery
underway will falter and the District will lose the important ground
that it and its Federal partners have worked to gain.
In specific terms, the amount of the structural imbalance is
between $400 million and $1.1 billion per year. This estimate has been
thoroughly analyzed and documented by the Rivlin Commission, the
Brookings Institute, and McKinsey and Co. To independently assess this
matter, the members of Congress, including Senator Landrieu of this
committee, requested that the U.S. General Accounting Office (GAO)
conduct a full-scale analysis, which was released just last week.
I would like to quote several key findings from this report:
1. ``The District faces a substantial structural deficit in that
the cost of providing an average level of public services exceeds the
amount of revenue it could raise by applying average tax rates.''
2. ``The District's per capital total revenue capacity is higher
than all state fiscal systems, but not to the same extent that its
costs are higher. In addition, its revenue capacity would be larger
without constraints on its taxing authority, such as its inability to
tax federal property or the income of nonresidents.''
3. ``Addressing management problems would not offset the District's
underlying structural imbalance because this imbalance is determined by
factors beyond the District's direct control.''
4. ``If this imbalance is to be addressed, in the near term, it may
be necessary to change federal policies to expand the District's tax
base or to provide additional financial support.''
Through these findings, the independent GAO has confirmed that the
District can not complete its financial recovery alone. Instead, we
must somehow address the Federal policies that could force the District
into insolvency. Congresswoman Eleanor Holmes Norton will shortly
introduce the ``Federal Fair Compensation Act'' which would go a long
way to addressing the situation. Congress ought to move this
legislation or an alternative quickly.
Of course, the city must do its part in terms of better management
of existing resources. Special Education and Medicaid represent two
areas that need concentrated attention. The subcommittee should be
pleased to know that we are making some headway. Along with the City
Council, I am chairing a special education task force that brought
together all the government entities who have a role in special
education. After intensive meetings over several months, we were able
to agree on a cost reduction plan that the Chief Financial Officer
(CFO) certifies will yield $20 million savings in fiscal year 2004,
while at the same time improving the educational experience offered to
children in special education. Last month I appointed the first
government-wide ``Medicaid Czar'' who will bring similar direction and
unity of purpose to how we draw down Medicaid dollars.
In addition to this matter of finances, the District also faces a
procedural barrier in the Federal appropriations process.
disruptions resulting from federal review of the district's budget
Unlike any other State or local jurisdiction in the Nation, the
District must have its locally-raised revenues appropriated to it
through an act of Congress. Aside from the obvious issues related to
government by consent of the governed, this process creates major
disruptions in the delivery and improvement of basic government
services. Specifically, there are several key reasons why the President
and Congress should change the current process:
--The current system denies the District the capacity to adapt
quickly to changing needs for front line services. The Federal
Government requires the District to formulate its budget a year
in advance in order to accommodate the Federal review process.
--Congressional delays disrupt critical new improvements.--Virtually
every year, Congress fails to approve the District's budget by
the beginning of the fiscal year, most recently more than 3
months later.
--Mid-year budget reallocations require an act of Congress, and
disrupt service delivery.--As discussed, local governments need
the flexibility to respond to rapid changes in their needs.
--The city must ``use or lose'' funding at the end of each year.--
Congressional approval for spending expires at the end of the
year, which punishes program managers who save funds by not
allowing the city to carry them over for one-time uses.
Last January, the President's statement in favor of budget autonomy
for the District was transmitted to the Congress, and is greatly
appreciated by the District. At present, the House and Senate oversight
committees on the District of Columbia are developing legislation that
would begin reforming the Federal approval process for the District's
budget. Of course, the process for Federal funds for the city and
relevant oversight would be unchanged. As Congress pursues passage of
this legislation, the District looks to you for leadership in affecting
this change that will relieve the impediments to the District's
continued financial and operational recovery.
CRITICAL FEDERAL FINANCIAL SUPPORT
There are several specific funding requests in the fiscal year 2004
budget before this committee. I am alarmed that the President's overall
fiscal year 2004 request for the DC appropriations bill is 17 percent
below the fiscal year 2003 level. A cut of this magnitude jeopardizes
ongoing projects already funded by this subcommittee. In particular,
last year Congress allocated $50 million for the Combined Sewer
Overflow (CSO) project, which was matched with local funds. This was a
very welcomed down payment on a billion-dollar-plus multi-year project.
Updating our antiquated sewer system, which was built originally by the
Federal Government, is an integral part of our Anacostia Waterfront
Initiative. Therefore we are seeking an additional $50 million in
fiscal year 2004. The President's budget includes $15 million for this
purpose and another $10 million for the Anacostia Bike Trail. I
strongly urge the subcommittee to accept the President's proposal, and
add $35 million to the sewer project to match last year's commitment.
The President has also included $15 million for the Public Safety
Event Fund, which reimburses the city for various security costs of
demonstrations and other events related to our status as the Nation's
capital. This fund helps shift the unfair burden of covering these
costs from District taxpayers and allows the District to better balance
our duties to protect residential neighborhoods and the Nation's
capital. I strongly urge the subcommittee to provide these important
resources.
In addition, thanks to the generosity of this subcommittee, the
Tuition Assistance Grant Program has provided thousands of District
residents with tremendously expanded options for post-secondary
education. Indeed, many of these people might not have otherwise
attended college. In fiscal year 2003, the program will use all its
allotted funding and will require an additional $17 million in fiscal
year 2004.
In fiscal year 2003 Congress provided $4 million for a family
literacy program. Since receiving this payment just 3 months ago, we
have an ambitious program underway that will soon have at least 20
Literacy Leaders dispatched around the city to help community-based
providers, government agencies, and the faith-based community expand
the network of adult learners. We will also have a training symposium
this summer to ``train the trainers''. My goal is to reverse the city's
destiny in this area by transforming ourselves from a city with a
shockingly high rate of adult literacy challenges to a city where the
right to read is sacred. Adults will have a harder time fulfilling
opportunities for health care, employment, and stable family life as
long as they lack basic reading skills. It is time that the stigma
associated with adult learning challenges be eradicated and all of
Washington make this a priority. With an additional $4 million in
fiscal year 2004 the subcommittee can sustain our efforts.
SUPPORTING CHILDREN IN THE DISTRICT
Because quality education for our children is a critical priority
for the city, I strongly urge the Congress to add new funding beyond
last year's levels to support our public schools and expand
opportunities for parents to consider nonpublic educational settings.
This 3-sector approach will allow the city to leverage its best assets
among public schools, public charter schools, and private/parochial
schools.
The District of Columbia Public School system is making headway in
reform, including the very promising Transformation initiative for 15
low-performing schools. It also has a liberal out-of-boundary program
that affords parents opportunities to consider public schools across
the city. Our robust charter school system is a national model for
public school choice whose expansion is limited largely by a lack of
adequate facilities. In addition, dozens of private and parochial
schools are assets for our children. Consequently, I want to reiterate
my support for school choice--both within the public system and between
public and private schools. I urge the Congress to be both bold in
supporting school choice in DC through a 3-sector approach.
On a related matter, I want to acknowledge the concerns that have
been raised by this subcommittee regarding child and family services in
the District. Historically, the whole child welfare service system has
been extremely troubled, and although major progress has been made,
including creation of the Family Court and a newly unified Child and
Family Services Agency, there still remain challenges that we must
continue to address. Our capable CFSA director and I are redoubling our
efforts to complete the reform process in serving our most vulnerable
youth, including a more seamless approach in how government agencies
relate to children at risk. The subcommittee's ongoing interest in
supporting efforts to recruit social workers, promote early
intervention in case work for children and families, and support foster
parents who take on this difficult work is very encouraging.
And finally, before I conclude this testimony there are several
specific points that must be made clear for the record. First, I ask
that the District's appropriation be passed without the undemocratic
``riders'' that are sometimes included. These non-budgetary provisions
subvert the will of District citizens and their only elected
representatives. If the elected leadership of the city has decided to
use local funds for various purposes, we ask only for you to grant us
the same prerogatives and liberties that cities in your own districts
enjoy.
In addition, I would also like to note for the committee that the
city continues to be vigilant in its emergency preparedness
responsibilities and is expeditiously drawing down on Federal funds
provided for this purpose. We are making great progress working with
surrounding jurisdictions and Federal agencies in developing effective
regional responses. Similarly, working with local hospitals, our
capacities in the areas of preventing and responding to bioterrorism
are greatly expanded. Through partnership with the Federal Government,
the District is rapidly becoming one of the best prepared jurisdictions
in the Nation.
And finally, no discussion of District-Federal partnership is
complete without a discussion of voting representation in Congress. The
District is the capital of the world's greatest democracy, and it is
the ultimate hypocrisy that its citizens suffer from the exact
disenfranchisement this Nation was founded to end. Like all of us in
this hearing room, I was filled with great pride and gratitude watching
the young men and women of our armed forces help bring democracy closer
to the people of Iraq. At the same time, however, I was struck with the
irony that those among them who hail from our great city do not enjoy
full democracy here.
Again, Senator DeWine and members of the subcommittee, I thank you
for your support of the District and I thank you for this opportunity
to testify before you today. After the testimony of Chairman Cropp and
Dr. Gandhi, I will gladly answer any questions you may have.
Senator DeWine. Mr. Mayor, thank you very much.
Ms. Cropp.
STATEMENT OF HON. LINDA W. CROPP
Ms. Cropp. Good morning, Chairman DeWine and Ranking
Minority Member Landrieu. It is a pleasure to be before you
today to testify on behalf of the District of Columbia. Let me
thank you, Mr. Chairman and Senator Landrieu, for your comments
with regard to the GAO report, and there is a nexus between the
structural imbalance and our ability to serve the needs of our
young people, comments that you also made.
The fiscal year 2004 budget, another in a series of
fiscally sound and responsible budgets, marks another important
stride in our city's home rule. It fully illustrates that the
Mayor and the council can work together and put together a good
spending plan that continues to make the District a better
place to live, to work, to raise a family, and to visit. It
also is a reflection of our resolve to stand as one good
government that will remain fiscally prudent and, most
importantly, responsible.
Fiscal discipline. This has always been and will be a top
priority on our legislative agenda. We not only demand it of
the executive branch, we practice it. The various forms of
fiscal discipline, from rainy day funds to financial
safeguards, insurance and investment policies, economic
triggers to pay-as-you-go funds that we have demanded of and
imposed on ourselves in the past several years have yielded
significant returns for the District of Columbia.
Case in point, the council insisted that the Government
limit the growth of our spending in fiscal year 2004 while
ensuring that all basic municipal needs were met. Instead of
increasing taxes to address declining revenues for fiscal year
2004, the council, with the mayor, limited the rate of growth
in our spending to under 5 percent. Again, this was done
without any detriment to the District of Columbia residents who
receive services and benefits from important programs.
The $323 million-plus revenue shortfall in fiscal year 2003
budget on the very first day of our new fiscal year, October 1,
2002, was dealt with very quickly by the Mayor and the council.
On April 1, 6 months into the fiscal year, the council took
emergency action, as recommended by the mayor, on another $134
million that was a hole in this year's budget. Our counterparts
in Maryland and Virginia and all across the country, of course,
face similar challenges because of the economy in our Nation,
although we think that the District has acted more quickly,
effectively, and responsibly to take the actions necessary to
bring our budget in balance.
Finally, it is important to note that, due to the city's
fiscal discipline and our hard work, we have a positive image
fostered by the partnership of locally elected leadership in
our business community. We have finally been recognized and
rewarded on Wall Street, where the District Government bond
rating has been upgraded from stable to positive. Moreover, the
city's bond rating is expected to be further upgraded while
other jurisdictions' ratings are being downgraded during this
economic period.
As the council continues its work during the fiscal year
2003 and 2004 legislative session, we will remain vigilant
about maintaining fiscal discipline that we have imposed on the
executive branch and ourselves, and we will also focus on other
important goals set forth in our legislative agenda. These
goals include the revitalization of our neighborhoods,
investment in our youth, protection of our vulnerable
residents, oversight of executive performance and service
delivery, promotion of continued economic stability and growth,
and expansion of home rule and democracy, our priorities, put
together with a fiscally sound and responsible spending plan,
is good for the District.
The operating budget funds basic city services and
programs. The capital budget, as a result of stringent
oversight, was realigned. Funds were redirected and targeted
for projects with higher priorities and critical needs such as
schools for children, improving blighted properties in our
neighborhoods, and enhancing existing facilities, better
public-council interaction.
I have provided copies of the committee reports from all of
our council's committees for the record, and I believe that it
will be good reading and will also provide you good information
with regard to the status of many things in the District of
Columbia.
Senator DeWine. Those will be made a part of the record.
Thank you very much.
Ms. Cropp. Thank you. An integral part of the council's
budget process is public input. As such, many hearings on the
fiscal 2004 budget were held. This gives the council and the
Mayor an opportunity to hear from our citizens. The process
gave citizens and our workforce the opportunity to comment and
critique programmatic and funding needs and agency performance
and their impact. The feedback is invaluable, because it
contributed and culminated in decisions and recommendations of
each committee in the mark-up process.
At the end of this public process--translated into 54
public hearings or about 289 hours--we incorporated the
findings from that public hearing process, from our residents
and our employees, into the budget. On May 6, the council
approved the $6.6 billion spending plan that provides adequate
funding for basic city services, in keeping with the seven
goals of our legislative agenda. All of this was done,
including full funding of our police department, without a tax
increase. In fact, we are continuing with the portions of the
tax reduction associated with the Tax Parity Act as passed by
the council in 1999, which were already in place. The council
action will bring our taxes more in line with our neighbors'
over a 5-year period. We believe this has contributed to the
economic renaissance that our city is experiencing.
Historically, the relationship between the District and the
Federal Government has been a unique political and financial
arrangement. Between 1879 and 1920, the Federal Government
provided assistance by paying half of all of the District's
expenditures. Subsequently, given the various Federal
prohibitions on taxing nonresidents' incomes, Federal
properties, Federal purchase of goods and services, the
District would receive a direct payment. This payment was
stopped in 1997, when the Federal Government expropriated the
cost of the contributions for the police, firefighters,
teachers, and retirement plans, and various court services.
It is worth recalling that in 1997 the Revitalization Act
was passed. One recommendation was that since the District no
longer receives the Federal payment, that the District should
not have its local budget portion come before Congress, just
like other States. I join with the Mayor in asking that you
support budget autonomy for the District of Columbia. Although
the District may be solely responsible for its local spending,
it's not responsible for the structural imbalance that exists
in its spending needs and its revenue generation capacity.
The District, not unlike any other major urban city in this
country, has a population that is older, sicker, and poorer.
The big difference, and it is a major and important difference
with the District and other large urban cities, is, we help
support Baltimore and Richmond, because most of our income
leaves the city and goes out to help support our suburban
economies, totally a reversal from where it is in the rest of
the country, where in most instances, the suburban
jurisdictions help to offset the high cost of what is going on
in the district. That is a huge structural imbalance unlike
anything else. The GAO report is very clear, the imbalance
ranges between $470 million and $1.1 billion a year. The cost
of providing public services is just much higher in the
District than in other areas.
Mr. Chairman, you had asked if we had some suggestions. The
Mayor certainly outlined the Federal Fair Compensation Act that
our Congresswoman has introduced that we would hope that we
could start discussions around that. I would like to also call
your attention to the fact that in 1997, Congress recognized
that the District paid an inordinate amount of Medicaid funds.
We were the only city in the country, in this entire United
States, that paid 50 percent of the cost of Medicaid. You
recognized that that was an imbalance, and we changed the
payment to 70 percent Federal and 30 percent District of
Columbia. That is another area where you can look.
The Federal Government pays a higher proportion of Medicaid
than many other jurisdictions. It seems only fair and just, and
a way to deal with the structural imbalance, that we at least
get the same rate as other States may get for just the city,
when no other city has to pay a Medicaid cost.
Another area is our whole Metro payment. That certainly is
a benefit to us, as we serve, as the capital city, our suburban
jurisdictions. While we have Metro and we have our suburban
areas that sit on the Metro board, their States pay the cost of
Metro, so Montgomery County and Fairfax, Arlington, Prince
George's, they do not even have to pay part of their Medicaid
cost, while the District of Columbia once again, in a highly
structurally imbalanced way, must bear the brunt of our Metro
cost, so that is another area where we could look.
Finally, as you consider our appropriations request, we ask
that you support and pass the budget in time for the start of a
new fiscal year and before adjournment of the 108th Congress.
It really is telling that while our budget period started in
October we did not have an approved budget until January. In
some instances, we needed to reduce the cost of our Government
to deal with our economy. It is important to remember that at
the end of the budget process, both the Mayor and the council
found themselves in sync and approved a budget that invests in
service delivery and basic programs. We urge you to pass the
budget as is without any riders.
This much-anticipated 2004 budget is important, because it
shows again that the Mayor and the council coexist and
underscores our commitment to make Washington, D.C. one of the
best-governed cities in the world. The council will continue to
oversee our operations and expenditures, sometimes to the
chagrin of the Mayor, but I think both of us agree that it is
for the good of the city as a whole.
PREPARED STATEMENT
We will be responsive to our constituents who call the
District their home. We will work with the Mayor, with you and
Congress and our surrounding Governments to achieve mutually
shared goals. Together with the Mayor, we will produce good,
responsible budgets that invest dollars for the District and
leave a legacy for our future generations. Granted, we do not
always agree, but we are always at the table to assert
ourselves as an institution and work for the betterment and the
future of our citizens.
Thank you very much for this opportunity.
[The statement follows:]
Prepared Statement of Linda W. Cropp
Good morning, Chairman DeWine and Ranking Minority Member Landrieu,
and members of the Senate Appropriations Subcommittee on the District
of Columbia. I am pleased to be here with my colleagues to testify on
the District's budget for fiscal year 2004.
INTRODUCTION
The fiscal year 2004 budget--another in a series of fiscally sound
and responsible budgets--marks another important stride in our city's
history of home rule. This is the second budget that the locally
elected leaders have crafted entirely within the Home Rule process. It
fully illustrates that the Council and the Mayor can work together and
put together a good spending plan that continues to make the District a
better place in which to live, to work, to raise a family, and to
visit. It is also a reflection of our resolve to stand as one good
government that will remain fiscally prudent and most importantly
responsible.
This past February, the Mayor and Council received the annual
Comprehensive Annual Financial Report, which certified that the
District's fiscal year 2002 budget that ended on September 30, 2002 was
our sixth consecutive balanced or surplus budget.
Fiscal Discipline.--This has always been and will always be a TOP
PRIORITY on our legislative agenda. We not only demand it of the
executive branch, we practice it. The various forms of fiscal
discipline--from rainy day savings, financial safeguards, insurance and
investment policies, economic triggers to PAY-AS-YOU-GO funds--that we
have demanded of, and imposed on ourselves in the past several years,
have yielded significant returns to the District of Columbia.
Case in point . . . The Council insisted that the government limit
the growth of spending in fiscal year 2004, while ensuring that all
basic municipal needs were met. Instead of increasing taxes to address
declining revenues for fiscal year 2004, the Council resolved to limit
the rate of spending to under 5 percent. Again, this was done without
detriment to the District residents who receive services and benefits
from important programs.
This reflects a continuation of the same fiscal discipline
strategies that the Council applied to the budget shortfalls that have
occurred during fiscal year 2003. The Council took the lead and made
tough decisions with the Mayor in closing a $323-million-dollar-plus
revenue shortfall in this year's fiscal year 2003 budget on the very
first day of the fiscal year--October 1, 2002. On April 1st, 6 months
into the fiscal year, the Council took emergency action to close
another $134 million hole in this year's budget. Our counterparts in
Maryland and Virginia and all across the country of course face similar
challenges, although we think that the District has acted more quickly,
effectively and responsibly to take the actions necessary to keep our
budget in balance.
Finally, it is important to note that due to the city's fiscal
discipline, our Congressional counterparts, as well as the hard work
and positive image fostered by the partnerships of the locally elected
leadership and our business community, we have finally been recognized
and rewarded on Wall Street, where the DC government's bond rating has
been upgraded from ``stable'' to ``positive.'' Moreover, the city's
bond rating is expected to be further upgraded, while other
jurisdictions ratings are being downgraded at this time.
COUNCIL PERIOD XV
As the Council continues its work during the fiscal year 2003 and
fiscal year 2004 legislative sessions, we will remain vigilant about
maintaining the fiscal discipline that we have imposed on the Executive
Branch, and ourselves. Also, we will focus on other important goals set
forth in our legislative agenda. These include:
--Revitalization of our Neighborhoods;
--Investment in our Youth;
--Protection of our Vulnerable Residents;
--Oversight of Executive Performance and Service Delivery;
--Promotion of Continued Economic Stability and Growth; and
--Expansion of Home Rule and Democracy.
THE COUNCIL/MAYOR BUDGET PROCESS
In December of last year, the Council passed the fiscal year 2004
Budget Submission Requirements Resolution of 2002. It established March
17 as the date by which the Mayor shall submit to the Council the
proposed budget. The Mayor transmitted his budget on March 17 and the
Council acted on it within the 50 days as required by the Home Rule
Charter. During this 50-day period, the Council worked diligently with
the Mayor in aligning both sets of priorities and, put together a
fiscally sound and responsible spending plan. The operating budget
funds basic city services and programs. The capital budget, as a result
of stringent oversight by the Council, was realigned. For example,
funds were redirected and targeted for projects with higher priority
and critical needs, such as schools for the children, improving
blighted properties in the neighborhoods, and enhancing existing
facilities for better public/Council interaction.
I have provided copies of the Council's committee reports and the
fiscal year 2004 Budget and I would ask that they be made part of the
record.
When the Mayor submitted the budget to us on March 17, he had
proposed a local budget of $3.8 billion, an increase of $195.5 million
or 5.4 percent above the revised fiscal year 2003 budget, as amended by
the fiscal year 2003 Amendment Act of 2002 and later approved by the
Congress.
THE COUNCIL/PUBLIC CITIZEN BUDGET PROCESS
An integral part of the Council budget process is public input and,
as such, many hearings on the fiscal year 2004 budget were held. The
process gave the citizens and our workforce an opportunity to comment
and critique programmatic and funding needs and agency performances
that impact them. This feedback is invaluable because it contributed
and culminated in the decisions and recommendations of each committee
in the mark-up of the budgets. Following a review of the committee
marks, the Committee of the Whole made additional recommendations in
order to bring the budget into balance. At the end of this public
process--which translated into 54 public hearings or about 289.15
hours--we incorporated findings from our residents and employees into
the budget.
HIGHLIGHTS OF THE FISCAL YEAR 2004 BUDGET
On May 6, the Council approved the $6.6 billion spending plan that
provides adequate funding for basic city services and programs. In
keeping up with the seven goals on our legislative agenda, schools
continue to receive full funding. To protect our vulnerable residents,
the Council found $4 million to fund the Interim Disability Assistance
program for disabled adults. In the area of public safety, the Council
provided the funding needed to increase the number of active policemen
in the Metropolitan Police Department (MPD) to 3,800 by the end of
fiscal year 2004. The Council accomplished this by separating the
dollars needed to fund this initiative from the rest of the MPD budget
by placing the dollars into Pay Go funding. To invest for future
generations, capital and operating dollars were added for our young
children to improve their studying environments and broaden their
academic and vocational skills. We continued the District's effort to
collect Medicaid reimbursement for local expenditures that are eligible
for such Federal reimbursement.
All of this was done without any general tax increase. In fact, we
are continuing with the portions of tax reductions associated with the
Tax Parity Act passed by the Council in 1999, which are already in
place. This Council action will bring our taxes more in-line with our
neighbors over a 5-year period. We believe this has contributed to the
economic renaissance that our city is experiencing.
FEDERAL CONTRIBUTION
Historically, the relationship between the District and the Federal
Government has been a unique political and financial arrangement.
Between 1879 and 1920, the Federal Government would provide assistance
by paying half of all District expenditures. Subsequently, given the
various Federal prohibitions on taxing nonresident incomes, Federal
properties, Federal purchase of goods and services, the District would
receive a direct payment. This payment was stopped in 1997 when the
Federal Government expropriated the cost of the contributions for the
police, firefighters, and teachers retirement plans and various Court
services.
It is worth recalling that when the 1997 Revitalization Act was
passed, one recommendation was that since the District no longer
receives any Federal payments, Congress would not need to review or
approve its budget. At a minimum, Congress should no longer approve the
local portion of the District's budget. Just like the other 50 States,
the District would be solely responsible for approving its own local
spending.
Although the District government may be solely responsible for its
local spending, it is not responsible for ``the structural imbalance''
that exists between its spending needs and its revenue generation
capacity. Just recently, the General Accounting Office (GAO) released a
report regarding this imbalance. Some of the significant conclusions of
this report include:
--The imbalance ranges between $470 million and $1.1 billion per
year;
--The cost of providing public services is much higher in the
District than it is in the average State due to a relatively
large poverty population, poor health indicators, high crime,
and the high cost of living;
--Although the District has a very high revenue capacity, we are
already taxing toward the upper limit of our revenue capacity,
thereby creating a punitive tax structure.
In order to solve the problem of structural imbalance, the General
Accounting Office suggests that the Congress consider one of the
following: (1) Relax current taxing restrictions on the District; or
(2) Compensate the District for its special status as a capital city.
CONCLUSION
Finally, as you consider our appropriations request, we ask that
you support and pass the budget in time for the start of the new fiscal
year and before the adjournment of the 108th Congress. It is important
to remember that at the end of the budget process, both the Council and
the Mayor found themselves in sync and approved a budget that invests
in service delivery and basic programs. Furthermore, we urge you to
pass the budget as is, without any extraneous riders. This much
anticipated fiscal year 2004 budget is important because it shows that
the Mayor and the Council can co-exist together and underscores our
commitment to make Washington, DC one of the best governed cities in
the world.
Nonetheless, the Council will continue to oversee executive
operations and expenditures. We will be responsive to our constituents
who call the District their home. We will work with the Mayor,
Congress, and the surrounding governments to achieve mutually shared
goals. Together with the Mayor, we will produce good responsible
budgets that invest dollars for the District and leave a legacy for
future generations. Granted we do not always agree from time to time,
but we will be at the table to assert ourselves as an institution and
work for the betterment and future of our citizens.
Senator DeWine. Thank you very much. Doctor.
STATEMENT OF DR. NATWAR GANDHI
Dr. Gandhi. Good morning, Mr. Chairman, Senator Landrieu,
Congresswoman Norton. As the Chief Financial Officer, my
primary responsibility is to ensure the overall financial
viability of the District at all times. In the past year, we
have enjoyed some notable successes, including the sixth
consecutive balanced budget. Overall, the city ended fiscal
year 2002 with a general fund surplus of $27.4 million, and a
positive general fund balance of $865 million. In fiscal 1996,
there was a negative fund balance of $518 million, so we have
witnessed a turnaround of over $1.3 billion since then. This in
itself is clear evidence the District is qualified for Home
Rule and ready for budget autonomy.
I believe we are in a good position to continue this
progress. We instituted several changes in financial systems
that will give us a much better picture of our financial
posture as we go through the year.
During fiscal year 2003, we began to implement standardized
spending plans and to report actual performance against those
plans, using a new online financial management tool for
controlling agency budgets. At the end of fiscal year 2001, we
had $100 million in cash reserves. This amount grew to about
$248.7 million by the end of fiscal year 2002, and will
increase to nearly $254 million by the end of fiscal year 2003,
to remain at 7 percent of total local expenditures. These
reserves were fully funded 5 years before the designated
deadline.
Along with the fund balance noted earlier, these steps
solidified the District's bond rating and led Moody's to
upgrade their outlook on the District's $3 billion in general
obligation bonds from ``stable'' to ``positive''. This is
particularly significant at a time when rating agencies are
downgrading or looking negatively at numerous States and
localities. We hope our positive outlook will lead to a ratings
upgrade later this year, as Chairman Cropp expected, which will
contribute to even lower borrowing costs in the future.
For the fiscal year 2003 financial outlook, through the
leadership and cooperation of our elected officials, the
District made the necessary tough decisions to assure a
balanced budget for fiscal year 2003. As of early June, the
remaining spending pressure for fiscal year 2003 is estimated
at about $50 million, primarily driven by the high utilization
cost for the health care safety net. These amounts will be
addressed. I am confident that we will end the year with a
balanced budget.
For the fiscal year 2004 budget request, in local funds,
which comprise about two-thirds of the total budget, the 2004
budget request is about $3.8 billion, an increase of about $230
million over the approved 2003 level. The total number of
positions funded with the local fund is about $26,245, a
decrease of 150 positions, or less than 1 percent.
As you will see, the budget projects positive net operating
margins through fiscal year 2007. This projection shows a
positive financial picture, and is based on revenue forecasts
that use realistic economic and demographic assumptions
generally accepted by the forecasting community and the Federal
Government. However, a close examination of the data suggests
that the District is operating on a slim financial margin
indeed. Fortunately, we expect local revenues to begin to grow
in fiscal year 2004, after the decline and stagnation of the
past 2 fiscal years, but the growth that can be expected is
nothing like the 7 percent annual change between fiscal year
1999 and fiscal year 2001.
The District now faces a more slowly rising revenue curve,
as financial and real estate markets return to more normal
patterns, generating revenues that are expected to grow at
around 4\1/2\ percent per year. We believe that it will be
challenging for this revenue to sustain our current level of
services, and there is no room for consideration of additional
program initiatives, significant infrastructure investment, or
tax cuts. For these reasons, the city and its elected
leadership will face difficult program and financial decisions
in the years to come.
One of the reasons for the difficulty is the structural
imbalance in the District's budget that needs to be addressed.
Chairman Cropp and the Mayor already have talked about the
structural imbalance issue, so I will not dwell on that any
further. I appreciate your leadership and Senator Landrieu's
leadership in our appropriations, and it is my hope that the
current GAO report would help Congress and the District move
beyond the questions of whether there is a structural imbalance
to questions of how the Federal Government and District
Government can work together to address this problem. This
problem must be addressed with urgency to ensure the long-term
financial viability of the Nation's capital city.
PREPARED STATEMENT
Mr. Chairman, this concludes my prepared remarks. I request
that this testimony be made part of the record. I will be
pleased to answer any questions you may have. Thank you.
[The statement follows:]
Prepared Statement of Natwar M. Gandhi
Good morning, Mr. Chairman, Senator Landrieu, and members of the
subcommittee. I am Natwar M. Gandhi, Chief Financial Officer for the
District of Columbia, and I am here today to testify on the District's
fiscal year 2004 budget request to the Congress. My remarks will
briefly touch on the fiscal year 2003 financial outlook, the fiscal
year 2004 request, and the structural imbalance that threatens the
District's long-term financial viability.
OVERVIEW
As the Chief Financial Officer, my responsibility is to ensure the
overall financial viability of the District of Columbia in the short-,
mid-, and long-term. In the past year, we have enjoyed some notable
successes, including the sixth consecutive ``unqualified'' (or clean)
opinion from the city's independent auditors, with the fiscal year 2002
Comprehensive Annual Financial Report (CAFR) completed ahead of time
and with a balanced budget. Overall, the city ended fiscal year 2002
with a general fund surplus of $27.4 million, and a positive general
fund balance of $865.3 million. In fiscal year 1996, there was a
negative fund balance of $518 million, so we have witnessed a
turnaround of over $1.3 billion since then. Even allowing for the
restatements necessary to conform our financial reporting to the new
requirements of Governmental Accounting Standards Board (GASB)
Statement Number 34, this result is clear evidence that the District is
qualified for Home Rule.
I believe we are in a good position to continue this progress. We
instituted several changes in financial systems that will give us a
much better picture of our financial posture as we go through the year.
We successfully implemented GASB 34 on time with minimal outside
assistance. During fiscal year 2003, we began to implement standardized
spending plans and to report actual performance against those plans
using CFO$ource, a new online financial management tool for controlling
agency budgets. At the end of fiscal year 2001, we had $100.9 million
in cash reserves; this amount grew to $248.7 million by the end of
fiscal year 2002, and will increase to nearly $254 million by the end
of fiscal year 2003 to remain at 7 percent of total local expenditures.
These reserves were fully funded 5 years before the legislative
deadline. Along with the fund balance noted earlier, these steps
solidified the District's bond ratings and led Moody's to upgrade their
outlook on the District's $3 billion in general obligation bonds from
``stable'' to ``positive''. This is particularly significant at a time
when rating agencies are downgrading or looking negatively at numerous
States and localities. We hope our positive outlook will lead to a
ratings upgrade later this year, which would contribute to even lower
borrowing costs in the future.
We have made progress on other fronts as well. This year, for the
second time, the District of Columbia's ``Comprehensive Financial
Management Policy'' appears as an appendix of the budget submission.
This policy, required annually by the fiscal year 2001 District of
Columbia Appropriations Act, Public Law 106-522, is actually a
compilation of policies in key areas and a financial management tool
that codifies current policies and procedures. It is updated annually.
Effective with the fiscal year 2003 budget development process, we
began the transition to performance-based budgeting. With the active
support of the Office of the City Administrator, seven large operating
agencies, including the OCFO, submitted performance-based budgets based
on agency strategic business plans aligned with the mayor's citywide
strategic plan. For the fiscal year 2004 budget process, we worked with
another 27 agencies (the remainder of the Mayor's cabinet) to convert
them to performance-based budgeting.
A long-term replacement strategy for the District's payroll systems
and their integration with other administrative systems has been
developed as part of the Administrative Services Modernization Program
(ASMP), spearheaded by the Office of the Chief Technology Officer. Over
the next 2 to 3 years, all of the District's administrative systems--
personnel, payroll, procurement, property management, and budget--will
be upgraded and integrated with the System of Accounting and Reporting
(SOAR). For the first time, this will give the District a top quality,
integrated information system with which to manage District operations.
Now that we have 3 years of operating experience with SOAR, we are
utilizing more of its capabilities. We already have an Integrated Tax
System, rated as among the best in the country by the Federation of Tax
Administrators, and the District is the first city to offer free online
tax filing and the only city to provide account balances via the Web.
FISCAL YEAR 2003 FINANCIAL OUTLOOK
Through the leadership and cooperation of our elected officials,
the District made the necessary tough decisions to assure a balanced
budget for fiscal year 2003.
As of early June, remaining spending pressures for fiscal year 2003
are estimated at $50 million, primarily driven by higher utilization
costs for the Health Care Safety Net. This amount will be addressed. I
am confident we will end the year with a balanced budget.
I want to thank you, Mr. Chairman, and you, Senator Landrieu, and
the subcommittee members and staff for your leadership and support on
the District's portion of the fiscal year 2003 budget supplemental that
was enacted in April of this year.
FISCAL YEAR 2004 BUDGET REQUEST
The Council of the District of Columbia voted to approve the
consensus fiscal year 2004 budget request on May 6. Copies of the
budget documents have been distributed, and CD-ROMs will be made
available shortly. I would like to briefly summarize some of the key
points in the request.
In total, the District's gross fund operating request for fiscal
year 2004 is $5.69 billion, which represents an increase of about $119
million, or 2.1 percent, over approved fiscal year 2003 levels. The
total number of positions in fiscal year 2004 from all funding sources
is 33,867, which represents an increase of 233 positions, or less than
1 percent.
In local funds, which comprise about two-thirds of the total
budget, the fiscal year 2004 budget request is about $3.83 billion, an
increase of about $230 million, or 6.4 percent, over approved fiscal
year 2003 levels. The total number of positions funded with local funds
is 26,245, a decrease of 150 positions, or less than 1 percent.
Over the 4-year period from fiscal year 1998 to fiscal year 2002,
the District's local fund expenditures increased by 6.1 percent
annually, or a total of $741 million over this period, from $2.768
billion in fiscal year 1998 to $3.509 billion in fiscal year 2002. Of
this $741 million increase, $621 million (nearly 84 percent) came in
two areas: $316 million in the D.C. Public Schools and the Public
Charter Schools, and $305 million in the Departments of Human Services,
Mental Health, and Health, and the Child and Family Services Agency
(all of which were part of the Department of Human Services in 1997).
At these six agencies, expenditures increased at a rate of 11.1 percent
annually over the past 4 years. Expenditures in all other District
agencies combined increased by $120 million, or 1.8 percent annually,
over the same period.
As you will see, the budget projects positive net operating margins
through fiscal year 2007. This projection shows a positive financial
picture and is based on revenue forecasts that use realistic economic
and demographic assumptions generally accepted by the forecasting
community and the Federal Government.
However, a close examination of the data suggests that the District
is operating on a slim financial margin. Fortunately, we expect local
revenues to begin to grow in fiscal year 2004, after the decline and
stagnation of the past 2 fiscal years. But the growth that can be
expected is nothing like the 7.4 percent annual change between fiscal
year 1999 and fiscal year 2001. The District now faces a more slowly
rising revenue curve, as financial and real estate markets return to
more normal patterns, generating revenues that are expected to grow
around 4.5 percent per year. We believe that it will be challenging for
this revenue to sustain our current level of service, and there is no
room for consideration of additional program initiatives, significant
infrastructure investments, or tax cuts. For these reasons, the city
and its elected leadership will face difficult program and financial
decisions in the years to come. One of the reasons for the difficulty
is a structural imbalance in the District's budget that needs to be
addressed.
STRUCTURAL IMBALANCE IN THE DISTRICT'S BUDGET
Over the past several years, the District has submitted balanced
and responsible budgets during periods of increasing as well as
stagnating and declining revenues. Our restrained budgeting in the good
years helped us work through some of the hard times in fiscal year 2002
and fiscal year 2003. For fiscal year 2004, the District is submitting
a balanced budget in a particularly challenging economic environment, a
testament to the ability of the District's elected leaders to manage
through difficult times. However, despite this balanced budget, and
despite the surpluses the District has generated over the past 6 years,
the District has a serious long-term financial problem--a structural
imbalance that transcends short-term challenges and cyclical revenue
fluctuations. This structural imbalance is a long-term gap between the
District's ability to raise revenue at reasonable tax rates and the
District's ability to provide services of reasonable quality to its
residents. It is driven by expenditure requirements and revenue
restrictions that are beyond the control of District leadership.
Several outside assessments of the District's financial condition
have affirmed the presence of this imbalance. In March 2002, a McKinsey
& Company report funded by the Federal City Council stated, among other
things, that Federal constraints impose an annual opportunity cost of
at least $500 to $600 million. In October 2002, Alice Rivlin and Carol
O'Cleireacain of the Brookings Institution assessed the District's
relationship with the Federal Government and concluded that a strong
rationale exists for additional Federal financial assistance to the
District. And just last week, the General Accounting Office (GAO)
released its final report, thoroughly assessing the District's
financial structure and corroborating the existence of a structural
deficit in the District's finances.
Economic changes have lead other jurisdictions to begin identifying
structural issues as well, and the District shares in the breadth and
depth of problems facing most States and localities. In addition,
however, the District's structural imbalance is more extreme, driven by
the unique set of services provided by the District and the unique set
of restrictions that limit the District's revenue raising capacity. I
have testified to these requirements and restrictions on several
occasions. In the District, we provide city services, State services,
county services and even the services of a school district; we provide
public safety and public works services to the Federal Government
itself. We do all this with an artificially constrained tax base. We
cannot tax the income of people working in the District and living
elsewhere, a restriction faced by no State. We cannot tax 42 percent of
the property value within the city because it is owned by the Federal
Government. We cannot count on high-density property to make up for our
limited taxable property because of the height restrictions on District
buildings.
The cumulative effect of these requirements and restrictions is
that the District faces a long-term structural imbalance, whereby it is
unlikely that we can provide a standard quality and range of services
to our citizens, even with tax burdens that exceed those elsewhere.
This imbalance manifests itself in many ways:
--The District's per capita expenditure requirements are very high.
We face high per capita expenditure requirements because we
provide public services in a market with high labor costs; we
provide services to a large commuter population; and we have
many residents with high service needs. On top of these cost
drivers, the District provides about $500 million in services
of a State-like nature, and we provide millions of dollars of
services as host to the Nation's capital. Although the District
certainly has the potential to improve the efficiency of
operations, the District's higher costs are determined by
factors beyond our control and cannot be offset entirely by
improved service delivery.
--The District compensates for its very high expenditure requirements
with taxes that are very high. The District's tax effort is
among the highest, if not the highest, in the Nation. The need
for high taxes is driven further by restrictions on the
District's ability to tax income earned in the District and a
significant portion of the property within the District.
--The structural imbalance is not just a reality facing the
District's operating budget. The imbalance contributes to a
significant capital budget and infrastructure problem as well.
The District faces an accumulated infrastructure backlog of
$2.5 billion, which has not been funded in recent capital
improvement plans. The District continues to defer capital
investment to avert the operating costs associated with debt
service. The problem is acute because additional borrowing
could raise outstanding debt to levels that adversely affect
the District's credit rating.
When it comes to addressing the structural imbalance, we have few
options. Increasing the tax burden on District businesses and residents
even further could have an adverse impact on total receipts, because it
could influence potential and current residents or businesses to locate
in adjacent, lower-tax States. Given the structural imbalance, the
District must choose between tax levels that are even higher than the
national average, service levels that are lower than the national
average, or combinations of both.
An alternative solution is Federal compensation for the District's
unique relationship with the Federal Government. Not only does the
District provide unreimbursed services to the Federal Government and
fund itself with a federally restricted tax base, but the Federal
Government has a strong interest in a fiscally secure District of
Columbia. Ultimately, the long-term solution to the structural
imbalance is a matter to be addressed by District and congressional
policy-makers. A dialogue must continue that revisits the Federal/local
partnership and arrives at a long-term solution for equitable support
of District services.
It is my hope that the GAO report helps Congress and the District
move beyond questions of whether there is a structural imbalance to
questions of how the Federal Government and District government can
work together to address this problem. And this problem must be
addressed with urgency to ensure the long-term financial viability of
the Nation's capital city.
CONCLUSION
Mr. Chairman, this concludes my prepared remarks. I request that
this testimony be made part of the record. I will be pleased to answer
any questions you or the other members may have.
Senator DeWine. Good, thank you very much.
Senator Landrieu.
Senator Landrieu. Thank you, Mr. Chairman. I really
appreciate the overview provided by each one of you, and
particularly the points of your focus.
EDUCATION
Mr. Mayor, maybe I should start with an issue that has been
in the news a great deal, an issue that probably needs some
clarifying, and we are going to spend some time working on this
issue here, and that is the issue of education and choices and
opportunities that we have to improve the educational
opportunities for children not just here in the District. As
you know, it has been a major focus of Congress with the
passage of ``Leave No Child Behind'' as well as other efforts
of funding and reforming special education.
It has been a real focus of Congress to try to figure a new
way to work in partnership with local Governments and State
Governments to enhance the quality of education for all
children, and it is a contentious debate at times, because
there are a variety of different approaches. There seems to be
some consensus emerging at least on the subject of providing
more options than what exist now, but as you know, there is not
tremendous support, and I agree with that, for abandoning the
public school system, even though I know that people would
contend that this is not what some people are attempting to do.
Some evidence would suggest that some people have maybe
completely given up on the public school system and want to go
elsewhere. I am not one of those.
So given this debate, could you just express to us, as
clearly as you can, about what your views are. You have talked
about a three-sector approach when this subject comes up, could
you just clarify that issue for us? I realize that the school
budget is not part of the District's Federal budget--though the
school board is not here, I would like your views, Mr. Mayor.
Many Mayors are now stepping up to try to help their cities
navigate this issue of school choice, and your voice is one
that we listen to a great deal, could you clarify what some of
your thoughts are about that issue, and then I will come back
to some others that you outlined.
Mr. Williams. Well, I think, Senator Landrieu, that
education is really critical to the future of the city. It is
critical to have any kind of workforce and talent pool that our
businesses need. It is critical in terms of having in the
future the civic leadership that any city needs, let alone our
Nation's capital, and if you look at a lot of literature about
cities right now, people will tell you that more and more
employers are looking to come to cities for the sense of energy
and creativity, energy that a city is about.
Well, clearly you are not going to have that energy and
creativity if a good part of your city is really not fully part
of the mainstream educationally, in terms of literacy and
otherwise, so education is vitally important, and what we have
tried to do is certainly in the first instance put a major
emphasis on education over, if you look at the budgets over the
last 4 or 5 years that I have introduced to the council, you
know, major increases have really gone to either human services
or they have gone to education. Everything else has pretty much
been flat--education, some 42 percent increase in education.
As we face this looming structural, well, present and
looming structural imbalance in the capital budget, we have had
to basically cut out of the capital budget $250 million in
order to preserve capital dollars for school programs, so
schools have been, are, and will continue to be, the public
schools, a major part of our emphasis, because they are clearly
the major part of the lifting and the delivery system for our
children, and in that regard, the program that I have
supported, calling for additional dollars for a choice program,
or additional dollars above and beyond the dollars that we are
investing in our schools.
To the extent that children leave our regular public
schools under this program, we would hold our regular public
schools harmless, so in any event, regular public schools would
have additional dollars to devote to better class sizes, other
kinds of initiatives.
Above and beyond that, we are proposing as part of this
three-sector strategy provision of dollars, I would like to see
in the order of magnitude of $50 million ongoing funding to
relieve the funds of State costs that they can then invest,
State costs borne by our District, no other State, or not other
city, certainly, that can go into teachers, learning, and other
kinds of enrichment.
The second part of this program, in addition to these
ongoing dollars for the public schools, would involve $50
million matched by the private sector for school modernization
for our charter schools. Right now, the demand far outstrips
the supply for our charter schools. One of the big issues, as
you know, is facilities in our charter schools. This will go a
long way toward helping our charter schools meet and satisfy
that gap.
And then finally, certainly there is a choice component
here for the third sector. We believe that it ought to be
devoted to children who are right now trapped in our low-
performing schools, our lowest-income children, their ability
to go to schools in the District, schools that would agree to
accept nondiscriminatory policies, and certainly--and I am
pleased that the Cardinal has already evinced support for this,
certainly one leader in the private parochial area--that there
be a common accountability mechanism, so that--you know, one of
the things I am seeing right now as we enter into this debate
is there is so much fury, inflammatory rhetoric about what can
or will happen if we do this, but not a lot of it is based on
real, empirical data.
What we are talking about here is a pilot. We are talking
about experimenting, and we are talking about doing a study
under the Department of Education, Federal Department of
Education, so that 4 or 5 years from now, we can look and say,
okay, the outcomes were better, or maybe the outcomes are the
same, or maybe they are no different, in which case we ought to
try something new. And that is what I am proposing, and that is
what I strongly support.
I think we have tried one model for a long, long time. We
are not abandoning that model, but if we can help 2,000 or
3,000 children as part of a multisector approach, I think we
ought to do it.
SCHOOL CHOICE
Senator Landrieu. Well, just to conclude, and then I have
got a couple of questions on different subjects. Regarding
school choice, perhaps an approach would be a limited pilot, as
you have described, but that would include not just the
District, but several other cities, but quite limited, and the
parameters quite secure. One of the reasons that I hesitate to
even be more supportive at this point is because of the
experience we just went through with ``Leave No Child Behind'',
where funding was promised, but it was not forthcoming, and so
I guess that there are many Members of Congress on both the
Democratic and I would say some on the Republican side, that
are wondering how we even move forward from here. There were
commitments of funding levels made to schools across the
country, and in my position the chairman may disagree, but
those levels were not--whoever's fault it was, we could argue--
but those levels were not maintained, and so entering into any
kind of arrangement without some security of the funding that
follows whatever arrangements is something I think we should be
very careful about, and again, having an approach that might
include other regions of the country as well, if we were going
to pursue it.
But finally, I do want to, Mr. Mayor, commend you for being
at least open. I think in this debate we have to be open to new
approaches, but your efforts and the council's efforts
particularly on expanding charter school options and choices in
the District is very commendable. There are not many cities,
Mr. Chairman--and I think now almost 17 percent of the students
have a choice for charter schools. There are many cities that
have much more limited choices, so the District has made a lot
of progress in their charter school movement, and now having
quality charter schools and accountability.
But when you move into other areas beyond that, this issue
of what children will be tested, what tests they will agree to,
the private sector, as you know, holds very dearly their
freedom to either not have tests, have whatever kinds of tests
they want--of course, they do not have public funds involved,
so they have that freedom, but adopting a new system would
require private and independent schools to maybe adopt certain
criteria that they might not feel is appropriate.
So we are not going to resolve it today, but I just want to
commend you for being open, but I guess caution that we proceed
very slowly because of some of the things that I outlined.
Go ahead.
Ms. Cropp. If I may just for a moment add to that, the
council shares in your concern with regard to funding for
unfunded mandates. With ``No Child Left Behind'', the District
is looking right now for millions of dollars to try to pay for
that. We have the issue of our transformation schools that we
are still dealing with.
I would just like to put on the record for discussion not
only in the District, but I think nationally, the real issue
and concern with education is with the hard-core child who is
having problems. The District has probably the largest charter
school population of any city, any State in the country almost,
or we are probably up there in the highest rank. Normally,
those who go to charter schools, it is a certain culture, or a
certain belief from the parents starting out with the children,
but we still are not really tapping into that hard-core,
uneducated child, and no matter what of the pilots that we are
talking about now, until we touch into this hard-core group of
those who are undereducated, I do not think we are going to
achieve what we want to achieve.
And the District of Columbia has really done exceptionally
well, I think, over the past several years, but the area, if I
had to select an area where I think we have the greatest need
in growth it is with education and with our young people, and I
would hope, as everyone, the District, nationally, other
jurisdictions, as we look at it, we do not just look at those
individuals who are going to make it. You know, with the
charter schools, the parents obviously have a care for
education. With school of choice, the parents obviously are
trying to seek a higher level of education for their children,
but it is that hard core that is in the public schools around
this country, that if we do not address them, we are not going
to resolve the problem at all.
Senator Landrieu. Well, I thank the councilwoman, and I am
not going to take any more time, but only to say that many of
those hard-core children, as you are describing them, and
perhaps that is a good term, are special needs children, and
the Federal Government said they would pick up 40 percent of
the tab of special needs, and the Federal Government is only
picking up 8 percent for jurisdictions all over the country, so
that would have to be addressed as one of the founding building
blocks of this new proposal, that discrepancy in funding,
before we would proceed.
Mr. Chairman.
BOND RATING
Senator DeWine. Dr. Gandhi, what is the outlook on Wall
Street for the city's bond rating, and do you think that the
recent GAO report will affect the bond rating?
Dr. Gandhi. Sir, let's say my hope is that next time we go
to Wall Street--which will be another month or two--that we
would see an upgrade. That is my hope.
Senator DeWine. An upgrade?
Dr. Gandhi. Upgrade, sir, but let me say there are two
fundamental issues here. The people on Wall Street are looking
at, first, how well the city is managing its fiscal affairs,
and I think the elected leaders have proved that, in the 2003
and 2004 budgets, they have done heavy lifting and have done
monumental work in terms of making sure that our budget is
balanced. It is balanced without raising any taxes. They were
able to provide realistic remedies to solving problems without
using any tricks--no one-time revenues, no accounting mechanism
that others have used. We have not done that.
The second issue here is that they do look at our
structural problem. There is no way of going around that. That
does affect us, and they look at our long-term economic
viability. Unless the Congress resolves this fundamental issue,
we do have some problem, but as far as the city's fiscal
credibility, I think we have proved on Wall Street that we can
manage the city, and manage in a very fiscally prudent and
financially responsible manner.
The last thing I would say, sir, is that we now have
roughly 25 percent of our fund balance, and until the year
2007, every year we will have more than half, up to 60 percent
of our fund balance, in cash. No other State, except perhaps
Mississippi, that has a requirement of putting 7 percent of
fund expenditure in general fund cash reserve. We have that.
Further, and I will end with this, the replenishment
requirement that we have is rather--how shall I put this?--very
strict; so basically, that fund is untouchable, and that gives
a lot of assurance to the people on Wall Street that that money
is always there, and there in cash, so I am very hopeful.
Mr. Williams. If I could add, Mr. Chairman----
Senator DeWine. Good. Mr. Mayor, go ahead.
Mr. Williams. Because of my experience as CFO, I think that
it actually helps, because when we go up and talk to them, one
of their major issues is this issue of the imbalance, and the
Federal relationship, and to the extent that a recognized
authority like GAO has pointed this out, and that there are
statements from you as Chairman and the Ranking Member on this,
and certainly our Congresswoman, I think that that actually--I
think Wall Street sees that as supportive, as opposed to
counterproductive.
Another thing, as I just said, I am proud of the fact that
from the time of our fiscal insolvency until now--and you are
talking about a swing probably of, what, around $1 billion?
Dr. Gandhi. $1.3 billion, yes, sir.
Mr. Williams. Right, in liability, to now a fund balance,
we never financed our debt. So we basically worked that debt
down year by year, managing--you know, like the family managing
the MasterCard, we just managed it down the very, very old-
fashioned, hard way. And I think that is to our credit, over
these last 7, 8 years.
Dr. Gandhi. And Mr. Chairman I would add, just to
supplement the Mayor's point, that when the tobacco money came
to us, we securitized that, and that substantially lowered our
debt by $1/2 billion.
Senator DeWine. You did what, Doctor?
Dr. Gandhi. Securitized our tobacco debt, and consequently
we do not have to now rely upon lower tobacco consumption and
lower tobacco input into the fund. We are basically free of
that obligation, so I think it was a very wise fiscal move on
the part of the elected leadership, and it established our
credibility on Wall Street even further.
COMBINED SEWER OVERFLOW PROJECT UPGRADES
Senator DeWine. Mr. Mayor, in fiscal year 2003, our
subcommittee provided $50 million to begin these urgently
needed upgrades to the city's Combined Sewer Overflow Project.
Do you want to give us an update on the status of the project?
And also, with Federal cost-sharing, how will you be able
to reduce the time for the project completion, and also maybe
tell us a little bit about, if the funding level goes down? In
other words, if the numbers we are able to give you will go
down to, say, $10-15 million, what does that mean to you?
Mr. Williams. Right. Well, Mr. Chair, first of all the
project, as you know, has three phases. There is the Anacostia
phase, the Potomac phase, and the Rock Creek phase. All of
them, particularly the Anacostia and Rock Creek, are
particularly polluted.
The most urgent and complicated of these is the Anacostia
River phase, which as you have mentioned is $1 billion. The
contribution of $50 million so far has been matched by a $90
million contribution from WASA, which will go to completing
early work. There remains, however, a need of $800 million for
this Anacostia phase. There are several projects that are
already underway, pumping capacity, targeted separation, an
initiative to maximize storage in the existing system. Were we
to receive reliable funding--in other words, if we were to know
we were going to receive reliable funding over a period of
years, we would then be able to finance the project properly
and start the project in all of its phases and get it done over
a reasonable period of time.
Senator DeWine. Reliable means what?
Mr. Williams. Pardon me?
Senator Landrieu. Dedicated.
Mr. Williams. Dedicated, reliable, recurring funding.
Senator DeWine. At what level, though? It means at a
certain level, I assume.
Mr. Williams. Well, I do not want to--I could get you the
exact number, but I would believe that if we were able to
receive the level of funding we have already received on a
reliable basis, recurring basis, we could then take that to the
markets and package the project and get it done in a timely
fashion.
Senator DeWine. Sure.
Mr. Williams. Were we not to receive this, I do not see a
way that we can rely on our taxpayers and our businesses to
shoulder the total cost of doing this project, and I think the
results are just tragic, because it would grossly undermine the
overall effort to revitalize the river, revitalize the city's
waterfront here in our Nation's capital, what is it, ten blocks
from the U.S. Capitol.
And I might mention that the sewage system is antiquated.
It was built in the last century. The major issue is, as you
know, storm separation. This is the old, quote-unquote old
city, south of Florida, here in Washington, D.C. The Federal
Government probably has got about a 60 percent share of that
old city, so it really is--it is not just a Federal issue
because we are the Nation's capital. It is a Federal issue
because our largest employer or major corporate partner here
has got to do its share.
METRO COMMITMENT
Senator DeWine. Let me move to another area. You are
requesting Federal support to help the District meet its
commitment to Metro. Do you want to explain why you feel this
Federal commitment is so important?
Mr. Williams. Well, Metro is certainly important to our
city's economic livelihood, because our city has probably the
second-largest in the country, I believe it is, ingress-egress
of commuters of any city in the country. We have--like many
cities in the country, we are in the top tier in terms of
transportation congestion. This has been exacerbated by Federal
actions, however well-intentioned, whether they are up here at
the Capitol, but certainly down with the executive agencies,
and most prominently, the White House. We have got Pennsylvania
Avenue closed.
I do applaud the effort to begin work on studying a tunnel,
but we are way behind in getting the circulator moving, which
will help free up traffic, so here you are trying to revitalize
the city. We have seen $27 billion of investment in the city,
and yet we have got this transportation congestion,
coagulation, which is really hampering that effort to bring in
additional business. The tractor man was a great example of how
one little hiccup in the system can ricochet all over the
region.
Another example, if the Pentagon decides they are going to
change how they register employees as they come in, or change
how they do business--I remember this happened shortly after 9/
11. We had traffic backed up for miles all over the place, so
we really need Metro.
Now, Metro, the District's share of Metro is
disproportionately higher than the surrounding jurisdictions,
even though we do not have the tax base to support it, so our
share is disproportionately higher, and we are paying that
share, as Chairman Cropp has mentioned, unlike our partners in
Montgomery County, Fairfax County, and the like.
Dr. Gandhi. If I may supplement the Mayor----
Ms. Cropp. If I may add to that?
Senator DeWine. Sure.
Ms. Cropp. What the mayor just articulated, with the share
that we are paying, our capital dollars are being spent, and we
are almost at a very high level. The infrastructure of the city
as a whole needs to be repaired. The Mayor, the council, we
have aggressively been trying to do that, fix our streets and
do other things. With limited capital dollars, and with such a
large share having to go to Metro, at some point the city is
going to have to make a decision.
Remember, we are talking about our taxpayers' dollars, and
our taxpayers are saying, we want our parks and recreation that
you are talking about, and the fact that we cannot even keep
our parks, our recreation facilities, but we are going to help
to pay and offset a disproportionate share of Metro for people
outside of the District of Columbia, once again, a structural
imbalance where the people who are paying for it are not even
getting their dollars' worth.
Mr. Williams. That is an excellent point. In 2005, I
believe, the Metro share climbs up to $200 million, so you are
already cutting the capital budget tremendously in order to
meet the kind of per capita debt ratio that is going to satisfy
Wall Street, and you have to cut it tremendously in order to
just maintain ground with the schools, yet we have got to face
this $200 million of Metro that is going to further crowd out,
as the chairman is saying, needed investments.
Senator DeWine. Doctor.
Dr. Gandhi. If I may just supplement by some numbers here
the Council Chairman and the Mayor's point--if you really look
at this formula, which is really antiquated, we are now paying
around 39 percent of the subsidies, while we hold only about 6
percent of the real property valuation in the region, and only
about 20 percent of the workforce is the riders who are on
Metro. Any working day, the majority of the people riding Metro
are basically regional people, and any working hour, especially
in rush hours, the majority of the riders are Federal workers.
Senator DeWine. Senator Landrieu.
Senator Landrieu. Let me ask--and I really appreciate the
discussion on Metro, because I think there might be some
opportunities there for us to pursue some of the suggestions
that all of you have made, Dr. Gandhi, some of us debated
within this recent tax relief an opportunity, although it never
came to fruition, to allow our cities to save through
refinancing, because there are some Federal restrictions right
now on refinancing. We did not opt to do that, which I think we
should have, because we could have, at no cost to the taxpayer,
saved our city some money.
Would that be applicable to you in terms of, if we allowed
some refinancing options, and I am not talking about
reamortizing the debt, stretching it out, I am just talking
about a refinancing to take advantage of potentially lower
rates. Have you looked at that to see----
Dr. Gandhi. I appreciate your concern, Senator Landrieu,
and I think currently we are exploring every available
opportunity to refinance our debt. We want to be absolutely
sure that as we refinance, that roughly 15 percent of the total
current outstanding debt should be the limit by which we have
new issue of additional general obligation. We also want to
make sure that our debt services do not rise above the limits
that we have imposed upon ourselves in terms of the overall
revenues.
But our fundamental problem, as the Mayor and Mrs. Cropp
have pointed out, is that our per capita debt now is among the
highest in the country, and we are neck and neck with New York.
Senator Landrieu. And what is that? What is your per capita
debt?
Dr. Gandhi. That is around, roughly in 2004 it is likely to
be around $5,000 per capita. That is a lot of per capita debt,
because we are carrying the debt of the municipality, county,
and the State.
Senator Landrieu. Correct. It is a combined debt that you
are carrying.
Dr. Gandhi. Senator, the chairman had asked me a question
about the viability of having an upgrade in the bond rating,
but this is one of the things they look at, what is your per
capita debt. In per capita debt, we are very high.
Senator Landrieu. Well, explore--and if you have any
Federal restrictions that are not allowing you to refinance to
take advantage of lower rates, let us know, because it may be
something that our committee could help you with, because some
of us had that idea to allow all the cities to do it in the tax
package. It did not make it in the final package.
And finally--I know we have a vote--Mr. Mayor, we are
committed, as the chairman, under his leadership, to help on
this Anacostia piece. I think it is very important, to find out
what the surrounding areas are contributing, because as I think
about it, even if we would redo the sewer system here in the
District, there are lots of other States or counties that drain
into this basin. I should be more clear as to what Maryland and
some of the other jurisdictions are doing in terms of their
nonpoint pollution source and revitalization of their
infrastructure, or is their infrastructure already where it
needs to be?
Mr. Williams. Well, certainly I would say that--and I
applaud Senator Sarbanes, the former Governor, the current
Governor, county executives, Prince George's and Montgomery
County have all pledged their support to the Anacostia
Waterfront Initiative, and indeed some steps have been taken
certainly on a cosmetic level, although that is important, too,
just the trash traps on some on the tributaries up in Maryland,
so we at least do not have just huge amounts of floating debris
on the top of the river, but above and beyond that, a firm
commitment on real dollars to the water clean-up is still
forthcoming.
But I think that, you know, were there to be the kind of
commitment by this Congress, I think--and certainly there is a
commitment here at the local level--we are able to leverage
that and get that commitment up there as well.
Senator Landrieu. So to do this project, you would need
Maryland, primarily, participating. Any other State?
Mr. Williams. Well, you are talking about three rivers
again. You are talking about Potomac, Anacostia, and Rock
Creek.
Senator Landrieu. So you would need Virginia, Maryland----
Mr. Williams. The two most polluted, Rock Creek and
Anacostia River, you are talking primarily Maryland. When you
get into the Potomac, obviously you are talking about
ultimately up into West Virginia and Virginia, in the
watershed.
Senator Landrieu. Okay. Thank you.
PREPARED STATEMENT OF SENATOR PAUL STRAUSS
Senator DeWine. Senator Strauss has prepared a statement
for the record, which will be included.
[The statement follows:]
Prepared Statement of Senator Paul Strauss
Chairman DeWine, Senator Laundrieu and distinguished members of the
Senate Subcommittee. I am Paul Strauss, the Shadow United States
Senator elected by the voters of the District of Columbia.
I appreciate the opportunity to provide this statement on behalf of
my constituents in the District of Columbia. Today I would like to
address the District's fiscal year 2004 local budget request to
Congress. I would like to state for the record that the locally raised
portion District of Columbia budget should not have to go through this
process. The fact that there is a congressional hearing devoted to our
budget is fundamentally wrong. These hearings have been held in the
D.C. Council and the District should not have to submit this purely
local portion of the budget to Congress at all.
It is essential to the District of Columbia that Congress pass this
budget in time for the new fiscal year 2003. You must avoid getting the
local District of Columbia budget held up in Continuing Resolutions.
The consequences are severe enough when the Federal Budgets get held up
in Continuing Resolutions but the consequences are far worse when
applied to the budget of the District of Columbia. When the District of
Columbia's budget is held up, needed spending adjustments increases are
not allowed to be implemented and the cost of debt services increases.
Our local govermental services suffer greatly every new day that our
budget is held up.
An easy solution to the dilemma of our budget being held up every
year is budget autonomy. The budget autonomy bill in the House of
Representatives allows the District Budget to be separated from the
Federal Appropriations Process. That is a good step in the right
direction but it does not go far enough. Our local budget should have
nothing to do with Congress. Since fiscal year 1996, the District of
Columbia has continuously provided Congress with a balanced budget. The
District of Columbia has demonstrated itself as a competent, governing
body, which should allow the District right to reject all policy
interference and social riders attempting to regulate the government
within the District. It should be the privilege and priority of the
government of the District of Columbia, not Congress, to make the
District's economic decisions. Although it is a present constitutional
prerogative of Congress to exercise oversight of the District and its
budgetary needs, it is not always appropriate.
The District of Columbia has submitted a budget that calls for
serious investments in education and public services. Mayor Williams,
Chair Cropp, and Chief Financial Officer Gandhi have explained the
specifics in great detail and I support their efforts in the budgetary
requests of the District of Columbia.
I do not mean to suggest that there is no role for Congress in the
D.C. Budget process. This committee should focus on resolving the
structural imbalance faced by the District of Columbia. The structural
imbalance faced by the District of Columbia is one of the major
problems concerning the budget. The gap between the District's ability
to raise revenue at reasonable tax rates and the District's ability to
provide services of reasonable quality to its residents jeopardizes the
District's ability to retain residents. Instead of being penalized for
residing in the District, they should receive the same constitutional
rights as all American citizens.
The government of the District of Columbia needs to be fairly
compensated by Congress for the services it provides to Federal
agencies. This compensation would provide a solution to the structural
imbalance within the District's budget. The District's government
represents the citizens of the most unique city in the Nation. The
District has repeatedly provided Congress with a budget that has proved
to be both sensible and attainable. The outlook for the current fiscal
year 2003 budget is being projected as balanced with a surplus. The
government of the District has proven itself to be the best determiner
of the expenditures within the District itself. This reoccurring record
of balanced and responsible budget management during times of economic
hardships and declining revenues is yet another fact that proves the
District's elected officials can govern the District. Not allowing the
District to have complete control over its spending only increases the
structural imbalance in the District which continues to discourage its
citizens.
The elected officials of the District work hard to ensure the
District is able to attain the locally raised revenue needed to fund
various local interests such as public service and education. The city
should be able to utilize its tax dollars in a more flexible manner.
Allowing the District's government flexibility with its tax dollars
would give them an opportunity to provide the community grater benefit
from that revenue. Flexible use of locally raised revenue within the
District of Columbia would provide the proper funding would ensure the
community's public service departments remain secure and stable
entities within the city. My constituents have the right to receive
needed revenue to meet their children's educational needs. I urge you
to approve the proposed budget, as it will be necessary in aiding the
improvement of our District's schools. The District submitted a timely
budget so Congress has appropriate time to approve it. I again ask that
Congress pass this budget before the beginning of the fiscal year. It
is unfair the District and its constituents suffer Congressional delays
that often disrupt critical improvements such as these within the local
government.
I would like to thank you, Chairperson DeWine for the opportunity
to present this statement. This budget was carefully drafted in order
to benefit the citizens of the District of Columbia. I support this
prompt passage without amendment. In closing, let me that two members
of my legislative staff, Matt Helfant and Tricia Torok, for their
assistance in preparing my testimony this morning.
SUBCOMMITTEE RECESS
Senator DeWine. Well, we thank you very much.
Mr. Williams. Thank you, Mr. Chairman.
Senator DeWine. I think it has been a very helpful hearing.
Mr. Williams. Thank you.
Senator DeWine. Thank you.
[Whereupon, at 11:23 a.m., Wednesday, June 11, the
subcommittee was recessed, to reconvene subject to the call of
the Chair.]