[Senate Hearing 108-]
[From the U.S. Government Publishing Office]



 
        DISTRICT OF COLUMBIA APPROPRIATIONS FOR FISCAL YEAR 2005

                              ----------                              


                        WEDNESDAY, MAY 19, 2004

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:06 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Mike DeWine (chairman) presiding.
    Present: Senators DeWine, Hutchison, and Landrieu.

                          DISTRICT OF COLUMBIA

STATEMENT OF HON. ANTHONY A. WILLIAMS, MAYOR
ACCOMPANIED BY:
        LINDA W. CROPP, CHAIRMAN, COUNCIL OF THE DISTRICT OF COLUMBIA
        NATWAR M. GANDHI, CHIEF FINANCIAL OFFICER

               OPENING STATEMENT OF SENATOR MIKE DE WINE

    Senator DeWine. Good morning. This hearing will come to 
order.
    Today, we will hear testimony regarding the District of 
Columbia's fiscal year 2005 local budget request. D.C. Mayor 
Anthony Williams, D.C. Council Chairman Linda Cropp, and the 
District's Chief Financial Officer, Dr. Natwar Gandhi, will 
present the city's budget and will discuss the District's 
requests for Federal resources.
    I would like to note that last year the Senate passed a 
bill by unanimous consent which would give the District 
autonomy over its local budget, eliminating the need for the 
D.C. local budget to be passed on the annual appropriations 
bill. By decoupling the local budget from the Federal 
appropriations process, we will avoid delaying the city's local 
funds from being available whenever the D.C. appropriations 
bill is not passed before the end of the fiscal year, which 
occasionally does happen.
    Senator Stevens, the chairman of the full Appropriations 
Committee; Senator Byrd, the ranking member of the full 
committee; Senator Landrieu, ranking member of this 
subcommittee; and I all cosponsored this bill. Unfortunately, 
the House has not considered a companion measure. So today we 
will not only hear city leaders present the priorities for the 
Federal payment, but we will also receive the city's local 
budget for our consideration and inclusion in the D.C. 
appropriations bill.
    As we consider the local budget, I would like to 
congratulate the city leaders on the vote of confidence that 
they have recently received from Wall Street. At a time when 
many local jurisdictions' bonds are being downgraded, the 
city's bonds were upgraded two steps, from BBB+ to A. So we 
congratulate the city and the city's leaders.
    Despite this good news about the city's short-term 
financial performance, I think we are all well aware that the 
city faces a long-term economic structural imbalance, and that 
has been well documented. 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 
frankly are mostly 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 non-
residents.
    I agree that the city faces a troubling problem in the long 
term, and I plan to hold a separate hearing on June 22 to begin 
to discuss ways that the city can address this problem. At that 
hearing, we will hear from business leaders, local officials 
and economists about ways to close this gap and ensure the 
long-term economic health of our Nation's Capital and the seat 
of our Federal Government. So we look forward to that hearing 
on June 22. I think it will be a very informative hearing and I 
think a very important hearing.
    I note that some of our colleagues in the House, 
particularly some of our colleagues from Virginia, have taken 
the lead in this area and we congratulate them for that. Some 
of them will be testifying, as well, on that date and we look 
forward to their testimony. This will be, I think, a very 
important hearing and I think we will draw some attention to 
this very important issue.
    I believe that the Federal Government must recognize the 
costs it places on the city and the burden it places on the 
city's infrastructure, all the while limiting the ability of 
the city to raise revenue. Indeed, many of the problems facing 
the city result from it being the seat of the Federal 
Government. As chairman of the subcommittee, I intend to work 
to explore and develop ways to avoid a financial catastrophe 
for the District of Columbia.
    Now, we look forward today 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 2004 
appropriations bill. Clearly, there are many worthy activities 
which will place demands on the always limited resources in the 
D.C. appropriations bill, but we look forward to working with 
city leaders to fund a number of the city's initiatives and to 
continue to make life better for all who live, work and visit 
this Capital City.
    As usual, witnesses will be limited to 5 minutes for their 
oral remarks. Copies of all written statements will be placed 
in the record in their entirety.
    Let me now turn to the ranking member of the subcommittee 
and my good friend and colleague, Senator Landrieu.

                 STATEMENT OF SENATOR MARY L. LANDRIEU

    Senator Landrieu. Thank you, Mr. Chairman, and I welcome 
all the leaders of the city, Mr. Mayor and members of the 
Council, and thank you all for being here this morning and for 
your hard work to help make the District the wonderful place it 
is to live and a wonderful place as an example for the Nation.
    We thank you for your leadership and for acknowledging the 
very special and unique partnership that the District has with 
Federal officials. So we look forward to continuing to work 
with you across a broad array of issues, particularly on the 
transformation of the education system and reform here in the 
District; the renaissance of the Anacostia River waterfront; 
the rebuilding of the child welfare system; some additional 
general management principles that we have worked on; the 
financial discipline that this committee and others have 
helped, with your leadership, to bring to the city.

                           PREPARED STATEMENT

    I am going to submit a more formal statement, Mr. Chairman, 
for the record to get us to our panel more quickly. I will wait 
for further comments until the question period.
    Thank you.
    [The statement follows:]
             Prepared Statement of Senator Mary L. Landrieu
    I would like to welcome our witness 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 2005 local funds budget.
    The District has been careful to develop a consensus budget, and 
rather than adding funds to please every constituent group, has looked 
ahead to address looming budget pressures while maintaining priority 
services. 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. The city is in good fiscal standing and I 
trust that this environment will continue. However, long-term economic 
pressures on the city and continued service challenges in such areas as 
public education and child welfare will require a different management 
approach. I am committed to developing a new partnership with the 
District to support building the Mayor's goal of building the 
population by 100,000 residents.
    In addition, substantial Federal funding was provided to the 
District over the last 3 years, fiscal year 2002, fiscal year 2003, 
fiscal year 2004 ($136.3 million in direct response to requests made by 
the Mayor, out of a total $545 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.
    In keeping with our mandate, the Committee must balance the State-
level agencies we are legally responsible to fund and funding the 
priority needs of the city leadership. The Mayor has requested an 
additional $253.5 million, above the $71.3 million requested in the 
President's budget. Chairman DeWine and I share a commitment to the 
restoration of the Anacostia Waterfront, improving child and family 
services, 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.
    The fiscal year 2005 President's budget supports a wider array of 
local initiatives. Funding is recommended $7 million for the Unified 
Communications Center, $10 million for the combined sewer overflow 
initiative, $3 million for the Anacostia Riverwalk and $40 million for 
the three-sector School Improvement Initiative. I am interested to hear 
the city's view of two areas which the President requested that the 
Committee is seeking more information. The first, a request of $10 
million to construct a new firehouse in downtown District of Columbia 
was not initially requested by the Mayor. The second piece we need 
additional information to is the $15 million annual request for 
emergency planning and security; however, the President did not request 
any additional funds to address the inauguration. In 2001, the city was 
reimbursed for $6 million in inauguration costs. I appreciate the views 
of the witnesses on these two areas. The Chairman and I have a 
challenge ahead to balance additional requests during a seriously 
constrained Federal budget outlook.
    Last year, the General Accounting Office (GAO) confirmed a more 
broad challenge in a landmark report finding 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 the high cost of providing 
services in the District of Columbia. The Committee will review 
carefully the District of Columbia Fair Federal Compensation Act bill, 
introduced this month by Congresswoman Eleanor Holmes Norton, to 
reinstate an annual Federal payment of $800 million to the District 
targeted for infrastructure needs. The GAO identified capital 
infrastructure suffers the most because a budget balanced on a thin 
line has no room to invest in long-term capital projects or the ability 
to borrow great sums.
    The District is uniquely situated and requires a unique 
relationship with the Federal Government; the Committee should explore 
other options for funding: changing the tax collection ability of the 
District; funding directed to specific infrastructure; reevaluating 
State functions and taking over those agencies (like State education). 
We must examine the underlying issues that create an imbalance and take 
a multi-faceted approach to addressing it, before the District goes 
back to years of deficit. I understand Chairman DeWine will call a 
hearing later this year on the structural imbalance and I look forward 
to working collaboratively with him on this complex issue.
    One major benefit for the District, with no budgetary impact, 
endorsed by President Bush, is to release the local budget from annual 
Congressional approval--local budget autonomy. 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 am pleased to say, with the hard work of the 
Governmental Affairs Committee, the endorsement of President Bush, the 
Senate passed the budget autonomy bill this Congress. I hope the 
leaders here and Chairman DeWine will join me to gain approval in the 
House.
    I would like for the Mayor and Council Chairman Cropp to comment on 
how current and future general provisions--limitations on spending 
local and Federal funds--will be addressed under budget autonomy. I 
respect city leaders' diligence in implementing and upholding these 
``social riders'' through the years, against local pressure. I expect 
that 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.
    In addition, this year Chairman DeWine and I have investigated the 
Youth Services Administration and Child Services Agency. I understand 
the Mayor is developing a plan to transition the Oak Hill youth 
detention facility to another model which is better focused on 
rehabilitation, not just housing, of youth involved in the criminal 
justice system. I know the Chairman has a keen interest in this project 
and I am committed to bringing national programs and resources to bear.
    The Committee also held a hearing last week on the charter school 
movement in the District. I was very encouraged to see proof that the 
District is far ahead of other cities or States in developing a strong 
charter school base. Now at nearly 20 percent of the public school 
population, charter schools are showing great innovation and have the 
ability to cultivate this innovation in traditional public schools. The 
Congress passed the first charter school law, the School Reform Act of 
1995, overseeing the creation and oversight of schools. The Committee 
will be re-examining this law to see if there are additional support 
mechanisms needed to scale up the most successful charter schools. And 
by successful, I mean looking at the chartering principles, not just 
the test scores, to make graduates more employable or college-ready or 
self-sufficient. Congress will maintain the $13 million investment in 
charter schools, as well as overseeing the $1 in $7 spent in public 
charter schools from Federal funds. I look forward to the input of 
local leaders as Congress evaluates the Federal charter law.
    Finally, I am pleased to share with the Committee that the City 
Build Charter School Initiative, started in the fiscal year 2004 D.C. 
Appropriations Act, is about to take off. The City Build Initiative was 
created to support Mayor Williams' vision of increasing the population 
by 100,000 residents. This can be done by retaining current residents 
who move to the suburbs or attracting new residents. Educational 
options are the primary factor that has been pointed to in why families 
relocate. If waiting lists or tuition are insurmountable, families will 
move to find better educational options for their children. City Build 
was created as a way to connect the economic and community development 
already underway in emerging neighborhoods with schools. The promise of 
quality schools is a tool to increase residential and commercial tax 
base of the city.
    I am excited to see a plan developing in the city to identify 
neighborhoods that are ready for school investment and a process for 
creating schools. I am pleased to have benefited from the resources of 
the Brookings Institution's Greater Washington Research Program, led by 
Dr. Alice Rivlin and David Garrison. Their research has identified 12 
neighborhoods in the midst of or which are ready for revitalization 
that would benefit from more schools. I look forward to continuing this 
partnership this year in standing up the new City Build Initiative.
    In addition to the $13 million provided for charter schools and $14 
million provided for scholarships to private schools in the fiscal year 
2004 D.C. Appropriations Act, the Congress supported an unprecedented 
investment of $13 million in public education. The conferees agreed 
that these funds would be used to raise academic achievement of 
students and strengthen leadership and instructional excellence. The 
plan transmitted by the D.C. Public Schools lacked the detail necessary 
to justify these funds and, for the most part, did not meet the mandate 
set by Congress. The Committee is currently reviewing this plan and 
will provide guidance as soon as possible. However, I think it is worth 
noting to this panel, the elected leadership of the District and the 
independent Chief Financial Officer, that our ability to continue 
supplemental funding for public schools is severely impacted by this 
lackluster plan. I think the Committee should recognize that no one on 
this panel has control over the schools' choices on how they spend 
their budget. This disconnect has become very clear to Congress.
    I look forward to the testimony of our witnesses and hope that we 
may continue the strong partnership developed over the last 3 years.

    Senator DeWine. Senator Hutchison, any opening statement?

               STATEMENT OF SENATOR KAY BAILEY HUTCHISON

    Senator Hutchison. Thank you, Mr. Chairman.
    I am so, so happy about the bond rating upgrade. For the 
first time in the recent history--I can't say all the way back, 
but for the first time in recent history you have an A rating 
across the board from every rating agency. I commend the Mayor, 
Chairman Cropp and Dr. Gandhi for really making some tough 
calls to assure that your financial stability is in place. You 
had hard choices and I so appreciate that you have worked with 
our committee every time you have had a hard choice to make 
sure that we knew everything that was happening.
    I think the building up of the reserves which was mentioned 
by all of the rating agencies as something that I and this 
committee had really asked you to do--and you have done it 
really even before the timetable that we set, and I think that 
played an important role in those upgrades.
    I just want to say that this is going to help the city 
lower its cost of borrowing, which means more money will be 
available for the programs and the needs of the city. I think 
it is going to show a stability that will attract more business 
to the city and more taxpayers to the city. So I think it is a 
win for everyone.
    I want to say that I have been working with Dr. Gandhi over 
the last few weeks. He has asked for some adjustments in the 
reserves and I have worked with him and the rating agencies to 
assure that there could be some small changes that would give 
you more flexibility in the city, but yet keep the conservative 
approach.
    I am going to recommend that there be some changes. 
Basically, those changes would be to adjust the definition of 
expenditures so that the calculation of reserves excludes debt 
service, allows the calculation of the reserve amount to be 
based on the prior year actual ending expenditures rather than 
projected expenditures, reduces the total reserve requirement 
from 7 percent to 6 percent.
    Seven percent was more than most cities in our country 
have, but when we were working with B and very low ratings, 
that was very important to show that we were serious to the 
rating agencies. But now that we are A across the board, I 
think 6 percent is quite reasonable, and the rating agencies 
agree with that. So that will give you, I think, more leeway. 
And then we would extend the repayment period from 1 year to 2 
years, no less than 50 percent in the first year if you have to 
repay the reserves. So that also gives you, I think, more 
flexibility.
    I want to say that Dr. Gandhi has really been a leader in 
this. He asked for some changes, knowing that the Mayor and the 
chairman had wanted more flexibility, and I think we have come 
to terms that will be very favorable, but also still quite 
conservative and in line with the A ratings that you have.
    So I could not be more proud of this city from the 
financial standpoint than I am because you just worked so 
closely with us. You took leadership positions and I commend 
you, and I think it is going to be a great benefit in the long 
term for the city.
    Thank you, Mr. Chairman.

                   STATEMENT OF SENATOR PAUL STRAUSS

    Senator DeWine. Senator, thank you very much.
    Senator Strauss has included a statement to be inserted in 
the record as well.
    [The statement follows:]
               Prepared Statement of Senator Paul Strauss
    Chairman DeWine, ranking member Landrieu, and others on the 
subcommittee, as the elected United States Senator for the District of 
Columbia, I would like to take this opportunity to provide this 
statement on behalf of my constituents.
    Due to our lack of self-determination, we are unable to provide or 
fund certain government services on a local level. As long as Congress 
continues to utilize city services, it has an obligation to fully fund 
our city budget. I would like to address the District's fiscal year 
2005 local budget request to Congress. The hearings for this budget 
have been held in the D.C. Council, and are subsequently fundamental to 
the operation of the city. It is essential to the District that 
Congress pass this budget in time for the new fiscal year 2005, and 
avoid being caught up in Continuing Resolutions. When the District of 
Columbia's budget is held up, needed spending adjustments are not 
allowed to be implemented and the cost of debt services increases. Each 
day, our local government services suffer greatly when the budget is 
held up.
    The dilemma of our budget being held up every year can be resolved 
through budget autonomy. I appreciate the Senate passing this bill. I 
wish the House of Representatives would also vote to allow the District 
Budget to be separated from the Federal Appropriations Process. This 
step should be furthered, as our local budget has nothing to do with 
Congress. Since fiscal year 1996, the District of Columbia has 
continuously provided Congress with a balanced budget. The District has 
demonstrated itself as a competent, governing body, which should allow 
itself the 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 presently a 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 public services and education. 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.
    Congress should have a focus on the District of Columbia's budget, 
in respect to resolving the structural imbalance of the budget. This 
major problem concerning the budget is the gap between the District's 
ability to raise revenue at reasonable tax rates and the 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, citizens 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 would serve as a solution to the structural imbalance 
within the District's budget. The District's budget represents the 
citizens of the most unique city in the Nation. The District has 
repeatedly provided Congress with a budget that has proven both 
sensible and attainable. The outlook for the current fiscal year 2005 
is projected as balanced with a surplus. The District government is by 
itself the best evaluator of local expenditures. The 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, therefore discouraging citizens.
    The elected officials are persistent in attaining locally raised 
revenue needed to fund various local interests such as public service 
and education. The city should be allowed to utilize tax dollars in a 
more flexible manner. This in turn would give the District government 
the opportunity to provide the community greater benefit from the 
revenue. Flexible use of revenue specifically secures and stabilizes 
public service departments within the city. My constituents have the 
right to receive the needed revenue to meet their children's 
educational needs. I urge you to approve the proposed budget, as it is 
deemed necessary to aide the District's schools. The District of 
Columbia has submitted a timely budget so Congress has appropriate time 
to approve it. I ask again that Congress pass this budget before the 
beginning of the fiscal year. It is unfair to the District and its 
constituents when Congressional delays disrupt critical improvements 
within the local area.
    Thank you again for the opportunity to present this statement. This 
local budget was optimally drafted in order to benefit the citizens of 
the District of Columbia. I support its prompt passage without riders 
or amendments. In closing, let me thank a member of my legislative 
staff, Merin Rajadurai, for his assistance in preparing my testimony 
this morning.

    Senator DeWine. Mayor, would you like to come up, and 
Chairman, Doctor? We appreciate you all joining us very much. 
It sounds like we do have some good news.
    Mayor, why don't you start off? We have your written 
statement and we appreciate it very much, and if you could just 
summarize for us and give us the highlights.

                 STATEMENT OF HON. ANTHONY A. WILLIAMS

    Mayor Williams. Yes, Mr. Chairman, I notice that you have 
said about three times that you would just like the highlights. 
So I will take that instruction and I will submit my written 
testimony for the record and will share with you and with 
Ranking Member Landrieu and certainly Senator Hutchison some of 
the highlights.
    But I want to take this opportunity as Mayor of the city to 
thank the committee, No. 1, for its support for budget autonomy 
for our city, and you, Mr. Chairman, for your leadership in 
calling for a hearing on the long-term structural imbalance 
issue.
    Senator Landrieu, thank you for your leadership in many, 
many different areas, particularly with the Anacostia River and 
with education.
    Senator Hutchison, I have worked with you since the time I 
was CFO and I remember talking with you one night asking for 
mercy from the reserve requirement. You did not grant that 
mercy and, in retrospect, you were right and I was wrong. So we 
are in much better shape because of it. I thank you, though, 
for your willingness to work with Dr. Gandhi and provide those 
adjustments. I think they are welcome. Certainly, as former 
State treasurers, both you and Senator Landrieu, your comments 
on our fiscal status are taken to heart by this Mayor.
    In fact, though, Mr. Chairman and members of the committee, 
we are doing better, but there is still more to do. Because of 
the structural imbalance, the mismatch between long-term 
revenues and expenditures in the District, three things are 
happening in our city.
    First, because of the artificial restrictions on our 
revenue base against State expenditures and requirements as a 
Federal city, we end up over-taxing about half of our tax base, 
and that is not healthy for the long-term future of the city. 
We would like to have lower tax rates, and Council Chair Cropp 
has been a leader in that effort along with the Council.
    Secondly, because of this situation, we have the second 
highest per-capita debt of any city in the country, second only 
to New York City. This again reflects a mismatch between long-
term revenues and expenditures. Because of this mismatch, 
because we are at the limit of what we can borrow, we have 
under-invested and we are deferring massive investments in 
critical services and infrastructure. Approximately $2.5 
billion of infrastructure has been deferred, including 
renovating crumbling schools, repairing the sewer overflow in 
the Anacostia River, fixing roads, and putting in place needed 
security systems to keep residents and visitors alike to our 
city safe.
    The major initiatives in our local budget include 
education. We remain proud of our robust charter school 
movement which educates approximately 20 percent of the school-
age children in the city. Under our leadership, the local 
facilities allowance for public charter schools has increased 
by almost 400 percent, from $617 per student in 2000 to about 
$2,400 per student in the proposed budget before you.
    There is still more work to do, but we have been working 
with the subcommittee and the charter school community to 
launch the exciting City Build initiative which was funded by 
this subcommittee, and Senator Landrieu deserves enormous 
credit for that. But in education, we are working to expand 
early childhood education, to expand after-school and out-of-
school activities; working to create five new transformation 
schools, where we have shown improvement in test scores; 
creating eight new charter schools; and upgrading school 
security.
    In the public safety area, we make room in our local budget 
to continue to fund our full complement of 3,800 officers, to 
reconfigure our patrol service areas, to build our Office of 
Unified Communications, and to work toward civilianization of 
our force. A remaining challenge before us is working with the 
Council to reform our disability procedures and processes in 
the department. We think with an additional investment there, 
we can put an additional roughly 200 officers on the street.
    Opportunity for all is a major commitment of mine as Mayor 
of the city, and we have put in place additional funds for the 
Youth Services Administration, particularly for reform laying 
the groundwork for replacing the current Oak Hill facility with 
a smaller, state-of-the-art facility. And I applaud you, Mr. 
Chairman, for your leadership on that effort, and for your 
steadfast oversight.
    There are a number of requests we have made to the Federal 
Government in the Federal appropriations area; one is the 
Tuition Assistance Grant program. We are asking for a request 
to fully fund this program at a level of $25.6 million above 
the President's mark of $17 million. This has been a very 
successful program and honoring this request will avoid having 
to either limit the program on an income basis or to limit the 
program on a pro-rata basis. This has been a very successful 
program and we would like to continue its upward path.
    Bioterrorism and forensics laboratory. Every city in the 
Nation has access to such a facility, as provided by their 
State. Many major facilities have their own. This is a critical 
public safety investment and we are requesting $9 million to 
move down the road for the planning and design phase of this 
lab. After the 4-year period of capital investment, we are 
prepared to commit the $40 million, roughly, a year to operate 
this.
    We ask for dollars for the WMATA subsidy. What we have 
found, members of the committee, is that over the years the 
Federal Government has reduced its support for transportation 
in urban areas. States have increased their support. The 
District, because of its peculiar situation, is at a loss here. 
Maryland and Virginia are increasing their support. The Federal 
Government is diminishing its support.
    So we are at the core of the Washington area and the center 
of Federal operations and have an enormous hit on our budget 
because of the amount of the subsidy. This is again a State 
function. It is something that benefits the Federal Government 
and its workers and makes us a healthy and livable region.
    Next to last, Mr. Chairman, we ask for an increase in the 
Public Safety Event Fund. We have received from the President 
$15 million. We are asking for an allocation of $25 million, 
primarily and essentially because of the inauguration. With the 
expenses for the inauguration, post-September 11, we expect to 
easily absorb this additional amount. This is a one-time 
request for this addition and we would ask for the committee's 
support.
    Last but not least, in the area of public school security 
we have seen what has happened in our public schools, 
particularly at Ballou High School. We have developed with our 
chief and in consultation with school officials a detailed 
public safety plan and are requesting from the Federal 
Government $15 million to assist us in this effort.

                           PREPARED STATEMENT

    Again, I want to thank the committee for its support for 
budget autonomy as we move toward the road for full democracy 
in the District. With that, I would be happy, after the other 
testimony, to answer each and all of your questions.
    [The statement follows:]
             Prepared Statement of Hon. Anthony A. Williams
    Chairman DeWine, Ranking Minority Member Landrieu, and other 
distinguished members of this subcommittee, I would like to thank you 
for the opportunity to testify before you today in support of the 
District of Columbia's fiscal year 2005 budget and financial plan. It 
has been particularly rewarding to work with you, Chairman, and this 
committee over the past year. The strength of State and local 
government experience you bring to your oversight responsibilities, 
along with your dedication to the District of Columbia, provide this 
panel with an opportunity to make a difference in the lives of citizens 
of the District of Columbia and make our Nation's capital an even more 
rewarding place to reside, work, and visit. My remarks this morning 
will focus on three main goals we have for working with this 
subcommittee:
  --promoting the fiscal strength of the District despite a difficult 
        national economy and a long-term structural imbalance caused by 
        Federal restrictions;
  --passing a local funds budget that provides for citizen priorities; 
        and
  --seeking critical Federal investments relating to services for our 
        residents and our special status as the Nation's capital.
I will begin by discussing our efforts to overcome fiscal challenges.
                      overcoming fiscal challenges
    The District has worked hard to overcome many fiscal challenges 
over the past decade. Some have been of our own making, others have 
been a matter of circumstance, affecting States and localities across 
the country, and others have been imposed by the Federal Government. 
Under my leadership, along with the legislative stewardship of our 
Council, led by Chairman Linda Cropp, and the fiscal guidance of Natwar 
Gandhi, Chief Financial Officer, there are few States or localities 
that have accomplished more in such a short period of time.
    Fiscal year 2003 marked the District's seventh consecutive balanced 
budget. In April, the District received a two-notch upgrade in our bond 
rating from Moody's Investor Service and now all three rating agencies 
rate the District as grade A investment material. Over the last 4 
years, as States and cities have weathered the deepest financial crisis 
in 60 years, the District has continued produce balanced budgets and 
has managed to increase our cash reserves, which totaled over $250 
million at the beginning of this fiscal year. Our steady accumulation 
of reserves despite difficult times is due in no small part to the 
diligence of Senator Hutchison, who has advocated for robust and secure 
reserve funds. These reserves have the served the District well and 
have contributed to our string of ratings upgrades. I would also like 
to thank the senator for considering our proposal to restructure our 
cash reserves this year and hope that she and this subcommittee will 
support our proposal. This proposal, which is part of our budget 
request, would reduce our overall reserve requirement from 7 percent of 
total expenditures to 6 percent and extend the period over which the 
District can replenish the reserve from 1 year to 2 years. Even with 
these modifications, the District will have sound and stable cash 
reserves when compared to States across the country.
    We have also achieved these accomplishments despite a long-term 
structural imbalance estimated by the General Accounting Office to be 
between $470 million and $1.1 billion per year. The GAO cites multiple 
factors causing this imbalance: the high cost of providing services in 
the D.C. metropolitan area, the relative poverty of our population, and 
Federal restrictions on our revenue collection authority.
    So what explains this apparent paradox? How can the District 
achieve remarkable financial performance, yet still face this 
structural imbalance? The answer is twofold. One, our residents are 
among the most heavily taxed in the Nation, and two, the District is 
deferring massive investments in critical services and infrastructure. 
This is perhaps the most important point in my testimony today, Mr. 
Chairman and members of the committee, so I believe it bears repeating. 
In order to balance our budgets and fund our reserves, the District is 
deferring massive investments in critical services and infrastructure.
    What is the magnitude of this deferral? Approximately $2.5 billion 
of infrastructure has been deferred, including renovating crumbling 
schools, repairing the sewer overflow, fixing roads, and putting into 
place the needed security systems to keep District residents and 
visitors safe.
    As we seek solutions to address the structural imbalance and 
address our long-standing problems, it is clear that taxing our 
residents more or providing fewer services are not viable alternatives. 
Though the GAO report noted areas where the District needs to improve 
management efficiencies, the report is quite clear that this deficit 
would exist under any management structure and even if operational 
efficiencies were improved even more. One option proposed by the GAO is 
a change in Federal policy to expand the District's tax base or to 
provide additional financial support.
    Earlier this month, at the request of this committee I submitted a 
report to you that laid out a comprehensive plan for addressing 
structural imbalance in the District of Columbia. This report presented 
several alternatives for addressing the imbalance and highlighted one 
very promising vehicle, a bill recently introduced by Representative 
Eleanor Holmes Norton, the ``District of Columbia Fair Federal 
Compensation Act of 2004''. This bill would provide the District with 
an annual dedicated Federal payment of $800 million a year dedicated to 
transportation projects, debt service payments, public school 
facilities, or information technology investments. This approach to 
redressing the District's structural imbalance would allow the Federal 
Government to invest in infrastructure that benefits the Federal 
Government itself, the Washington metropolitan area, as well as the 
District of Columbia. Mr. Chairman, I very much appreciate your 
commitment to find a workable solution to this problem that threatens 
our long-term fiscal viability. In addition to addressing the Federal 
contribution to our budget, we also need to repair the Federal process 
for reviewing our budget. As you know, last year the Senate unanimously 
passed a budget autonomy act for the District. This legislation, 
besides being a well-deserved boost for us Home Rule advocates, would 
significantly streamline and rationalize our budget process by allowing 
the city to better align local funds with oftentimes unpredictable and 
shifting needs. This legislation would put a permanent end to long 
delays where the District budgets resources to respond to new service 
needs, but those dollars are tied up in seemingly endless continuing 
resolutions. This bill would also allow the District to better align 
our fiscal year with the Federal grant cycle and school year, as are 
most local jurisdictions. This would eliminate a massive number of 
administrative burdens. Therefore, we are hopeful that the House of 
Representatives will follow the Senate and pass the same bill. Without 
the support of Chairman DeWine and Senator Landrieu, as well as 
Senators Ted Stevens and Robert Byrd, this historic legislation would 
not have been possible, so I offer special thanks to you all. Having 
set the context, I will now discuss the fiscal year 2005 budget for the 
District.
                       funding citizen priorities
    Over the past year our citizens have articulated their priorities 
in citizen summits and town hall meetings across the city, and this 
budget is the manifestation of those discussions. Our residents are 
calling for better education, public safety, health care and housing, 
and this budget makes critical investments to improve services in these 
areas. As a result, the growth of funding in this budget is focused on 
improving critical services, perhaps the most important of which is 
public education.
    As I'm sure you noted, local leadership had a very robust debate in 
formulating this budget, and one of the topics discussed was the 
appropriate level of expenditure growth. After a healthy debate the 
Council approved a budget that funds the operations of government.
    While growth in the budget appears dramatic at first glance, the 
true story is much less severe. Almost half of the growth in the budget 
funds one-time investments such as fulfilling court orders, paying for 
debt service from prior-year investments, and funding Medicaid cost 
increases. To manage the growth of Medicaid expenses we have new 
leadership in place, which includes a new Medicaid director and a 
director of our new Office of Medicaid Operations Reform. Our new 
leadership has led an effort to bring expertise and accountability to 
the District's Medicaid office and public provider agencies. We are 
implementing the recommendations from our prior-year Medicaid audits, 
we have made significant improvements to our Medicaid budget 
development process, and we have improved our approach for billing for 
Medicaid services. In the following discussion I will discuss key 
initiatives included in this budget.
                               education
    Since my first budget as Mayor, I have increased the funding for 
public education by almost 60 percent. In addition to stabilizing 
funding for District of Columbia Public Schools despite continuing 
decline in enrollments, our fiscal year 2005 budget provides record 
funding for charter schools. Despite these investments, I continue to 
be concerned with the quality of education we are providing to our 
children, and I am particularly concerned with how DCPS has managed its 
budget. To address these concerns, I have introduced legislation that 
would streamline the accountability and governance of our public 
schools by creating a chancellor position that reports directly to the 
Mayor with oversight from our City Council. Based on feedback from 
Council members and the general public, I am refining that proposal to 
also create an elected State board of education that would have 
considerable State-level powers. I am encouraged by the increasing 
number of Council members who voted against the status quo at 
yesterday's legislative session. This indicates momentum in the 
direction of meaningful change. I look forward to continuing to work 
with the Council to reach agreement on a new governance structure soon. 
I hope we can rely on expedited consideration by the Congress of any 
legislation passed by the Council that would require a change in our 
Home Rule Charter. My efforts to recruit the best chancellor possible 
and strengthen the accountability structures around that new position 
are just part of my effort to improve the educational opportunities 
available to our children.
    In addition, the city remains extremely proud of its robust charter 
school movement, which educates approximately 20 percent of the school-
age children in the city. Under my leadership, the local facilities 
allowance for public charter schools has increased by almost 400 
percent, from $617 per student in 2000 to over $2,400 per student in 
the proposed budget before you. We have also been working closely with 
this subcommittee and the charter school community to launch the 
exciting City Build initiative, which was funded by this subcommittee 
and will provide five charter schools with $1 million for their 
facilities in the coming months. Senator Landrieu deserves tremendous 
credit for her work on this program, and on charter schools in general.
    In summary, the fiscal year 2005 budget includes several new 
education initiatives, including:
  --expansion of early childhood education,
  --expansion of after-school and out-of-school activities for children 
        and youth,
  --creation of 5 new transformation schools in the D.C. Public School 
        system,
  --creation of 8 new public charter schools, and
  --an upgrade of school security.
In addition, the District's new federally-funded scholarship program is 
unfolding quite well and has received approximately 1,500 applications 
from eligible families. Over 40 schools have submitted school 
commitment forms to participate in this program and more are expected 
to join. Based on these rough numbers we anticipate that will be able 
to meet our goal of serving approximately 1,700 students. The 
Washington Scholarship Fund, which is administering the program, is 
currently working with the program evaluation team, and the Department 
of Education to assess the number of slots and eligible participants to 
determine whether a lottery will be necessary for specific grade 
levels. I am confident that if such a lottery process is employed it 
will be consistent with the intent and priorities identified in the 
legislation.
                             public safety
    On May 3, our city suffered the tragic death of 8-year-old Chelsea 
Cromartie. Chelsea's murder was a senseless cowardly act of violence 
and unfortunately, it was not an isolated event. This year, 13 more of 
our children have been victims to senseless murders. The District's 
response has been aggressive: we continue to fund 3,800 officers, we 
have conducted a new Patrol Service Area plan to enhance police 
deployment in our neighborhoods, and we have established the Office of 
Unified Communications to coordinate our emergency responses, and we 
have just launched a major new effort to concentrate resources from 
across the government on crime ``hot spots'' in order to make 
fundamental change. Recently I also introduced legislation at the end 
of last year to reform the District's juvenile justice system. This 
legislation includes key legislative changes that would make the 
District safer for residents and victims of crime while providing 
improved rehabilitation services for our youth. Through these 
initiatives the District will make great strides to provide a safe and 
secure city for those who live, visit, and work here.
                          opportunity for all
    The city is also devoting its efforts to improving services for the 
District's most vulnerable. At the Youth Services Administration, I 
have put in place transitional leadership that has already delivered 
improvements in the areas of security, treatment, staffing, 
administration, and licensing. We have also developed a comprehensive 
plan to best serve our youth and comply with and ultimately exit the 
current outstanding class action litigation. The plan also lays the 
groundwork for replacing the current Oak Hill facility with a smaller, 
state-of-the-art youth facility. In addition, this budget includes the 
following enhancements:
  --expanded coverage for traditional Medicaid clients,
  --full funding for the Health Care Alliance,
  --expanded treatment for the elderly, mentally challenged, and HIV/
        AIDS patients, and
  --facility upgrades at community clinics and ``Medical Homes''.
             priority federal funding for critical projects
    Our budget includes several requests for funding projects in 
partnership with the Federal Government and I welcome this Committee's 
partnership with the District to invest available Federal resources in 
the city's top priorities.
    The President's budget includes funding for several of my top 
priorities, including education funding for public schools, charter 
schools and private school scholarships; funding for the Combined Sewer 
Overflow project, which is part of a long-term effort to clean up and 
revitalize the Anacostia River; and funding for important public safety 
investments such as the Unified Communications Center and the Fire 
Department's command center. Our budget also includes funding requests 
for several projects at a higher level than the President's mark and 
for other projects that are not included in the President's budget but 
are worthy of congressional attention. I would like to emphasize 
several of them here today:
  --Tuition Assistance Grant Program.--This program will allow 4,000 
        students to pursue higher education this year--either at public 
        institutions and private historically black colleges around the 
        country as well as local private colleges and universities. 
        This high participation rate, along with rising tuition costs, 
        means that the District will need to restrict payments to 
        students or make the program needs based for students applying 
        to the program for the 2004/2005 school year unless Congress 
        takes action to fund the program at a higher level. This would 
        have a devastating impact on the program which has had such a 
        profound impact on opening up college opportunities to many 
        families for the first time, as well as providing an incentive 
        for middle class families to remain in or relocate to the city. 
        Our budget contains a request to fully fund this program at a 
        level of $25.6 million above the President's mark of $17 
        million. Otherwise we will have to curtail this very successful 
        program.
  --Bioterrorism and Forensics Laboratory.--Every city in the Nation 
        has access to such a facility as provided by the State, and 
        major cities have their own. These laboratories are critical to 
        tracing evidence that leads to convicting and incarcerating 
        offenders in cases involving homicide, rape, and other serious 
        offenses. Although the District is given some access to the 
        laboratory managed by the FBI, the available capacity is 
        woefully inadequate, and therefore the District faces a large 
        crime rate without the tools needed to address it.
      This laboratory is also essential for assessing, detecting, and 
        addressing bioterrorism attacks. As we have seen with the 
        events of September 11, the anthrax attack, and the ricin 
        scare, the Federal Government is a natural target for 
        terrorists and the public safety infrastructure of the District 
        of Columbia is the first line of defense. This laboratory would 
        significantly enhance our ability to detect and respond 
        effectively to such threats. Toward this end, we are requesting 
        the $9 million for the planning and design phase of a 
        bioterrorism and forensics lab.
  --WMATA Operating Payments.--The District's contribution to WMATA 
        operations will consume $208.5 of the city's local budget in 
        fiscal year 2005. Because the District is the core of the 
        Washington metropolitan area and the center of Federal 
        operations, this investment not only benefits District 
        residents, but it benefits the entire region. Last year, for 
        the first time, Congress contributed $3 million towards this 
        subsidy. This year, we are asking for full funding for our 
        WMATA subsidy. This support is justified because Federal 
        stations, Federal workers, and visitors to the Federal 
        Government constitution a significant amount of the WMATA 
        activity subsidized by the District. Federal support is also 
        justified because mass transit costs are typically funded at 
        the State level; Maryland funds 100 percent of its localities' 
        operating subsidy and Virginia funds half for its 
        jurisdictions. I would argue that inherently unfair allocation 
        of operating expenses allocated among Maryland, Virginia, and 
        the District is a striking example of the structural imbalance 
        and a logical opportunity for the Federal Government to craft 
        an immediate, partial solution.
  --Downtown Circulator.--The Downtown Circulator project will provide 
        the 22 million visitors to Washington, DC with an inexpensive 
        and easy way to move around the Monumental Core. The service 
        will connect several of the District's most popular 
        destinations for residents, tourists and even Federal 
        employees. In the future, the system could also be adopted by 
        Federal agencies as cost-saving replacement for private vehicle 
        fleets and shuttle services. The Federal Government provided 
        half a million dollars for this project in fiscal year 2004 and 
        the District is requesting an additional $1 million in fiscal 
        year 2005, which the District will match with local funds on a 
        one-to-one basis on top of considerable support from the city's 
        tourism and business sectors.
  --Public Safety Event Fund.--This fund was established to fund local 
        costs incurred in response to major Federal events, but this 
        year it was seriously under-funded by the President and should 
        be raised to $25 million in fiscal year 2005. The proposed 
        level of $15 million would barely cover reimbursement for the 
        District's costs associated with relatively predictable events 
        such as anti-war protests, IMF and World Bank events, and high 
        alert details. It does not account for any cost associated with 
        the Presidential inauguration, including payment for officers 
        from outside jurisdictions, the overtime costs of our own 
        police officers, and the additional services from other 
        agencies such as the Fire Department, WMATA, and WASA. In the 
        post-9/11 security environments, total costs will cost well 
        over the extra $10 million that we are requesting.
  --Public School Security.--In the wake of the tragic shooting at 
        Ballou Senior High School on February 2, 2004, we need to 
        redouble our efforts in this area. The approach of city 
        leadership recognizes the critical importance of school 
        principals and school staff in creating a climate of safety and 
        the importance of providing our staff the necessary tools and 
        training. There is currently legislation before Council to 
        transfer the responsibility for school security to the 
        Metropolitan Police Department. While the District is planning 
        on funding the significant operating costs of this initiative, 
        I am requesting Federal funding of $15 million to assist with 
        the one-time start up costs.
  --Adult/Family Literacy Initiative.--This initiative, which was 
        launched by this subcommittee, continues to address a gaping 
        hole in the city's educational infrastructure. The District has 
        leveraged over $1 million in private assistance with Federal 
        appropriations to date and we have used this funding to fund 
        literacy services to 872 adults who otherwise would not have 
        received assistance. We have also recruited, hired, placed and 
        provided professional development for 20 Lifelong Learning 
        Coaches. I am requesting an additional $2 million to continue 
        our efforts and focus additional efforts on the areas where we 
        have identified significant disparities between the need for 
        literacy services and the availability of those services.
                   democracy for the nation's capital
    Having presented the District's fiscal year 2005 budget and Federal 
request, I would like to close with a discussion of something that is 
beyond price, and that is the democratic rights of our citizens. The 
Senate has already signaled its interest in expanding Home Rule and 
democracy in the District by passing budget autonomy. I would like to 
ask for your individual support to take the next crucial steps. 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. The United States is 
continuing to sacrifice hundreds of lives and billions of dollars to 
provide Iraqis with freedom and democracy, yet denies full democracy to 
more than a half a million people at its very heart. I urge you to end 
this injustice and provide the city with full voting representation in 
the Congress. Anything short of full democracy for our residents should 
be at the level of personal outrage for all Americans. This concludes 
my remarks today. Thank you for the opportunity to testify before you 
today and I look forward to answering any questions you may have.

    Senator DeWine. Thank you, Mayor.
    Chairman Cropp, thank you very much for joining us.

                      STATEMENT OF LINDA W. CROPP

    Ms. Cropp. Thank you very much, Mr. Chairman, Senator 
Landrieu, Senator Hutchison. It is indeed a pleasure to be here 
with the Mayor and Dr. Gandhi to testify before you with regard 
to the District of Columbia's budget. I join with the Mayor in 
thanking you so very much for the support that you have given 
to the District in the past, in particular your passage of the 
budget autonomy for the District of Columbia.
    The fiscal year 2005 budget, as many of you recognize, 
represents the eighth year in a row consecutively that a 
fiscally-sound and balanced budget is presented to you. This 
budget is also a reflection of our resolve to stand as one 
government that will remain fiscally prudent and responsible.
    The efforts of the Council and the Mayor working together 
have created a spending plan that continues to provide the 
services needed to make the District of Columbia a much better 
place to live, to work, to raise a family and to visit. The 
Council and the Mayor will continue to work in a collaborative 
effort throughout the year in order to manage government 
spending.
    Fiscal discipline has always been and will continue to be a 
top priority of the last few Councils for our legislative 
agenda. We have not only demanded it of the executive branch, 
but we also practice it. The various forms of fiscal 
discipline, from rainy-day funds, financial safeguards, 
insurance and investment policies, economic triggers, to pay-
as-you-go funds, that we have demanded and imposed on ourselves 
in the past several years have yielded significant returns for 
the District.
    During the Council's 50-day review period of the budget, we 
held 54 hearings, totaling 296 hours of public hearings. These 
public hearings are a very important part of our budget 
process. The public hearings provide our citizens an 
opportunity, with our workforce, to comment and to critique the 
programmatic funding needs and agency performance that impacts 
them. This feedback is essential.
    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, has been aligned. For example, funds were 
redirected and targeted for those projects with higher priority 
and critical need.
    On May 14, the Council approved a $4.16 billion spending 
plan that provides adequate funding for basic city services and 
programs. The funding level for fiscal year 2005 represents a 
7.1 percent growth over the revised 2004 local budget and sets 
growth for next year's budget at 4.6. The Council is determined 
to keep our budget growth within realistic figures.
    The budget provides $40 million for the production of low- 
and moderate-income housing, and increases the funding for 
child care, substance and drug abuse treatment, and health care 
for uninsured residents. In keeping with the seven goals of the 
Council's legislative agenda, schools continue to receive full 
funding. The budget earmarks approximately $1 billion for 
public and charter schools.
    In order to address concerns about the growth of spending 
in certain agencies, while still wanting to finance programs 
important to the District's most vulnerable residents, a 
contingency fund was established. This fund would provide 
financial support for the District's budget if other sources 
were not available for the Department of Human Services' Child 
and Family Services, Mental Health, Inspector General, 
Employment Services, Youth Services, and the Office of the 
Secretary. A request to expend money from the contingency fund 
would require proof of need and the appropriate efficiencies 
that we expect from government.
    The Council supports the congressional budget request 
items, particularly the Tuition Assistance Grant program and 
the planning and security costs associated with the Federal 
presence. A total of 4,086 students are receiving funds this 
year from the TAG program. It has had a significant impact on 
furthering the education of these students. Therefore, it is 
important that the additional $8.6 million be provided to 
continue to fund this program.
    The need for funding, planning and security costs related 
to the Federal presence continues to rise. The requirements of 
homeland security have added to this cost. In the past 2 years, 
the District has been reimbursed for the costs it has incurred 
for major events held in Washington, due to the fact that we 
are the Capital City. These cost have now been capped at $15 
million.
    In the past 2 years, which have been non-inaugural years, 
the District has received $15 million to cover the costs for 
providing safety at events. The District is now being asked to 
apply the $15 million to cover the costs for the major events 
and the Presidential inaugural. Historically, the District has 
been directly reimbursed for the costs associated with the 
Presidential inauguration.
    The costs for providing security during the 2001 
inauguration were $6 million. With the addition of homeland 
security requirements, this amount has grown to $10 million. 
The District, however, is now asking for the additional $10 
million. We just cannot possibly absorb that within all of the 
other costs.
    Another area I would like for you to consider is funding to 
assist with the cost of correcting the problem of the lead in 
the water. As you are aware, investigations to date have 
revealed that the various actions of the D.C. Water and Sewer 
Authority, the Environmental Protection Agency and the 
Washington Aqueduct may have all contributed to the problem.
    Therefore, it would appear to be appropriate for Federal 
dollars to be made available to assist in the cost for the 
testing of the water, the testing of the lead levels in 
residents, and for the replacement of the lead service line. It 
is our hope that through the joint effort of the District and 
Federal governments, we can resolve this problem and again make 
water safe in the District of Columbia.
    I would also like to ask for your help in obtaining the 
approval of the District's tax incentives that expired at the 
end of last year. The first-time homebuyer credit, the 
enterprise zone credit and the revenue bond programs are 
important to economic development in the District. The first-
time homebuyer credit attracts residents to the District and 
assists persons in purchasing homes that might not otherwise 
have the opportunity to do so. As you are probably aware, the 
Mayor has a proposal that would bring in more residents to the 
District of Columbia, and those tax credits certainly played a 
major role in helping to grow our economy.
    The District is always challenged in developing its budget 
due to ongoing structural imbalances. I want to join with the 
Mayor in thanking you so very much for supporting and passing 
budget autonomy. It is very important to the citizens of the 
District of Columbia and we thank you for your wisdom and your 
action in that.
    On the structural imbalance, we hope that we would be able 
to rely on some of the reporting from the General Accounting 
Office and the committee and that they will look at that and 
give the District some assistance in that.
    I would like to mention one other way the Congress could 
assist the District of Columbia in its managing of funds, and 
Senator Hutchison has elaborated on that in her opening 
statement with regard to our cash reserve. We thank you for the 
changes that are being made. We think that that is the right 
direction for us to go.
    We believe that we ought to have some cash in the bank. We 
join with you in that, but the changes that were there were 
possibly just a little bit too much and we are happy we are 
moving in this direction. I would ask that you consider in the 
future as we continue along the line of fiscal responsibility 
that you look at a 3-year pay for paying it back if we need the 
emergency money within 1 year.
    In most instances, a 1-year pay-back is still too soon. 
When you look at what most other jurisdictions do, they usually 
have a 3-year time period to pay it back. So as we continue 
along fiscal responsibility, we hope that you will look at 
that.

                           PREPARED STATEMENT

    In conclusion, I would like to say that we look forward to 
working with you as we make the District of Columbia the type 
of city that we all know that it can be. We are on our way, we 
are moving in that direction, but we will continue to strive to 
make it a much better place for people to work, live and visit.
    Thank you very much.
    [The statement follows:]
                  Prepared Statement of Linda W. Cropp
    Good morning, Chairman DeWine, Senator 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 2005.
                              introduction
    The fiscal year 2005 budget represents for the eighth year in a 
row, a fiscally sound and balanced budget. This budget is also a 
reflection of our resolve to stand as one good government that will 
remain fiscally prudent and responsible. The efforts of the Council and 
the Mayor, working together, has created a spending plan that continues 
to provide the services needed to make the District a better place in 
which to live, to work, to raise a family, and to visit. The Council 
and the Mayor will continue this collaborative effort throughout the 
year in order to manage government spending.
    Fiscal discipline 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. This is 
reflected in the District Government receiving for the seventh 
consecutive year an unqualified audit opinion and a fiscal year 2003 
Comprehensive Annual Financial Report (CAFR) showing a balanced budget. 
In addition, this year for the first time, the District received an 
``A'' rating from all of the Wall Street financial rating agencies.
    In 2004 the Council passed the fiscal year 2005 Budget Submission 
Requirements Resolution of 2004. It established the date for submission 
of the Mayor's proposed budget. It required performance plans and 
reports, and certain information and documentation be submitted to the 
Council along with the proposed budget.
                           the budget process
    During the Council's 50-day review period the Council conducted 54 
hearings totaling 296 man-hours. These public hearings are an important 
part of the budget process. The public hearings provide the citizens 
and our workforce with an opportunity to comment and critique 
programmatic and funding needs, and agency performances that impact 
them. This feedback is essential in reaching the decisions and 
determining the recommendations of each committee in the mark-up of the 
budgets.
    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, housing for low and moderate income residents, and 
enhancing existing facilities for better public/Council interaction.
    The Mayor submitted the budget to the Council on March 29. The 
proposed local budget was $4.17 billion, an increase of $282.8 million 
or 7.3 percent above the revised fiscal year 2004 budget. The Council 
carefully reviewed the proposed expenditures to ensure that priority 
programs were properly funded. Adjustments were made through hard 
decisions between competing program preferences and by rooting out 
unnecessary budget cushions within the request.
               highlights of the fiscal year 2005 budget
    On May 14 the Council approved the $4.16 billion spending plan that 
provides adequate funding for basic city services and programs. This 
funding level for fiscal year 2005 represents a growth of 7.1 percent 
over the revised fiscal year 2004 local budget and sets growth for next 
year's budget at 4.6 percent. The budget provides $40 million for the 
production of low and moderate income housing and increases the funding 
for childcare, substance and drug abuse treatment, and health care for 
uninsured residents. In keeping with the seven goals on the Council's 
legislative agenda, schools continue to receive full funding. The 
budget earmarks approximately a billion dollars for public schools and 
public chartered schools.
    In order to address the Council's concerns about the growth of 
spending in certain agencies while still wanting to finance programs 
important to the District's most vulnerable residents, a contingency 
fund was established. This fund would provide financial support from 
the District's budget if other sources were not available for the 
Departments of Human Services, Child & Family Services, Mental Health, 
Health, Inspector General, Employment Services, Youth Services 
Administration and the Office of the Secretary. Requests to expend 
money from the contingency fund would require proof of need and 
approval by the CFO, the Mayor and the Council.
                         federal budget request
    The Council supports the Congressional budget request items 
included in the Mayor's proposal. However, I would like to highlight 
two items included in that request. The Tuition Assistance Grant 
Program (TAG) and the Planning and Security costs associated with the 
Federal presence. The TAG program has been extremely successful in the 
District. A total of 4,086 students are receiving funds this year from 
the program. TAG has had a significant impact on furthering the 
education of these students. Therefore, it is important that the 
additional $8.6 million be provided to continue to fully fund this 
program.
    The need for funding Planning and Security costs related to the 
Federal presence continues to rise. The requirements of Homeland 
Security have added to this cost. In the past 2 years the District has 
been reimbursed for the costs it has incurred for major events that are 
held in Washington. These costs have now been capped at $15 million. In 
the last 2 years, which have been non-inaugural years, the District has 
received the $15 million to cover its costs for providing safety at 
events. The District is now being asked to apply the $15 million to 
cover the costs for major events and the Presidential Inauguration. 
Historically the District has been directly reimbursed for the costs 
associated with the Presidential Inauguration. The costs for providing 
security during the 2001 inauguration were $6 million. With the 
addition of Homeland Security requirements this amount has grown to $10 
million. The District Government is asking for the additional $10 
million to cover the anticipated costs that will be incurred for the 
2005 inauguration.
    Another area I would like for you to consider is funding to assist 
with the costs of correcting the problem of lead in the water. As you 
are aware the investigations to date have revealed that the various 
actions of the DC Waster And Sewer Authority (WASA), the Environmental 
Protection Agency (EPA) and the Washington Aqueduct may have all 
contributed to the problem. Therefore, it would appear to be 
appropriate for Federal dollars to be made available to assist in the 
cost for the testing of water, the testing of lead levels in residents 
and for the replacement of lead service lines. It is our hope that 
through the joint effort of the District and Federal Governments we can 
resolve this problem and again make water safe in the District of 
Columbia.
    I would also like to ask for your help in obtaining approval of the 
District's tax incentives that expired at the end of last year. The 
First Time Homebuyer credit, the Enterprise Zone credit and the revenue 
bond program are important to economic development in the District. The 
First Time Homebuyer credit attracts residents to the District and 
assists persons in purchasing homes that might not otherwise have an 
opportunity to do so. The Enterprise Zone credit and the revenue bond 
program are real incentives for attracting businesses to operate within 
the District.
    The District has not been able to offer these very important 
benefits for the past 5 months. It is important to our economic growth 
that these tax incentives we reauthorize.
                          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 assumed responsibility for the cost of the 
contributions to the police, firefighters, and teachers retirement 
plans, various Court services and portions of other State functions.
    It is worth recalling that when the 1997 Revitalization Act was 
passed, one recommendation was that Congress would not need to review 
or approve the District's budget because the city would no longer 
receive any Federal payments. At a minimum, Congress should no longer 
approve the local portion of the District's budget. Just like the other 
50 States, the District should be solely responsible for approving its 
own local spending. Achieving such budget autonomy will allow the 
District to implement its budget in a timely manner and will assist in 
improving the city's fiscal management. I want to thank you Mr. 
Chairman, the subcommittee and the Senate for supporting this 
initiative. It is my hope that the U.S. House of Representatives will 
soon join you in adopting this proposal.
    The District Government is always challenged in developing its 
budget due to the ongoing structural imbalance that exists between its 
spending needs and its revenue generation capacity. As noted in the 
General Accounting Office's May 2003 report the imbalance amounts to 
between $400 million to $1.143 billion per year. The report also noted 
that 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. The report stated that the District has a very high 
revenue capacity, and the city is already taxing toward the upper limit 
of our revenue capacity, thereby creating a punitive tax structure.
    Congresswoman Eleanor Holmes Norton has introduced Bill H.R. 4269, 
the District of Columbia Fair Federal Compensation Act of 2004. The 
bill outlines the unique situation of the District of Columbia as a 
Federal city. It proposes an annual Federal payment of $800 million 
with provisions to adjust the number in the future. The $800 million 
would be made available to address important structural needs of the 
city, which the District Government cannot fully fund from its current 
budget. Transportation and street maintenance, information technology 
and DCPS capital improvements are essential to the running of the city. 
I ask for this subcommittee to support this legislation and encourage 
adoption by the Senate.
    I would like to mention one other way that the Congress could 
assist the District Government in managing its funds. Dr. Gandhi has 
proposed changes to the requirements for the Emergency and Contingency 
Cash Reserve funds. The proposed changes would provide additional 
monies for local programming and the provision of services to the 
residents of the District of Columbia while still maintaining required 
reserve levels. Your support of the proposed changes would be of great 
benefit to developing and managing our budget.
                               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. Furthermore, we 
urge you to pass the budget as is, without any extraneous riders. This 
much anticipated fiscal year 2005 budget is important because it shows 
how the Mayor and the Council can work together and underscores our 
commitment to make Washington, DC one of the best governed cities in 
the Nation.
    Nonetheless, the Council will continue to oversee the Executive's 
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.
    I thank you for this opportunity to present the fiscal year 2005 
budget and these issues of major importance to the District of 
Columbia.

    Senator DeWine. Thank you.
    Dr. Gandhi.

                     STATEMENT OF NATWAR M. GANDHI

    Dr. Gandhi. Thank you, Mr. Chairman, Senator Landrieu, 
Senator Hutchison. 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 2005 budget request to 
the Congress.
    The Congress created the District's Office of the Chief 
Financial Officer to preserve and enhance the District's 
financial viability at all times. The District has made 
substantial progress in the last 7 years, achieving a 
consistent series of balanced budgets and clean audits, and 
significantly improving its financial infrastructure.
    As part of this success, the District has had a $1.4 
billion turn-around in fund balance, from a negative of $518 
million in 1996 to a positive balance of about $897 million at 
the end of fiscal year 2003. We had almost $254 million in cash 
reserves for emergency and contingency purposes at the end of 
fiscal year 2003, probably the largest of such reserves as a 
percentage of budget in the entire Nation.
    The crowning event to date, in fiscal year 2004, is the 
recent two-notch upgrade in the rating on our general 
obligation bonds from Moody's, lifting our rating to the A 
category from all rating agencies for the first time ever. And 
I particularly want to thank this committee, and particularly 
Senator Hutchison, for taking a lead on that.
    We continue to build on this record of accomplishment. 
Standardized spending plans for all agencies are now in place, 
and we are monitoring reserves against those plans using a new 
online financial management tool for controlling agency 
spending.
    The District has enacted its own Anti-Deficiency Act to 
hold financial and program managers accountable for achieving 
program results within approved budgets. The first-ever local 
anti-deficiency report identifying agencies that have strayed 
from the approved budgets and spending plans in the first 
quarter of fiscal year 2004 is forthcoming.
    With all these accomplishments in place as evidence of 
ongoing fiscal prudence and commitment to sound fiscal 
management, it is high time to grant the District local budget 
autonomy. It will allow the District to improve budget 
preparation and management quite significantly.
    Mr. Chairman, I very much appreciate your leadership and 
support on that matter, and we hope that the U.S. House of 
Representatives will soon follow your lead in this matter.
    The fiscal year 2004 financial outlook is good, and I am 
confident that we will end the year with a balanced budget one 
more time. The fiscal year 2005 budget request has just been 
voted on by the Council on May 14. As Chairman Cropp pointed 
out, the Council and the Mayor are currently reconciling their 
respective budget amendments, and we will provide the 
subcommittee with the final numbers as soon as they are 
available. However, I would like to briefly summarize some of 
the key points in the request.
    The local funds, taxes and fees paid by D.C. residents 
comprise about two-thirds of the total budget, or about $4.16 
billion, an increase of about $332 million, or about 8.7 
percent. Please note that the expenditure growth for the local 
funds in 2005 does not set the mold for 2006 and beyond. 
Expenditures are expected to grow at 4.5, 4.3 and 4.5 percent 
for fiscal years 2006, 2007, and 2008, respectively.
    The 2005 budget includes important budget corrections or 
increases to recognize the true cost of providing the current 
level of services. The increases in this budget are driven by 
the cost of maintaining current programs at existing program 
levels, not by new program initiatives. All of the total 
increase of $332 million in local fund expenditures is related 
to maintaining current services.
    Two areas of note are Medicaid and public education. The 
rising Medicaid expenditures are in large part due to the cost 
of providing care to the District's aging and disabled 
population. In 2000, 20.3 percent of the District's population 
was disabled, and about 12 percent was over the age of 65. The 
cost of caring for these groups has increased at a rate much 
faster than inflation. The District has also experienced 
enrollment increases and has now reached 99-percent-eligible 
enrollment status.
    When we benchmark our Medicaid programs with our 
neighboring States, here is what we find. Fully 25 percent of 
the District's population is enrolled in Medicaid, compared to 
12 percent in Maryland and 9 percent in Virginia. The District 
spends on average $7,200 per enrollee, compared to about $5,500 
in Maryland and about $5,100 in Virginia. Per resident, the 
District of Columbia spends about $1,776, compared to about 
$649 in Maryland and $445 in Virginia.
    In public education, the formula increases in public 
education for both D.C. public schools and charter schools 
added about $70 million over the 2004 budget. However, these 
increases are needed to maintain schools as they operate today.
    The economic outlook for the District of Columbia for 
fiscal year 2005 is quite good. Retail sales, including 
tourism, are expected to be up by about 5 percent, reflecting 
the current trends. The real estate market continues to be very 
strong, with taxes on property sales remaining at all-time 
highs. Real property tax revenues are expected to increase by 
about 11 percent in 2005.
    Our 5-year financial plan projects positive net operating 
margins through fiscal year 2008. However, the District will 
operate on a very slim financial margin, about $2 million, in 
fiscal year 2005. As you are aware, in fiscal year 2002 the 
District fully funded its emergency and contingency cash 
reserve funds at the maximum current required level, totaling 
about $248 million, or 7 percent of the total expenditure 
budget. This was a significant accomplishment, achieved 5 years 
ahead of our deadline, and it has contributed significantly to 
the District's bond rating upgrades.
    Senator DeWine. Doctor, if you could wrap up, please.
    Dr. Gandhi. All I need to add here is basically the changes 
that we are currently working with Senator Hutchison's office 
on, once they are implemented into law, we will be able to 
provide still a substantial amount of cash in there.

                           PREPARED STATEMENT

    The last thing I would want to say is basically we 
appreciate your lead on the structural imbalance, and on that 
front the recent legislation that is sponsored by Ms. Eleanor 
Holmes Norton in the House would be the most welcome correction 
for the District's structural imbalance.
    Mr. Chairman, that concludes my oral remarks. I request 
that my written testimony be made part of the record.
    Senator DeWine. It will be made a part of the record. Thank 
you very much.
    Dr. Gandhi. Thank you, sir.
    [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 2005 budget request to the Congress. My remarks will 
briefly touch on the fiscal year 2004 financial outlook, the fiscal 
year 2005 request, and the overall health of the District's finances.
                       overarching financial goal
    Since assuming this office, my overwhelming objective has been to 
preserve, enhance, and secure the District's financial viability for 
today and into the indefinite future. The District has made substantial 
progress in the last 7 years, achieving a consistent series of balanced 
budgets and clean audits, and significantly improving our financial 
infrastructure. As part of this success, the District has had a $1.4 
billion turned around in fund balance from a negative $518 million in 
1996 to a positive balance of $897 million at the end of fiscal year 
2003. We have over $253 million in cash reserves for emergency and 
contingency purposes, the largest such reserves as compared to budget 
that I can identify in the entire Nation. The culminating event to-date 
in fiscal year 2004 is the recent upgrade in the rating on our General 
Obligation bonds from Moody's Financial Services, lifting our rating to 
the ``A'' category from all rating agencies for the first time ever.
    We continue to build on this record of accomplishment. Standardized 
spending plans for all agencies are now in place and we are monitoring 
results against those plans using a new on-line financial management 
tool for controlling agency budgets. Across all agencies, we are 
building performance budgets that set targets for accomplishments and 
benchmark these targets against best practices in local government. The 
District has enacted its own Anti-Deficiency Act to hold financial and 
program managers accountable for achieving program results within 
approved budgets. We have recently issued the first ever local Anti-
Deficiency report identifying agencies that have strayed from their 
approved budgets and spending plans in the first quarter of fiscal year 
2004.
    The District is making steady progress on its long-term replacement 
strategy for its administrative systems--the Administrative Services 
Modernization Program (ASMP)--spearheaded by the Office of the Chief 
Technology Officer. Over the next 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, the District 
will have a top quality, integrated information system with which to 
manage District operations. Already in operation is a new procurement 
system linked to our accounting system. A new budget system is 
scheduled to become operational in August 2004, a personnel system in 
November 2004 and a payroll system in July 2005.
    With all of these accomplishments in place, as evidence of ongoing 
fiscal prudence and commitment to fiscal viability, it is time for two 
changes in the District's relationship with the Federal Government. 
Specifically, budget autonomy will allow the District to improve budget 
preparation and management quite significantly. Without autonomy we 
must prepare specific expenditure plans and revenue estimates many 
months in advance of the actual budget year, adding more-than-usual 
uncertainty about the planned budget and posing more difficulty in 
budget execution. Mr. Chairman, I very much appreciate your support and 
that of the U.S. Senate on the matter of budget autonomy and am very 
hopeful that the U.S. House of Representatives will soon follow your 
lead in this matter.
    It also is time for some additional Federal consideration of the 
District's infrastructure needs. The District faces about $3 billion in 
infrastructure needs in the next 4 years--mostly in schools, streets 
and transportation--that cannot possibly be funded locally. The 
District of Columbia already has the highest per capita general 
obligation debt in the Nation and a tax burden that is 18 to 33 percent 
higher than average for the States. Our only local options for meeting 
these infrastructure deficiencies are: (1) adding even more per capita 
debt--an action very much frowned on by the rating agencies, (2) 
increasing per capita tax burdens--an action likely to discourage 
current and potential residents and employers, or (3) lower delivery of 
other types of services--a difficult choice in a city with an unusually 
large population of people in need.
    In May 2003, the General Accounting Office (GAO) strongly 
underscored the District's unique financial challenges in generating 
the funds to finance all usual and necessary services. An annual 
structural imbalance is identified in report GAO-03-666, of $470 
million to $1.14 billion between the costs of delivering typical 
services and the revenue available from typical tax burdens, based on 
the fiscal year 2000 budget and data. Over the years, the District 
dealt with this gap by neglecting infrastructure needs and assessing 
very high taxes. Today, we continue to need assistance to address our 
many infrastructure problems.
                   fiscal year 2004 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 2004. As of this time, all identified spending 
pressures have been resolved through internal or interprogram 
reallocations. I am confident we will end the year with a balanced 
budget.
                    fiscal year 2005 budget request
    The Council of the District of Columbia voted to approve the fiscal 
year 2005 budget request on May 14. I would like to briefly summarize 
some of the key points in the request.
    In total, the District's gross funds operating request for fiscal 
year 2005 is $6.25 billion, an increase of about $545 million, or 9.6 
percent, over the approved fiscal year 2004 level of $5.7 billion. The 
total number of positions in fiscal year 2005 from all funding sources 
is 33,050, an increase of 882 positions.
    Local funds, taxes and fees paid by D.C. residents comprise about 
two-thirds of the total budget, about $4.17 billion, an increase of 
about $332 million, or 8.7 percent, over fiscal year 2004 levels. The 
total number of positions funded with local funds is 26,050 in fiscal 
year 2005, a decrease of 195 positions.
    Please note that the expenditure growth for local funds in fiscal 
year 2005 does not set the mold for fiscal year 2006 and beyond. 
Expenditures are expected to grow at 4.1, 4.6 and 4.3 percent for 
fiscal years 2006, 2007, and 2008, respectively. The fiscal year 2005 
budget includes important budget corrections or increases to recognize 
the true cost of providing the current level of services, including 
entitlements experiencing both higher provider rates and utilization, 
court orders' compliance costs, attainable projections of Medicaid 
reimbursements, higher pension costs for prior years' pay raises for 
teachers, police officers and firefighters, as well as new operating 
costs from completed capital projects. Almost half of the fiscal year 
2005 local funds growth rate of 8.7 percent, or $156 million of the 
$332 million increase, is due to these one-time budget corrections for 
fiscal year 2004 service level and rate increases. The reminder of the 
growth--4.6 percent (growth rate of 8.7 percent minus 4.1 percent) or 
$176 million--is anticipated service level and cost increases for 
fiscal year 2005 alone. If we isolated service level and rate increases 
for just fiscal year 2005, it would be 4.6 percent rather than a 8.7 
percent growth, which is in-line with the previously mentioned out-
years growth rates.
                              cost drivers
    The increases in this budget are driven by the cost of maintaining 
current programs at existing program levels, not by new program 
initiatives. All of the total increase of $332 million in local fund 
expenditures is related to maintaining current services. Program 
initiatives of $36.3 million are accommodated by making program 
reductions or shifting costs to other fund sources.
    Medicaid.--The fiscal year 2005 proposed budget for Medicaid is 
$1.4 billion, or 22 percent of the District's gross funds budget. Total 
program costs have risen 45.2 percent and local fund costs by 30.9 
percent between fiscal year 1999 and fiscal year 2004. In fiscal year 
2005, Medicaid costs are projected to increase by $39 million.
    There are several contributing factors to rising Medicaid 
expenditures, but they are in large part due to the cost of providing 
care to the aging and disabled populations. Care for these groups has 
increased at a rate much faster than inflation because of price 
increases in prescription medications, the rapidly rising costs for 
nursing home services, and labor costs that continue to soar, driven by 
a nationwide shortage of nurses and new staffing requirements. The 
District has also experienced enrollment increases and has now reached 
99 percent eligible enrollment status. This is attributable mainly to 
aggressive outreach campaigns and program expansions such as the 
Childless Adults Waiver that offers coverage for ages 50-64 up to 50 
percent FPL and the expansion of the HIV/AIDS Waiver.
    When we benchmarked our Medicaid program with our neighboring 
States, here is what we found:
  --25 percent of the District's population is enrolled in Medicaid--
        compared to 12 percent in Maryland and 9 percent in Virginia.
  --The District spends, on average, $7,242 per enrollee--compared to 
        $5,509 in Maryland and $5,177 in Virginia.
Per resident, D.C. spends $1,776--compared to $649 in Maryland and $445 
in Virginia.
    Costs per enrollee are higher in the District than in surrounding 
jurisdictions because the District, an entirely urban area, has higher 
costs to deliver the same services as Maryland and Virginia. These 
States spread part of their service delivery over rural areas that have 
lower costs. With higher costs per enrollee and a high proportion of 
its population in need, D.C. taxpayers carry a large burden for their 
fellow residents.
    Public Education.--Formula increases in public education for both 
D.C. Public Schools and Charter Schools add $75 million to this 
appropriation. However, these increases are needed to maintain schools 
as they operate today.
    Pay Costs.--The increased cost of maintaining the District's 
workforce, essentially unchanged in size from fiscal year 2004, is $89 
million--an increase of six percent over fiscal year 2004. These 
increased costs are driven predominantly by previously negotiated 
labor/management agreements.
    Operating Impact of Capital Projects.--As a matter of good-
budgeting, the District has decided to recognize explicitly in its 
operating budgets the on-going maintenance costs of completed capital 
projects. This approach assures that the on-going operational costs of 
such projects do not show up as subsequent spending pressures or 
inadequately maintained systems. In the past 5 years, the District has 
had an aggressive program of capital improvements in the information 
technology arena and must now budget for resultant maintenance costs. 
In fiscal year 2005, such costs add $28 million to our baseline needs.
    Debt Service and Other Fixed Costs Increases.--An increase of $68 
million is required to service the District's debt and meet fixed cost 
increases (rent, telecommunications, etc.).
    The chart at the end of my testimony breaks out these cost 
increases by type.
                          the fiscal forecast
    The economic outlook for the District in fiscal year 2005 is quite 
good, with a forecast growth in the baseline tax revenue of 5.4 
percent. Retail sales, including tourist accommodations and 
restaurants, as well as general retail, are expected to be up by 5 
percent--reflecting current trends--as will individual and corporate 
income taxes. The real estate market continues very strong, with taxes 
on property sales remaining at all time highs and real property tax 
revenue expected to increase 11 percent in fiscal year 2005. Special 
purpose revenue funds will grow by 8.7 percent.
    The fiscal year 2005-fiscal year 2008 financial plan projects 
positive net operating margins through fiscal year 2008. However, the 
District will operate on a very slim financial margin--about $1 million 
in fiscal year 2005--based on expenditure plans and forecasts of 
revenue growth. The 8.7 percent expenditure growth in the fiscal year 
2005 budget is financed through the use of growth in current year 
revenues and fund balance amounts accumulated from prior years. Once 
used, a fund balance is gone and on-going expenditure requirements must 
ultimately be met with on-going revenue streams. Our financial plan 
shows that the District of Columbia meets this requirement in the 
planning period.
    Because of these tight projected margins, any adverse disturbance 
in the District's expected financial fortune could necessitate 
immediate major cutbacks in programs and services. Our very large 
emergency and contingency reserves are of limited help, for two 
reasons. First, the conditions for use are very restrictive and, 
second, any funds used must be paid back in the next fiscal year. 
Realistically, and especially in very difficult circumstances when 
resources are desperately needed, the District cannot take advantage of 
these funds. It will be challenging for our revenue stream to sustain 
the current level of service, and there is no room for consideration of 
additional program initiatives or significant infrastructure 
investments. For these reasons, the city and its elected leadership 
will face progressively more difficult program and financial decisions 
in the years to come.
                       capital budget constraints
    One area where the imbalance between revenues and needed 
expenditures is already apparent is in the capital budget. The Capital 
program is increasingly constrained by limited operating revenues to 
support debt service as well as by the impact of prudent debt ratios 
and debt service affordability determinations. To maintain good 
standing with Wall Street, we must cap annual capital borrowing at $400 
million in fiscal year 2005, $350 million in fiscal year 2006 and $300 
million in fiscal year 2007 and fiscal year 2008. With estimated needs 
of $775 million, the District's Capital Improvement Plan for fiscal 
year 2005 has an expenditure gap of approximately $375 million.
    Structural Imbalance in the District's Budget.--In the last 7 
years, the District has submitted balanced and responsible budgets 
during periods of increasing, as well as declining, revenues. Our 
restrained budgeting in the good years helped us work through some of 
the hard times. Despite this record of balanced budgets, 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 and quantity to its 
residents. The causes and consequences of this imbalance were well 
documented by the General Accounting Office.
    The GAO defines a financial structural imbalance as an inability to 
provide a representative array of public services by taxing at 
representative rates. Using this definition, many municipalities could 
legitimately claim to have a structural imbalance. However, the 
District is unique among all municipal governments. It is the only city 
chartered in the Constitution of the United States and under the 
legislative jurisdiction of the Congress--that is, the District is the 
only Federal City of the United States of America. It is the only city 
that has no State to share costs or underwrite expenditures in whole or 
part; instead, the District of Columbia bears about $500 million 
annually in costs of Mental Health, Human Services, Child and Family 
Services, a University, Motor Vehicles, Taxation, Insurance Regulation, 
Public Service Commission, and other State services. The District is a 
city whose primary employer is self-determined to be exempt from tax on 
its property and exempt from tax on its income. Further, by Federal 
law, the preponderance of workers in the District of Columbia are 
exempt from the District of Columbia income tax. Lastly, it is the only 
municipality in the country that must exercise the responsibilities of 
a city, county, State, and school district. Although the District has 
the taxing authority for all types of taxes typical of States and local 
governments combined, it does not have the corresponding tax base 
sufficient to pay for the services it must provide.
    As a consequence of these factors, the GAO finds the District's 
structural imbalance for fiscal year 2000 to be 14.4 percent to 40.3 
percent of local revenue, depending on how it is measured. Note that 
this is after the benefits of the 1997 Revitalization Act that relieved 
the District of some State-like services and ended the annual Federal 
payment. According to GAO, the District either is among the group of 
States with the very highest shortfalls (at the very lowest end of the 
range) or the District has more than twice the shortfall of the highest 
State (at the highest end of the range). The lower-end represents a set 
of services typical of a State and the higher-end adds emphasis for 
dense urban areas. The District obviously falls somewhere above the 
bottom and, arguably, close to the top. Because of our urban population 
and service requirements, the District of Columbia's problem clearly is 
severe and exceeds that of any State.
    The GAO report also finds that the District of Columbia continues 
to defer significant amounts of infrastructure development because of 
constraints in its operating budget. When compared to combined State 
and local debt across the 50 States, GAO found that the District's debt 
ranks as the highest in the Nation both per capita and as a percentage 
of own-source revenue.
         the basis for federal action to address the imbalance
    Because of the District's unique status, the Federal Government--
both the legislative and executive branches--has recognized its 
responsibility to assist the District in meeting its municipal 
financing needs. For many years, federally appointed commissioners 
administered the delivery of municipal services under the aegis of the 
Federal Government. With the establishment of limited home rule in 
1973, chartering Federal legislation provided for a Federal payment. 
The basis for such payment was laid out in Section 11601 of the Act, 
which recognized the special limitations and burdens placed on the 
District by the Federal Government. These restrictions included 
limitations on the District's taxing authority, the costs of providing 
municipal services to Federal installations in the District, and the 
special costs imposed on the District because of its status as the 
capital of the Nation.
    The District of Columbia Revitalization Act of 1997 restructured 
responsibilities in a way that resulted in the assumption by the 
Federal Government of prisons, courts and certain D.C. employee pension 
liabilities. In the absence of a parent State for the District, under 
the Revitalization Act, the Federal Government assumed certain 
responsibilities that in other localities would be undertaken by the 
State. At the same time, this Act phased out the annual Federal payment 
to the District but contained language permitting this issue to be 
revisited at an appropriate time.
    In addition to the courts and prisons, each year the Federal 
Government provides financial assistance to the District for a variety 
of targeted projects. Apart from pass-throughs to non-governmental 
entities and formula-driven Federal entitlement payments, this amount 
has ranged from a high of $167 million in fiscal year 1998 to a low of 
$24 million in fiscal year 2000 and was $127 million in fiscal year 
2003. Notwithstanding the provisions of the Revitalization Act, and the 
continued financial support from the Federal Government for earmarked 
projects, the District still faces an on-going structural imbalance.
    When it comes to addressing the structural imbalance, we see few 
additional options other than continuing to shortcut services. Already 
the District has extremely high tax burdens; recall that by GAO account 
this burden ranges from 18 percent to 33 percent above the average for 
States, depending on the measurement used. Increasing the tax burden on 
District businesses and residents even further simply influences 
potential and current residents or businesses to locate in adjacent 
lower-tax or higher-service States. Given the structural imbalance, the 
District must continue to 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.
    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 assure the long-term financial viability of 
the Nation's capital city.
    Congresswoman Eleanor Holmes Norton authored Bill H.R. 4269, the 
District of Columbia Fair Federal Compensation Act of 2004, that 
recognizes the District's unique needs and provides unique solutions. 
That Bill establishes a Dedicated Infrastructure Account within the 
general fund of the District. The fund would receive $800 million 
annually in Federal monies, with growth adjustments over time. These 
monies could be used only for transportation including streets, 
information technology, and DCPS infrastructure developments and to 
support debt service payments on bonds, notes and other obligations of 
the District. Funds would remain available until expended.
    I urge the Senate to consider the Norton bill favorably. By 
providing for infrastructure development, it can help reverse the 
history of necessary neglect and move the District of Columbia toward 
the shining example that should be set by the capital city of the free 
world. With so many financial accomplishments now well underway in the 
District of Columbia, this is the last major piece of the financial 
puzzle and the District cannot prosper into the future without it.
                       cash reserve requirements
    The District's flexibility in managing its finances is also 
constrained by its current reserve requirements. As you are aware, in 
fiscal year 2002, the District fully funded its Emergency and 
Contingency Cash Reserve Funds at their maximum required levels, 
totaling $248 million, or 7 percent of the local expenditure budget. 
This was a significant accomplishment, achieved 5 years ahead of the 
Congressionally mandated time frame. Maintaining the 7 percent level 
for the District's Cash Reserves required an increase to $254 million 
for fiscal year 2003 and $285 million for fiscal year 2004. In fiscal 
year 2005 the emergency and contingency cash reserves combined are 
budgeted to reach $303 million. This is in addition to the $50 million 
in operating cash reserve maintained by the District. If I may, I would 
like to briefly summarize cash reserve requirements elsewhere as a 
reminder of how noteworthy the District's performance is in this area.
    No other major city has a cash reserve requirement except Denver, 
which is required to have 3 percent of general fund expenditures in a 
reserve.
    Among States, most have some form of cash reserve or ``rainy day'' 
fund. Further,
  --the approximate average size of these funds is 5 percent of budget;
  --most States have no replenishment requirement, but 6 States require 
        the funds to be replenished over the course of 2, 3, or 5 
        years; and
  --in 21 States, the reserve funds can be used when the State faces a 
        deficit for any reason, and in most other States the funds can 
        be used in the event of a revenue shortfall.
    Working with Congress, the District has developed proposed changes 
to our emergency and contingency cash reserve requirements. These 
changes, included in the District's fiscal year 2005 Budget Request 
Act, would reduce the overall requirement from 7 percent to 6 percent 
(2 percent Emergency and 4 percent Contingency). The proposed changes 
would modify the requirement for replenishment from a 1-year 
replenishment to a 2-year requirement with no less than 50 percent 
being paid back in the first fiscal year after use. In addition, the 
proposed changes recognize that the District's Home Rule Act requires 
the District to maintain a separate cash reserve for expenditures 
associated with debt service payments. This separate cash reserve is in 
addition to the 7 percent emergency and contingency cash reserves. The 
proposed changes remove from the calculation of the 7 percent emergency 
and contingency cash reserve those expenditures associated with debt 
service for which this separate reserve is already maintained. Finally, 
the proposal would change the basis of the calculation of the 7 percent 
for the emergency and contingency cash reserves from local fund 
expenditures as proposed in the District's upcoming fiscal year budget, 
to local fund expenditures as calculated in the annual Comprehensive 
Annual Financial Report.
    Even with, what we hope will be congressional enactment of the 
proposed changes, you can see from the comparison to other States, the 
District has an exceptionally strong reserve position, but would still 
have among the most demanding of any jurisdiction in the country with 
respect to the amount required, the fact that access to these funds is 
granted only in declared major emergencies or serious revenue 
contingencies and the replenishment requirements.
                               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. Mayor, you have requested $9 million in 
Federal support for a new forensic lab. As a former county 
prosecutor, I certainly understand the need for good forensic 
work.
    What will be the local contribution for this and what is 
the total cost of the project? And something you and I 
discussed the other day--what are the operational cost 
estimates when the lab is up and running? Have you figured that 
out yet?
    Mayor Williams. Yes, we have, Mr. Chairman. We estimate 
that the overall cost will be $80 million through 2008.
    Senator DeWine. For the construction of the lab itself?
    Mayor Williams. For the planning and the construction, and 
the District's participation would be over that period. So, for 
example, in the first year we are requesting $9 million. The 
District would contribute $2.3 million for a total of $11.3. In 
2006, the combined Federal-District contribution would be $30 
million; the same for 2007 in construction. And then in fiscal 
year 2008, for construction, commissioning, and the completion, 
it would be $8.7. So it would be a partnership.
    As I said in my testimony, we are prepared to--and I can't 
speak for whoever is Mayor at that time, but we are committed 
to putting in place $40 million. That would be about $20 
million more than we are spending right now to operate this 
facility because we believe the benefits to our city, to 
Federal workers and to visitors alike are more than worth the 
investment.
    Senator DeWine. So it would be how much per year, Mayor? I 
am sorry.
    Mayor Williams. Around $42 million, my people are telling 
me. So that is about $20 million more than we are spending now.
    Senator DeWine. For the lab itself?
    Mayor Williams. Right, so we are assuming the operating 
burden for this facility.
    Senator DeWine. So the use of the lab is just going to go 
up, as we would expect, as you and I discussed the other day.
    Mayor Williams. Right, because we are going to be doing 
more than we do now.
    Senator DeWine. Sure. It is going to do a lot more than you 
are doing now, and your results, we assume, will significantly 
increase. And if you got a good lab there, what is going to 
happen is that your prosecutors and your police are going to be 
able to use it more, and as they use it more, your costs are 
going to go up.
    Mayor Williams. Right.
    Senator DeWine. Okay.
    Mayor Williams. I would say, Mr. Chairman, we have shown a 
lot of progress with Chief Ramsey, with the oversight--the 
Council has been very strong and adamant about this--in 
improving our closure rate to where it is now leading many 
other cities. But we still have a long way to go and the 
forensics lab would really enormously help that effort.
    Senator DeWine. Your current situation now is that you use 
the FBI lab. That is free to you, is that right, or do you pay 
for that or how does that work?
    Mayor Williams. I believe it is free.
    Senator DeWine. But you have got limited use of it?
    Mayor Williams. You get what you pay for, right.
    Senator DeWine. Well, I mean in all fairness, it is a 
limited use, though.
    Mayor Williams. Right, because we are not their top 
priority, by definition.
    Senator DeWine. Right, and that is just the way it is.
    Mayor Williams. We thank the FBI and we value their 
partnership. I don't mean to say anything otherwise.
    Senator DeWine. Right, but in all fairness, it is not 
yours.
    Mayor Williams. Right.
    Senator DeWine. Let me ask you about your request in regard 
to Federal support to help the District meet its commitment to 
Metro. Why is this important?
    Mayor Williams. Mr. Chairman, I think it is enormously 
important because if you look at our Metro responsibilities, as 
I said before, this is something that benefits not only the 
District, but it benefits our visitors, it benefits our Federal 
workers, it benefits the overall region.
    We are paying a disproportionate share here in the District 
for regular funding compared to Maryland and Virginia because 
the formula doesn't recognize our peculiar situation, and the 
structure of the Metro, as well, doesn't. We have a number of 
stations, for example, that are right within the District's 
boundary, and the long and short of it is we have an enormous 
amount of commuter use of our Metro and that is not reflected 
in the formula.
    Finally, as I said in my testimony earlier, the Federal 
Government has withdrawn support over the years, has reduced 
its support for Metro, while States have increased support. But 
we have no State to increase support to compensate for that 
lack of Federal support. So that is all coming out of the 
District, some $210 million.
    In terms of actual benefits, we are talking about increased 
ridership, new bus systems that particularly would allow our 
lower-income workers--I know the Senate, for example, has been 
very, very supportive of mothers moving into the world of work, 
with support for day care. This would allow those mothers the 
opportunity to have transportation to get to their jobs. So 
there are enormous benefits to this, as well. I would be happy 
to go into more detail.
    Senator DeWine. No, no, that is fine.
    Dr. Gandhi. And, Mr. Chairman, if I may just add some 
numbers to what the Mayor just said, we are talking about in 
2004 roughly $163 million of operating expenditures that we 
have to provide to Metro. That goes to 171, 179, 188, all the 
way up to 2007.
    But more important is the capital needs that we have to 
provide for, and the needs are something like $250 million in 
2004, double that much, or about $420 million in 2005, and keep 
on going to $468 million in 2007. Obviously, these are enormous 
needs and we cannot afford to provide that kind of capital 
funding because we have a limitation. As the Mayor pointed out, 
we have the highest per capita borrowing in the country, and if 
we were to go out and borrow more money, it would affect our 
bond rating. So we are in kind of a catch-22 here.
    Ms. Cropp. Mr. Chairman, if you took the capital needs for 
Metro and the capital needs for our school system alone, there 
would be no more capital dollars available for any other 
infrastructure needs in the District of Columbia.
    Senator DeWine. Well, my time is up. I am going to have 
some more questions, but let me turn to Senator Landrieu.
    Senator Landrieu. Thank you, Mr. Chairman. I am going to 
have four questions, if I could, on, No. 1, the imbalance that 
I would like to get some information on the record on, the 
structural imbalance; one on the school governance issue; the 
progress we are making on child welfare; and also back to 
education and tuition assistance. There may be more, but I 
would like to try to work through these.
    I think, Mr. Mayor, based on my view, having worked with 
many of you on a variety of different issues, it would be fair 
to say--and I would like if you would agree or disagree with 
this--that with all the immediate challenges before the 
District, the structural imbalance issue is at the core or is 
essential to find some remedy.
    According to the GAO study that was commissioned by 
Congresswoman Norton and myself which was released last year--
the chairman is aware of this study--it is estimated that, 
first of all, the gap is real and it exists. This is an 
independent third party, so that was one of the findings. It 
could be anywhere from $470 million to $1 billion.
    The other interesting part of this finding said that the 
District of Columbia cannot raise more revenue; it already has 
one of the highest taxing structures in the Nation and the 
region. It also says in this study the District of Columbia 
cannot lower spending, spending 5 percent less already than 
other urban areas for comparable services.
    It says the imbalance is largely beyond the D.C. officials' 
direct control. It does acknowledge that some additional 
management efficiencies could be achieved, but it is quick to 
say even if you did 100 percent and were perfect in your 
management, which no city is, and obviously neither is the 
Federal Government, you couldn't close the gap with management 
efficiencies. It says the District of Columbia is not the same 
as other cities. It has special benefits and burdens of being 
the Nation's Capital.
    So given that, and given your testimony, Mr. Mayor, do you 
agree with this, and what are the one or two steps that we 
could explore that, in your mind, might be a way the Federal 
Government could help close that gap? Is it focused on maybe 
capital outlay needs of the District? Could it be focused in 
other ways? What would your suggestions be to us? And I am 
hoping that this Congress could develop a remedy.
    Mayor Williams. Thank you, Senator Landrieu. I agree 
wholeheartedly with the GAO study. I think in this case where 
the GAO study has said something without any axe to grind on an 
objective basis, I think they are right on the money. They have 
also mentioned, in addition, Senator Landrieu, the fact that we 
are a higher-cost urban area. They mention that the District 
has the highest concentration of poverty in the United States.
    We have one of the largest extremes in education in our 
city and in income in our city of any city in the country, and 
this concentration of poverty presents the District with higher 
costs, particularly State costs, without the tax base to meet 
them. So we are overly bonded and we are over-taxed.
    I happen to think, chiming in with what Chairman Cropp has 
said, if we spent all of our money on our schools and on our 
Metro, we wouldn't have any more debt capacity. I think one of 
the major ways that the Federal Government can meet this 
responsibility is to take the measure that has been supported 
by a number of regional leaders and led by Congresswoman Norton 
that calls for a regular formula investment in the District, 
and to take that formula investment and put it into our 
infrastructure needs.
    I think that, No. 1, that will relieve enormous pressure on 
our budget, and, No. 2, these infrastructure needs really are 
needs that are, No. 1, regional; No. 2, benefit the quality of 
life in the District, but also benefit the Federal Government 
because it benefits our Federal workers and it benefits our 
visitors. So there is a shared interest in success in that 
area. So I would strongly support using these funds to support 
our debt financing and our infrastructure needs.
    Senator Landrieu. Well, let me say, Mr. Mayor, we are going 
to look very closely at that proposal because obviously, based 
on this study, some remedy has to be proposed. But, again, the 
importance is to recognize the gap is real, that it is not 
within the power of city officials to close the gap. So all the 
reforms that we are putting in place, whether it is financial 
reform, school reform, environmental reforms in terms of the 
clean-up efforts underway, or the reforms on child welfare 
which this chairman has led, are all in jeopardy if this issue 
is not faced head-on.
    So, Mr. Chairman, with all the challenges, I think if our 
committee could stay focused on this solution, it would be 
helpful.
    I want to outline a particular formula. It could be 
something like this; it could be something different. But if we 
thought about taking the problem down into measurable amounts, 
50 percent of the gap could be closed by a Federal relief in 
some way, 15 percent--maybe it is not that high--10 or 15 
percent by increased management efficiencies, and 35 percent 
based on maybe new strategies within the District to increase 
residents.
    One way to close the gap is to bring new taxpayers to the 
District so that you increase the tax base. The Mayor and the 
Council, I think, have some strategies in place, and my second 
question is about one of those strategies, in particular, which 
is City Build charters.
    Mr. Mayor, I want to thank you for your support and 
efforts.
    I wanted to read for the record what the City Build charter 
initiative is and then submit a longer document. With the help 
of our committee and with you all, we created a City Build 
charter school initiative. It is designed specifically to meet 
the Mayor's goal, shared by the Council, of attracting 100,000 
new residents to the District by targeting neighborhoods that 
have the near-term potential of attracting and retaining new 
homeowners, particularly those with school-age children, by 
using the promise of quality schools as an economic development 
tool to increase the residential and commercial tax base of the 
District.
    [The information follows:]
                  City Build Charter School Initiative
    ``Improving education is one of the most crucial elements to 
improving our city. It is key to attracting 100,000 new residents, who 
want to live and raise children in the District.''----Mayor Anthony 
Williams, Feb. 14, 2003.
         what is the ``city build'' charter school initiative?
    The ``City Build'' Charter School initiative is designed 
specifically meet the Mayor's goal of attracting 100,000 new residents 
to the District by targeting neighborhoods that have the near term 
potential of attracting or retaining new home owners, particularly 
those with school age children, by using the promise of quality schools 
as an economic development tool to increase the residential and 
commercial tax base of the city.
    In the Senate D.C. Appropriations bill for fiscal year 2004, 
Congress included $5 million to develop a ``City Build'' Charter School 
Initiative. This initial appropriation will be used to create five new 
charter schools in the District neighborhoods that demonstrate the 
greatest potential for meeting the goals of the program.
                how will the new school sites be chosen?
    As stated in the text of the appropriations bill, Mayor Williams 
will be responsible for selecting sites for the five new charter 
schools. The determination of the neighborhoods and school sites will 
be made in consultation with the D.C. City Council, the School Board, 
advocacy groups and community and business leaders in a public meeting. 
The selection of neighborhoods best suited to help attract or retain 
100,000 D.C. residents, will take into consideration the following:
  --The number, quality and affordability of the neighborhood schools 
        (public, charter and independent).
  --The waiting lists for admission to the areas high performing 
        public, independent and charter schools.
  --Recent trends in the neighborhood's real estate market, including 
        the sale and purchase of homes, demand for rental properties 
        and the potential for population growth and increased private 
        investment.
 are the ``city build'' charters the only new charters available this 
                                 year?
    No. Since the passing of the District of Columbia's charter school 
law in 1996, the District of Columbia's chartering authorities have 
approved almost 40 charters, earning the District of Columbia the 
distinction of having the highest concentration of charter schools in 
the Nation. The ``City Build'' initiative is designed to further this 
laudable growth in the use of charter schools as a means of achieving 
excellence and expanded choice for children and their parents. The 
District of Columbia's charter school law allows for up to 20 new 
charters to be created each year. To support these efforts, the Fiscal 
Year 2004 Appropriation also includes $8 million for the Charter School 
Direct Loan program and other charter school support programs, bringing 
the total Federal support for D.C. charter schools over the last 3 
years to almost $40 million.
what about public schools in these and other neighborhoods, don't they 
                               need help?
    Yes. The ``City Build'' Charter program is only a part of an 
overall plan for transforming elementary and secondary education in the 
District. With this in mind, Congress appropriated a total of $40 
million in 2003 for school improvement activities; $13 million for 
public school transformation activities; $13 million for charter school 
enhancement programs, including the $5 million for the ``City Build'' 
initiative, and $13 million to provide opportunity scholarships for low 
income students to attend private schools. The goal of all of these 
efforts is not to create competition among the various types of 
schools, but to create a strong synergy around the shared goal of 
giving parents more choice and every child a chance to succeed. 
Expanding high quality options allows parents to make the choice that 
is best for their child and their needs.
                      what is the long term plan?
    The Appropriations Committee intends for this to be a 5-year, 
ongoing appropriation. If funding allows, the goal would be to fund 
three to five new ``City Build'' charter schools each year for the next 
5 years. As other public and private funds become available and as this 
pilot program proves successful, opportunities for future ``City 
Build'' charters will be explored.
                   how will the program be evaluated?
    Each year, the Mayor will report to Congress on the effectiveness 
of the program. Such report should include:
  --The academic performance of the students and the overall 
        performance of the schools funded by this initiative.
  --The enrollment of schools funded by this initiative.
  --The waiting lists for schools funded by this initiative.
  --The impact of these schools on the sales and/or purchases of homes 
        as well as rental turnover, specifically by residents with 
        children.
  --The impact of these schools on the size of the population of the 
        neighborhood.
  --The impact of these schools on the overall vitality of the 
        neighborhood.
    At the end of the 5 years, the U.S. Department of Education will 
conduct an independent evaluation to determine if this initiative could 
be expanded to other urban areas in need of similar development.

    Senator Landrieu. So I am urging us to consider this 
strategy as one of many strategies--tax credits. There could be 
other school-related strategies, other economic development 
strategies in neighborhoods, as part of this structural 
imbalance challenge. Again, the Federal Government should step 
up and commit some resources. The city can continue to improve 
its efficiencies to close that gap, but another very important 
part of that is what can we do to attract new residents to the 
city.
    So, Mr. Mayor, my question is you have been given under our 
new law the obligation to identify the potential neighborhoods 
where these City Build charters may work to attract middle-
income families to either stop leaving or return to the 
District.
    Without going into any specific detail, just give some 
comments about your thoughts about this initiative, your hopes 
for it. Do we think we could build on it this year and expand 
it in the years to come? Do you see as an effective tool for 
trying to get new residents back to the city?
    Mayor Williams. I think City Build is an enormously 
important initiative because it really gives us more 
flexibility and focus in improving education, and education is 
critical to providing the expectations that families have when 
they move to a city.
    The three critical things are operations, public safety and 
public education. I believe the city has made enormous strides 
on the operation front in terms of predictability, regularity 
and efficiency of service. So then that gives you public 
safety. We have begun making some inroads on public safety. We 
are running substantially below last year in crime now, and I 
applaud the chief and our public safety people, and 
particularly City Administrator Robert Bobb for focusing on the 
high-crime hot spots.
    So that leaves us with public education. The Mayor and the 
Council are engaged in discussions about the governance of 
education, bringing in the very best superintendent, and we are 
moving on that front. The Mayor and the Council have worked 
together in supporting a robust charter school effort, leading 
the country per capita in the number of charter schools, and a 
key part of that is City Build.
    We are hoping that, by June, we can receive applications 
for these City Build schools in targeted neighborhoods and, 
with City Build, provide one of two important functions, I 
think, that charter schools can provide our city. The first 
function is providing parents in these targeted neighborhoods 
with an additional choice for their children so they don't move 
out once their children reach school age, and that is 
absolutely important.
    The other area where charter schools, I think, can provide 
an enormous help is in providing additional choices and 
flexibility for kids who need additional help. An example of 
that would be the SEED School, where you have every one of 
these kids at the SEED School, in this boarding school concept, 
going to be going to college. Another example is the wonderful 
Maya Angelou School, where you are targeting kids with special 
needs.
    Charter schools can do that much more quickly, and in many 
cases more effectively for a lot of different reasons than our 
regular public schools. So the City Build concept as part of 
the larger public charter school concept is critical to 
bringing in these 100,000 new residents, because you are right, 
Senator. The reason why I set the goal, in conjunction with the 
Council, at 100,000 new residents is, yes, we are trying to 
expand our tax base.
    One way you solve this problem is to recognize that the 
District used to have around 800,000 people in it. So if we 
could use a business model, we have got a store that is built 
for 800,000 customers and we have only got about 600,000 and we 
have got a lot of slack capacity. It is like driving around the 
bus half empty, so we need more passengers, and the charter 
schools allow us to do that.
    Senator Landrieu. Well, I just want to commend you for your 
effort because almost every city in America is struggling, 
particularly cities in the South that saw a lot of flight in 
the 1950's and 1960's and 1970's because of the Brown v. Board 
of Education decision, which we mark and celebrate today.
    Mr. Mayor, as you can recall, it was a very unsettling 
decision back in the 1950's and 1960's, but we have learned a 
great deal and I think we have matured as a society. New 
Orleans, for instance, my hometown, had 750,000 25 years ago. 
Today, it has 450,000 because of the white flight that left the 
city.
    Now that we are 50 years smarter since Brown and more 
mature and more sophisticated, I think that we can devise 
strategies that will work, that will meet the needs of people 
and the great aspirations and hopes that all people have, 
regardless of race or income, about having opportunities for 
their children and for themselves.
    This is part of a very exciting strategy that many cities 
are beginning to use, and I want to commend the District for 
using schools as a lure, if you will, to attract people back to 
the cities, and smart and efficient tax cuts.
    My second question--and I thank the chairman for his 
latitude here, because schools are a great passion and because, 
I guess, we are marking Brown v. Board of Education this week. 
It is much on my mind and many of the Senators that advocate 
for fairly radical change and transformation in our school 
systems.
    I read with some disappointment, I guess, the vote last 
night. Although I have not endorsed any particular plan, Mr. 
Mayor, as you know, and Council leader Cropp, I would just want 
to state for the record that I do disagree with the statement 
that was reported in the paper this morning about the solution 
being a quality superintendent.
    Districts all over this country that think that just 
getting the right superintendent is the answer to their problem 
should line up behind the thousands of districts around this 
country that have brought in top-flight, top-quality, 
enthusiastic, well-skilled superintendents, only to find them 
leave after 3 years with very little in place.
    I would say that while it is very important to have a sharp 
superintendent, and obviously tremendous leadership from your 
principals and your teachers, a system that continues to reward 
mediocrity, resist transparency, a system that resists 
accountability, a system that focuses on process and not 
results, is doomed to failure no matter how many great 
superintendents or great principals or great teachers.
    So without endorsing or supporting any particular plan, I 
would like, Chairman Cropp, if you would just give a couple of 
thoughts, and the Mayor, about your continued efforts to try to 
find a way to create a new system--I don't know who is going to 
run it, but a new system that is accountable, that is 
transparent, that focuses on excellence, that is child- and 
family-centered and brings hope to the residents of the 
District and the region, and serves as a model for the Nation.
    This will be my last question until the second round, but 
maybe, Chairman Cropp, you could give a couple of thoughts that 
you might have.
    Ms. Cropp. I don't think, Senator Landrieu, that anyone 
would disagree with your statement as to what we need for a 
system and that everyone wants to have a better system, 
obviously, including the District of Columbia.
    The District of Columbia in recent years has gone through 
so much change. From the time that the Financial Authority came 
to the District, we have changed superintendents from the 
original superintendent, to General Beckton, to Arlene 
Ackerman, who did not really want to be superintendent, then 
another superintendent. All of this was under strict governance 
of the Financial Authority--total instability, total change for 
our school system. How could we expect anything but failure, 
when we have constant change and instability? We are now moving 
in a direction where the Board of Education recently has 
adopted certain standards that would bring about those very 
things that you just articulated.
    It seems to me that one of the things that we need to 
continue to try to do is bring about stability. Over the past 
couple of weeks, we have had an opportunity to interview 
candidates to become Superintendent of Schools, and many of us 
believe that the superintendent is an important role, along 
with the classroom teacher who has that direct nexus with the 
students.
    The one thing that we found from every study across the 
country, even all of the leading superintendents, is that 
governance is not what dictates what will bring about a good 
school system. There is an awful lot that is involved in it, 
and I think we are committed, as we struggle in the District of 
Columbia to find out what that answer is, to work together.
    As we have talked to the superintendents who have come in, 
they have seen many different governance structures work. But 
what they need is they need to have people who are committed to 
educate the young people. They need to have the ability to run 
the school system and put in the types of programs that are 
needed, and they need to have the commitment of all of the 
principals who are involved in this city to say that they are 
indeed supportive of education.
    I have to say that I am pleasantly surprised with the types 
of candidates that we got to be Superintendent of Schools. We 
have some of the top, most respected educators in the country 
who have applied. I think we still have an opportunity, in 
talking with some of the others, to bring in those individuals. 
And if we have the commitment of all of the elected leadership 
and if we have the commitment of that superintendent and if we 
get down into the bowels of the school system with the teachers 
who are really interacting and bring about some standards and 
criteria that we need to educate the type of child that we want 
to send out into society, then I think we all will be winners.
    It is a struggle. If we had the answer, everybody in the 
country would do it, but I think we are moving along the right 
way. What I would like to do is to have the school system 
submit to you some of the new changes that they have instituted 
within the past probably 3 or 4 months that I think would 
increase your level of comfort with regard to the direction 
that the school system is going--very thoughtful and 
considerate, and I think directly related to the education of 
our young people.
    Senator Landrieu. Thank you. I am familiar with some of 
them, but I appreciate you sending me that additional 
information. I think the urgency of trying to scale up some of 
the things that are working in the District is what is on 
people's minds, not to wait 10 or 15 or 20 years, which is the 
entire life of a student, but to try to identify quickly the 
things that are working and scale them up with some urgency, 
considering the dismal performance of some of the schools not 
just in this city but across the Nation. To have only 20 
percent of children reading at certain levels just robs them of 
any good future that they might have.
    Ms. Cropp. Might I just add that with our budget, the Mayor 
submitted to Council and the Council approved a recommendation 
that would improve our early childhood education level. That is 
one of the main things, I think, that will make a difference 
because indicators have shown that if a child enters the first 
grade and they don't know certain basic skills such as their 
name, their address, their parents' names, or can't count to 
10, colors, they are already 3 years behind. And unless they 
really have an infusion of support, they probably will not 
catch up. So we are doing some other things budget-wise that 
will help move our system, too.
    Senator Landrieu. Mr. Mayor, very quickly, because the 
chairman has been gracious.
    Mayor Williams. I am a big fan of Chairman Cropp and I 
think she has done a fantastic job with our Council and our 
city wouldn't be where it is but for her leadership. I don't 
know how she manages to keep the Council going, but she does, 
and she has a unique skill and ability to do it. We just 
disagree on this issue, and I am confident that as we get 
through the final stages of the legislative process, her unique 
skills and abilities and my initiative will allow us to reach a 
conclusion that will honor the strong voice in our city for 
democracy.
    I respect that the School Board was the first elected board 
in the city--I mean, the first elected anything in the city on 
a home rule basis. It has got to have more than just simple 
significance; it has got to have some kind of influence. 
Parents have to have a way to redress their grievances, and the 
board ought to be--and the Council has spoken to this--the 
board ought to be more about policy and not about nitty-gritty, 
in-the-weeds operations.
    I think we can do this and at the same time do two 
important things, and this is why I believe strongly that some 
change is needed. One, we really need one point of contact in 
the District government to manage the systems because the 
systems in the schools are a mess. There is no other way of 
looking at it. I mean, I know what a mess is because I saw a 
mess when I was CFO and I have seen a lot of messes as Mayor.
    Second, the needs of children. We really need one point of 
contact in the government to focus on the needs of these kids. 
Many of these kids don't have any home. So the community, 
through the government in partnership with the faith community, 
in partnership with business and in partnership with non-
governmental organizations--the government, as the lead 
facilitator, is in loco parentis for these kids.
    Finally, when you say the studies don't really correlate 
any real outcome when it comes to governance, when you take all 
the schools systems as a whole that is true. But if you compare 
high-impact, screwed-up urban systems with high concentrations 
of poverty, there is no question that you will get better 
outcomes that lead to better test scores if you change the 
governance structure. I think you could bring God in here and 
if you don't have the right environment for success, it won't 
be successful. But that is just my opinion and the Council 
Chair and I respectfully disagree.
    Senator Landrieu. Thank you, Mr. Chairman.
    Senator DeWine. Dr. Gandhi, one criticism of the GAO report 
on structural imbalance is that the District has significant 
medical billing and claims management problems. How are you 
working to address this problem?
    Dr. Gandhi. I think we have faced a substantial problem 
particularly in the area of Medicaid reimbursement. In the 
past, we have not had any infrastructure to be able to identify 
document claims, everything that was coming to the city. We 
have been working at it for the last at least 3 years.
    Under the former City Administrator John Koskinen, and now 
under Robert Bobb, there is a special office that does nothing 
but make sure that Medicaid is properly accounted for, properly 
monitored, and that we do claim everything that is coming to 
the city. We hope that we have taken care of our past sins, 
when we had a major write-off last year, and we want to be very 
vigilant about that. The first thing that I told Mr. Bobb when 
we had our meeting when he came to the city is that there are 
three things that he should concentrate on--Medicaid, Medicaid 
and Medicaid, because that is a substantial part of our budget.
    Senator DeWine. Mayor, you requested $15 million for 
security costs related to special events in the city because it 
is the Nation's Capital--you requested, actually, $25 million 
and the President requested $15 million. Do you want to discuss 
that difference, that $10 million difference there?
    Mayor Williams. Right. The big difference, Mr. Chairman, is 
the inauguration. We estimate that, post-September 11, the 
inauguration is going to be significantly higher in its 
exposure to us than we have had in the past because of the 
additional security needs and in order to do it in a way that 
balances the need to have an open inauguration and a safe city 
and, needless to say, continuity of government.
    Senator DeWine. What does the inauguration normally cost?
    Ms. Cropp. Six million dollars.
    Mayor Williams. I think it was half that amount, right.
    Ms. Cropp. In past years, it was budgeted at $6 million.
    Senator DeWine. So you figure with the new environment, we 
are talking a lot more money than that?
    Mayor Williams. Right.
    Ms. Cropp. The challenge, Mr. Chairman, is in this year's 
budget we were not even given the $6 million that had been 
budgeted and funded in prior years.
    Mayor Williams. Some of the costs that we are looking at 
are overtime, for example, bringing in outside jurisdictions, 
some IT expenses related to coordinating all of this. Public 
works expenses are often overlooked, but they are around $1 
million, and fire and EMS as well. So I think it is a fairly 
conservative, objective request, given what we are looking at.
    Senator DeWine. Chairman Cropp, you highlighted the need to 
provide $8.6 million above the President's request for the 
Tuition Assistance Grant program. What would be the 
consequences if we were unable to provide these additional 
funds?
    Ms. Cropp. Many of our students have been able to benefit 
from that program. It would be the loss of getting education 
for a lot of citizens in the District of Columbia, and that is 
probably the worst cost.
    Senator DeWine. It has been a very successful program.
    Ms. Cropp. It has been extremely successful, and the return 
cost for that will be much greater than the initial lay-out.
    Senator DeWine. Well, I think we have gone on and kept you 
all quite a while. We appreciate it very much.
    Mary, a last question.
    Senator Landrieu. Thank you.
    Just one more, Mr. Mayor and Chairman Cropp, on the child 
welfare issue on which we are making progress. Again, I just 
thank you. We have got a long way to go, but with the 
establishment under the chairman's leadership of the new family 
court, the new principle of one judge, one family, the 
coordination of city services and court services to streamline 
and make sure that children are not lost in the system, that 
they are identified early, and seamless services brought to 
them with a focus on permanency, either reunification with 
their family, temporary foster care, and then long-term 
permanency through adoption or kinship adoption, that is a 
system that we are trying to put forward throughout the whole 
country, and in many ways in the world.
    But for the purposes of this hearing, I understand that the 
Council cut $23 million out of child welfare and put it in 
reserve. I wanted to ask you, Madam Chair, why, and ask the 
Mayor if you would comment on that situation and what you are 
doing or where you are in the process of, I think, a new hiring 
of the head of this important office.
    Ms. Cropp. The Council believed that there is a need for 
this program to continue and to be expanded. In fact, the money 
put in the contingency reserve is somewhat safeguarding those 
dollars.
    What the budget showed, as presented to the Council, was 
that there was extreme growth in the area of adoptions and 
foster care success, something that we all want to happen. And 
while we saw extreme growth of many millions of dollars in that 
particular, very important area, we also saw growth in the 
corresponding component of that program that says that there 
wouldn't be as many children left because you have put the 
children in an adoption-type program.
    The Council felt strongly that the program is of such 
importance that we wanted to err on the side of caution, and 
rather than not have the necessary dollars there for the side 
of the program that would deal with foster care, we would put 
the money in a contingency fund so that the city could have 
access to it if it was needed. But we didn't want the money 
just languishing there if there was no need. But if there is 
need for it, then the Mayor would have the ability to draw 
down. So it is in a reserve for that particular purpose.
    But if you look at the budget and you look at the line of 
children who are in foster care and then you look at the line 
of children for adoption, the adoption line is going up 
significantly, which means that the other side ought to go 
down. But it went up significantly, also, so there was a 
disconnect there. It was a non-sequitur. So then we said, well, 
let's put the money in contingency because we wanted to make 
sure that the dollars would be available if, in fact, there was 
a need.
    Senator Landrieu. Mr. Mayor.
    Mayor Williams. If you look at the growth in our budget, 
the major elements of growth have been really four-fold. That 
is what has pushed us up at an abnormal level. It isn't 
sustainable, and I don't think, as you have heard from Nat 
Gandhi's testimony, it is something we are planning on in the 
future.
    One is Medicaid, and the chairman asked a question about 
that. One was debt service. We have talked about the structural 
imbalance. One was operating costs for capital projects put in 
the operating budget. And one was court-ordered compliance.
    I am looking at what we need to do with this and I am going 
to certainly be working with the Chair to make this work, but I 
am very deeply concerned because our child welfare system is in 
a very fragile state. We have got a number of things, from 
caseload requirements, to the family team meetings that have 
been requested, some of the services for these kids that we 
want to make sure that we keep in place.
    We have moved from an utter disaster to a point where the 
court monitor came in at one of my press conferences about a 
month ago and said we are now about equal to other States. 
Well, that is enormous progress. We don't want to lapse back to 
where we were. We want to keep going in a positive direction. 
So I want to work with the Council to see that we are 
justifying to them that these funds are being used efficiently 
and we get them to these kids, and I pledge to do that in every 
way I know how.

                         CONCLUSION OF HEARINGS

    Senator DeWine. Well, we thank you very much, Mayor and Dr. 
Gandhi and Chairman Cropp. Thank you very much for your good 
work and we look forward to working with you. The budget is 
always tight. There is never enough money, but we look forward 
to working with you.
    Thank you.
    [Whereupon, at 11:20 a.m., Wednesday, May 19, the hearings 
were concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]
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