[Senate Hearing 108-740]
[From the U.S. Government Publishing Office]
DISTRICT OF COLUMBIA APPROPRIATIONS FOR FISCAL YEAR 2005
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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.]