[Senate Hearing 109-]
[From the U.S. Government Publishing Office]



 
        DISTRICT OF COLUMBIA APPROPRIATIONS FOR FISCAL YEAR 2006

                              ----------                              


                        WEDNESDAY, JUNE 15, 2005

                                       U.S. Senate,
                               Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:15 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Sam Brownback (chairman) 
presiding.
    Present: Senators Brownback, Allard, and Landrieu.

                          DISTRICT OF COLUMBIA

STATEMENT OF HON. ANTHONY A. WILLIAMS, MAYOR

               OPENING STATEMENT OF SENATOR SAM BROWNBACK

    Senator Brownback. I call the hearing to order. I thank you 
all for joining us this morning. We are scheduled for an early 
vote this morning, but what we will do is get the hearing 
started, get as far along as we can, and then we will have to 
take a recess for the vote and then we will come back.
    I want to welcome the Mayor and the members of the City 
Council, the Superintendent, the Chief Financial Officer for 
the District of Columbia, looking forward to the discussion 
that we will have here this morning.
    Today we will hear testimony regarding the District of 
Columbia's fiscal year 2006 local budget request. D.C. Mayor 
Anthony Williams, Council Chairman Linda Cropp, Chief Financial 
Officer Natwar Gandhi will present the city's budget and we 
will discuss the District's request for Federal resources.
    In addition, D.C. School Superintendent Clifford Janey will 
discuss the D.C. Public Schools' local budget request and his 
plans for using the $13 million in Federal funds that have been 
requested of this subcommittee.
    I would like to note that in the last Congress the Senate 
passed a bill by unanimous consent which would have given 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 would avoid delaying the 
city's local funds whenever the D.C. appropriations bill is not 
passed before the end of the fiscal year.
    Since the House did not pass a companion measure during the 
last Congress, Senator Collins, chairman of the Committee on 
Homeland Security and Government Affairs, has reintroduced a 
D.C. budget autonomy bill which her committee will soon be 
considering.
    As we review the local budget, I would like to congratulate 
city leaders for making dramatic improvements in the District's 
financial conditions. At a time when many local jurisdiction 
bonds have been downgraded, the District is enjoying an A 
rating from all three credit rating agencies. The city is also 
maintaining a cash reserve balance of about $250 million, which 
is among the largest in the country. The city is enjoying an 
impressive commercial real estate boom and has been creating 
jobs at a rate that is twice the national average. 
Congratulations on all of these financial scores. Those are 
excellent.
    There are areas of concern that temper some of these 
positive facts and I hope to be able to discuss some of those 
with you today. Only one-third of the jobs that the District is 
creating are going to city residents. In fact, even as the 
District has been creating new jobs unemployment in the 
District has been increasing.
    The adult illiteracy rate is something that we have 
discussed at a hearing previously we had on education, I have 
discussed privately with the Mayor and with the chairperson. 
The adult illiteracy rate in the District is 37 percent. The 
District--this is surely one of the prime reasons for the 
persistent unemployment problem.
    For years we have been failing generations of school 
students in the District and now we are reaping some of these 
sad consequences. As I stated in the hearing last month on the 
D.C. Public Schools, money I do not believe is the direct 
problem. Funding for the District school system has increased 
83 percent since fiscal year 1999 even as enrollment has 
dropped 5 percent in the same time period. Despite these large 
increases, only 32 percent of fourth graders are reading at a 
basic level compared to 62 percent nationwide, and only 36 
percent of these students are performing at the basic level in 
math, compared to 77 percent nationwide.
    I know that District officials and others have stated there 
are reasons for this as this is an urban area and in other 
States you are comparing urban and broader regions. Still, 
these numbers are just not acceptable. They are not acceptable 
for the children, and if we fail the children we will fail 
future generations, we will fail the District overall.
    I want to hear from city leaders about how they plan to 
rein in school spending and give the superintendent the tools 
and support to aggressively improve the schools and at the same 
time what we can do to get these grades and scores up. We 
simply must do better.
    Something I met directly with the Mayor about also is the 
need to work to support families in the District. This is a key 
to the future and to education. We have to have a strong family 
structure so that children at home are being read to and their 
math is being practiced. We have got five children in our 
family and it is a constant that you are doing all the time. 
But if you do not have somebody doing that, you cannot expect 
them to go to school and be in a prepared situation.
    We need to strengthen those families to be able to have the 
children raised in a better environment and be better prepared 
to go to school.
    Regarding the Federal portion of the D.C. budget, I know 
that the District has a number of programs and capital projects 
that may merit funding through this subcommittee. Today I would 
like to hear more about these project requests from our panel. 
Although our resources are always limited, as chairman of the 
subcommittee I look forward to partnering with the city leaders 
to find ways to make life better for those who live, work, and 
visit this great 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 and the hearing record will 
remain open for the requisite number of days to make that 
presentation.
    I would like to turn over to my colleague Senator Landrieu 
for opening comments. Senator Landrieu.

                 STATEMENT OF SENATOR MARY L. LANDRIEU

    Senator Landrieu. Thank you, Mr. Chairman, and I look 
forward to working with you and the other members of the 
subcommittee on this important topic and I want to join with 
you. I am going to submit my full statement, Mr. Chairman, to 
the record, but because of the time and because I am very 
interested and anxious to hear from our panelists today I just 
want to commend the city for the really extraordinary 
turnaround, Mr. Mayor, that has taken place on the financial 
side: the historic surplus, the opportunity that the city has 
to take some of that surplus and really make some strategic 
investments for the development of the city. The chair of the 
Council, thank you, Ms. Cropp, for the work that the Council 
has done in that regard. Dr. Gandhi, you have given 
extraordinary leadership.
    So because the financial situation of the city has improved 
quite dramatically with the help of this subcommittee and with 
Congress, but in large measure due to some of the management 
decisions that have been made at the city level, we are hoping 
now that some really good strategic investments can be made as 
this city looks forward. One of those investments of course 
could be the school system, which, as the chairman has pointed 
out, while progress has been made, while we are pleased, Dr. 
Janey, that you are here and you are providing some excellent 
ideas for that improvement, that this is a real opportunity for 
the city and the Council to step up and even partner in a 
stronger way with the school system.
    Great cities cannot be built without great school systems, 
and this school system, just like many school systems in 
America, are struggling. Not uniquely, not singularly, but many 
cities have this same struggle. The difference is that I see, 
which is a positive difference, is that this city has a 
surplus. This city has a reserve fund. This city has made 
significant progress. There are cities, even if they wanted to 
help their school system, could not do it because their budget 
situation is so dire.
    Now, I understand that there are other needs. Housing is a 
need, streets and transportation, crime and investments in 
keeping crime rates down and supporting the police department. 
I am not unaware of that. We struggle to help our cities in our 
own States with that.
    But truly there is an opportunity here, and I look forward, 
Mr. Chairman, to continuing to work to identify excellence in 
our public school system here, to identify failure and 
eliminate it, identify success and reward it, provide more 
choice and opportunity for parents, and focus on real results, 
not process.
    The final thing I will say about it is solving this problem 
with the schools is not just about money. It is about 
management. When you have on the front page of the newspaper 
today--and I know this is about the city budget, but the city 
should be about schools and I know this Mayor is. When you have 
the front page of the newspaper today stating that schools had 
to be let out because it is 100 degrees in classrooms, we have 
to ask ourselves, what more could we do. That is what I hope we 
can get to later today.
    [The statement follows:]

             Prepared Statement of Senator Mary L. Landrieu

    Welcome Mayor Williams, Chairman Cropp, CFO Dr. Gandhi, and 
Superintendent Janey. We are so pleased that you could be here this 
morning to inform us about your fiscal year 2006 DC Local budget. Thank 
you, Mr. Chairman, for calling this hearing today. I know it will be 
helpful to us as we prepare to mark up the fiscal year 2006 D.C. 
Appropriations bill. As you know, the D.C. Appropriations Subcommittee 
is unique in that it has the responsibility to approve, without change 
the local funds budget as proposed by the Mayor and passed by the 
Council. This year's local budget totals $7.35 billion, of which $4.95 
billion is derived from locally-generated taxes and has been fully 
debated in the Council of the District of Columbia. I hope that we can 
continue our focus on the Federal funding provided through this bill to 
the District government. In the past we have used these funds to both 
enhance particular local programs or projects and fulfill our sole 
responsibility to provide oversight to the District's criminal justice 
functions, the Courts and Court Services and Offender Supervision 
Agency.
    Over the last four years, this Committee has tried to be a partner, 
not a dictator. As such, we have tried to refrain from altering the 
local funds budget as passed by the locally-elected leadership of the 
District--you are best equipped to determine the priorities of city 
agencies. This is not to say that we cannot be active partners in 
reform, or provide funding for discreet projects to catalyze 
improvement, or help to make recommendations in policy in line with 
Federal law. We have tried to play this role in the areas of education, 
nudging the leadership to funding excellence, replicate success and 
eliminate failure.
    Great cities, Mr. Chairman, need great schools. I am a city person, 
having grown up in New Orleans, a city much like D.C. In education is 
particular, both cities are faced with the ongoing challenge of 
providing a quality education to all children. The purpose of the 
public education system in America mirrors much of the mission of the 
United States as it was formed--to provide an open opportunity for 
citizens to create, build, and contribute to our great nation. Our 
primary mission in providing access to a quality was to encourage the 
development of a creative workforce which would, and has, driven the 
innovation America is known for.
    But the public education system that served us for so long is 
becoming increasingly outdated and faces many challenges. To survive, I 
must change and adjust. To remain competitive in competitive times, it 
must be more consumer focused and less bureaucratic, more dynamic. D.C. 
itself has suffered a decline in enrollment of 2,000 students every 
year for the last 10 years. People have grown tired of a slow moving 
bureaucracy who cannot meet the needs of its students or the workforce 
demands of our society and they have gone elsewhere I believe that can 
change and I am encouraged by Dr. Janey's commitment to develop 
targeted areas of improvement.
    One such area we have worked closely on is the $40 million annual 
investment in school improvement. In 2004, the Congress initiated a 
five year demonstration program to invest $13 million annually in three 
sectors of education: scholarships to private school, expansion of 
public charter schools, and strengthening of public schools. I have 
worked hard not only to invest in leading edge innovation in public 
charter schools, but also to challenge the oversight of charter schools 
to be more strenuous. From Dr. Janey's first weeks we have worked to 
target the funding to public schools to increasing student achievement 
and teacher readiness. I look forward to hearing about implementation 
of these funds and plans for fiscal year 2006.
    Education is just once piece of the unprecedented increase in 
Federal dollars that have gone to the city ($157 million in fiscal year 
2003-2005). The last several years have marked an increase in 
Congressional confidence in local leadership, resulting in increased 
autonomy for D.C., and increased investment in strategic projects. A 
more broad challenge was confirmed by the General Accounting Office 
(GAO) in a landmark study of the District's ``Structural Imbalance'', 
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 D.C. 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 D.C. The study also 
identified management inefficiencies, particularly in schools and 
Medicaid billing that with attention could realize savings.
    Finally, the GAO estimated that the imbalance has caused the 
District to defer maintenance or invest in critical infrastructure to 
the tune of $2.5 billion over the years. In the past the Committee has 
included a marker on the Federal share of building and maintaining 
infrastructure in the city, particularly in the area of transportation 
and the Anacostia River. I hope to build on this investment this year 
by partnering with the city on major infrastructure investments.
    At the same time as working on the structural imbalance, we must 
focus on other tools for bringing greater prosperity and long term 
stability to the District. Cities that have good public schools, safe 
communities and strong families are cities that have strong economies. 
If we focus on providing these elements in the District, we will go a 
long way toward the economic independence the city needs and deserves. 
One such tool Mayor Williams and I have developed--City Build Program 
for Charter Schools--is a grant program for public charter schools to 
locate in neighborhoods which have the near-term potential of 
attracting or retaining residents to meet the goal of increasing the 
population by 100,000 residents. This can be done by keeping the people 
you have with services targeted to their needs that would otherwise 
have moved to the suburbs for the child's public education, 
transportation issues, or to find affordable housing.
    In addition to the investment in these building blocks of 
neighborhoods, the Committee has focused on ways to support the 
development of infrastructure which the GAO identified as the primary 
victim of an imbalance in the city's finances. While the President's 
budget request has increased the level of projects recommended for 
Federal funding each year, this year the President made a grave 
oversight in not funding the Combined Sewer Overflow program. This 30-
year, billion dollar renovation of the underground sewer system, built 
by the Congress in the 1800's, is a key to revitalization of the 
Anacostia and Potomac waterfronts.
    If the city is to have a beautiful baseball stadium at the 
confluence of these two rivers, and a river walk all the way from 
Maryland, and wonderful housing and shops at the South East Federal 
Center, and a grand boulevard on M Street at the Navy Yard, and the 
revitalization of Reservation 13 extending Massachusetts Avenue down to 
the water, and recreation for youth and families at Kenilworth Park and 
Poplar Point, and creating a sanctuary on Kingman Island, and all of 
the other important improvements for the life of the city, its 
residents and visitors--how are we to do this alongside a river which 
suffers from over 80 overflows from the sewer system every year? How 
are we to make the Anacostia River accessible when contamination is off 
the charts?
    I am pleased to see the Mayor has included funding for the plan to 
renovate the Combined Sewer system on his list of Federal funding 
priorities, however if the list is to be read in order of priority it 
is last. I hope the Mayor and Chairman Cropp can provide some insight 
into their lobbying efforts to ensure this critical project is funded.
    Finally, a major area of annual concern on the D.C. bill is the 
addition of social riders which require the city to limit their own 
policies, a limitation which is not placed on other cities. I am 
committed to treating the District like any other city when it comes to 
spending locally raised taxes. To that end, I will not support efforts 
to limit the elected officials in the practice of their duties.
    I appreciate the witnesses' time and commitment to the District of 
Columbia. I have greatly valued our partnership over the last four 
years and I look forward to working together this year.

    Senator Brownback. Thank you, Senator Landrieu.
    We do have a vote on now, but I want to go to my colleague 
Senator Allard for a brief statement, and then we will recess 
until after the vote. Senator Allard.

                   STATEMENT OF SENATOR WAYNE ALLARD

    Senator Allard. Thank you, Mr. Chairman.
    I would just like to welcome the Mayor and Dr. Gandhi and 
Chairman Cropp and Dr. Janey for appearing before the panel 
here and associate myself with the comments of my colleagues.
    Just one other concern that I would like to bring up. As 
chairman of the Subcommittee on the Legislative Branch 
appropriations, I have oversight on the new expansion here at 
the Capitol. It is the visitor center there, and I just would 
hope that as we move toward the concluding part of the 
construction on this particular facility that we can make sure 
that all our ducks are in order as far as meeting the 
requirements for occupancy. There could be some issues that 
could come up there and if you see any utility issues or 
anything that could come up here on the last minute, please 
work with the contractors and work with the Architect and 
ourselves and see if we cannot begin to identify these problems 
early on so that they will not end up in unnecessary delays as 
we move toward closing down the project and getting the 
certificate of occupancy.
    I want to thank all of you for being here. I have another 
subcommittee running, so I will not be able to be here for all 
your testimony. But I will be reviewing it closely and I look 
forward to working with the chairman on those issues that are 
important to you.
    Thank you very much.
    Mayor Williams. Thank you.
    Senator Brownback. Thank you, Senator Allard.
    We have 5 minutes left in the vote. We are going to recess 
the hearing. I would ask my colleagues, if we could, to go over 
and vote and get back as soon as possible. As soon as I am 
back, we will start with the presentation. My apologies to 
this. It is just one of the hazards of the job that when they 
call a vote you have got to go run and vote.
    So the subcommittee will be in recess, hopefully for no 
more than 15 minutes, and then we will reconvene.
    I call the hearing back to order. Again my apologies for 
the interruption on the energy bill we are voting on.
    Mayor Williams, delighted to see you. I want to say 
publicly, too, when I first came into the Senate, elected in 
1996, the District of Columbia was in a very difficult 
financial condition and many things were not moving in the 
right direction. We had the emergency board. I am not putting 
the right title on that. I was the chair of the authorizing 
committee at that point in time. I worked with you some then.
    This has been a dramatic turnaround. It has been a most 
impressive turnaround. I want to compliment you in particular 
about that because you have been at the center of much of that 
change, that turnaround that has taken place, and it is very 
good to see. I am looking forward to addressing the rest of the 
issues that remain, but I do not want to take anything away 
from the efforts that have been made and what has been 
accomplished in really a relatively short period of time. So my 
congratulations to you.
    The floor is yours.

                    STATEMENT OF ANTHONY A. WILLIAMS

    Mayor Williams. Thank you, Mr. Chairman. My full statement 
has been submitted for the record of the subcommittee and I am 
going to try to paraphrase wherever I can, not only to keep my 
remarks within 5 minutes, but to allow you to hear from our 
other presenters and to have the dialogue that you desire.
    I want to thank you and ranking member Landrieu and the 
other members of the subcommittee for the opportunity to 
testify before you today. You have already mentioned, Mr. 
Chairman, as has Senator Landrieu, the fiscal responsibility 
that we have stressed in our city and the fiscal prowess that 
we are now enjoying. But I do want to mention one thing in that 
regard and that is the District's strong financial performance 
occurs in spite of what I believe is a long-term structural 
imbalance. Now, that may seem paradoxical. One would ask, how 
can such an imbalance be real when the economy of the city is 
so strong?
    I believe that the explanation is twofold. First, our 
residents are among the most heavily taxed people on Earth. 
Second, the District is deferring massive investments in 
critical services and infrastructure. Approximately $2.5 
billion of infrastructure has been deferred over the years. Not 
only outdated sewer system, fixing accumulated needs of our 
streets, bridges, and mass transit, which have a homeland 
security component because of our role as the National Capital 
Region, but also in light of your remarks and Senator 
Landrieu's remarks and in light of my colleague Dr. Janey I 
would mention the massive deferral of investment in our schools 
infrastructure. Whatever we may think about the operating 
budget of the schools, there clearly is a need for investment 
in our school buildings. I would agree with you, it really is 
tragic if the schools have to be closed because our kids are in 
100 degree or over classrooms.
    Now, last year the subcommittee held a landmark hearing on 
the District's fiscal challenges and your continued commitment 
to resolution of this structural deficit will be critical to 
putting us on a permanent and equitable financial footing. I 
hope that we can continue in that effort. I would refer to the 
subcommittee one promising vehicle, the District of Columbia 
Fair Federal Compensation Act of 2005, which would provide the 
District with annual Federal payment of $800 million a year 
dedicated to transportation projects, debt service payments, 
public school facilities, information technology investments. 
It would be on a formula basis, not just for regular operations 
of government but for strategic things that go to the long-term 
undergirding of our city.
    Now, very briefly, Mr. Chairman, in terms of our priorities 
in our local budget, I just very briefly mention that one is 
new communities, a major investment in housing and physical 
infrastructure in our city's most challenged neighborhoods. We 
have been very successful in working with two Presidents, both 
Democrat and Republican, to bring HOPE VI projects to our city. 
We believe very strongly in the role of mixed income 
communities, not to displace our low income residents, but to 
allow our low income residents to live in a healthy community 
of a mix of incomes, both rental property and home ownership, 
with all the amenities, the good schools, the libraries, the 
recreation centers, all the amenities of a good neighborhood.
    Great streets are another major investment in our city, 
recognizing that in our urban areas of our country our great 
streets are our major commercial corridors. To accomplish this, 
we propose $88 million in investment in revitalization of major 
corridors in our city, unleashing I believe economic potential 
on major streets such as Georgia Avenue, H Street, Nannie Helen 
Burroughs, Benning Road, and other neighborhood arteries.
    Roads and bridges are a major priority and our budget 
reflects this in a major new investment in our city's physical 
infrastructure, starting with $230 million of local investment 
in streets and bridges along the Anacostia Waterfront. This 
project, which we funded $35 million in fiscal year 2006, will 
make critical infrastructure improvements.
    Education is a major part of our budget. I will allow Dr. 
Janey in his time to stress the importance of education, but I 
want to use this opportunity, Mr. Chairman, to state my full 
and emphatic and unequivocal support for our superintendent. 
Now, everybody knows that over the last year I spent a lot of 
time trying to assume responsibility for the schools and the 
people have spoken. The people are right in our democracy. So, 
given where we are, I believe that the locus of authority and 
responsibility has to be in one place. It cannot be in three 
places, five places, eight places. It has to be in one place. I 
believe that the locus of that authority and responsibility, 
with the support of the Mayor, the support of the Council, our 
nonprofits, our faith community, our business community, should 
be in this superintendent. Dr. Janey knows that he has my 
strong support as he meets a very, very heavy challenge.
    Health and welfare and youth are a major investment in our 
city, and our budget includes new investments in primary health 
care services through community health centers, which would 
improve our support for patients from underserved communities. 
We also provide multiyear funding of $76 million for our 10-
year plan to end chronic homelessness, including investment in 
wrap-around services.
    We make a major investment in tax relief in our city of 
some $88 million. I am particularly pleased that this tax 
relief is spread across all income levels in our city.
    Now, very briefly, Mr. Chairman, our request for Federal 
funding includes, one, as you have come to know, members of 
this subcommittee know, our strong support for what we call our 
marquee Federal initiative, and that is the tuition assistance 
grant program. This has been an absolute tremendous success and 
we would ask for full funding. This program is funded at $33 
million in the President's budget and we ask for your continued 
support for this very successful initiative.
    The consolidated laboratory, crime lab, we have enjoyed the 
support of the subcommittee on that and we are requesting that 
you match the President's mark of $7 million for this project.
    A new mental health hospital in the city is also a major 
initiative of ours. Last but not least--well, let me, before I 
get to the last point, we continue our appeal to the 
subcommittee for funding to provide for long-term control of 
discharge into the Anacostia River. The D.C. Water and Sewer 
Authority (WASA) is embarking on a 30-year plan to fix the 
system in order to drastically reduce pollution in our 
waterways, and we ask that the committee support this program 
in the amount of $30 million.
    This is--the Federal Government plays a major role in the 
pollution status of the Anacostia River because most of the old 
city is occupied by the Federal Government. The lack of storm 
and sewage drainage separation is a result of decisions made 
way back by the Federal Government. The Federal Government is 
our major corporate partner of all of our corporate partners. 
For that reason, we would ask that the subcommittee continue 
its investment in the Anacostia River, as it has in so many 
different ways, working with our local leadership and certainly 
with Congresswoman Norton, who in general I want to applaud for 
all her leadership on these things.
    Then, Mr. Chairman, I reserve for my last appeal something 
that I know you are interested in. This is the result of bad 
decisions and management over years and years and years, as you 
know, a high number of ex-felons in our city, who come back to 
our city every year. I know this is something that you care 
about. We have identified access to housing as one of a number 
of important risks to recidivism for individuals making the 
transition from prison back to society.
    To address this need and to reduce the chance that today's 
returning prisoners will become tomorrow's homeless and go 
through that revolving door and end up back in prison, we 
propose a $5 million level of funding to do, within a mixed 
income setting--we are not talking about segregating our ex-
felons, but within a mixed income vibrant community--$5 million 
to house our ex-felons as we provide them one-stop service to 
get them back on their feet, get them their training, and get 
them into jobs.

                           PREPARED STATEMENT

    So, Mr. Chairman and Senator Landrieu, that is my 
testimony. Again, thank you for your partnership. As I close my 
remarks, I would again make my continued yearly annual appeal 
for full representation for our beautiful Nation's capital.
    Senator Brownback. Thank you, Mayor, and thank you for the 
discussion and the specifics that you lay out in front of us. I 
look forward to the question and answer session.
    Thank you very much.
    [The statement follows:]

               Prepared Statement of Anthony A. Williams

    Chairman Brownback, Ranking Minority Member Landrieu, and other 
distinguished members of this subcommittee, thank you for the 
opportunity to testify before you today in support of the District of 
Columbia's fiscal year 2006 budget and financial plan. I continue to 
appreciate the support and commitment that this committee has provided 
to our efforts to improve the District of Columbia as a place to live, 
work, and visit.
    With our fiscal house in order, city services improved, and a 
robust environment for economic and housing development, we now face 
the challenge and opportunity to ensure that the rising tide we have 
created lifts all communities.
    My remarks this morning will focus on three main goals we have for 
working with this subcommittee:
  --Maintaining fiscal responsibility;
  --Responding to citizens' priorities with local budget decisions; and
  --Pursuing federal investments that address our special status as the 
        nation's capital and invite partnership with the federal 
        government on local priorities.

                   MAINTAINING FISCAL RESPONSIBILITY

    The District has achieved a tremendous amount of financial progress 
over the past decade under the leadership of my administration and the 
City Council and diligence of the Chief Financial Officer. Fiscal year 
2004 marked the District's eighth consecutive balanced budget; the 
District has an A rating from all three credit rating agencies which is 
the highest level we have achieved since the inception of Home Rule; we 
are maintaining a cash reserve balance of about $250 million, which is 
among the strongest in the country; and our fund balance exceeds $600 
million. The turnaround and success of the District, impressive on its 
own merits, is truly laudable when you consider how much we have 
achieved over such a short period of time.
    In fiscal year 2006, the District's baseline general fund revenue 
is projected to grow by 5.6 percent. This strong revenue growth, along 
with our robust reserves from prior years, have allowed us to submit an 
fiscal year 2006 budget of $7.35 billion in total funding that supports 
34,635 full-time equivalent (FTE) staff. In local funds, this budget 
proposes $4.95 billion in funding and supports 26,787 FTEs.
    Despite the temptation to allocate all available resources to 
programs during strong fiscal years, this budget reflects a high 
standard of fiscal responsibility by providing for $88 million in new 
tax relief. This budget also responsibly ensures that we do not rely on 
one-time funding for long-term programs and more than half of the 
growth in this budget comprises one-time expenditures that are not 
built into the District's baseline budget.
    Even more impressively, we have accumulated this record despite a 
long-term structural imbalance, which is estimated by the Government 
Accountability 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.
    The District's strong financial performance in spite of a long-term 
structural imbalance may appear paradoxical. How can such an imbalance 
be real when the economy is so strong? The explanation is twofold. 
First, our residents are among the most heavily taxed in the nation, 
and, second, the District is deferring massive investments in critical 
services and infrastructure. Approximately $2.5 billion of 
infrastructure has been deferred, including renovating crumbling 
schools, repairing our outdated sewer system, and fixing accumulated 
needs in our streets, bridges and mass transit system.
    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. 
Nor can we solve our long-term challenges through additional borrowing. 
This year, our budget includes a capital outlay of almost $500 million 
in new spending, much of which is supported by a one-time windfall of 
recent, hard-earned surpluses. Though this allows us to begin to 
address our most pressing capital needs, we remain unable to meet our 
accumulated needs on our own. An option proposed by the GAO is a change 
in federal policy to expand the District's tax base or to provide 
additional financial support.
    One very promising vehicle for resolving this imbalance is the 
``District of Columbia Fair Federal Compensation Act of 2005''. This 
bill would provide the District with an annual federal payment of $800 
million a year dedicated to transportation projects, debt service 
payments, public school facilities, or information technology 
investments. This approach to addressing 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. Last 
year, this committee held a landmark hearing on the District's fiscal 
challenges and your continued commitment to a resolution to our 
structural deficit will be critical to putting the District on 
permanent and equitable financial footing.
    In addition to addressing the federal contribution to our budget, 
we also need to repair the federal process for reviewing our budget. 
This year, the President again endorsed budget autonomy for the 
District of Columbia and legislation has been introduced in the 
Congress to provide this authority. This legislation, besides being a 
well-deserved advancement of Home Rule, would significantly streamline 
and rationalize our budget process by allowing the city to better align 
local funds with oftentimes unpredictable and shifting needs. This 
year, we are hopeful that the Congress will pass legislation this 
session to provide for budget autonomy. In the meantime, we hope you 
consider intermediate measures to streamline our budget modification 
process throughout the fiscal year to allow us to better respond to 
future unanticipated needs. For example, our budget includes language 
that would allow the District to spend up to an additional 6 percent of 
our total revenues without coming back to Congress for supplemental 
budget authority, provided that additional revenues are certified as 
available by the Chief Financial Officer. This would provide us with 
the flexibility to respond to changing revenue realities at the local 
level in a more timely matter than the supplemental appropriation 
process provides.

                       FUNDING CITIZEN PRIORITIES

    This budget funds groundbreaking initiatives that will reshape the 
physical landscape of the District of Columbia and strengthen our 
social fabric in a fiscally responsible and balanced manner. This 
budget has been developed around the core principles of fiscal 
responsibility, fairness, strategic investments in critical social 
needs, and improving our infrastructure. With input from residents, the 
priorities addressed in this budget are housing, employment, better 
transportation infrastructure, targeted services for youth, and 
continued commitment and support to education and public safety.
    The fiscal year 2006 Budget and Financial Plan will lift all 
communities by making major new investments in the following 
initiatives:

New Communities
    New Communities is a major investment in the housing and physical 
infrastructures of the city's most challenged neighborhoods. Although 
many District neighborhoods are undergoing rapid change and 
transformation, there are still places in the city where crime, 
unemployment, and truancy converge to create intractable physical and 
social conditions. The New Communities initiative is more than the 
bricks and mortar transformation of neighborhoods. It is a 
comprehensive community development program aimed at lifting people and 
neighborhoods by addressing a community's social and economic ills, 
along with its physical problems. The long-term goals of New 
Communities are to meet the needs of lower-income District families and 
residents by providing critical social support services; decreasing the 
concentration of poverty and crime; and enhancing access to education, 
training and employment opportunities, but this effort will begin 
immediately with a large-scale investment in our housing infrastructure 
with a special focus on public housing.

Great Streets
    It is important to extend the District's downtown economic success 
to the neighborhoods throughout the city by leading private investment 
with public investment. To accomplish this, we propose to securitize 
new bus shelter revenue to raise approximately $88 million to invest in 
the revitalization of the District's corridors, unleashing the 
commercial potential of Georgia Avenue, H Street, NE, Nannie Helen 
Borroughs, NE, Benning Road NE and other neighborhood arteries. In 
order to complement this investment in physical infrastructure with the 
revitalization of the commerce along these streets, we are dedicating 
an additional $16.6 million to attract new businesses and to help 
existing businesses flourish.

Bridges and Roads
    Our budget reflects a major new investment in our city's physical 
infrastructure, starting with a $230 million local investment in the 
District's streets and bridges along the Anacostia River. This project, 
which is funded at $35 million in fiscal year 2006, will make critical 
infrastructure improvements needed to alleviate congestion and overflow 
traffic in surrounding neighborhoods. In addition, this budget 
dedicates approximately $23.2 million in additional resources for 
street, sidewalk and alley paving.

Education
    Our fiscal year 2006 budget includes a total of $1.1 billion in 
local funds to educate approximately 80,000 students within the 
District of Columbia Public Schools (DCPS) and public charter schools. 
This funding level represents an increase of $101 million, or 10.5 
percent, over the fiscal year 2005 budget. The fiscal year 2006 budget 
is aligned with the Superintendent's core budget request of $775 
million, provides an additional $25 million to support strategic 
educational investments at both DCPS and charter schools, funds eleven 
new charter schools, and allocates $20 million for additional salary 
step increases.
    To support DCPS capital needs, this budget provides $147 million in 
capital funding to support rehabilitation and modernization of D.C. 
Public School buildings. In addition, this budget includes funding for 
a new public school modernization fund, which will provide an 
additional $150 million for capital investments. These resources will 
be made available to the school system provided that DCPS meets 
criteria regarding co-location, special education space needs, and 
coordination with other public facilities.

Health and Welfare
    In the area of health care, the fiscal year 2006 budget 
demonstrates the District's continued commitment to providing health 
services to residents, particularly those who are underserved. This 
budget augments primary health care services and increases support for 
community health centers, which will result in the ability to support 
additional patients from underserved communities. This budget also 
includes multi-year funding of $76 million to support the District's 
ten-year plan to end chronic homelessness. This funding will go towards 
providing enhanced wraparound services for homeless families and 
individuals, building new housing assistance centers, providing 
eviction prevention services, and creating subsidized housing.

Children and Youth
    Children and youth are among the most vulnerable of our residents. 
This budget supports additional funding to provide education, health, 
enrichment and other opportunities for our children and youth, which is 
critical in preventing juvenile violence and providing meaningful 
supports so that young residents grow into productive, engaged members 
of the District's community.

Tax Relief
    Starting in fiscal year 2006, District residents will benefit from 
$88 million in new tax relief. This tax package provides for a balance 
between income tax relief and property tax relief that is especially 
targeted to low-income families. All property owners living in their 
homes and coping with rapidly rising home value assessments will 
benefit from $211 in tax relief from an increase in the homestead 
deduction from $38,000 to $60,000. Low-income homeowners will be 
further protected from rising tax bills by a new provision that will 
allow households earning less than $50,000 per year to defer any 
property tax increases until they sell their house. This will provide 
for neighborhood stability, especially for seniors who have difficulty 
meeting rising property tax costs in rapidly changing neighborhoods.
    This budget also includes income tax reductions. First, the local 
Earned Income Tax Credit (EITC) program is being improved to make it 
one of the most generous programs in the nation by increasing our 
refundable credit from 25 percent of the federal benefits level to 35 
percent of the federal level. Also, for the first time, program 
benefits will be expanded to cover non-custodial parents who are paying 
their child support. This provides a work incentive and ensures the 
equal treatment of parents. In addition to targeted income tax relief, 
this budget includes a $500 increase in the standard deduction and a 
$130 increase in the personal exemption, which will benefit all 
taxpayers in the city. These income tax proposals will provide a more 
progressive complement to the broad tax changes that will be triggered 
by tax parity in fiscal year 2006. Tax parity reduces the rates of all 
three of the District's income tax brackets, including a reduction in 
the top rate from 9.0 percent to 8.7 percent.

             PRIORITY FEDERAL FUNDING FOR CRITICAL PROJECTS

    These local investments will leverage the strength of our economy 
to lift all communities by investing new resources in our 
neighborhoods, our infrastructure, and our more challenged communities. 
Connecting these communities to the economic vitality we are 
experiencing in many parts of the District is paramount to the 
continuation of the District's renaissance.
    The President's fiscal year 2006 budget has recognized the 
importance of partnering and contributing toward several of the 
District's top priorities, including full funding for the Tuition 
Assistance Grant Program, inflation-adjusted funding for the Three-
Sector Education Initiative, funding for the Consolidated Laboratory 
Facility, funding for the Anacostia Riverwalk and Trail, which is part 
of my Anacostia Riverfront Initiative, funding for the Criminal Justice 
Coordinating Council, and funding for the Emergency Planning and 
Security Cost Fund.
    The Tuition Assistance Grant Program is a marquee federal 
initiative that has been a tremendous success. This program compensates 
the District for our lack of a state-like university system by allowing 
our high school graduates to attend out-of-state public universities at 
in-state tuition rates and providing grants for attending selected 
private universities. Program costs have continued to grow rapidly due 
to rising tuition costs nationwide and rising program participation. 
This program is funded at $33.2 million in the President's budget and I 
ask you to continue your support for this successful initiative by 
fully funding the President's mark.
    Another critical program which was first funded by this 
subcommittee, and funded for the first time this year by the President 
at $7 million, is the Consolidated Laboratory Facility. This laboratory 
will combine forensics capacities, our medical examiner functions, and 
our various public health laboratories into a single combined facility, 
leveraging our capital investment and providing the District with 
state-of-the-art forensics analysis capacities for the first time at 
the local level. This will free up resource at the federal facilities 
which we are currently using for testing while providing additional 
surge capacity for lab needs throughout the Washington area.
    In addition to these important funded projects, our budget request 
to the Congress includes requests for the following projects that are 
worthy of congressional attention:
  --Mental Health Hospital.--The city is constructing a new hospital on 
        the St. Elizabeths campus which will allow us to continue to 
        implement court-mandated improvements in services to our 
        patients. Our current facilities do not meet the standards of 
        care required of the District and the costs of operating our 
        existing buildings are increasingly cost prohibitive. 
        Currently, approximately 17 percent of inpatients that we serve 
        are referred to the city by federal agencies and courts. 
        Therefore, we are seeking a contribution for our capital 
        investment in this new facility at a pro-rated commensurate 
        level of $32 over the next three years and $17 million in 
        fiscal year 2006.
  --Ex-Felon Housing.--We have identified access to housing as one of 
        the most important risk of recidivism for individuals making 
        the transition from prisons back into society. To address this 
        need, and reduce the chance that today's returning prisoners 
        will become tomorrow's homeless, we propose a $5 million ex-
        felon housing program to provide organizations and developers 
        with an incentive to construct housing specifically for the ex-
        felon community. Once this housing is in place, we will devote 
        our existing resources to providing the job training, mental 
        health, and other public services necessary to provide these 
        returning prisoners with a true opportunity to return to 
        society as productive citizens.
  --WASA's Long-Term Control Plan.--As you know, I believe that the 
        Anacostia River is one our most precious and under-appreciated 
        assets as a city. Improving public access and for the 
        tremendous natural amenities along the Anacostia River is a 
        driving priority of my administration, but my vision for the 
        revitalization of the Anacostia River will not be possible 
        unless we clean up the river by fixing our combined sewer 
        system that currently deposits waste into the river throughout 
        the year. The D.C. Water and Sewer Authority is embarking on a 
        30-year plan to fix this system in order to drastically reduce 
        pollution in our waterways and I ask that you support this 
        critical program in an amount of $30 million.
  --Fire/EMS Command Center.--The District's emergency response 
        functions are outdated and in need of repair. As the fire 
        department for the nation's capital, including the U.S. 
        Capitol, the headquarters for the Fire and Emergency Medical 
        Services is inadequate and does not meet the specifications for 
        a modern emergency response in high-threat environment. The 
        District currently has plans in place to leverage private 
        investment to improve our fire command capacity and in addition 
        provide for new and necessary storage facilities for homeland 
        security emergency response equipment and is requesting a $10 
        million contribution as part of our budget to support this 
        investment.
  --Downtown Circulator.--The city will soon launch a new bus service 
        designed to link the Central Business District and key federal 
        destinations. 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 while helping to 
        mitigate the impact of street closures for security purposes. 
        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 has 
        contributed to this project in fiscal year 2004 and fiscal year 
        2005 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.

                   DEMOCRACY FOR THE NATION'S CAPITAL

    Having outlined our budget objectives, it is important to keep in 
mind a District priority whose value is beyond fiscal measure, and that 
is our democratic rights. 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 spread democracy worldwide, 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.
    In recent years, this subcommittee has successfully resisted 
efforts to add undemocratic social riders to our appropriations bill. 
No matter what any Senator's opinion may be on the topic at hand, we 
hope this body will respect the right of District residents to decide 
local matters, just as the residents do in our 50 states. We also hope 
this body will repeal riders that restrict our ability to make 
decisions about spending local funds on needle exchange programs and 
lobbying.
    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 Brownback. Chairperson Cropp.
STATEMENT OF HON. LINDA CROPP, CHAIRMAN, CITY COUNCIL
    Ms. Cropp. Thank you very much. Good morning, Chairman 
Brownback, Senator Landrieu. I am pleased to be here with my 
colleagues to testify today on the District's budget for fiscal 
year 2006. This budget represents the ninth year in a row for a 
fiscally sound and balanced budget. The budget is also a 
reflection of our resolve to stand as one government that will 
remain fiscally prudent and responsible.
    The budget represents the District's reinvesting in itself 
and in our future. We have committed resources and services for 
our citizens through revitalization of our neighborhoods, 
investment in our youth, and protection of our most vulnerable 
citizens, promotion of continued economic stability and growth, 
health programs, child care, and education.
    We will invest in our employees with pay raises and 
prudently set aside $138 million for future employee health and 
retirement benefits. These funds will become mandatory in 
fiscal year 2008 and it is good that we made the decision to 
allocate them at this time when we have the money.
    Fiscal discipline has always been and will be a top 
priority of our legislative agenda. We will not only demand it 
of the executive branch, but we also practice it ourselves. The 
various forms of fiscal discipline from rainy day savings 
funds, financial safeguards, insurance and investment policies, 
economic triggers for pay-as-you-go capital financing, that we 
have demanded and imposed upon 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 positive future outlook of increased ratings from 
bond rating agencies.

                           THE BUDGET PROCESS

    During the Council's 56 day review period, we held 66 
hearings totaling 322 man-hours where we provided an 
opportunity for the public to come in and have their input on 
our budget. The Council worked diligently with the Mayor in 
aligning our 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, has been realigned. We will devote 
funds to our infrastructure through investment of over $300 
million in pay-as-you-go funding. For example, funds were 
redirected and targeted for projects with higher priority and 
more critical needs, such as schools for children and housing 
for low and moderate income individuals.

               HIGHLIGHTS OF THE FISCAL YEAR 2006 BUDGET

    On May 10 the Council approved a $4.9 billion spending plan 
that provides for adequate funding for basic city services and 
programs. The budget earmarks $1.2 billion for public schools 
and public charter schools. The schools funding increased by 
$65 million, human services programs by another $65 million, 
and there was an increase in child care specifically by $11.5 
million in the hopes that we could get more of our families out 
to work.
    We have selectively adjusted tax rates to make 
homeownership more affordable and to reward the hard work of 
our citizens and businesses. In total, taxes were reduced by 
$94 million.

                         FEDERAL BUDGET REQUEST

    I would also like to ask for your help in obtaining an 
approval of an extension of the District's tax incentives that 
are to expire at the end of the year. The first time home buyer 
credit, the enterprize zone credit, and the revenue bond 
program are important to economic development in the District 
of Columbia. The first time home buyer credit attracts 
residents to our city and assists persons in purchasing homes 
that might not otherwise have had 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, and it is important to our economic growth that these 
tax incentives be reauthorized.
    While speaking about items of importance to the District, I 
would like to mention one other item that is not directly 
related to the budget. You have heard it before: voting 
representation. But it is something that is so extremely 
important to the citizens of the District of Columbia, who pay 
almost $3 billion in Federal taxes. It is important for the 
image of this country, the leader of the free world, to provide 
to all of its citizens the same rights we fight for abroad, the 
right for all citizens to be represented by the persons they 
elect.
    A number of different types of legislation have been 
introduced in the House and in the Senate. Congresswoman 
Eleanor Holmes Norton's bill, H.R. 398, is an example of one 
bill. Hopefully, you will be able to embrace one of those bills 
so that the District's citizens can no longer--will no longer 
be disenfranchised.

                            BUDGET AUTONOMY

    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 the subcommittee and the Senate for 
supporting this initiative in the past and would ask for you to 
do it again in support of S. 800 the District of Columbia 
Budget Autonomy Act of 2005.

                          FEDERAL CONTRIBUTION

    The District is always challenged in developing its budget 
due to ongoing structural imbalance that exists between its 
spending needs and its revenue generation capacity. As noted in 
the General Accounting Office May 2003 report, the imbalance 
ranges between $400 million to $1.1 billion annually. 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 the relatively large poverty population, poor health 
indicators, high crime, and 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.
    The congressional limitation on the District's ability to 
tax certain institutions and persons severely restricts the 
District's ability to raise revenue needed to cover both the 
operational and infrastructure costs.
    Recently, many of you have heard of the budget surplus that 
the District has. The budget surplus is only on one end, the 
management end, due to good management of the day to day 
operations of the city's budget. But while we have a surplus on 
that end, it cannot be thought of as a total surplus because we 
have a deficit in our infrastructure when you look at what our 
capital needs are, when you look at our school system.
    When the issue was brought up of closing the schools, the 
average age of the District's schools is 80 years of age. So 
you will see that our capital side is where we cannot continue 
to borrow money because we are at our capacity, our limit. So 
we do not even have the dollars necessary or the capacity to go 
out on Wall Street and borrow the dollars to fix up our 
schools, which probably need $1 to $2 billion. If we did then 
our bond rating would go down. So we are caught between a dog 
and a tree and that is not a good position.
    So the infrastructure situation with the District is one 
that we really need to have changed, and it is not because of 
mismanagement in the District government, but it is because of 
the unique situations as to how the budget is set. I would ask 
that at some point that the Congress look at some type of 
special funding plan for the school system and for Metro.
    Metro functions as a way to bring in Federal workers into 
the District of Columbia. When you look at our capital budget, 
the herculean share of the city's capital budget is spent in 
two areas: the D.C. Public School system, where we see there 
are even greater needs, and Metro. So I hope that that is 
something that we can look at in the future.

                               CONCLUSION

    Finally, as you consider our appropriations we 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 109th 
Congress. We urge you to pass the budget as is, without any 
riders. This much anticipated fiscal year 2006 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.
    The District's financial problems of the 1990s combined 
with the national recession earlier this decade, as well as the 
September 11 attacks, created an environment where we had to 
disinvest in our budget. Over the past 2 fiscal years, however, 
we began the process of reinvestment in our city. This fiscal 
year 2006 budget represents a great leap forward.
    We will be responsive to our constituents who call the 
District of Columbia their home. We will work with the Mayor, 
the Congress, and the surrounding governments to achieve our 
mutually shared goals. Together with the Mayor, we will produce 
good, responsible budgets that invest dollars in making the 
District of Columbia a much better place for all.
    Thank you very much.
    Senator Brownback. Thank you very much, Chairperson Cropp. 
I appreciate that.
    [The statement follows:]

                  Prepared Statement of Linda W. Cropp

    Good morning, Chairman Brownback, 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 2006.

                              INTRODUCTION

    The fiscal year 2006 budget represents for the ninth 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 budget 
represents the hard work of all thirteen Council members and the 
efforts of our ten standing committees. The Council and the Mayor will 
continue this collaborative effort throughout the year in order to 
manage government spending.
    This budget represents the District reinvesting in itself and our 
future. We committed resources in services for our citizens through 
revitalization of our neighborhoods, investment in our youth, 
protection of our vulnerable residents, promotion of continued economic 
stability and growth, health programs, childcare and education.
    We will invest in our employees with pay raises and prudently set 
aside $138 million for future employee health and retirement benefits. 
These funds will become mandatory in fiscal year 2008 and it is good 
that we made the decision to allocate them now.
    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 Capital Financing--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 2004 
Comprehensive Annual Financial Report (CAFR) showing a balanced budget. 
The District continues to maintain an ``A'' rating from all of the Wall 
Street financial rating agencies.
    In 2005 the Council passed the fiscal year 2006 Budget Submission 
Requirements Resolution of 2005. It established the date for submission 
of the Mayor's proposed budget. It required performance plans and 
reports, and that certain information and documentation be submitted to 
the Council along with the proposed budget.

                           THE BUDGET PROCESS

    During the Council's fifty-six days review period 66 hearings 
totaling 322 man-hours were conducted. 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 on and 
critique programmatic and funding needs, and the performance of 
government agencies. This feedback is essential in reaching the 
decisions and determining the recommendations of each committee in the 
mark-up of the agency budgets.
    The Council worked diligently with the Mayor in aligning 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. We will devote funds to our infrastructure through direct 
investment of over $300 million in ``Pay-As-You-Go'' funding. For 
example, funds were redirected and targeted for projects with higher 
priority and critical needs, such as schools for the children and 
housing for low and moderate-income residents.
    The Mayor submitted the budget to the Council on March 21, 2005. 
The proposed local budget was $4.903 billion, an increase of $712 
million or 17.1 percent above the revised fiscal year 2005 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 2006 BUDGET

    On May 10 the Council approved the $4.949 billion spending plan 
that provides adequate funding for basic city services and programs. 
This funding level for fiscal year 2005 represents a growth of 18 
percent over the revised fiscal year 2005 local budget. The budget 
provides $116.6 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 significant funding. The budget earmarks $1.2 
billion for public schools and public chartered schools. The schools 
funding increased by $65 million, human services programs by another 
$65 million and the Council is increasing child-care by $11.5 million.
    We selectively adjusted our tax rates to make homeownership more 
affordable and to reward the hard work of our citizens and businesses. 
In total, taxes were reduced by $94 million.
    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 Pay-Go 
contingency fund was established. The fund would provide additional 
financial support to certain agencies once they demonstrate the need 
for these additional funds. Requests to expend money from the Pay-Go 
contingency fund require 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 
the Tuition Assistance Grant Program (TAG). The TAG program has been 
extremely successful in the District. A total of 4,645 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 $33.2 million be provided to continue to 
fully fund this program.
    I would also like to ask for your help in obtaining approval of an 
extension of the District's tax incentives that are to expire at the 
end of this 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. It is important to our 
economic growth that these tax incentives be re-authorized.
    While speaking about items important to the District, I would like 
to mention one other item that is not directly related to the budget, 
i.e., voting representation. It is important for the image of this 
country, the leader of the free world, to provide to all of its 
citizens the same rights we fight for abroad, the right for all 
citizens to be represented by persons they elect.
    A number of pieces of legislation have been introduced, 
Congresswoman Eleanor Holmes Norton's bill, H.R. 398 ``No Taxation 
Without Representation Act of 2005'' and its companion piece introduced 
by Senator Joseph Lieberman, S. 195, would treat the District as a 
State with full voting representation in the House and the Senate. 
Representative Thomas Davis' bill, H.R. 2043, ``District of Columbia 
Fairness in Representation Act'' would add two seats to the House, one 
to the District of Columbia and one to State of Utah, which narrowly 
failed to secure a fourth Congressional seat after the 2000 census. In 
Representative Davis' bill the District would be treated as a 
Congressional district for the purpose of representation in the House. 
Representative Dana Rohrabacher's bill, H.R. 190, ``District of 
Columbia Voting Rights Restoration Act of 2005'' would treat the 
citizens of the District as residents of the State of Maryland for the 
purpose of participating in elections for the House and Senate. While 
each piece approaches the issue in a different way, the key point is 
that they all call for voting rights to be granted to the citizens of 
the nation's capital. I ask that you support voting rights for the 
District of Columbia.

                          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. Under such a 
proposal the Mayor would notify the Committees on Appropriations of the 
House of Representatives and Senate in writing 30 days in advance of 
any obligation or expenditure. 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 the Subcommittee and the 
Senate for supporting this initiative in the past and would ask for 
your support of S.800 the ``District of Columbia Budget Autonomy Act of 
2005''.
    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 ranges 
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.
    The Congressional limitations on the District's ability to tax 
certain institutions and persons severely restrict the city's ability 
to raise the revenue needed to cover both operational and 
infrastructure costs. These limitations are reflected in the streets 
and schools in need of repair. While the city currently has a 
management surplus of day-to-day operations, these dollars are 
insufficient to cover the total cost of infrastructure improvements.
    The inability to fund infrastructure costs are not due to 
mismanagement by the District Government. As noted earlier, the 
District Government has maintained an ``A'' rating by the financial 
rating agencies over the last few years. It is due to the inability to 
tax revenue at its source and other infrastructure issues addressed in 
the 2003 GAO report.
    Congresswoman Eleanor Holmes Norton has introduced Bill H.R. 1586, 
the ``District of Columbia Fair Federal Compensation Act of 2005''. 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.

                               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 109th Congress. Furthermore, we 
urge you to pass the budget as is, without any extraneous riders. This 
much anticipated fiscal year 2006 budget is important because it shows 
how the Mayor and the Council can work together and underscores our 
commitment to make Washington D.C. one of the best governed cities in 
the nation.
    The District's financial problems of the nineties combined with the 
national recession earlier this decade, as well as, the September 11th 
attacks created an environment, where we had to disinvest to balance 
our budget. Over the past two fiscal years, we began the process of 
reinvestment and this fiscal year 2006 budget represents a great leap 
forward.
    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.
    I thank you for this opportunity to present the fiscal year 2006 
budget and these issues of major importance to the District of 
Columbia.

    Senator Brownback. Dr. Gandhi, and if you could stay within 
the timeframes. We are going to be running tight on this 
hearing and we both would like to have some exchanges back and 
forth. So I will probably put the hook on the last two 
witnesses a lot tighter than I have on the front two.
    Dr. Gandhi.
STATEMENT OF NATWAR M. GANDHI, Ph.D., CHIEF FINANCIAL 
            OFFICER
    Dr. Gandhi. Thank you, Mr. Chairman. Good morning, Mr. 
Chairman, Senator Landrieu, and members of the subcommittee. I 
am Natwar M. Gandhi, Chief Financial Officer of the District of 
Columbia, and I am here to testify on the District's 2006 
budget request and the overall health of the District's 
finances.
    The Congress created the Office of the Chief Financial 
Officer to preserve, protect, and enhance the District's 
financial viability and credibility at all times. I am pleased 
to report to this subcommittee, Mr. Chairman and Ms. Landrieu, 
that the District has again made substantial progress in the 
past year, marking the eighth consecutive year of fiscal 
recovery.
    We again achieved a balanced budget and received a clean 
audit opinion from our external auditors and improved the 
District's financial infrastructure. The graph on the chart 
before you, sir, illustrates the turnaround in our general fund 
balance from a negative $518 million in 1996 to a positive $1.2 
billion at the end of 2004. Many cities that have gone through 
control period experience, such as New York, Philadelphia, 
Cleveland, none has been able to come back as well and as fast 
as the District has.
    Roughly half of that fund balance is reserved as a result 
of congressional mandate or is legally reserved for bond 
escrows or other purposes. The fund balance is likely to climb 
in the current fiscal year to reach an unprecedented level of 
approximately $1.3 billion.
    Our emergency and contingency reserves totaled $285 
million, among the highest such reserves as a percentage of the 
budget of all major cities or States in the Nation. Last year, 
recognizing that our reserves were strong, Congress lowered 
reserve requirements to 6 percent from 7 percent. This fiscal 
year we estimate these reserves will be about $250 million, an 
amount that is still expected to be among the highest in the 
country.
    We have again received favorable reviews from the bond 
rating agencies. Standard & Poor raised the rating on the 
District's general obligation bonds to A from A minus, and 
Fitch placed the District's A minus rating on a positive 
outlook for a possible upgrade.
    Again, this year I must stress that it is time to grant the 
District of Columbia local budget autonomy--can I illustrate a 
point, sir? Do you have a question on this?
    Senator Brownback. My eyes are not quite as good as they 
used to be, so I am trying to make sure----
    Dr. Gandhi. Well, I can withhold my testimony to explain 
this.
    Senator Brownback. Please go on. Please proceed.
    Dr. Gandhi. All right. Because what really matters here is 
that in the mid-90s we were very near bankrupt and today we are 
really a welcome presence on Wall Street. We have accomplished 
this financial stability by institutionalizing changes that 
have been commended by rating agencies and investors. We are 
monitoring the budget on a constant basis and have enabled 
decisionmakers to receive timely and accurate information on 
which to make informed judgments.
    Without budget autonomy, we must prepare specific spending 
plans and revenue estimates at least 9 months in advance of the 
beginning of the actual budget year, a constraint under which 
no other State or municipal government operates. This issue of 
timing has added far greater uncertainty in budget planning and 
has posed more difficulty in executing the budget as well.
    In fiscal year 2006, the District's certified general fund 
revenue is forecasted to be $4.8 billion, an increase of about 
14 percent over 2005. Underlying the District's robust revenue 
growth is continued strength in the District's real estate 
market and strong growth in personal income.
    As Chief Financial Officer, sir, I believe that it is not 
the role of the government to amass a large amount of cash when 
needs for infrastructure and other prudent investments must be 
met. The magnitude of resources available for budgeting both 
from the improved level of current revenues and the sizable 
accumulated surplus in the fund balance provides an opportunity 
to address critical needs of the District. Accordingly, the 
proposed budget before you, sir, would result in a reduction in 
the general fund balance of about $610 million. This amount is 
composed almost entirely of one-time spending and reduction of 
large pension liabilities that our Council Chair, Mrs. Cropp 
talked about and programs to address critical social needs that 
the Mayor talked about.
    I believe this spending level and the uses of fund balance 
are fiscally prudent and will not endanger the District's sound 
financial position or our strong credit standing. This is 
demonstrated in the 5-year proposed budget and financial plan 
attached to my testimony. Unlike any other jurisdiction, the 
District prepares a 5-year plan so as to assure the Congress 
that the District will remain financially viable for 5 years.
    Since Mrs. Cropp and the Mayor talked about structural 
imbalance, I will not go into that. I would simply note that 
the GAO's structural imbalance report identifies about $470 
million to about $1 billion of structural imbalance, this 
structural imbalance somehow has to be helped by the Federal 
Government. There are not enough local resources to address the 
imbalance, and I request and strongly urge, that Congress take 
positive action on Congresswoman Norton's bill, the District of 
Columbia Fair Federal Compensation Act of 2005, (H.R. 1586).

                           PREPARED STATEMENT

    That concludes my oral remarks, Mr. Chairman, and I request 
that my written testimony be made part of the record. I will be 
pleased to answer any questions you or Mrs. Landrieu may have. 
Thank you.
    Senator Brownback. Your formal testimony will be made part 
of the record. We look forward to the discussion.
    [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 2006 budget request to the Congress. My remarks will 
briefly touch on the fiscal year 2005 financial outlook, the fiscal 
year 2006 request, and the overall health of the District's finances.

                     CONTINUING FINANCIAL STRENGTH

    The Congress created the Office of the Chief Financial Officer to 
preserve, protect and enhance the District's financial viability and 
credibility at all times. I am pleased to report that the District has 
again made substantial progress in the past year, marking the eighth 
consecutive year of fiscal recovery. We again achieved a balanced 
budget and received a clean audit opinion from our external auditors 
and improved the District's financial infrastructure. The graph on 
Attachment 1 illustrates the turnaround in our general fund balance 
from a negative $518 million in fiscal year 1996 to a positive $1.2 
billion fund balance at the end of fiscal year 2004. Roughly half of 
that fund balance is reserved as a result of Congressional mandate, or 
is legally reserved for bond escrows or other purposes. The fund 
balance is likely to climb in the current fiscal year to reach an 
unprecedented level of approximately $1.3 billion.
    Our emergency and contingency reserves totaled $285.4 million, 
among the highest such reserves as a percentage of budget of all major 
cities or states in the nation. Last year, recognizing that the 
District's reserves were strong, Congress enacted legislation lowering 
the total reserves required to 6 percent from 7 percent. This fiscal 
year, we estimate that the emergency and contingency reserves will be 
about $249 million, an amount which we expect will still remain among 
the highest in the country.
    We have again received favorable reviews from the bond rating 
agencies. Standard & Poor's raised the rating on the District's general 
obligation bonds to A from A- last November and at the same time, Fitch 
Ratings placed the District's A- rating on positive outlook for 
possible upgrade. The graph in Attachment 1 also shows the history of 
the District's ratings by all three major bond rating agencies.
    We continue to strive to improve on this record of accomplishment. 
Our standardized spending plans for all agencies allow us to monitor 
results against those plans, and we continue to control agency spending 
using our online financial management tools. Spending plans are one 
component of the District's own Anti-Deficiency Act designed to hold 
financial and program managers accountable for achieving program 
results within approved budgets. We have built performance budgets 
across all agencies that set specific targets which are benchmarked 
against best practices in local government.
    Again this year, I must stress that it is time to grant the 
District of Columbia local budget autonomy. We have accomplished 
financial stability by institutionalizing changes that have been 
recognized by rating agencies and investors in the District's bonds and 
notes. We have established systems to monitor our budget on a constant 
basis and have enabled decision makers to receive timely and accurate 
information on which to make informed judgments. Without autonomy we 
must prepare specific spending plans and revenue estimates at least 
nine months in advance of the beginning of the actual budget year, a 
constraint under which no other state or municipal government must 
function. This issue of timing has added far greater uncertainty in 
budget planning and formulation and has posed more difficulty in 
executing the budget as well. We have been fortunate in recent years in 
finding that our revenues have far exceeded our forecasts, but such 
time constraints have forced us to be overly conservative in our 
estimates, and have prevented us from providing tax relief or larger 
service benefits to our taxpayers as a result of those excess revenue 
collections. Congresswoman Eleanor Holmes Norton has introduced the 
District of Columbia Budget Autonomy Act of 2005, H.R. 1629, and 
Senator Collins introduced an equivalent bill, S.800, which would allow 
the Mayor and City Council to enact the locally funded portion of the 
District's annual budget. We appreciate the interest of this 
Subcommittee on the matter of budget autonomy and urge the Congress to 
consider the bills favorably.

                  BEGINNING FUND BALANCE, GENERAL FUND

    As noted in the fiscal year 2004 Comprehensive Annual Financial 
Report (CAFR), the District concluded fiscal year 2004 operations with 
a $1.215 billion general fund balance (i.e., net accumulated surplus).
    Based on current revenue and expenditure estimates, the General 
Fund is expected to end fiscal year 2005 with an operating surplus of 
$320.6 million. The general fund balance is likely to reach $1.35 
billion at the end of fiscal year 2005.

                       FISCAL YEAR 2006 REVENUES

    In fiscal year 2006, District's certified general fund revenue is 
forecasted to be $4.81 billion, an increase of 13.8 percent over fiscal 
year 2005 approved budget after tax policy changes. Underlying the 
District's robust revenue growth is continued strength in the 
District's real estate market and strong growth in personal income. 
Substantial increases in prices and the number of transactions in both 
residential and commercial real estate markets were major sources of 
revenue gains in fiscal year 2003 and fiscal year 2004, and are 
expected to contribute significantly to fiscal year 2005 and fiscal 
year 2006 revenues. Going forward, our revenue projections assume 
District personal income will grow between 5 and 6 percent annually, 
and the financial markets will continue their recovery.
    The fiscal year 2006 Proposed Budget includes tax policy reductions 
of $35.0 million and revenue shifts to capital of $30.0 million. The 
tax policy reductions include an increase in the homestead deduction, 
an increase in the local Earned Income Tax Credit, increases in both 
the standard deduction and the personal exemption, and a property tax 
deferral for low-income homeowners. The revenue shift to capital is to 
provide a dedicated stream of revenues to finance major investments in 
bridges and roads.

                 FISCAL YEAR 2006 PROPOSED EXPENDITURES

    As Chief Financial Officer, I believe that it is not the role of 
government to amass large amounts of cash when needs for infrastructure 
improvements and other prudent investments in the future must be met. 
The magnitude of resources available for budgeting, both from the 
improved level of current revenues and the sizable accumulated surplus 
in the fund balance, provides an opportunity to address critical needs 
of the District.
    Accordingly, this proposed budget would result in a reduction in 
the general fund balance of $610 million, to a balance of $740.2 
million, from the projected year-end fiscal year 2005 fund balance. 
This amount is composed almost entirely of one-time spending or 
transfers for future and retroactive pay-as-you-go capital funding, a 
reduction of a large pension benefit liability, policy shifts to 
special purpose and capital funds and operating budget programs to 
address critical social needs. I believe the spending levels and the 
uses of fund balance contained in this budget proposal are fiscally 
prudent and will not endanger the District's sound financial position 
or our strong credit standing. As shown in the table below, the Mayor 
and Council have weighed these financial opportunities in formulating 
policy goals for fiscal year 2006, as incorporated into this proposed 
budget.

     TABLE 2.--GENERAL FUND PROPOSED FISCAL YEAR 2006 BUDGET SUMMARY
                        [In millions of dollars]
------------------------------------------------------------------------
                                                               Amount
------------------------------------------------------------------------
Total Revenues............................................      4,871.2
Less Recurring Budget Expenses............................     (4,804.9)
                                                           -------------
Excess Revenues...........................................         66.3
Less Tax Policy Reductions and Revenues Shift to O type           (65.0)
 and Capital..............................................
Add Appropriated Fund Balance.............................        591.6
                                                           -------------
Sources for Program and Fiscal Policy Initiatives.........        592.9
Less Non-recurring Budget Expenses........................       (399.8)
Less Fiscal Policy Initiatives............................       (191.8)
                                                           -------------
Projected fiscal year 2006 Operating Margin...............          1.3
------------------------------------------------------------------------

    The fiscal year 2006 general fund budget spending proposal of $5.40 
billion is 19.8 percent higher than fiscal year 2005 approved spending 
of $4.5 billion. This represents increases in both recurring expenses 
and the one-time uses of fund balance which I discussed previously. 
Recurring budget expenses of $4.80 billion are a net increase of $467 
million, or 10.8 percent, over the fiscal year 2005 approved budget.

                            TABLE 3.--GENERAL FUND FISCAL YEAR 2006 BUDGET SUBMISSION
                                              [Dollars in millions]
----------------------------------------------------------------------------------------------------------------
                                                              Fiscal year  Fiscal year                 Percent
                                                                  2005         2006        Change       change
----------------------------------------------------------------------------------------------------------------
Recurring Budget Expenses...................................     $4,337.8     $4,804.9       $467.1         10.8
Program Policy Initiatives:
    Nonrecurring Budget Expenses............................        165.0        192.8         27.8         16.8
    PayGo Capital (Nonrecurring)............................  ...........        207.1        207.1          n/a
                                                                                       -------------
Net Change: Recurring Expenses and Program Policy Initia-     ...........  ...........        702.0  ...........
 tives......................................................
                                                                                       -------------
Non-recurring Fiscal Policy Initiatives:
    Post Employment Health Benefits.........................  ...........        138.0        138.0          n/a
    Contribution to Capital Fund Balance....................  ...........         53.8         53.8          n/a
                                                             ---------------------------------------------------
      Total General Fund Request............................      4,502.8      5,396.6        893.8         19.8
----------------------------------------------------------------------------------------------------------------

                      FINANCING THE BUDGET REQUEST

    To finance both the program and fiscal policy initiatives, the 
District utilizes $591.6 million from the accumulated fund balance. The 
planned drawdown of fund balance will reduce the accumulated general 
fund balance to a projected $740.2 million by the end of fiscal year 
2006.

        TABLE 4.--FISCAL YEAR 2006 GENERAL FUND BALANCE ANALYSIS
                        [In millions of dollars]
------------------------------------------------------------------------

------------------------------------------------------------------------
Projected Beginning Fund Balance (October 1, 2005)........      1,350.6
Appropriated for Fiscal Year 2006.........................       (591.6)
Projected Fiscal Year 2006 Operating Margin...............          1.3
Projected GAAP Adjustments................................        (20.0)
                                                           -------------
Projected Ending Fund Balance (September 30, 2006)........        740.2
------------------------------------------------------------------------

              PROPOSED FISCAL YEAR 2006 GROSS FUNDS BUDGET

    The proposed fiscal year 2006 gross funds operating budget is $7.35 
billion, an increase of $1.07 billion, or 17.0 percent, over the 
approved fiscal year 2005 gross funds budget of $6.29 billion. The 
$1.07 billion expenditure increase is comprised largely of a $893.7 
million increase in the General Fund budget, which reflects the program 
policy initiatives and fiscal policy initiatives discussed above. The 
other $171.9 million increase in non-local funds reflects projected 
expenditures in federally funded programs ($169.0 million), including 
Medicaid; and private grants ($2.9 million).

                           TABLE 5.--FISCAL YEAR 2006 GROSS FUNDS BUDGET BY FUND TYPE
                                              [Dollars in millions]
----------------------------------------------------------------------------------------------------------------
                                                              Fiscal year  Fiscal year                 Percent
                          Fund Type                               2005         2006        Change       Change
----------------------------------------------------------------------------------------------------------------
Local.......................................................     $4,170.1     $4,949.5       $779.4         18.7
Special Purpose (O Type)....................................        332.8        447.1        114.4         34.4
                                                             ---------------------------------------------------
      Subtotal, General Fund................................      4,502.8      5,396.6        893.7         19.8
                                                             ===================================================
Federal.....................................................        806.3        931.4        125.1         15.5
Federal Medicaid Payment....................................        963.8      1,007.6         43.9          4.6
Private Grants..............................................         13.3         16.2          2.9         21.8
                                                             ---------------------------------------------------
      Total Gross Funds.....................................      6,286.2      7,351.8      1,065.6         17.0
----------------------------------------------------------------------------------------------------------------

                       CAPITAL IMPROVEMENTS PLAN

    The District faces a wide variety of infrastructure needs, placing 
great demands on its Capital Improvements Plan (CIP). The total 
proposed appropriation request for the fiscal year 2006-fiscal year 
2011 CIP is $2.176 billion for all sources (including the Highway Trust 
Fund). This six-year plan includes a net increase in local budget 
authority of $778 million ($1.073 billion of new budget authority 
offset by $295 million of rescissions). The increased budget authority 
will be financed by General Obligation (G.O.) bonds, the Master 
Equipment Lease Program, asset sales and PayGo financing. The fiscal 
year 2006 capital program consists of $737 million in planned local 
non-streets capital expenditures (financed by up to $495 million in new 
G.O. bond issuance, $199 million of PayGo transfers from the General 
Fund balance, and $43 million from other sources), as well as $60 
million of expenditures from the Local Streets Maintenance fund.

                         PERFORMANCE BUDGETING

    This budget also reflects our continued progress implementing 
performance-based budgeting (PBB). In fiscal year 2005, we transitioned 
11 new agencies to PBB for a grand total of 67 agencies now fully 
enrolled in PBB for fiscal year 2006. These 67 agencies account for 
nearly 63 percent of the District's annual gross operating budget. 
Transition to PBB is a key accomplishment because it establishes a 
clear relationship between the funding that agencies receive, the 
programs they operate, and the results that they must achieve. A 
critical component of PBB is development of programmatic benchmarks to 
assist policy makers, District executives and the public in assessing 
the value of the District's programs and determining opportunities for 
improvement. The current set of benchmarks for District programs has 
grown from 39 benchmarks for 18 agencies in fiscal year 2005 to 71 
benchmarks for 26 agencies in the fiscal year 2006 proposed budget.

             STRUCTURAL IMBALANCE IN THE DISTRICT'S BUDGET

    Mr. Chairman, despite this record of balanced budgets, there 
remains an ongoing, long-term financial problem, and that is the issue 
of the structural imbalance. This serious situation has been documented 
a number of times by sources outside the District including most 
notably by the General Accounting Office in report GAO-03-666 back in 
May 2003. This report defines a financial structural imbalance as the 
inability to provide a representative array of public services by 
taxing at representative rates. The District is the only city in the 
nation that has no state to share costs or underwrite expenditures in 
whole or part. The District bears about $500 million annually in costs 
of mental health, human services, child and family services, a 
university, motor vehicles licensing, taxation, insurance regulation, 
public service commission, and other services performed at the state 
level.
    The District's primary employer--the federal government--has 
exempted itself from taxation on its property and its income. Further, 
the preponderance of workers in the District of Columbia are exempt 
from D.C. income tax because they reside in the neighboring states of 
Maryland and Virginia. Finally, the District is the only municipality 
in the nation that must exercise the responsibilities of a city, a 
county, a state and a school district. Although the District has the 
authority for all types of taxes typically levied by states and 
municipal governments, it does not have the corresponding tax base 
sufficient to pay for the services it must provide.
    Again this year, I must ask the Subcommittee to consider the 
necessity of providing some additional federal consideration of the 
District's infrastructure needs. The District has pressing 
infrastructure needs--mostly in our schools, streets and 
transportation--that we cannot possibly fund locally. D.C. already has 
the highest per capita general obligation debt in the nation and, 
according to the GAO report, a tax burden that is 18 to 33 percent 
higher than average for the states. Our only options for addressing 
these infrastructure needs locally are:
  --Adding even more debt per capita;
  --Increasing the tax burden per capita--an action that is likely to 
        discourage potential residents and employers and possibly drive 
        current residents out of the city; or
  --Reduce delivery of other services--a very difficult choice in a 
        city with a large population of people in need.
    The GAO report stressed the unique financial challenges the 
District faces in generating the funds to finance usual and necessary 
services, and identified an annual structural imbalance of $470 million 
to $1.14 billion between the costs of delivering typical services and 
the revenue available from typical tax burdens, based on fiscal year 
2000 budget and data. Over the years, the District dealt with this gap 
by neglecting infrastructure needs and assessing very high taxes.
    For example, our capital program is constrained by limited 
operating revenues to support debt service as well as by the impact of 
prudent debt ratios and debt affordability determinations. The 
District's capital needs are now estimated to be about $7 billion, but 
our capital spending plan in fiscal year 2006-fiscal year 2011 for 
which we have identified funding sources is only about $2 billion, 
leaving a gap of about $5 billion. If borrowing occurs as planned, our 
tax-supported debt per capita will rise to over $11,000 by fiscal year 
2009.
    Again this year, Congresswoman Norton has introduced a bill, the 
Fair Federal Compensation Act of 2005, H.R. 1586 to address the 
structural imbalance, to relieve some of the unsustainable burden on 
the D.C. government and residents and businesses and to prevent another 
fiscal crisis for the capital city. We urge Congress to take action to 
enact this important legislation.

                               CONCLUSION

    Mr. Chairman, this concludes my remarks. I request that my written 
testimony be made part of the record. I will be pleased to answer any 
questions you or the other members may have.





                                              RESERVE REQUIREMENTS
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                Fiscal year--
                         Fund Type                         -----------------------------------------------------
                                                              2004     2005     2006     2007     2008     2009
----------------------------------------------------------------------------------------------------------------
Emergency & Contingency Cash..............................      285      249      254      258      302      307
Budgeted..................................................       50       50       50       50       50       50
                                                           -----------------------------------------------------
      Total...............................................      335      299      304      308      352      357
----------------------------------------------------------------------------------------------------------------
Cash Reserve Requirements Reduced from 7 percent to 6 percent: Emergency Reserve changed from 4 percent to 2
  percent; and Contingency Reserve changed from 3 percent to 4 percent.


                               DISTRICT OF COLUMBIA FISCAL YEAR 2006-2009 PROPOSED BUDGET AND FINANCIAL PLAN--GENERAL FUND
                                                                [In thousands of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Fiscal Year--
                                                              ------------------------------------------------------------------------------------------
                                                                                2005         2005         2006         2007         2008         2009
                                                               2004 Actual    Approved     Revised      Proposed    Projected    Projected    Projected
--------------------------------------------------------------------------------------------------------------------------------------------------------
Revenues:
    Taxes....................................................   3,665,195    3,628,730    3,875,218    4,101,533    4,330,091    4,610,561    4,890,072
    General Purpose Non-Tax Revenues.........................     324,493      292,447      330,973      340,522      342,896      338,513      346,573
    Special Purpose (O-type) Revenues........................     240,253      208,624      236,026      264,254      273,603      280,326      287,789
    Transfer from Lottery....................................      73,500       71,100       70,000       73,100       73,100       73,100       73,100
                                                              ------------------------------------------------------------------------------------------
      General Fund Revenues..................................   4,303,441    4,200,901    4,512,217    4,779,409    5,019,690    5,302,500    5,597,534
                                                              ==========================================================================================
    Bond Issuance Costs......................................  ...........  ...........      15,400       40,000       16,000       16,000       15,615
    Payment-in-Lieu-of-Taxes from WASA.......................  ...........  ...........       1,500        1,576        1,622        1,669        1,717
    Transfer from Federal and Private Resources..............  ...........       6,361        6,361        6,502        6,646        6,807        6,979
    Fund Balance Use.........................................     129,128      165,015      165,015      591,642   ...........  ...........  ...........
    Transfer to Special Purpose Revenues.....................  ...........  ...........  ...........  ...........  ...........  ...........  ...........
    Transfer to Capital......................................  ...........  ...........  ...........     (30,000)     (30,300)     (30,603)     (30,909)
    Revenue Proposals/One-time Revenue.......................  ...........     128,107       76,600        8,729        7,607        9,367       11,137
                                                              ------------------------------------------------------------------------------------------
      Total General Fund Resources...........................   4,432,569    4,500,384    4,777,093    5,397,858    5,021,265    5,305,740    5,602,073
                                                              ==========================================================================================
Expenditures (by Appropriation Title):
    Governmental Direction and Support.......................     231,364      315,813      327,899      340,859      326,649      336,654      346,999
    Economic Development and Regulation......................     148,949      241,570      216,715      328,156      246,557      252,885      259,394
    Public Safety and Justice................................     746,066      790,815      799,194      827,037      864,258      884,495      917,173
    Public Education System..................................   1,029,193    1,067,666    1,055,821    1,189,302    1,194,175    1,228,423    1,263,822
    Human Support Services...................................   1,117,035    1,192,755    1,244,598    1,307,530    1,345,993    1,401,101    1,458,860
    Public Works.............................................     314,620      327,936      328,334      366,101      373,427      388,605      404,451
    Financing and Other......................................     400,963      511,692      468,917      588,717      607,655      642,994      678,362
    Cash Reserve (Budgeted Contingency)......................  ...........      50,000       15,000       50,000       50,000       50,000       50,000
    Lease Purchase Costs.....................................  ...........  ...........  ...........  ...........  ...........      20,000       25,000
                                                              ------------------------------------------------------------------------------------------
      Subtotal, Operating Expenditures.......................   3,988,190    4,498,247    4,456,478    4,997,702    5,008,714    5,205,156    5,404,062
                                                              ==========================================================================================
    Paygo Capital............................................  ...........  ...........  ...........     207,083       10,000   ...........  ...........
    Transfer to Trust Fund for Post-Employment Benefits......  ...........  ...........  ...........     138,000   ...........      81,000       86,200
    General Fund Contribution to Capital Fund Balance........  ...........  ...........  ...........      53,800   ...........  ...........  ...........
                                                              ------------------------------------------------------------------------------------------
      Total General Fund Expenditures........................   3,988,190    4,498,247    4,456,478    5,396,585    5,018,714    5,286,156    5,490,262
                                                              ==========================================================================================
      Operating Margin, Budget Basis.........................     444,379        2,137      320,615        1,273        2,551       19,583      111,810
                                                              ==========================================================================================
Beginning General Fund Balance...............................     897,357    1,215,015    1,215,015    1,350,615      740,246      722,798      722,380
Operating Margin, Budget Basis...............................     444,379        2,137      320,615        1,273        2,551       19,583      111,810
Projected GAAP Adjustments (Net).............................       2,407      (20,000)     (20,000)     (20,000)     (20,000)     (20,000)     (20,000)
Deposits into Reserve Funds (From Fund Balance)..............     (31,609)     (19,041)      36,032       (4,489)      (4,570)     (43,113)      (5,428)
Deposits into Reserve Funds (To Cash Reserves)...............      31,609       19,041      (36,032)       4,489        4,570       43,113        5,428
Tax Increment Financing (TIF) Reserve (From Fund Balance)....  ...........      (9,710)      (9,710)      (9,710)      (9,710)      (9,710)      (9,710)
Unspent TIF Reserve..........................................  ...........       9,710        9,710        9,710        9,710        9,710        9,710
Fund Balance Use.............................................    (129,128)    (165,015)    (165,015)    (591,642)  ...........  ...........  ...........
                                                              ------------------------------------------------------------------------------------------
      Ending General Fund Balance............................   1,215,015    1,032,137    1,350,615      740,246      722,798      722,380      814,190
                                                              ==========================================================================================
Composition of Fund Balance:
    Emergency Cash Reserve Balance (2 percent, formerly 4         163,091      179,930       83,126       84,622       86,145      100,516      102,325
     percent)................................................
    Contingency Cash Reserve Balance (4 percent, formerly 3       122,318      124,520      166,251      169,244      172,290      201,032      204,651
     percent)................................................
    Fund Balance not in Emergency & Contingency Reserves.....     929,606      727,687    1.101,238      486,381      464,363      420,832      507,214
                                                              ------------------------------------------------------------------------------------------
      Ending General Fund Balance............................   1,215,015    1,032,137    1,350,615      740,246      722,798      722,380      814,190
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Senator Brownback. Dr. Janey, it is good to see you again 
in this hearing and I look forward to your testimony.
STATEMENT OF CLIFFORD JANEY, Ph.D., SUPERINTENDENT OF 
            SCHOOLS, DISTRICT OF COLUMBIA PUBLIC 
            SCHOOLS
    Dr. Janey. Thank you very much.
    I am going to make some adjustments in my testimony to 
observe the need for us to have some dialogue, but my brevity 
in no way should diminish I think some of the important issues 
that face us, not only as a school district but as the District 
of Columbia.
    Thank you for providing me the opportunity, Chairman 
Brownback and Senator Landrieu. I believe the fiscal year 2006 
budget request reflects the collaborative spirit necessary for 
an educational agenda to be realized. I believe we must move 
aggressively to meet the needs of our students and our goal 
must be to regain our public credibility, improve student 
performance, raise our expectations, and establish a real 
system of accountability.
    With this in mind, the fiscal year 2006 budget was designed 
to begin to address some of the malaise in our system by 
proposing new initiatives that address three key goals. They 
are: boosting and sustaining academic performance; improving 
our facilities; updating and upgrading our instructional 
technology.
    To a certain extent, we will be able to accomplish this by 
investing our allocated money for fiscal year 2006 of $775 
million in quality academic programs and operational reforms. 
If we continue to stay focused on our common goal of improving 
the quality of education for D.C. students, we can accomplish 
even more. The support and leadership of the Board of Education 
and the fact that Mayor Williams, Chairperson Cropp, and Dr. 
Gandhi have been accessible and responsive to the children, 
families and communities as we have developed this budget 
process has been critical to the success of the process thus 
far.
    Our base budget for fiscal year 2006 was $775 million, but 
in the development of the budget we realized that there were 
some educational investments that would be unfulfilled but were 
critical to our ambitious academic agenda. However, the board 
and I agreed that we would live within the amount we were 
allocated for 2006, different from previous years.
    However, the Council helped us secure an additional $15 
million to prevent a loss of 269 teaching positions. I thank 
Chairperson Cropp, her colleagues and others who were very 
helpful in that regard.
    In addition, we received an interdistrict transfer of $3.7 
million for private special education out of State tuition 
payments. So our revised budget amount is $794 million, with an 
additional $21 million to support unmet needs in our budget. 
Thus our total appropriated amount for fiscal year 2006 is $815 
million in local funds.
    The projected Federal grant revenues for fiscal year 2006 
total $145 million and we have other funding streams that 
brings our budget up to approximately $1.1 billion.
    Another area where we have received additional needed 
support from the Mayor and the Council on the operating side of 
the budget is in the area of facilities. We have received an 
additional $6 million to open up schools this year. We have 
targeted a number of schools for landscaping, painting, 
sprucing up, looking at our gymnasia and our cafeterias.
    To give you a sense of the condition of our buildings, 
however, 86 of our 147 schools are more than 50 years old and 
another 41 are 75 years of age or older. Between 1982 and 2000, 
just a scant number of schools have been fully modernized. I 
cannot overstate the simple premise that every student needs 
and deserves a decent learning environment.
    To meet our most urgent facility needs in the context of 
fiscal realities, we developed the transition capital 
improvement plan adopted by the Board of Education in March of 
this year. This plan allows for more effective and strategic 
use of funds. It allows us to expand opportunities to partner 
with charter schools through co-location.
    I am going to start to wind up this presentation and this 
testimony, but I would like to highlight a couple of 
initiatives that have continued to be of importance to us in 
the school district, the first of which is the Tuition 
Assistance Grant program. This program has opened up college 
opportunities to many families for the first time and provided 
an additional incentive for middle class families to stay in 
the city. To build upon this, we have entered into a 
partnership with the College Board to promote development of 
the skills students need to succeed in college, and our high 
school guidance counselors have all been trained in the 
benefits of promoting the tuition assistance program.
    Based on its value to the development of our students and 
the desirability of the city, we ask the committee to continue 
funding this important initiative.
    Further, with respect to school improvement and the $13 
million appropriation coming from this subcommittee, I seek the 
continued funding for school improvement. These funds have 
enabled us to implement the Massachusetts learning standards 
for this coming school year. I would ask the subcommittee not 
to first insert special legislative language that might hamper 
the continued implementation of these standards. The continued 
funding is vital to the current academic reforms we have 
instituted.
    Our use of school improvement funds will enable us to do--
will enable us to continue to invest in the following key 
areas, ranging from the implementation of the learning 
standards, going fundamentally then with curriculum 
instruction, having a clear and rigorous assessment system, 
having the accountability that goes along with that, providing 
professional development of our staff, and looking at 
prevention through early intervention, that is establishing new 
opportunities for 3- and 4-year-olds to come to the District.
    I believe, in conclusion, this operating budget will 
considerably advance our work at improving student achievement 
and assisting us in changing the institutional culture of the 
school system and make the necessary reforms so long needed.

                           PREPARED STATEMENT

    This concludes my testimony and I, like my colleagues, will 
be here to remain part of the dialogue.
    Senator Brownback. Thank you, Dr. Janey.
    [The statement follows:]

              Prepared Statement of Dr. Clifford B. Janey

    Good morning, Chairman Brownback, Senator Landrieu and Members of 
the Senate Appropriations Subcommittee on the District of Columbia. I 
am pleased to be here with Mayor Williams, Chair Cropp and Dr. Ghandi.

                              INTRODUCTION

    I believe the fiscal year 2006 budget request act reflects the 
collaborative spirit necessary for our educational agenda to be 
realized. I believe we must move aggressively to meet the needs of our 
students. Our goal must be to regain our educational focus, improve 
student performance, raise student expectations and establish a system 
of accountability. With this in mind, our fiscal year 2006 budget was 
designed to begin to address the malaise in our system by proposing new 
initiatives that address three key goals. The goals inherent in the 
budget are to boost academic standards, improve facilities and update 
and upgrade our instructional technology.

                        FISCAL YEAR 2006 BUDGET

    Under the leadership of the board of education, along with the 
support of those assembled here today, we began the budget process and 
had to accept the widespread feeling that our schools operate in an 
isolated and detached manner. We felt that addressing the public's 
concerns would go a long way to improve the overall environment of 
learning and boost student achievement. With this in mind, we began the 
process of building a budget to encompass the feelings of stakeholders 
and the desires of parents for more academic rigor.
    To a certain extent, we were able to accomplish this by investing 
our allocated amount for fiscal year 2006 of $775 million in quality 
academic programs and operational reforms.
    If we continue to stay focused on our common goal of improving the 
quality of education for D.C. students, we can accomplish even more. 
The support and leadership of the board of education and the fact that 
Mayor Williams, Chair Cropp and Dr. Ghandi have been accessible and 
responsive to our children, families and communities as we developed 
our fiscal year 2006 budget has been critical to the success of this 
process thus far.
    Our base budget for fiscal year 2006 was $775 million, but in the 
development of the budget, we realized there were educational 
investments that would be unfulfilled but were critical to our 
ambitious academic agenda. However, the board and I agreed that we 
would live within the amount we were allocated for fiscal year 2006.
    However, the council helped us secure an additional $15 million to 
prevent the loss of 386 teaching positions. In addition, we received an 
intra-district transfer of $3.7 million for private special education 
out of state tuition payments. So, our revised budget amount is $794 
million, with an additional $21 million to support the ``unmet'' needs 
of our budget. Thus, our total appropriated amount for fiscal year 2006 
is $815 million in local funds. The projected federal grant revenues 
for fiscal year 2006 totals $145 million and we have other funding 
streams that brings our budget up to $1 billion.
    Another area where we have received additional needed support from 
the mayor and council is in the area of facilities. We have received an 
additional $6 million to open the schools this fall.
    To give you a sense for the condition of our schools, eighty-six 
(86) of our 147 schools are more than 50 years old. Another 41 are 75 
years or older. And, between 1982 and 2000, only four schools were 
added to or rebuilt.
    I cannot overstate the simple premise that every student needs and 
deserves a decent learning environment. To meet our most urgent 
facilities needs in the context of fiscal realities, we developed the 
transition capital improvement plan adopted by the board of education 
in March 2005.
    This plan allows for a more effective and strategic use of funds. 
This also will allow us to expand opportunities for co-locating to 
support charter schools. Most recently, we have identified ten schools 
as possible co-location sites for charter schools to co-locate for this 
fall one year. I envision there possibly will be greater opportunities 
to co-locate or for charters to occupy additional buildings upon 
completion of the master education plan. The rationale for the one-year 
lease is to allow time for the development of this master plan, which 
will guide both our academic and facilities plans for the coming years.

Tuition Assistance Grant Program
    This program has opened up college opportunities to many families 
for the first time and provided an additional incentive for middle 
class families to stay in the city. To build on this, we have entered 
into a partnership with the College Board to promote development of the 
skills students need to succeed in college and our high school guidance 
counselors have all been trained in the benefits of promoting the 
tuition assistance program. Based on its value to the development of 
our students and the desirability of our city, we ask the committee to 
continue funding this important initiative.

School Improvement
    Further, I seek the continued funding for school improvement. These 
funds have enabled us to implement the Massachusetts standards for this 
coming school year. I would ask the committee not to insert any 
legislative language that would hamper the continued implementation of 
these standards. The continued funding is vital to the current academic 
reforms I have instituted. Our use of school improvement funds will 
enable us to continue to invest in the following key areas:
  --Curriculum and instruction.--Develop grade-by-grade standards in 
        science, social studies, and four electives. This process will 
        incorporate the best standards from around the country. At the 
        same time, English/language arts and mathematics curricula will 
        be developed and linked to textbook adoption.
  --Assessments.--Implement periodic benchmark testing to monitor 
        progress of students throughout the school year, identify 
        students who need support so that help can be provided, and 
        help tailor training for teachers and principals to meet 
        students' needs.
  --Accountability.--Adopt an effective schools initiative that is more 
        closely aligned with NCLB standards and will reach more schools 
        with additional support and resources. The research-based 
        approach, which is based on the successful performance 
        improvement mapping (pim) model being used in Massachusetts, 
        aligns more closely with federal standards in NCLB.
  --Professional development.--Work with our standards content 
        consultants in an ongoing process to help teachers develop the 
        knowledge, skills and tools they need to take ownership of the 
        standards and curriculum.
  --Prevention and early intervention.--Renewing the emphasis and 
        system wide mandate for early intervention in the context of 
        general education, including academic and behavioral supports 
        and other services for struggling students, will enable DCPS to 
        meet the needs of more learners, improve student achievement, 
        and reduce the number of inappropriate special education 
        referrals.
    I believe this operating budget will considerably advance our work 
at improving student achievement, assist us in changing the 
institutional culture of this school system, and make the necessary 
program and operational changes that will benefit the children in our 
classrooms and, ultimately, the citizens of the District of Columbia.
    This concludes my testimony. I will now answer any questions you 
may have.

    Senator Brownback. We will run the time clock 5 minutes 
back and forth, so we will just try to ask some pretty good 
questions and very quick questions and then do a couple of 
rounds here if we can.
    Dr. Janey, we held a hearing on education and both Senator 
Landrieu and I are very concerned about what is taking place in 
the D.C. system and the results or lack of results that have 
taken place for school children in the District of Columbia. I 
want to focus in on your physical plant issue if I could to 
start off with, because you have noted, Chairperson Cropp has 
noted, the dilapidated condition of your physical plant.
    You have about 147 school facilities . What do you believe 
that total number should be? Where do you think that number 
should actually be, given what your enrollment is today and 
where your students are located?
    Dr. Janey. I cannot give you a precise number of schools 
because we are currently in the process of building this plan. 
By December of this year we will have a master education plan 
that will really frame how many facilities that we should have 
pre-K through 12, the types of uses for those facilities, so 
that we would be able to have finally right-sized the District. 
So we are in that process right now, Senator.
    Senator Brownback. Could you give me any comparables in the 
country of student population, of what the D.C. area is, and 
what the number of school facilities would be in a comparable 
district? You do not have it determined here yet, but what 
would be a comparable in the United States?
    Dr. Janey. Boston might be comparable in enrollment, give 
or take 2,000 or 3,000, 4,000 students, and I believe their 
number of facilities is probably 15 or 20 less, I think. But I 
would not want to say factually for the record. But Boston is 
somewhat comparable to the District of Columbia in enrollment.
    Senator Brownback. I do not think you have closed any 
schools since 1999. This was an issue when I was chairing the 
authorizing committee before, that we need to get more 
resources into fewer physical plants. We need to upgrade these 
physical plants.
    It is a similar thing that we are going through on military 
bases across the country, across the world, is we are trying to 
get into fewer buildings and get them upgraded so that they are 
better. I have been in a couple of your physical plants. They 
clearly need upgrading. There is just no question about it.
    But there has a will to say, okay, we are going to take the 
dollars that we have and we are going to put them in the 
physical plants that we need, and the other ones, we are just 
going to have to close.
    I know this was a tough issue back then. It is a tough 
issue now. I do not know if we need to provide assistance to be 
able to strengthen your hand to be able to move forward on 
that, but it strikes me this is going to be one of the 
fundamental issues we are going to have to face, is get more 
resources put into fewer physical plants for students.
    Dr. Janey. I think the technical aspect of the issue, 
meaning looking at the enrollment against the number of 
schools, that is not the big lift. Looking at the types of 
educational programs and services and then projecting over time 
what the enrollment will be, that is a second consideration.
    But when you talk about consolidation, when you talk about 
closing schools, you talk about shared use of schools, often it 
comes down to political will and where will people stand once 
you make that decision.
    Senator Brownback. I understand all of that. I understand 
the difficulty.
    Dr. Janey. So that it rests more in that area than it does 
in the other two.
    Senator Brownback. When the statement was made by the 
former speaker about all politics is local, talk about schools 
and it is real local, and it is a very tough issue to deal 
with.
    Dr. Janey. I have heard Mr. O'Neil say that many times.
    Senator Brownback. Mayor Williams, thank you for your 
presentation here. I want to go at one area and then I want to 
come back to you, if I can, a little bit later. You talk about 
the level of taxation within the District, some of the highest 
taxation within the country. I think even Chairperson Cropp was 
talking about a punitive tax structure, I believe is the terms 
that I heard you use.
    Do you have plans or should you or are you considering 
plans for reduction of that tax structure within the District 
of Columbia as a further effort and opportunity for growth for 
the District of Columbia, if your tax structure is so punitive 
and so high?
    Mayor Williams. Well, I can ask Chairman Cropp to speak to 
the Tax Parity Act that the Council passed, what was it, in 
1999 I believe, which provided for a series of reductions of 
income tax in the city. We have worked together where we could, 
certainly on a strategic basis, reducing taxes for business. I 
have worked with the Council in providing cap relief for 
property taxpayers, who are suffering from escalating housing 
prices and hence assessments and hence levies, on the basis of 
that.
    In this year's budget there is $88 million in tax relief. I 
think it is about $40 million of that is the latest tranche of 
this Tax Parity Act, which I strongly support, because this 
latest stage of the Tax Parity Act actually is providing 
increasing tax relief to moderate and low income citizens. Then 
we have also added to that, with the strong support of the 
Council, additional tax relief that would total about $88 
million.
    One of the things I am particularly proud of is we say to 
homeowners--there are two things, actually. Chairman Cropp can 
speak to the latter. One is, if you are a homeowner, a 
household making less than $50,000 a year, you do not pay 
property taxes on your home until you sell it. I think that is 
going to provide great relief for the strain faced by middle 
income households, who are seeing their property values go up, 
but those assessments and those property levies can be onerous.
    Then number two--and I give her full credit for this--
Chairman Cropp, at her urging we have included in the budget 
relief for custodial grandparents who are taking care of these 
kids in many instances and should be supported. You talk about 
supporting families. This is something I really salute her for, 
providing hope for--providing help for these custodial 
grandparents in terms of tax relief to allow them to shoulder 
the burden of raising these children.
    I do not know if you want to speak to any of those issues, 
Chairman Cropp.
    Ms. Cropp. Thank you, Mr. Mayor.
    The Mayor and Council have worked very hard to look at ways 
to reduce the burden for our citizens. We are challenged also 
by our own success with regard to real estate property. What we 
are finding in the District is that the housing costs have gone 
up, they have tripled or quadrupled, but the salaries have not 
matched it. The average cost of a house in the District is 
roughly around $350,000, $375,000, where the average salary is 
about $70,000, $75,000.
    What we have now is we have some people, particularly 
seniors, who may be in a house that they bought 50, 60 years 
ago for $40,000, whose house may be worth about $500,000, 
$600,000, $700,000, $800,000 now, but their annual income may 
only be $25,000 to $40,000 a year. So the taxes are getting at 
a level where either we force them to sell their house and 
leave the District, because if they sold their house it is 
nothing else they could buy in the District with that money.
    So in the Mayor's budget, working with the Council, we have 
devised a way to work with these seniors that they do not have 
to pay the property taxes until after they sell their house.
    However, there is another group who is impacted by this and 
why the city needs to look at it. Let us look at new college 
graduates, young professionals just starting out. The average 
median income in the District of Columbia has just risen to 
$89,000 for a family of four. That is not enough money to be 
able to buy a house and deal with affordable living, housing.
    So this budget is also dealing with that issue. We are 
looking and wrestling with tax packages that will actually 
reduce the rate that people pay on taxes and also we are 
looking at the cap again. The cap appears skewed in the sense 
that you say people who have a higher value house will get more 
money and that is true, but it does not mean in the District of 
Columbia that people who have a higher value house are rich 
people.
    Senator Brownback. In farm country we would say of a 
farmer, he lives poor and dies rich. Just the income off the 
farm is not that much, but he sits there for a number of years, 
works hard with his family, and at the end of life he has some 
value. But the income is not there. And so I really do applaud 
your efforts to try to deal with that situation.
    We should not have a punitive tax structure within the 
District of Columbia. I am glad you are working to assess that.
    Mayor Williams. Mr. Chairman, if I could just say one 
thing. I think one reason why the taxes are high, I would get 
back to our original testimony, is again because of this 
structural imbalance. The Federal Government basically tells me 
I only have access to half of my tax base. So you are trying to 
run an operation with only half of your tax base, and if you 
believe the GAO, which says that really there are costs beyond 
our control, you are going to end up overtaxing that limited 
base you have.
    So while the relief that we have embarked on I think is 
important, we cannot miss the underlying really critical 
importance, I think, of addressing the structural deficit. I 
would personally think that the Fair Federal Compensation Act 
is one good way to do that.
    Ms. Cropp. I was going to say the same thing, Senator. What 
the Mayor is saying is absolutely factual. The District, not 
unlike any other city, has a population that is older, sicker, 
and poorer. Most cities get the help from their surrounding 
areas to help offset that problem.
    Ironically, the absolute reverse happens in the District of 
Columbia. We help subsidize our more affluent suburban areas. 
More than 56 percent of the people who work for the District of 
Columbia government--not the Federal Government, not the 
private sector, but the District of Columbia government--live 
outside of the District of Columbia. That is not through our 
control. That is through a Federal mandate that that occurs. So 
we cannot even tax that revenue at its source.
    For every dollar earned in the District of Columbia, we can 
only keep 33 cents of it. The difference between other major 
cities and the suburban areas surrounding it, the State helps 
to offset that cost, that loss, and we have no offset for it.
    Senator Brownback. I have gone 10 minutes instead of 5 and 
I will give that to my colleague.
    I do want to recognize Congresswoman Eleanor Holmes Norton, 
a dear friend of mine. Over the years I have worked with her. 
You were hiding behind the Mayor so I did not see or I would 
have recognized you at the very outset.
    Senator Landrieu.
    Senator Landrieu. Thank you, Mr. Chairman. I also want to 
acknowledge Congresswoman Norton who is here. I thank you for 
your work and your support. Your input has been invaluable to 
this subcommittee as we have worked through some of these 
issues and I really appreciate your help and support.
    I wanted to, Mr. Mayor, go on the record as supporting your 
comments regarding the structural imbalance. As you know, the 
record-setting report by GAO actually requested by the 
Congresswoman and me was issued I believe 2 years ago now. We 
did have a quite lengthy hearing on the subject. That report 
basically in my mind put to rest the question as to whether a 
structural imbalance exists.
    It is clear that it exists. It is clear that it is between 
$400 million, I think, Dr. Gandhi, $400 million and $1 billion. 
It is clear from the exchange that we just had that as we move 
to address that one of the real results could be a lowering of 
very high tax rates in the District, which would be good for 
everyone and a real benefit for future development.
    So I know that there are several proposals. The 
Congresswoman has a proposal. Several proposals have been put 
forward. But Mayor, would you take a minute, and perhaps Dr. 
Gandhi take a moment, to talk about some aspects of these that 
you think are particularly encouraging or a way that you would 
like us to try to think about approaching this? Would it be a 
rebate of taxes that the District residents pay from the 
Federal Government? Could the Federal Government look at some 
other ways that we could fill that structural imbalance? 
Because it is really a question as to what the Federal 
Government can do.
    Do you want to put anything into the record, comments on 
that this morning?
    Mayor Williams. Well, my own view, Senator Landrieu, is--
and I have stated this publicly a number of times; I would just 
use this occasion again--is I really do believe that a 
promising vehicle for addressing this is the District of 
Columbia Fair Federal Compensation Act of 2005, which was 
introduced by Congresswoman Norton. I think there are two key 
provisions of this that I think are becoming in my mind in 
running the city day to day.
    One is it is an annual Federal outlay on a formula basis, 
so you can resolve this matter once and for all and we do not 
have to revisit this over and over again. I think there is a 
lot to be said for settled expectations and everything else.
    Number two, it would be dedicated to exactly the things 
that this subcommittee has addressed, the GAO report addressed, 
and we have heard today in testimony: the transportation 
projects, the extraordinary debt service that the city has to 
suffer because we do not have state support, public school 
facilities, information technology.
    I believe that a real offset of all this--number one. 
Number two, a real offset of all this would be we would see 
then with these investments increasing relief, not only for 
individuals but also for businesses, because actually the GAO 
will tell you, our Federal City Council will tell you--I am 
getting now the councils mixed up--the Federal City Council 
will tell you that the real extraordinary burden in terms of 
taxation now is on our businesses.
    So the Council has made progress and I salute them for 
reducing the burden on our individuals. But if you are a small 
business in the city or a business in the city, what you are 
paying versus Maryland and Virginia is clearly extraordinary. 
This would allow us to address that.
    Senator Landrieu.
    Senator Brownback. Dr. Gandhi.
    Dr. Gandhi. I think the Mayor has spoken quite well on this 
issue. I think what this chart shows, Mr. Chairman and Mrs. 
Landrieu, is that the District can manage itself very well 
financially. It is like we can manage a household very well. 
The question is what happens when the roof falls down, what 
happens if I have a flood in the basement? The larger 
infrastructure issue is the only puzzle that needs to be 
resolved, and that cannot be resolved locally.
    I think Ms. Norton's proposed legislation is an excellent 
idea. That would provide us the kind of recurring annual, 
predictable budget relief that we need. But more important, 
what we have there is basically a capital fund, that money 
would be spent only on infrastructure, the buildings, 
transportation, technology, debt service.
    So it is not that Congress gives that money to the city and 
we start five new programs and hire 1,000 new bureaucrats. No. 
The funds would basically be taking care of an infrastructure 
that needs to be repaired and should be worthy of the Nation's 
Capital.
    Senator Landrieu. Thank you. I would like to agree that I 
think one of the strongest aspects of that proposal is that it 
creates a capital fund which would be able to be accountable 
and transparent. How the money was spent--it could be used at 
discretion, of course, of the city, but could be a real signal 
of strategic investments for the growth of the city and also 
provide some tax relief across the board.
    On that, I want to mention that I am particularly pleased 
with the tax relief and the recognition of the rising value of 
homes in the District--the blessing of that, but the burden to 
people on fixed incomes, particularly seniors. I really want to 
commend you, Chairman Cropp, for looking at that area, and the 
Mayor, and trying to provide some relief in an innovative way, 
so the city is not giving up revenue. It may be postponing it, 
but it really allows those families to have some relief that is 
so necessary today.
    Ms. Cropp. Senator, if I may, on the capital fund issue 
that you were talking with the Mayor and Dr. Gandhi about, to 
say how important it is. Legally, the city has a 17 percent 
ceiling on our budget that we cannot spend more in capital 
projects. But the reality is that Wall Street, the bond rating 
agencies, will not let us go over--Dr. Gandhi--probably about 8 
or 9 percent?
    Dr. Gandhi. Nine percent.
    Ms. Cropp. Nine percent. We are fairly close to that level. 
So that even if we decided as a city that we wanted, or even if 
we had the money for the infusion for our schools, we could not 
do it because our bond rating would then drop down and we are 
just in a terrible position.
    So this capital fund is just so very important for our 
schools, as we look at Metro. Metro, which has been the pride 
of the Nation, is now at an age where it needs to have a 
reinvestment. So for our capital budget it really is 
problematic. That capital fund will be very helpful.
    Senator Landrieu. Well, I appreciate that. I would only say 
that this is not the only city that has limits to its capital 
expenditures. There are cities all over America that struggle 
with these limits, put on either by themselves or by agencies 
or by State governments or by necessity because of the 
finances, and it is a complicated issue.
    You can also use cash when it becomes available and not 
increase your bonding capacity, and it is always good to use 
cash when you have got it and not increase borrowing, and your 
surpluses allow you to take that cash and use it wisely, which 
you have done in your proposal.
    But I want to get to, in one moment--the chairman has been 
very gracious here. But I would like to get to you, Dr. Janey 
and the Mayor, about the facilities issue for our schools. 
There are a couple of solutions. I know these are difficult. 
But one, the overall budget for the school system is $1.1 
billion, which we are still trying to get a handle on exactly 
how that breaks down per student compared to other cities, 
which is the way I would like to compare it, not States, 
because I think comparing it to States is apples to oranges, 
but I think comparing it to cities accurately reflects the real 
costs.
    This is the document that I have for the record. I am 
sorry, it is fiscal year 2003. I am sure it can be updated. I 
do not have it this morning. But based on this document that we 
had in fiscal year 2003, Orleans Parish, which is my home town, 
was spending $6,500 per student, Baltimore was spending $10,000 
per student, Milwaukee was spending about $11,000 per student, 
and the District of Columbia was spending $13,000 per student.
    Now, these numbers may have changed and if we can just get 
this updated then we will know and put that into the record.
    [The information follows:]

------------------------------------------------------------------------
                                                 Per Pupil
                     City                         Spending    Enrollment
------------------------------------------------------------------------
Orleans Parish, LA............................       $6,560       70,246
Alameda Co. (Oakland), CA.....................       $7,122       10,615
Houston, TX...................................       $7,236      212,099
Kansas City, KS...............................       $7,827       20,810
Baltimore, MD.................................       $9,639       96,230
Cincinnati, OH................................       $9,677       42,715
Milwaukee, WI.................................      $10,352       97,293
Montgomery Co., MD............................      $10,580      138,983
Alexandria, VA................................      $12,736       10,971
Washington, DC................................      $13,328       67,522
Arlington, VA.................................      $13,334       19,135
------------------------------------------------------------------------
Source: U.S. Census F-33 Annual Survey of Local Government Finances for
  2002-2003.

    Senator Landrieu. But the point is that $1 billion plus 
budget for the District schools is more than most cities of 
this size and demographics have. One way to capture funding for 
facilities is to have some savings or efficiencies, whether it 
comes through some savings through facilities or operations. If 
you had a 5 percent savings, which is $50 million, you could 
take that money and bond it and create a bond issue to invest 
in schools.
    Another way is to use the assets of the school system 
itself, which, Mr. Mayor, I understand that there are 39 
schools on this list of surplus property. Fourteen have been 
either leased or sold as according to the city law for charter 
schools. But there are an additional 17 schools that could 
either be leased according to now the local law and the Federal 
law, to give a preference, a strong preference to charter 
schools.
    The money generated from these transactions could go to the 
benefit of the school system. It could go to the benefit of the 
school system. It does not have to go to the benefit of the 
general fund of the city.
    So there is a real win-win, Mr. Chairman, as we take steps 
to co-locate, to make these vacant in some cases and surplus 
facilities available to schools, to use the profits of that, if 
you will, for the school system itself.
    In addition, some of these buildings have been available 
for housing under the control of the city through the control 
board. They have been very successful housing developments. I 
am aware of some of them. But again, the moneys that were 
generated by the sale of those buildings could have gone back 
to the school system. I do not think that happened. I think 
that went back to the city general fund.
    So I would just ask that we look at the assets of the 
school system, how they can be better used to help the problem 
that we have, and to recognize that there are right now, 
without any additional Federal help, some real opportunities 
for enhancements of these facilities.
    Senator Brownback. As you can see, my colleague has dug 
into this pretty deep and is quite committed to it, and I look 
forward to working with her on some of these topics.
    If I could turn quickly to a couple of things on another 
set of topics. When I was the authorizing chair we did a number 
of structural changes in the District of Columbia. This was in 
1997. I think Connie Mack was one of the key individuals 
involved in the negotiations. A lot of structural changes were 
made at that time. That is when the homestead or the first time 
home buyers accounts were put in place, which I think have been 
very successful in the District of Columbia. We are trying to 
replicate them in other places across the country.
    One of the things that we had looked at and considered is 
putting in place in the District of Columbia a flat tax making 
the Federal income tax a flat tax in the District of Columbia. 
It had pretty good support. I put in a bill along with 
Congressman Paul Ryan on the House side. Jack Kemp supported 
it.
    One other item, though, I want to throw out for you. We did 
several years ago individual development accounts, trying to 
get people of low income to save. We had a Federal match of but 
$2. For every $1 that the individual would save, we would match 
it with $2, as an attempt to increase personal savings--and we 
called it an individual development account. Let us start 
building up this.
    I was wondering, Mayor, in looking at the need to support 
families, if we should try to expand that concept on marriage 
development accounts, where a couple raising children but at a 
low income level, not necessarily at a poverty level but at a 
low income level, that we would try to use that same concept.
    I put it out as something that we are looking at. I want to 
see if the concept has worked for the individual development 
accounts or not, if you look at it and say, well, it has worked 
some, not that great, or if it has really worked well. Is that 
something we could expand in this category to try to encourage 
and support that institution where generally children thrive 
the best? So I put that out for you.
    We will look forward to working with you on this budget, 
and on other items. Again, I congratulate you on the many areas 
of improvement. We have got some possibilities and some things 
to work on. I look forward to working with my colleague, who is 
very knowledgeable and has been on this subcommittee for some 
period of time.

                     ADDITIONAL SUBMITTED STATEMENT

    The subcommittee has received a statement from Paul 
Strauss, the shadow Senator for the District of Columbia which 
will be placed in the record at this point.
    [The statement follows:]

                   Prepared Statement of Paul Strauss

    Chairman Brownback, Ranking Member Landrieu and others on the 
subcommittee, as the elected United States Senator for the District of 
Columbia I would like to thank you for the opportunity to present this 
statement on behalf of the people of the District of Columbia.
    I fully support the fiscal year 2006 Budget Request for the 
District of Columbia. It is vital for my constituents that the Budget 
Request is met in full. As the elected U.S. Senator for the District of 
Columbia, I myself cannot vote on this appropriation. I am limited to 
merely asking you to support their requests. Unlike citizens of any 
other jurisdiction, we lack the legal rights to make these funding 
decisions on our own. This is not just an issue of simply allocating 
appropriations but, for the residents of our Nation's Capital, an issue 
of fundamental justice.
    The District of Columbia should not have to look to Congress for 
financial determinations. Congress appropriates the money of local tax-
payers, which rightly should be appropriated by local government. The 
money at issue is raised by taxing the local citizenry, and Congress 
should have no authority to interfere. This is again a case where the 
many restrictions on the District of Columbia's ability to self-govern 
adversely impact the taxpayers of your own states. Today's hearing, an 
exercise in bureaucracy, would be unnecessary if the District was free 
to conduct its own budget. I have made this argument many times before 
many committees of this body, and I will continue making it until the 
District of Columbia becomes a state. Most importantly, as long as 
Congress continues to control the District's budget, which should be 
operated by the District, Congress has an obligation to fully fund the 
budget request without hesitation.
    Due to our lack of self-determination, we are unable to provide 
certain government services on a local level. As long as Congress 
continues to utilize city services, it has an obligation to fully fund 
city services. It is essential to the District that Congress pass this 
budget in time for the new fiscal year and avoid being held up in 
continuing resolutions. If the District's Budget is held up, vital 
spending adjustments are not allowed to be implemented and the cost of 
debt services increases. Each day the budget is delayed is a further 
impediment in our efforts to provide vital local services to the loyal 
tax paying residents of the District of Columbia.
    The predicament and unneeded bureaucracy of our budget being held 
up every year can be resolved through Budget Autonomy. Our local budget 
has no relevance to Congress or any of your constituents, and is an 
unnecessary obligation on the national taxpayer and the national 
legislature. Since fiscal year 1996, the District of Columbia has 
unfailingly provided Congress with a balanced budget, consistently 
demonstrating that it is a competent governing body. It therefore seems 
extraordinary that such a proficient and capable body should not be 
given the rights to pass its own budget without policy interference and 
social riders regulating the government within the District. It should 
be within the legislative remit of the District of Columbia to make its 
own economic decisions, and not Congress.
    The District of Columbia has submitted a budget that has called for 
significant, increased investment in public services and education. 
Mayor Williams, Chairman Cropp, and Chief Financial Officer Gandhi have 
explained the specifics and I support their efforts. The budget request 
is balanced, thorough, and accounts for the needs of the residents of 
the District of Columbia. It will provide more money to be spent 
adequately on education and family services on a per capita basis than 
ever before. The money to be invested in education is crucial if we are 
to be able to meet our aims of improving education for all who live in 
the District.
    I am the only elected official whose children attend D.C. public 
schools. Our public schools have been making good progress, but we 
still face huge barriers in our ability to provide a holistic 
educational experience. For example, in 2005, 49 of the District's 167 
public schools had no music teachers and 44 had no art teachers. My own 
child's school, Stoddet Elementary, lacked a second grade teacher, and 
the first and second grades had to be combined. Without the proper 
funding, the District will never be able to break such barriers, and 
the children who live in the District will always be at a disadvantage.
    The District should be able to provide the type of education every 
child in this country deserves. The budget request includes $1 billion 
to fund our public schools. Of this, $779.3 million will be dedicated 
to the District of Columbia's Public Schools; $234.4 million for the 
District of Columbia's Public Charter Schools; and $25.2 million for 
the Educational Investment Fund. The request also includes $147 million 
in capital funding to support improvements to public school buildings 
in the District. The request represents an increase of $81.6 million on 
the fiscal year 2005. The additional request will be spent on improving 
11 new charter schools and will create an Educational Investment Fund 
to help improve student and school attainment. These investments will 
help provide essential facilities that will help provide an appropriate 
educational environment.
    The public school administration has worked hard to build a budget 
that will sustain the public school system. To avoid losing 386 
teaching positions, $15 million was secured for the school budget. An 
additional $6 million was secured to help open schools this fall. The 
administration accepted this budget, and was confident that it could 
operate within the amount allocated. In other words, there should be no 
need to close any facilities. It is outrageous that D.C. schools should 
be shut down to compensate, not for a deficit within the District's 
budget, but rather for a deficit in the national budget. Students of 
the District of Columbia should not be penalized for Congress's 
inability to balance the budget.
    In addition to allocation to public schools, the budget request 
also includes monies dedicated to improving Higher Education and 
lifelong learning in the District of Columbia. Higher Education is a 
crucial part of our aim of improving education in the District. It is 
essential that those who want to learn be given the opportunity to do 
so regardless of their age or economic situation. The main focus of our 
efforts will be improving the availability of programs and facilities 
at the University of the District of Columbia. This includes an 
allocation of $8.3 million to expand programs in sectors such as 
nursing, social work, and teacher education; $8.2 million to extend 
opening hours for libraries and to invest in additional facilities; and 
$700,000 in financial aid to support a further 474 students from low-
income backgrounds. The budget request would help address some of the 
problems faced by the District's Education Services, who continue to 
achieve remarkable results in less than favorable conditions, by 
providing funds for vital programs, facilities, and resources.
    Besides money allotted to the education sector, the budget request 
includes a significant allocation to children and family services, 
namely the Children and Youth Trust Corporation, the Department of 
Youth Rehabilitation Services, the Child and Family Services Agency, 
and the Department of Human Services. The District of Columbia has made 
great strides in tackling the problem of juvenile crime over the last 
year, as the falling rate of crimes committed by juveniles illustrates. 
However, we continue to strive to make further progress in this area 
and to tackle the underlying causes of these problems. The Budget 
request provides sufficient resources to be able to attack the causes 
of many of the problems the district faces, and should therefore be 
supported in full.
    Included in the budget request is a $14 million allocation to 
construct or improve 7 recreation centers; $6.5 million for child 
services; and $13.5 million for juvenile intervention initiatives. 
These improvements are crucial to the lives of thousands of juveniles 
in the District who are striving to improve their lives, and who 
deserve the opportunity to fulfill their potential. The budget request 
would help fund these programs that would subsequently help address 
problems such as crime and drug use, which continue to plague the 
District of Columbia. Subsequently, this would reduce the burden on 
your constituents whose taxes are being spent on the problems in the 
District.
    As well as the investment in youth, the budget request also 
allocates significant investment in Health and Welfare services. This 
includes an allocation of $9 million to expand healthcare services, 
including dental and primary healthcare services; $8 million to provide 
school nursing services; $14 million to help address the problem of 
homelessness in accordance with the Districts 10 year plan; and to 
begin the construction of Wellness Centers in Wards 4 & 6. Health and 
welfare are key areas we need further investment if we are to be 
successful in decreasing, and eventually eliminating, poverty in the 
District. It is, therefore, imperative that the budget request should 
be met in full in order for the District Health and Welfare Services to 
continue their good work.
    Congress should focus on the District of Columbia's budget in 
respect to resolving the structural imbalance of the budget. 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 same the constitutional rights as all Americans. I would 
go as far as to suggest that it is fundamentally un-American that the 
population of the District of Columbia is not allowed to spend their 
own taxes.
    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 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 sensible and 
attainable. The outlook for the current fiscal year 2006 is projected 
as balanced with a surplus. The District Government itself is 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.
    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 would subsequently give the District 
government the ability 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 aid the District. The District of Columbia has 
submitted a timely budget so Congress has appropriate time to approve 
it.
    In closing, I wish to sincerely thank the subcommittee for holding 
this hearing. I know that this subcommittee has been firmly committed 
to meeting its fiduciary obligations. On behalf of my constituents, I 
thank you for all your hard work and dedication and I look forward to 
working with you in the future. In closing let me thank a member of my 
legislative staff, Marta Mudri, for her assistance in preparing my 
testimony.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Brownback. If there are any additional questions, 
they will be submitted to each of the witnesses for their 
response.
    [The following questions were not asked at the hearing, but 
were submitted to the District for response subsequent to the 
hearing:]

               Questions Submitted to Anthony A. Williams
              Questions Submitted by Senator Sam Brownback

    Question. Your fiscal year 2006 budget includes a total of $1.1 
billion in local funds to educate approximately 80,000 students within 
the District of Columbia Public Schools and public charter schools. 
This funding level is a 10.5 percent increase over the fiscal year 2005 
budget. Why do you continue to increase funding for schools while 
enrollment declines?
    Total enrollment for the D.C. Public Schools (DCPS) and the public 
charter schools has in fact been quite stable. In 1997-1998, total 
enrollment was 77,361 students, comprised of 77,111 DCPS students and 
250 charter school students. In 2004-2005, total enrollment of 78,145 
is slightly above the 1997-98 level, with 62,306 students in the D.C. 
public schools and 15,839 students attending public charter schools.
    The increased funding for schools in fiscal year 2006 reflects a 
number of factors. First, the uniform per-student funding formula 
increased by 3.07 percent this year to reflect inflation, but did not 
cover the automatic pay increases provided to school staff that exceed 
the inflation rate and are needed to keep D.C. schools competitive with 
suburban jurisdictions. (At least three of the five surrounding 
suburban jurisdictions offer higher entry-level salaries for teachers, 
and all five have a higher top salary level). Therefore, the Council 
added $14.9 million to the D.C. Public Schools budget to provide 
schools with enough funding to cover these pay increases and avoid 
layoffs, as well as a corresponding increase of $4.9 million to the 
public charter schools to maintain equitable funding through the 
uniform per-student funding formula.
    Second, Mayor Williams proposed and the Council approved funding of 
$21 million to support the reform initiatives of DCPS' new leadership, 
which are squarely focused on academic achievement. Those include:
  --development of standards for all subject areas and professional 
        development for teachers centered around the new content 
        standards;
  --new textbooks aligned to the content standards;
  --art and music programs for all schools that presently lack such 
        instruction;
  --after-school reading and math programs;
  --expansion of Advanced Placement and International Baccalaureate 
        programs;
  --a ``Summer Bridge'' program for students entering high school with 
        low achievement scores;
  --the creation of a principal leadership academy; and
  --the opening of parent and family resource centers.
    Charter schools also received a corresponding sum of $4.2 million 
to institute programs to improve student achievement.
    Special education is the other major area in which the budget has 
grown. DCPS' fiscal year 2006 budget reflects an increase of $20.7 
million in non-public tuition payments for students receiving special 
education services at non-public institutions (much of which reflects 
higher costs of tuition), as well as $6.8 million in tuition payments 
for special education students in foster care ($3.8 million of which 
reflects a budgetary transfer from the State Education Office rather 
than a net increase). DCPS also received a $2.6 million increase to 
provide educational services at a newly opened intake and assessment 
center for youth in the juvenile justice system.
    Question. I understand that only 50 cents of every operational 
dollar spent by DCPS actually goes to directly educate children. The 
national average is 61 percent. Why is this average so low and how have 
city leaders proposed to change this?
    Answer. The statistics cited above are from state-level data 
published by the National Center for Education Statistics (NCES), which 
defines ``classroom instruction'' as the amount of money spent on 
teachers, aides, textbooks, and classroom supplies. Although DCPS is 
below the national average in this category, it spends more than the 
national average on ``student support'' (legally mandated special 
education services such as assessments, speech therapy, occupational 
therapy, and physical therapy, as well as counselors and social 
workers), as well as ``instructional support'' (librarians, 
instructional technology, standards, curriculum, assessments, and 
teacher training, much of which is funded by federal grants that are 
restricted to certain purposes).
    According to the NCES data, DCPS' spending on classroom 
instruction, student support, and instructional support totals 70 
percent of its budget, which is almost identical to the national 
average of 72 percent and is identical to the 70 percent figure for 20 
urban school systems of similar size. The comparison group includes 
such cities as Oakland, Atlanta, Boston, Baltimore, New Orleans, San 
Antonio, and Milwaukee. Therefore, DCPS' spending on classroom and 
instructional activities seems close to the national average and 
similar to the spending patterns in other mid-sized cities, and its 
spending for central administration appears to be just below the 
national average.
    Reducing special education costs through early intervention and 
increasing the capacity of local schools to serve all children is key 
to ensuring that more of the District's educational dollars flow to 
direct instruction. DCPS' expenditures for special education tuition 
payments at non-public schools and the transportation of special 
education students are particularly high, as are costs for litigation 
related to special education.
    A number of initiatives are underway to control special education 
costs and ensure that children can be properly served by the public 
school system. The Prospect Learning Center, which serves elementary 
and middle school students with learning disabilities, is newly 
renovated and can now serve 120 students in a state-of-the-art 
facility. DCPS has increased its internal capacity to educate students 
with severe disabilities by creating more than 600 new seats for 
autistic children; students who are hearing or vision-impaired; 
children who are mentally retarded, learning disabled, or emotionally 
disabled; and early childhood special education students. More than 75 
percent of those seats have been filled. DCPS' data also shows that 200 
students have returned from private placements to DCPS and that DCPS 
has stabilized the number of students going out to private placements. 
Overall, DCPS reports that it has established more than 400 new special 
education seats in local schools for 2004-2005, bringing the number of 
slots created in the past three years to nearly 1,800, and that 
capacity will increase by another 600 seats in 2005-2006.
    Expanding capacity within the school system and reducing the number 
of private placements will in turn enable DCPS to reduce the large 
costs it incurs to transport special education students to school. 
Presently, the transportation office is run by a court-appointed 
administrator. The cost of operating 600 bus routes to serve 4,000 
children is approaching an annual rate of $75 million per year, and 
must be reduced. One important step to reduce transportation costs is 
under consideration by the Board of Education: purchasing buses to 
reduce the cost of operating a fleet presently comprised of leased 
buses. The District's Chief Financial Officer has projected the savings 
at $5.6 million in fiscal year 2006 and $24.1 million between fiscal 
year 2006 and fiscal year 2010.
    The Mayor, Council, and Chief Financial Officer have also 
implemented a system of performance-based budgeting that shows the 
funding provided to particular programs or activities, rather than 
budgeting only by ``object classes'' (such as personnel, fringe 
benefits, and supplies) or organizational units. The fiscal year 2006 
budget is the first that DCPS has prepared in the performance-based 
format. The performance-based budget gives policymakers increased 
ability to track where resources are going and will support the efforts 
of the Mayor, Council, and Board of Education to maximize the funding 
allocated to classroom instruction.
    For example, the performance-based budget presents the budgets for 
all of the central administrative or management functions (personnel, 
procurement, information technology, financial support, policy 
development, oversight, etc.), showing that central administrative 
functions will cost $36.1 million in local funds in fiscal year 2006. 
This amounts to just over 4 percent of DCPS' local funds budget. 
Policymakers will now be able to budget explicitly for central 
administrative and other functions to make sure that administrative 
costs are controlled and that classroom spending is maximized.
    The strong commitment of the Mayor and Council to focus resources 
on academic achievement and classroom instruction was reflected in the 
fiscal year 2006 budget cycle. As described in the answer to question 
#1, Mayor Williams proposed $25.2 million in additional funding to 
support academic improvement initiatives at DCPS and the public charter 
schools. The Council approved the additional funding proposed by the 
Mayor, and also added $19.8 million to the uniform per-student funding 
formula that finances school-based instruction.
    Question. Do you believe that Dr. Gandhi--your CFO--has sufficient 
control over the D.C. Public Schools' expenditures? School spending 
seems to increase every year with no improvement in student 
performance.
    Answer. As provided by the Financial Responsibility and Management 
Assistance Authority (FRMAA) Act of 1995 (Public Law 104-8), the Chief 
Financial Officer (CFO) has sufficient authority and control over DCPS 
expenditures. The broad authority provided by FRMAA includes:
  --implementing appropriate procedures and instituting such programs, 
        systems, and personnel policies to ensure effective budget, 
        accounting, and personnel control systems are in place;
  --supervising and assuming responsibility for financial transactions 
        to ensure adequate control of revenues and resources, and that 
        appropriations are not exceeded;
  --ensuring reliable accounting results to serve as the basis for 
        preparing agency budget requests and controlling the execution 
        of the budget;
  --maintaining custody of all public funds belonging to or under the 
        control of the District government;
  --apportioning all appropriations and funds made available during the 
        year for obligation in order to prevent obligations or 
        expenditures that would result in a deficiency;
  --certifying all contracts prior to execution as to the availability 
        of funds;
  --certifying and approving prior to payment all bills, invoices, 
        payrolls, and other claims, demands, or charges; and
  --preparing monthly financial reports on DCPS' revenue and 
        expenditures.
    The Office of the Chief Financial Officer (OCFO) has effectively 
used this authority to monitor and control spending, identifying 
potential over-spending and developing and recommending gap-closing 
plans for approval by the Board of Education and the superintendent of 
schools. The DCPS CFO has also played an important role in monitoring 
the implementation and expenditure of federal grants, reducing the 
total of lapsed grants from $687,000 in fiscal year 2003 to $165,000 in 
fiscal year 2004.
    For fiscal year 2006, the DCPS CFO will receive additional budget 
authority of $300,000 and three full-time positions to create a special 
education financial accountability unit within his office. This unit 
will work with DCPS' Office of Special Education to implement rate-
setting agreements with special education providers, to document 
information about the placement of children and the duration of these 
placements, and to monitor and control costs.
                                 ______
                                 
               Question Submitted by Senator Mike DeWine

                 BIOTERRORISM AND FORENSICS LABORATORY

    Question. In the fiscal year 2005 appropriations bill, we included 
$8 million for the architectural design and planning costs associated 
with the construction of a new bioterrorism and forensics laboratory in 
the District of Columbia. I am pleased that the President's budget 
request for fiscal year 2006 built on that appropriation and included 
$7 million for the laboratory.
    How are you using the $8 million we provided in fiscal year 2005? 
Please give me an outline of your timeline for completion of the 
construction of the lab, and I would also like you to discuss the 
operational costs for the lab once it is up and running.
    Answer. In fiscal year 2005, the subcommittee provided $8 million 
in funding for design, planning and procurement costs associated with 
the construction of a new consolidated laboratory facility. We will 
have obligated the entire amount by the end of the fiscal year. We have 
been working on programming the services and facility needs for and 
have spent $1 to $2 million to date. We plan to spend the balance to 
conduct the procurement for design services this summer. Starting in 
fiscal year 2006, we will begin the bidding and early construction 
phases of the project and we plan to complete the project by fiscal 
year 2009. We have reviewed more than a dozen sites for the lab and 
have narrowed our choices to two. We expect to make a final decision 
this summer.
    The District plans to incorporate public health, forensics, medical 
examiner, and bio-agent analysis capacity. We will also consider 
options for adding additional local functions to the facility, which 
may result in additional project costs up to as much as $250 million. 
Once the facility is completed, we plan to fund the operational costs 
for the lab with local resources. The District is currently expending 
approximately $21.5 million on the functions to be relocated to the lab 
(excluding detective costs) and once the lab is up and running, costs 
are certain to increase as we have the capacity to provide services 
that were previously beyond our capacity. These costs may rise to as 
much as twice our current expenditures and we plan to fund these at the 
local level.
                                 ______
                                 
                 Questions Submitted to Linda W. Cropp
              Questions Submitted by Senator Sam Brownback

    Question. Nationally, 34 percent of babies are born to single 
mothers. In the District, 57 percent of babies are born to single 
mothers. Research shows that 80 percent of long term child poverty 
occurs in broken or never-married families. The beneficial effects of 
marriage on individuals and society are beyond reasonable dispute. What 
is the District doing to promote healthy marriage and reduce out-of-
wedlock births?
    Answer. The District of Columbia provides a comprehensive network 
of services available to families.
    Within the Department of Human Services, the District initiated the 
Strong Families Program (SFP) in October 2002 to provide comprehensive 
case management services and family preservation support services to 
vulnerable families in the District that present multiple, complex 
challenges which place them at high risk for family separation and/or 
disintegration. This program was created to serve as a ``safety net'' 
for TANF dependent/eligible families experiencing acute social, 
emotional or familial distress. The program is structured to provide 
prevention and early intervention services to families who would 
otherwise become known to the District's child welfare, juvenile 
justice, homeless, mental health or criminal justice systems.
    Since its inception, the Strong Families Program has achieved the 
following outcomes:
  --Served 547 families in fiscal year 2005, and 434 families in fiscal 
        year 2004.
  --Established satellite case management program offices at 13 
        underperforming schools in the District.
  --Provided on-site, in home case management and family support 
        services to two (2) public housing sites.
  --Formed partnerships with faith-based institutions and the District 
        of Columbia Public Schools (DCPS) to open Family Resource 
        Centers at select schools.
  --Sponsored the District's first weekend Family Retreat to promote 
        positive family interactions, communications, parent respite 
        services and family development activities, for families served 
        by the program.
  --Sponsored a range of school-based, family development activities 
        such as mother/daughter luncheons and teas, father/son 
        barbecues and family fun days, in partnership with DCPS. These 
        events are specifically designed to foster parent/child bonding 
        experiences, social skill development and parent to parent 
        socialization.
    Within the Child and Family Services Agency, the District has 
leveraged federal funding to jumpstart the Family Team Meetings (FTM) 
program. This initiative is a strengths-based early intervention family 
engagement model that brings families, community members, and child 
welfare professionals together to discuss the safety concerns and the 
needs of the child and his family. Occurring at the critical moment of 
concern, the FTM process increases the opportunity for family 
participation, identifies supports and resources in the extended family 
and community, speeds the process for permanency, and ensures that 
social workers base decisions on the best information available. Family 
team meetings are being held for all children at-risk of removal and 
for placement changes for children in foster care.
    Since its inception on September 15, 2004, the Family Team Meeting 
initiative has the following outcomes: 171 FTMs have been held; 326 
children have been served; the average number of participants per FTM 
is 11; and total number of family member participants is 732.
    We expect that our focus on reunification through FTMs will result 
in children returning home sooner. In addition, we are just beginning 
to using FTMs for placement changes involving children, so families can 
participate in placement changes and perhaps serve as resources for 
children.
    Question. You have requested a 30 percent increase in the Resident 
Tuition Grant Program. Last year, the Congress provided an increase of 
almost 50 percent over the fiscal year 2004 level. I understand that 
enrollment continues to increase for this popular program. Do you 
believe that this rate of increase will continue?
    Answer. Cost increases for the Tuition Assistance Grant Program 
over the last two years have been driven a rise in program 
participation, nationwide increases in tuition costs, the phase-in of 
the program to a full five cohorts, and our efforts to expand 
eligibility. The District has also required rapidly rising 
appropriations over the last two years because we no longer have a 
balance of funding from prior years to help offset our rising costs.
    Costs in the future will continue to rise, but will slow 
considerably from the growth rates of recent years. We are no longer in 
the program's phase-in stage and growth in tuition nationwide may slow 
as states' budget crises ameliorate. Over the next several years, we 
expect program costs to be driven by tuition cost increases and 
moderately growing program participation, albeit at dramatically lower 
levels than in recent years. (One area where we may see additional 
program growth is within the District's Latino community).
    Although we expect growth to slow, we still expect costs to rise 
steadily over time at a rate that may be difficult for the federal 
government to fund, given limitations on resources. Therefore, the 
District is pursuing authorization for selected cost containment 
measures that will allow us to take administrative measures to contain 
the future growth of program costs.
    Question. As I noted in my opening statement, the city is creating 
jobs at a rate that is twice the national average, but only one-third 
of the jobs that the District is creating are going to city residents. 
Why is this and what is the District doing to change this?
    Answer. During the last six years, we have added more than 60,000 
jobs in the District, yet we still face employment challenges. Last 
year, the unemployment rate in the District increased from 7.2 percent 
to 8.2 percent. And broad citywide figures mask the reality that in 
many communities unemployment is concentrated at much higher levels.
    The District's budget this year included a package of legislative 
proposals and funding initiatives to combat these disparities. These 
initiatives aimed to lower the unemployment rate across the District, 
but especially in communities east of the river, and ensure that 
residents benefit from the city's significant increase in number of 
jobs.
    These proposals will help the District's hard to employ residents 
overcome their barriers to unemployment, successfully compete in 
today's labor market, and achieve economic self-sufficiency by 
dedicating substantial resources to job preparedness, life skills, 
leadership, and pre-apprenticeship training for adults and youth. In 
order to complement these efforts, the District is also working to 
secure cooperation and participation of private sector employers in 
helping employ District residents to the fullest extent possible. These 
proposals include the following:
  --Invests an additional $6.4 million to train and provides summer 
        employment for 10,000 District youth between ages of 14 to 21.
  --Invests $4.9 million in the Youth Leadership Institute and year-
        round education and training for 465 hard-to-reach youth 
        between ages of 16 to 24.
  --Invests $8.9 million in transitional employment and pre-
        apprenticeship training assistance for 800 chronically 
        unemployed residents.
  --Invests $150,000 to increase enforcement and monitoring of current 
        First Source hiring requirements and provide the Mayor 
        additional authority to increase First Source requirements in 
        certain industries.
    In addition to these funding proposals, the District is also 
considering legislation at the local level that will accomplish the 
following:
  --Creates a job opportunity bank, funded by District businesses 
        remitting one-half of one percent of the economic assistance 
        received from the District, to provide job training grants and 
        assistance to low-income District residents.
  --Requires District-assisted employers to pay a living wage of $10.50 
        per hour or $9.25 per hour if health insurance benefits are 
        offered to employees.
    Question. You are requesting $5 million to provide incentives to 
developers and organizations to construct housing specifically for the 
ex-felon community. Could you elaborate on this proposal? How will it 
be implemented? How many ex-offenders are returning to the District 
every year? What is the recidivism rate in the District?
    Answer. The District is proposing federal funding for a new 
initiative that would provide incentives to encourage developers and 
non-profit organizations to rehabilitate or construct new housing for 
reentrants in order to increase the pool of available housing for those 
exiting the criminal justice system. We have identified access to 
housing as one of the most important risks to recidivism for 
individuals making the transition from prisons back into society. We 
expect as many as 2,500 offenders to return to the District on an 
annual basis in the years ahead, making efforts to combat recidivism as 
important as ever.
    Recidivism rates in the District are calculated by CSOSA. In fiscal 
year 2004, the parole rearrest rate was approximately 13 percent; for 
probationers, approximately 20 percent. Approximately 6 percent of the 
total supervised population was convicted of a new offense in fiscal 
year 2004, and approximately 2 percent were incarcerated as a result of 
that conviction. In fiscal year 2004, approximately 11 percent of the 
supervised population was revoked for violations of release conditions 
(including arrest). The majority of revocations result in 
reincarceration; approximately 10 percent of the supervised population 
were incarcerated as a result of revocation.
    Our ex-felon housing program will be integrated with the District's 
ten-year plan to combat homelessness and individuals occupying this 
housing will have access to the full range of social services provided 
by the District of Columbia to at-risk populations, including job 
training, substance abuse and mental health counseling. Integrating 
housing solutions with social services is critical because almost 70 
percent of returning offenders have a history of substance abuse and 
face job placement barriers along with educational challenges.
    We will administer the initiative within the Department of Housing 
and Community Development (DHCD), which has the infrastructure in place 
to monitor housing construction incentives as part of the Housing 
Production Trust Fund. DHCD will issue a special Notice of Funding 
Availability (NOFA) to solicit developers of these housing units. The 
NOFA will include restrictions on developers using the funds: 
developers must derive reentrant tenants from designated non-profit 
support service agency; units must be dedicated to reentrants for a 
period of at least five years; and operating funds for the first six 
months of tenancy are eligible project expenses. This will allow us to 
providing targeted funding that encourages the development of cost-
effective housing options for our ex-felons.
    We will coordinate services for individuals residing in this 
housing through the D.C. Re-entry Initiative. Services provided by the 
initiative will include employment services and job-readiness training 
are provided in partnership with the Department of Employment Services; 
Unity Health Care provides health care delivery and is about to open a 
new clinic for this purpose; UDC provides a GED program, as well as 
college courses. Supportive services will also be provided by the 
Department of Mental Health when needed.
                                 ______
                                 
                Questions Submitted to Natwar M. Gandhi
              Questions Submitted by Senator Sam Brownback

    Question. According to GAO, the District of Columbia Public Schools 
have had significant management problems. What are the critical 
problems that have led to DCPS' inability to even account for the 
number of employees on its payroll?
    Answer. Prior to fiscal year 2004, the DCPS Office of Human 
Resources (OHR) managed the employee roster (Schedule A) for the 
agency. Recognizing that the OHR lacked the capacity and systems to 
accurately manage this function, the new DCPS CFO assumed this 
responsibility in order to accomplish accurate budgeting and achieving 
a balanced budget. Even with the lack of an automated and integrated 
Human Resources and Payroll system, the OCFO manually maintains the 
Schedule A and has brought it to the point where the document is 
current and portrays the correct number of employees, their salaries, 
and their location in the agency. This document is critical in tracking 
current and historic vacancies. A Human Resources and Payroll 
management system is critical to sound management practices. The 
current system is responsible for employees not being paid accurately 
or receiving their salary increases or step movement on time. The DCPS 
OCFO has invested significant resources into cleaning up this problem. 
To date, all DCPS employees are receiving their correct salaries. The 
DCPS OCFO maintains this manual process, but it is critical that the 
system move forward with a more automated and integrated system.
    Question. Why don't the D.C. Public Schools use the same 
administrative and personnel management system as the rest of the 
District government?
    Answer. Several years ago, the DCPS began to develop and implement 
an administrative personnel management system independent from the 
District's systems. However, these systems did not develop to the 
operational stage. The School Board and Superintendent partnered with 
the District's Office of the Chief Technology Officer to move DCPS into 
the District's personnel and procurement management systems. In 
addition to partnering on these systems, the DCPS is also participating 
in the District's budget system with other city agencies. In addition, 
the DCPS will begin participating in the District's human resource and 
payroll systems.
    Question. As CFO, what authority do you have to control escalating 
costs within the D.C. Public School System? What recommendations would 
you make to help DCPS get its financial house in order?
    Answer. With respect to the annual budget for the Board of 
Education in the District of Columbia, the Home Rule Act allows the 
District to establish the maximum amount of funds which will be 
allocated to the Board, but does not allow the District to specify the 
purposes for which such funds may be expended or the amount of such 
funds which may be expended for the various programs under the 
jurisdiction of the Board of Education. The primary control that the 
CFO has with respect to the DCPS budget is to ensure that DCPS does not 
overspend its annual appropriation. While the CFO has the authority to 
require DCPS to curtail spending in the event a potential deficit is 
identified, the specific strategies to implement this requirement falls 
under the purview of the Superintendent and the Board. Over the past 
several fiscal years, the OCFO has worked with the Superintendent and 
the Board to identify potential overspending of the DCPS total budget 
and develop viable and realistic strategies to curtail spending in a 
manner that does not severely impact the main mission of the DCPS, 
which is to educate the District's children. The success of this close 
collaboration is evident in the fact that the DCPS has managed to close 
its last two budgets in balance. For fiscal year 2005, it appears that 
the DCPS budget will once again close in balance.
    With regard to recommendations on strengthening the financial 
position of the DCPS, the most important recommendation is to continue 
the strong collaboration between the Superintendent, the School Board 
and the OCFO in supporting the mission of the Superintendent and DCPS 
strategic plans. It is my opinion that vital, stable and collaborative 
DCPS leadership is the critical element in ensuring DCPS will continue 
to manage its resources in a wise and prudent manner. The OCFO will 
continue to support the DCPS leadership in this regard.
    Question. What, if any, additional authority do you need as CFO to 
focus on and correct the fiscal management problems facing the 
District?
    Answer. The OCFO is required to estimate revenues far in advance of 
the fiscal year in order for the District to participate in the 
congressional budget cycle. Granting the District budget autonomy would 
allow the District to build a budget closer to the start of a fiscal 
year and would allow the OCFO to provide more appropriately timed and 
therefore more informed revenue estimates.
    Question. One criticism of the GAO report on structural imbalance 
is that the District has significant Medicaid billing and claims 
management problems. How are you working to address this problem?
    Answer. In 1999, recognizing that there were significant issues 
with Medicaid billing and claims management, the District hired an 
outside contractor to work with two of the public provider agencies, 
the D.C. Public Schools (DCPS) and the Child and Family Services Agency 
(CFSA), to increase Medicaid revenue for services provided by these 
agencies. Concurrently, key issues relating to Medicaid billing and 
claims management were identified, specifically:
  --Maintaining appropriate documentation supporting Medicaid billing,
  --Developing a clear comprehensive strategy to optimize Medicaid 
        revenues among the public provider agencies; and,
  --Establishing standard business practices leading to the 
        identification of appropriate Medicaid-eligible programs and 
        services.
    Since that time, improvements have been realized in the Medicaid 
billing and accountability system within the public provider agencies. 
Although the OCFO is not directly involved in the development or 
modification of agency programs, the OCFO has been working with the 
District's Office of Medicaid Operations Reform to address the key 
issues noted above and establish a system of ongoing and routine 
reports that will demonstrate improvements in the process for 
calculating the Medicaid revenue each fiscal year and monitor Medicaid 
revenues and expenditures.
    Question. I understand that the District has made great strides to 
get its financial house in order, but what are the remaining 
problematic areas in the D.C. government in terms of financial 
mismanagement? How are you addressing those areas?
    Answer. The 2004 Annual Audit noted that there are no material 
weaknesses to report (compared to three in fiscal year 2001 and two in 
each of fiscal year 2002 and fiscal year 2003) and there were two 
reportable conditions to be addressed (the same number as fiscal year 
2003 but down from six in fiscal year 2001 and three in fiscal year 
2002). Specifically, the areas to be addressed are (1) Management of 
Disability Compensation Program and (2) Unemployment Compensation 
Claimant File Management. A copy of the Management Letter and its 
appendix are being submitted for the record. These documents provide a 
robust explanation of the issues to be addressed as well as the OCFO's 
response to these issues. As the documents will detail, both issues are 
being appropriately addressed.
government of the district of columbia, office of the inspector general 
                           management letter
                                                     April 8, 2005.
The Honorable Anthony A. Williams,
Mayor, District of Columbia, John A. Wilson Building, Suite 600, 1350 
        Pennsylvania Avenue, N.W., Washington, D.C. 20004.
The Honorable Linda W. Cropp,
Chairman, Council of the District of Columbia, John A. Wilson Building, 
        Suite 504, 1350 Pennsylvania Avenue, N.W., Washington, D.C. 
        20004.
    Dear Mayor Williams and Chairman Cropp: In connection with the 
audit of the District of Columbia's general purpose financial 
statements for fiscal year 2004, KPMG LLP submitted the enclosed final 
Management Letter. We are pleased to report, as noted by KPMG LLP, that 
over the last 5 fiscal years there has been a marked improvement in the 
management of the District's financial affairs. This Management Letter 
details certain matters involving internal control and other 
operational matters that require continued management attention which 
is presented as follows:
  --Appendix A--Reportable Conditions in Internal Control Over 
        Financial Reporting; and
  --Appendix B--Other Observations and Recommendations on Internal 
        Control and Financial Operations.
    KPMG set forth recommendations for correcting reportable conditions 
and other deficiencies. While the Office of the Inspector General will 
continue to assess the District agencies' implementation of 
recommendations, it is the responsibility of District government 
management to ensure that agencies correct the deficiencies noted in 
audit reports. This Office will work with managers, as appropriate, to 
help them monitor the implementation of recommendations.
    If you have questions or need additional information, please 
contact William J. DiVello, Assistant Inspector General for Audits, or 
me at (202) 727-2540.
            Sincerely,
                                        Austin A. Andersen,
                                         Interim Inspector General.

Enclosure: See Distribution List

DISTRIBUTION:

    Mr. Robert C. Bobb, Deputy Mayor/City Administrator, District of 
Columbia (1 copy)
    Ms. Alfreda Davis, Chief of Staff, Office of the Mayor (1 copy)
    Mr. Gregory M. McCarthy, Deputy Chief of Staff, Policy and 
Legislative Affairs (1 copy)
    Mr. Vincent Morris, Director, Office of Communications (1 copy)
    The Honorable Vincent B. Orange, Sr., Chairman, Committee on 
Government Operations, Council of the District of Columbia (1 copy)
    Mr. Herbert R. Tillery, Deputy Mayor for Operations (1 copy)
    Mr. Stanley Jackson, Deputy Mayor for Planning and Economic 
Development (1 copy)
    Mr. Neil O. Albert, Deputy Mayor for Children, Youth, Families, and 
Elders (1 copy)
    Mr. Edward D. Reiskin, Deputy Mayor for Public Safety and Justice 
(1 copy)
    Ms. Phyllis Jones, Secretary to the Council (13 copies)
    Mr. Robert J. Spagnoletti, Attorney General for the District of 
Columbia (1 copy)
    Dr. Natwar M. Gandhi, Chief Financial Officer (5 copies)
    Mr. Ben Lorigo, Executive Director, Office of Integrity and 
Oversight, OCFO (1 copy)
    Ms. Deborah K. Nichols, D.C. Auditor (1 copy)
    Ms. Kelly Valentine, Interim Chief Risk Officer, Office of Risk 
Management, Attention: Rosenia D. Bailey (1 copy)
    Mr. Jeffrey C. Steinhoff, Managing Director, FMA, GAO (1 copy)
    Ms. Jeanette M. Franzel, Director, FMA, GAO (1 copy)
    The Honorable Eleanor Holmes Norton, D.C. Delegate, House of 
Representatives Attention: Rosaland Parker (1 copy)
    The Honorable Tom Davis, Chairman, House Committee on Government 
Reform Attention: Melissa C. Wojciak (1 copy)
    Ms. Shalley Kim, Legislative Assistant, House Committee on 
Government Reform (1 copy)
    The Honorable Rodney Frelinghuysen, Chairman, House Subcommittee on 
D.C. Appropriations (1 copy)
    Mr. Joel Kaplan, Clerk, House Subcommittee on D.C. Appropriations 
(1 copy)
    Mr. Tom Forhan, Staff Assistant, House Committee on Appropriations 
(1 copy)
    The Honorable George Voinovich, Chairman, Senate Subcommittee on 
Oversight of Government Management, the Federal Workforce, and the 
District of Columbia (1 copy)
    Mr. David Cole, Professional Staff Member, Senate Subcommittee on 
Oversight of Government Management, the Federal Workforce, and the 
District of Columbia (1 copy)
    The Honorable Richard Durbin, Senate Subcommittee on Oversight of 
Government Management, the Federal Workforce, and the District of 
Columbia (1 copy)
    Ms. Marianne Upton, Staff Director/Chief Counsel, Senate 
Subcommittee on Oversight of Government Management, the Federal 
Workforce, and the District of Columbia (1 copy)
    The Honorable Sam Brownback, Chairman, Senate Subcommittee on D.C. 
Appropriations (1 copy)
    Ms. Mary Dietrich, Appropriations Director, Senator Sam Brownback 
(1 copy)
    The Honorable Mary Landrieu, Senate Subcommittee on D.C. 
Appropriations (1 copy)
    Ms. Kate Eltrich, Clerk, Senate Subcommittee on D.C. Appropriations 
(1 copy)
    The Honorable Susan M. Collins, Chair, Senate Committee on 
Governmental Affairs Attention: Johanna Hardy (1 copy)
    The Honorable Joseph Lieberman, Ranking Minority Member, Senate 
Committee on Governmental Affairs, Attention: Patrick J. Hart (1 copy)
                                 ______
                                 
                                                  KPMG LIP,
                              Washington, DC 20036, March 24, 2005.
government of the district of columbia letter to management on internal 
                      control--september 30, 2004
To the Mayor and Council of the Government of the District of Columbia 
        Inspector General of the Government of the District of Columbia
    Ladies and Gentlemen: We have audited the basic financial 
statements of the Government of the District of Columbia (District), 
for the year ended September 30, 2004, and have issued our report 
thereon dated January 24, 2005. In planning and performing our audit of 
the basic financial statements of the District, we considered internal 
control in order to determine our auditing procedures for the purpose 
of expressing our opinion on the basic financial statements. An audit 
does not include examining the effectiveness of internal control and 
does not provide assurance on internal control. We have not considered 
internal control since the date of our report.
    During our audit we noted certain matters involving internal 
control and other operational matters that are presented in the 
appendices for your consideration. These comments and recommendations, 
all of which have been discussed with the appropriate members of 
management, are intended to improve internal control or result in other 
operating efficiencies.
    Our audit procedures are designed primarily to enable us to form an 
opinion on the basic financial statements, and therefore may not bring 
to light all weaknesses in policies or procedures that may exist. We 
aim, however, to use our knowledge of the District's organization 
gained during our audit work to make comments and suggestions that we 
hope will be useful to you. We would be pleased to discuss these 
comments and recommendations with you at any time.
    This report is intended solely for the information and use of the 
Mayor and Council of the District, the Inspector General of the 
District, District management, and others within the District 
government and is not intended to be and should not be used by anyone 
other than these specified parties.
    Very truly yours,
                                                          KPMG LLP.
Executive Summary
    Over the last five fiscal years, as the District's independent 
auditors, we have witnesses marked improvement in the management of the 
District's financial affairs. Important milestones that the District is 
understandably proud to report to the Council and its citizenry are:
  --Removal of Control Board oversight;
  --Eight consecutive years of unqualified opinions on the District's 
        basic financial statements included in its Comprehensive Annual 
        Financial Report (CAFR);
  --Return of operations that had been placed in receivership by the 
        District courts;
  --Successful implementation of Governmental Accounting Standards 
        Board's Statement No. 34, the most far reaching change in 
        governmental accounting and financial reporting to date;
  --Implementation of a District-wide financial and compliance audit of 
        its federal awards programs;
  --Continuous improvement in General Obligation bond ratings from BBB 
        to A;
  --Continuous acknowledgement of excellence in financial reporting 
        from the Government Finance Officer's Association (for its 
        CAFR, Budget Document, and most recently for its Popular Annual 
        Financial Report); and
  --Continuous improvement in internal control, evidenced by the 
        reduction in the number of reported material weaknesses three 
        and reportable conditions six in fiscal year 2000, to zero and 
        two, respectively in fiscal year 2004.

Address Reportable Conditions
    As noted above, the District has taken corrective actions to 
address and eliminate a number of reportable conditions in internal 
control, some of which were material weaknesses. The next step in 
continuing to improve the District's financial reporting infrastructure 
is to address the remaining reportable conditions highlighted in our 
Report on Compliance and on Internal Control over Financial Reporting 
Based on an Audit of Financial Statements Performed in Accordance with 
Government Auditing Standards (Yellow Book Report), and to implement a 
process to continuously monitor compliance with established internal 
control policies and procedures.
    Reportable conditions relate to significant deficiencies in the 
design or operation of internal control over financial reporting that 
could adversely affect the District's ability to record, process, 
summarize, and report financial data consistent with the assertions of 
management. These reportable conditions, while not as serious as 
material weaknesses, warrant District management attention. Matters 
currently classified as reportable conditions that are not considered 
to be material weaknesses are as follows: Management of Disability 
Compensation Program; and Unemployment Compensation Claimant File 
Management.
    These current year reportable conditions and our recommendations 
are repeated in Appendix A. Our management letter comments, presented 
in Appendix B, highlight other internal control and financial 
management observations made during our audit, and what actions we 
believe the District should take to ensure its financial management 
infrastructure continues to improve. Management responses to our 
observations and recommendations are included in Appendices A and B. We 
have carefully considered those responses where management indicates 
that it disagrees with either our observations or recommendations. We 
continue to believe our comments are valid and that implementation of 
our recommendations will result in stronger internal controls or 
operational and financial management improvements.
New Accounting Pronouncements
    Although there are no significant new accounting pronouncements 
that will need to be implemented during fiscal year 2005, there were 
two significant accounting pronouncements issued during fiscal year 
2004 as Governmental Accounting Standards Board (GASB) Statements that 
will significantly impact the District's future government-wide 
financial position.
    GASB Statement No. 43, Financial Reporting for Postemployment 
Benefit Plans Other Than Pension Plans, an amendment to GASB Statement 
No. 34, and GASB Statement No. 45, Accounting and Financial Reporting 
by Employers for Postemployment Benefits Other Than Pensions addresses 
accounting and financial reporting of post-employment benefits other 
than pension benefits (OPEB) by employers and plans or other entities 
that administer them. The principal impact of this Statement on the 
District relates to post-employment healthcare benefits that the 
District currently reports on a pay-as-you-go basis. GASB Statement No. 
45 will require the District to accrue for post-employment benefits to 
be provided to employees and retirees, thus adding a significant 
liability not currently recorded in the District's government-wide 
financial statements.

 APPENDIX A.--REPORTABLE CONDITIONS IN INTERNAL CONTROL OVER FINANCIAL 
                               REPORTING

I. Management of Disability Compensation Program
    The District, through the Office of Risk Management (ORM), 
administers a disability compensation program under Title XXIII of the 
District of Columbia Comprehensive Merit Personnel Act of 1978. The 
most recent actuarial loss reserve analysis was performed in fiscal 
year 2002. For fiscal years 2003 and 2004, ORM has performed roll-
forward procedures, using underlying assumptions included in the last 
actuarial report, in order to estimate the District's disability 
compensation liability at each year-end. We recommended that an 
actuarial analysis be performed for fiscal year 2004, however this 
recommendation was not implemented. We believe that the use of data 
that is more than one year old as a basis for these roll-forwards could 
lead to significant differences between the estimated liability and 
actual results for individual cases when complete data is available. 
Further, the accuracy of the underlying data used in the District's 
analysis has always been difficult to assess due to weaknesses in the 
maintenance of supporting claims files.
    The ORM does not perform a timely review of past claims to 
determine whether the established reserves remain sufficient. In 
addition, we determined through claims test work that certain reserves 
were not removed timely from the tracking system, once a claim is 
determined to be closed. These conditions increase the risk that the 
underlying data, which is utilized for the District's roll-forward 
procedures, may be over- or understated. Additionally, seven out of 81 
disability claim case files selected for test work could not be located 
for our review, and many of those that were provided for our review 
required extraordinary effort on the part of ORM personnel to locate. 
This is a similar result as noted in prior years.
    We again recommend that ORM contract for an actuarial loss reserve 
analysis to be performed during fiscal year 2005, and each year 
thereafter. Additionally, we recommend that ORM:
  --Review all active claim files on a periodic basis to determine if 
        the recorded reserve is sufficient or if the reserve needs to 
        be increased or decreased. The review of all active claim files 
        is imperative before each actuarial analysis is performed, 
        since an actuary would be utilizing such information in their 
        analysis.
  --Develop an effective managerial system to file and maintain both 
        open and closed case files.
            Management Response
    ORM has requested monies for an actuarial report in its current 
budget. It is expected that the actuarial report will take place within 
the next fiscal year.
    All Disability Compensation Program (DCP) files, both active and 
archived, were housed by the Third Party Administrator (TPA), CLW/CDM, 
Inc. in fiscal year 2004. CLW/CDM was responsible for maintaining all 
supporting documentation in each claim file. ORM acquired these files 
at the conclusion of the contract between the city and CLW/CDM in 
November 2004. The contract expired pursuant to court order on Friday, 
October 29, 2004. The archived files were subsequently moved and placed 
in storage at the District of Columbia General Hospital (DCGH). The 
active files were moved to 441 4th Street, NW, Suite 800 South. It is 
assumed that all files were turned over to ORM; however, at this time, 
it is difficult to verify this assumption. In addition, a number of 
active claim files were erroneously placed in storage when they should 
have been forwarded directly to ORM.
    The Claims Supervisor of CLW/CDM, Inc. was charged with performing 
timely reviews of the adjusters' decisions establishing reserves. ORM 
was responsible for conducting periodic reviews of randomly selected 
claim files to determine if appropriate reserves had been established 
and/or removed. The previous database system did not allow ORM access 
to all of the data maintained by CLW/CDM with regard to this aspect of 
the claims. With the movement of the Third Party Administrator in-
house, and obtaining its own Riskmaster database, ORM now has the 
ability to easily determine whether established reserves are 
sufficient.
    ORM has entered into a contract for services, which entails 
capturing basic information on all claim files currently in storage 
into an Excel spreadsheet. This electronic database will allow ORM to 
effectively manage its closed case files. The new Riskmaster system, 
which went into operation in November 2004, will allow ORM to 
effectively manage all open claims files, and those, which are 
subsequently closed.
    ORM expects to hire additional staff to provide more hands on file/
reserve reviews and to conduct periodic audits.

II. Unemployment Compensation Claimant File Management
    The District's Department of Employment Services (DOES) is 
responsible for the administration of the Unemployment Compensation 
Program. In fiscal year 2004, the District made approximately $114 
million in unemployment benefit payments to unemployed former employees 
of private employers in the District and of the District and federal 
governments.
    While testing internal controls over benefit payments, we observed 
that DOES was unable to locate 8 out of 30 claimant files supporting 
these payments. Federal regulations require that DOES maintain 
documentation supporting all payments of unemployment claims. We noted 
that DOES has established policies and procedures requiring such 
documentation be maintained. However, DOES has not created a system of 
tracking the location of all claimant files and requiring such files to 
be checked in and out by DOES personnel using the files. We recommend 
that DOES create a database tracking the location of all claimant files 
and require that this database be updated each time a file is moved to 
a new location.

            Management Response
    Management concurs with the finding. If funding is available, DOES 
will implement an imaging and retrieval system for Unemployment 
Insurance documents. A pilot project is to commence within the next 
three months for imaging and indexing quarterly contribution reports. 
The imaging will be done by the contractor who currently enters data 
from these reports.

    Question. In his fiscal year 2006 budget request, the President 
recommended that the Federal Government consider transferring ownership 
of some of its property in the City to the District. Have you estimated 
what kinds of revenues would accrue to the city if these transfers 
occurred?
    Answer. The President has not yet released a specific plan for 
transferring ownership. Absent a plan that details the property and the 
method and conditions for the transfer of such land, the OCFO cannot at 
this time estimate revenues.
                                 ______
                                 
              Questions Submitted to Dr. Clifford B. Janey
              Questions Submitted by Senator Sam Brownback

    Question. What has been the historic rate of growth in the Special 
Education budget for the D.C. Public Schools?
    Answer. Special education spending (which includes funds allocated 
to local schools for special education, special education central 
office functions, related service providers, nonpublic tuition, 
transportation, attorney fees and special education hearings and 
appeals) across all funds has increase by 33 percent between fiscal 
year 2000 and projected spending for fiscal year 2005. The compounded 
annual growth rate (CAGR) between fiscal year 2000 and fiscal year 2005 
is 4.88 percent and the average growth across the six fiscal years is 6 
percent.
    Question. I understand that about 20 percent of the children in the 
District have been identified as ``Special Education.'' How does this 
compare to other cities? How does this compare to previous years?
    Answer. Using enrollment figures from the October 2004 audit, 
special education enrollment in DCPS was 18 percent; when the total 
D.C. public enrollment (charter and DCPS) is used, the percentage of 
students in special education drops to 16 percent. Special education 
enrollment has remained relatively static during the last five years, 
however, as DPCS enrollment decreases, the percentage that are special 
education increases.
    Question. Are you concerned that students are being inappropriately 
identified as ``Special Education?''
    Answer. In a comparative analysis of DCPS' Special Education 
enrollment to other urban districts, we have found that DCPS has 
similar levels of special education enrollment:

----------------------------------------------------------------------------------------------------------------
                                                                      Special                         Percent
                            District                                 Education         Total          Special
                                                                    Enrollment      Enrollment       Education
----------------------------------------------------------------------------------------------------------------
Baltimore City..................................................          14,012         108,015              13
Boston..........................................................          11,433          58,310              20
Milwaukee.......................................................          16,518         101,000              16
Oakland, CA.....................................................           5,279          49,214              11
----------------------------------------------------------------------------------------------------------------

    What makes DCPS extraordinary different from nearly every other 
school district in the country is the number of students attending 
nonpublic schools. Twenty-four percent of DCPS special education 
students are in nonpublic day programs, residential treatment 
facilities or are wards of the District placed in foster homes and 
attending public schools in surrounding counties. When students in 
surrounding counties are moved to the ``public'' side of the count--
that is, they are served in public schools--the percentage of students 
in nonpublic programs decreases to 21 percent of DCPS special education 
enrollment and 19 percent of all D.C. public school (DCPS and charters) 
special education enrollment.
    For comparison, the percentage of special education students in 
nonpublic placements is 4.5 percent in Boston and 5 percent in 
Baltimore.
    Question. What percent of DCPS' budget is being spent on special 
education tuition and transportation?
    Answer. Of the $1 billion DCPS budget for fiscal year 2005, 
approximately 12 percent ($120 million) will be spent on special 
education tuition and 8 percent ($75 million) on transportation.
    Question. Why do DCPS budgets continue to rise every year, even 
though enrollment is declining?
    Answer. While enrollment at DCPS has declined over time, the number 
of students for whom DCPS pays tuition at private institutions and 
suburban schools has risen from 1,400 (SY 1999-2000) to 3,067 (SY 2004-
2005). These increases have resulted in higher costs for the provision 
of mandated services.
    The Local budget for DCPS has only grown at an average rate of one 
percent since fiscal year 2002 when a budget reduction of five percent 
that occurred in fiscal year 2003 is taken into account.

----------------------------------------------------------------------------------------------------------------
                                                                                  Fiscal year--
                                                               -------------------------------------------------
                                                                  2002      2003      2004      2005      2006
----------------------------------------------------------------------------------------------------------------
Local Budget..................................................    $749.2    $713.4      $753    $767.3    $815.2
Growth From Previous Fiscal Year (percent)....................       N/A    094.78      5.55      1.90      6.24
----------------------------------------------------------------------------------------------------------------

    Even though DCPS has experienced a modest growth in budget, DCPS 
has not had the ability to leverage these increases to support 
programmatic expansion. In fact, the increases have not kept pace with 
rising labor and mandated costs. As a result, DCPS has had to eliminate 
and curtail viable academic programs.
    Recent budget increases have been used to support previously 
approved negotiated pay raises. Surrounding suburban districts, our 
primary competition for teachers and principals, have been raising 
salaries substantially beyond inflation, and as of next year, at least 
three of the five are offering higher entering salaries than DCPS. All 
offer higher maximum salaries than DCPS.
    Additionally, DCPS has incurred higher costs associated with 
payments in tuition for D.C. students in private special education and 
suburban foster care placements, special education transportation, and 
a few state agency costs such as educational services at juvenile 
justice facilities; amounts that have grown enormously in recent years.

                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                   Fiscal year--
                                                                 -----------------------------------------------
                                                                       1995            2005            2006
----------------------------------------------------------------------------------------------------------------
Negotiated Pay \1\ Raises.......................................  ..............            40.4  ..............
Tuition-private placement \2\...................................            12.5            76.0            86.4
Tuition-foster care & DMH wards.................................         ( \3\ )            20.0            20.0
Transportation-special education \2\............................            12.7            62.0            62.0
Attorneys' fees (winning parties)...............................  ..............             9.8             6.8
                                                                 -----------------------------------------------
      Total.....................................................            25.2           208.2           175.2
----------------------------------------------------------------------------------------------------------------
\1\ Reflects incremental costs associated with fiscal year 2004 entitlement that permanently affected the base
  in fiscal year 2005.
\2\ Will be higher than budgeted in fiscal year 2005 and fiscal year 2006 due to cost overruns incurred by court-
  appointed transportation administrator ($75 million).
\3\ Not in DCPS budget.

    Recognizing the shortfalls in DCPS' academic program, 
Superintendent Janey presented $38.5 million worth of unmet initiatives 
in an effort to move the system towards adequacy in programming. DCPS 
identified $4.5 million in internal resources to be re-directed to 
support this program and the City has proposed an additional $21 
million. The remaining balance will be offset by the $13 million in 
Federal Payment funding that is being requested as part of the Federal 
Appropriation. This funding will support important programming such as: 
their development of a comprehensive Art & Music program, and intensive 
reading and math program for at-risk students, establishment of Parent 
Resource Centers and continuation our School Accountability Model.
    Question. It appears that, because of declining enrollment, it is 
imperative that some schools be closed or co-located. What are your 
plans to do that?
    Answer. DCPS has developed a plan that serves as a bridge through 
this transition period while the Superintendent's Master Education Plan 
(MEP) is being developed. The MEP will provide recommendations 
regarding academic program offerings, grade configurations, 
neighborhood or cluster delivery models, Special Education 
Instructional models as well as address issues relative to school 
closures and co-locations. In line with this transition plan and as 
required by law, the Board of Education has already approved the 
Superintendent's plan for co-location in DCPS facilities. We are 
currently reviewing responses to invitations to co-location for the 10 
potential sites. This transition plan calls for the co-location of ten 
schools that have been identified as potential co-location sites. Upon 
completion of the Superintendent's Master Education Plan, this 
transitional plan would be revised to specifically address issues such 
as declining enrollment and/or requirements for closing schools.
    Question. I understand that about one-third of DCPS teachers are 
not certified. What progress are you making to ensure that all DCPS 
teachers have the proper teaching credentials for the 2005-2006 school 
year?
    Answer. In March of 2005, we estimated that approximately 1,400 
teachers did not have a current license. After requesting that these 
individuals update their credential, as of June 20, 2005, DCPS has 
identified 455 teaches with expired licenses and 533 teachers with no 
record of licensure or slightly less than 20 percent (988) of the 
teacher workforce. These teachers will be placed on a structured 
program that will facilitate licensure update by June 2006. Those who 
do not meet the respective milestones of this plan will be terminated 
at the end of the 2005-2006 school year. To enhance compliance with 
actions required to obtain licensure, DCPS has created the position of 
Licensure Specialist that will oversee and monitor licensure status. 
The position is expected to be filled by July 11, 2005. Additionally, 
we are ensuring that all newly hired teachers have the proper 
credentials prior to hire.
    The State Education Office of Academic Credentials and Standards 
(SEA-OACS) have collaborated with the DCPS-LEA Office of Human 
Resources (HR) in identifying those individuals who hold a state 
teaching license. The SEA-OACS is prepared to handle the large volume 
of applications for license renewal that will occur as a result of the 
DCPS Office of Human Resources' notification efforts. Our goal is to 
maintain an application processing time of less than two weeks, 
therefore ensuring that all applications received prior to August 19, 
2005 are processed and licenses sent out before the beginning of 
school.
    Question. I understand that only 50 cents of every operational 
dollar spent by DCPS actually goes to directly educate children. The 
national average is 61 percent. Why is this average so low and how have 
city leaders proposed to change this?
    Answer. The source of the 50 percent figure is the U.S. Department 
of Education's Fiscal Year 2002 Common Core of Data, by a definition 
that includes only teachers, aides, texts and classroom supplies and 
excludes such direct educational services as speech therapy, 
librarians, library books, computer labs, guidance counselors and 
school nurses. In that year:
  --The District of Columbia reported spending for teachers, aides, 
        texts and classroom supplies was 50 percent.
  --The District of Columbia was very high on the ``non-instruction'' 
        category of ``student support,'' which means legally mandated 
        special education services (such as assessments, speech 
        therapy, OT/PT, psychological counseling), counselors, social 
        workers, attendance counselors, health services and the like.
  --The District of Columbia was also very high on spending for 
        ``instruction support,'' which means librarians; instructional 
        technology; and standards, curriculum, testing, teacher 
        training and testing.
  --The District of Columbia was comparatively high on ``operations and 
        maintenance,'' which means custodians, utilities, repairs, 
        security, as well as on transportation, which is court-ordered.
  --The District of Columbia was comparatively low on school 
        administration and food service, and average on central 
        administration/business services.
  --Many of the ``non-classroom'' expenditures were funded by 
        restricted federal grants, including food service, anti-drug 
        and violence grants and No Child Left Behind grants for 
        standards, curriculum, testing and professional development. 
        Others are required by federal law and court mandates, 
        including special education assessments, special education 
        related services, and special education transportation.
    In our own valuation of what is allocated to supporting students in 
the classrooms, we expend nearly 60 percent of our resources to do so. 
What worries me is that the definition of ``classroom,'' taken from the 
National Center for Education Statistics (NCES), does not take into 
account expenditures for critical services such as librarians, 
counselors, nurses, attendance officers, and assessments, therapy and 
transportation for special education students. We have high costs in 
these areas because of high enrollment in special education.
    The issue with the NCES definition is that DCPS funds much more 
than teacher salaries and bureaucracy. According to NCES, we spend only 
2.7 percent on general administration and 3.0 percent on business 
services such as payroll, human services, and procurement. The rest 
covers principals, libraries, counseling, special education related 
services (e.g., speech therapy, OT/PT, social workers, psychologists), 
teacher training, curriculum, testing, facilities, utilities, security, 
transportation, and the free lunch program.
    Further when you factor in our unique role as both a State and 
Local Education Agency, we experience high expenditures in other 
categories. For example, 11 percent of our work force is engaged in 
transporting special education students to public, charter and private 
schools, under the direction of a court-appointed administrator. This 
translates into higher expenditure levels on the ``non-instruction'' 
category of ``support,'' which is required as part of court orders and 
Individuals with Disabilities Education Act.
    We do believe more classroom support is needed but not by 
sacrificing librarians and counselors and elements of the 
accountability system such as curriculum and standards, teacher 
training, testing and other measures needed to comply with No Child 
Left Behind. Moreover, it cannot come at the expense of disobeying 
mandated special education requirements and health/safety issues DCPS 
must face.
    DCPS is aggressively pursing strategies to ensure that as much 
resources as possible can be directed towards the classroom. In fact, 
the Superintendent has commissioned the Council of Great City Schools 
to conduct an adequacy study to determine system needs, if any. It is 
hopeful that the findings from this study will provide District 
Stakeholders with the total investments needed to fully support the 
implementation of Statewide Standards and provide a better prescription 
of how to allocate resources.
    Question. What additional tools do you need to better manage the 
D.C. Public Schools?
    Answer. As I begin to implement the goals outlined in our 
Declaration of Education, the strategic plan for the District of 
Columbia Public Schools, I am cognizant that the managerial tools 
needed to reform a school system are different from those needed to 
sustain routine operations. In order to better align our educational 
program objectives and priorities with our fiscal resources as we plan 
long-term school improvements, it would be highly advantageous to have 
an independent Financial Officer that reports to the Board of Education 
and School Superintendent. While the school district would continue to 
be governed by all applicable fiscal regulations, the perspective of an 
independent CFO would be consistent with the mission of the school 
district in service to children, rather than the mission of a financial 
agency.
    Also, because we have established new standards and will completely 
overhaul our educational infrastructure, multi-year budgeting would 
enable us to implement scheduled reforms without the threat of funding 
uncertainties from year to year. In short, an independent Chief 
Financial Officer and multi-year budgeting would anchor a long-term 
strategic framework and afford the long-range planning and 
implementation necessary to implement and sustain school improvements.
    Question. How do you plan to use the $13 million that this 
subcommittee provided in fiscal year 2005 and how do you plan to use 
the $13 million that is being requested for fiscal year 2006?
    Answer. I intend to use these funds appropriated in fiscal years 
2004, 2005 and 2006 to specifically to accelerate the quality of 
teaching in preparation for the implementation of the new academic 
standards, curriculum, and aligned assessments. This will serve as the 
basis for a carefully structured framework for accountability.
    It is important to point out that all the improvement programs must 
focus directly on teaching and learning. Research clearly shows that 
for reform efforts to have a measurable impact, they must dramatically 
change what occurs in the classroom. I believe by implementing new 
standards, developing curriculum and school- and system-level 
assessments, training administrators and teachers, securing high 
quality curriculum materials, and providing the means to hold schools 
accountable for results--all are critical elements that must come 
together to achieve significant and sustainable improvements in 
teaching and learning.
    Through the plan, all of these elements will be optimized as part 
of a coherent and mutually reinforcing whole. We will be able to 
provide all District of Columbia Public Schools students with the kind 
of high-quality classrooms they deserve:
  --Classrooms where standards, curriculum, instruction, and 
        assessments are carefully aligned.
  --Classrooms where every teacher clearly understands what is to be 
        taught and assessed.
  --Classrooms where all students learn.
    Question. Dr. Janey, in your written testimony, you mention school 
improvement funds to be used to continue your investment in 
professional development. I am aware of the statistic that some 30 
percent of the teachers in the D.C. Public School system are not 
certified. I believe that teachers are the most fundamental aspect of a 
child's education and this fact concerns me greatly. What have you been 
doing, and what are you planning to do, specifically, to ensure that 
the teachers in your classrooms are qualified to provide a good 
education?
    Answer. To ensure our teachers are qualified to provide a good 
quality education, we've developed a Professional Development Master 
Plan that is intended to provide direction, guidance, and resources to 
educators as they develop their Individual Professional Development 
Plan (IPDP). We believe that effective professional development is on-
going, school-based (job embedded) and organized around collaborative 
problem solving. The focus of our Professional Development Master Plan 
is as follows:
  --Develop knowledge and skills in teachers in order to impact student 
        achievement.
  --Prioritization of goals based upon best practices with decisions 
        based upon objective evidence gathered over time.
  --Linkage to district goals to support the improvement of the whole 
        system.
  --Focused on enhancing the individual's knowledge of their field and 
        knowledge of learners and learning. To this end, there must be 
        an on-going assessment process, including self-evaluation and 
        feedback from others, to guide further development.
                                 ______
                                 
            Questions Submitted by Senator Mary L. Landrieu

                          SCHOOL CONSTRUCTION

    Question. Chairman Cropp and Dr. Janey, what mechanisms are you 
considering to manage the $150 million bond proposal for school 
construction? Would a venture capital entity work?
    Answer. Project and capital program management for the D.C. Public 
Schools is under the purview of the Board of Education and 
Superintendent. A third-party entity, such as a venture capital entity 
could work, and has been considered. The Superintendent has made clear 
that he intends to transform his Office of Facilities Management to 
better manage its projects and more efficiently use its capital 
resources. The Superintendent has also stated that he is creating an 
office of strategic partnerships that would leverage DCPS resources 
with public and private entities to create alternative financing 
mechanisms for the DCPS capital program. Additionally, the Office of 
the City Administrator, Council staff, and DCPS staff are working 
collaboratively to identify partnership opportunities and other means 
to share and maximize resources through joint capital planning and 
coordination.
    Question. Can we finance some of the debt service from rent paid by 
charter schools in co-location?
    Answer. No. District law mandates that rent paid by charter schools 
through co-location/lease arrangements must stay with the local 
school--D.C. Code, Section 38-1831.01(b)(2).
    Question. Dr. Janey, you have provided a list of 10 school 
properties, which will be offered for co-location. When will a request 
for proposals be issued to charter schools and what time frame will you 
be signing leases for the fall semester?
    Answer. Requests for Letters of Interest were posted on the DCPS 
website from mid-May to mid-June. They are being reviewed now by Co-
location Review Committees (one for each school that received a Letter 
of Interest). A public hearing is scheduled for June 29th, 2005 from 6-
8 p.m. at 825 N. Capitol St. The Superintendent will present his 
recommendation for specific co-locations in July. It is anticipated 
that the Board of Education will approve or disapprove any co-location 
recommendations in July, and then for approved recommendations, direct 
the Superintendent to execute leases on its behalf in July.
    Question. Dr. Janey, for the record, please provide the per pupil 
spending in DCPS and the components of that allotment (local, Federal, 
other)? Please provide a comparison with per pupil spending in other 
cities of similar size.
    Answer. The referenced chart reflects the updated report conducted 
by the NCES and the Census Bureau. Fiscal year 2003 is the most recent 
year for which expenditure data are available, and if it follows 
previous timing, the Census Bureau will put out fiscal year 2004 data 
next March. That's as soon as an update could be provided. The only 
national data for school districts that's collected using comparable 
definitions are the NCES/Census data.
    However, the following represents a regional comparison of Per 
Pupil Expenditures conducted by an independent watch organization in 
the D.C. area. We believe that regional comparisons are more useful 
tools as they provide insight to the competitive landscape in the 
Washington area and it accounts for regional cost differences that 
national comparisons fail to incorporate.
Comparison with Suburban District Budgets
    The chart below depicts the fiscal year 2005 per pupil budgets of 
DCPS and its surrounding school districts. The Washington Area Boards 
of Education (WABE) calculates the suburban numbers by a standardized 
methodology that meets all the criteria above. We have applied the same 
methodology to the DCPS budget and enrollment, but subtracted 
transportation for all districts, since the transportation systems are 
not comparable.
    The WABE methodology as applied to DCPS includes most federal grant 
funds and teacher retirement, which we added from the city budget. In 
fiscal year 2005 DCPS has about $3,800 less per pupil than Arlington 
County, about $2,100 less than Alexandria, and roughly the same as 
Montgomery and Fairfax Counties. Prince George's County is far behind 
all the others.




    The WABE methodology includes all local and federal funding in the 
districts' budgets except: Food service; Construction/capital; Debt 
service; Summer school; Adult education; Special ed tuition and 
transportation; Other state level costs (DCPS only): state agency 
functions, charter school oversight; Federal funding for state agency 
functions, private & charter schools, and short-term restricted 
programs; and Private grants and intra-District transfers.
    WABE figures include: Teacher retirement; Federal 2005 funding for 
DCPS LEA: Titles I, II, IV, VI, VII, Vocational education, Special 
education, Impact Aid, Indirect Cost, Head Start, Reading First, Tech 
Literacy Challenge Fund, Comprehensive School Reform, State 
Assessments.
    What the chart above does not reflect is any factor for student 
needs. As the chart below illustrates, DCPS has by far the highest 
percentage of low-income students in the area, and a much higher 
percentage of special education students, who receive higher cost 
services, than do Fairfax and Montgomery Counties. Based on student 
characteristics, DCPS should spend significantly more per pupil on 
average than any of its suburbs.




    Because Fairfax County Public Schools use the WABE overall per 
pupil number and issue breakouts with per student budget allocation 
figures for general education, special education and ESL education, we 
have applied the WABE definitions and calculated DCPS budget 
allocations for fiscal year 2005 for these three categories to compare 
with Fairfax County allocations. Although the chart and figures are in 
the same format as the chart above for Basis 2, the numbers are 
different: those below include federal funds as well as local funds, 
add Teacher Retirement, and eliminate a few local budget lines not 
included in the WABE methodology.\1\
---------------------------------------------------------------------------
    \1\ Food service $2.8 million, summer school $2.4 million, capital 
planning $0.3 million.
---------------------------------------------------------------------------

                         CONCLUSION OF HEARINGS

    Senator Brownback. Thank you for being here. Thank you for 
your hearts and your commitments that are making lives better 
for all people here and the people that come here.
    With that, the hearing is recessed.
    [Whereupon, at 11:43 a.m., Wednesday, June 15, the hearings 
were concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]
