[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





  THE DISTRICT OF COLUMBIA'S FISCAL YEAR 2010 BUDGET: ENSURING FISCAL 
                             SUSTAINABILITY

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

                                HEARING

                               before the

                SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF
               COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 12, 2011

                               __________

                           Serial No. 112-48

                               __________

Printed for the use of the Committee on Oversight and Government Reform








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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

   Subcommittee on Health Care, District of Columbia, Census and the 
                           National Archives

                  TREY GOWDY, South Carolina, Chairman
PAUL A. GOSAR, Arizona, Vice         DANNY K. DAVIS, Illinois, Ranking 
    Chairman                             Minority Member
DAN BURTON, Indiana                  ELEANOR HOLMES NORTON, District of 
JOHN L. MICA, Florida                    Columbia
PATRICK T. McHENRY, North Carolina   WM. LACY CLAY, Missouri
SCOTT DesJARLAIS, Tennessee          CHRISTOPHER S. MURPHY, Connecticut
JOE WALSH, Illinois










                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 12, 2011.....................................     1
Statement of:
    Gandhi, Dr. Natwar, chief financial officer, District of 
      Columbia; Matt Fabian, managing director, Municipal Market 
      Advisor; and Dr. Alice M. Rivlin, senior fellow, the 
      Brookings Institution, former Chair of the D.C. Control 
      Board......................................................    35
        Fabian, Matt.............................................    68
        Gandhi, Dr. Natwar.......................................    35
        Rivlin, Alice M..........................................    73
    Gray, Vincent, mayor, District of Columbia; and Kwame Brown, 
      chairman, D.C. City Council................................     2
        Brown, Kwame.............................................    14
        Gray, Vincent............................................     2
Letters, statements, etc., submitted for the record by:
    Brown, Kwame, chairman, D.C. City Council, prepared statement 
      of.........................................................    16
    Davis, Hon. Danny K., a Representative in Congress from the 
      State of Illinois, prepared statement of...................    32
    Fabian, Matt, managing director, Municipal Market Advisor, 
      prepared statement of......................................    70
    Gandhi, Dr. Natwar, chief financial officer, District of 
      Columbia, prepared statement of............................    38
    Gosar, Hon. Paul A., a Representative in Congress from the 
      State of Arizona, prepared statement of....................    93
    Gray, Vincent, mayor, District of Columbia, prepared 
      statement of...............................................     5
    Rivlin, Alice M., senior fellow, the Brookings Institution, 
      former Chair of the D.C. Control Board, prepared statement 
      of.........................................................    75

 
  THE DISTRICT OF COLUMBIA'S FISCAL YEAR 2010 BUDGET: ENSURING FISCAL 
                             SUSTAINABILITY

                              ----------                              


                         THURSDAY, MAY 12, 2011

                  House of Representatives,
Subcommittee on Health Care, District of Columbia, 
                  Census and the National Archives,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 8:50 a.m., in 
room 2154, Rayburn House Office Building, Hon. Trey Gowdy 
(chairman of the subcommittee) presiding.
    Present: Representatives Gowdy, Gosar, McHenry, Davis, 
Norton, and Clay.
    Staff present: Ali Ahmad, deputy press secretary; Robert 
Borden, general counsel; Molly Boyl, parliamentarian; Lawrence 
J. Brady, staff director; Benjamin Stroud Cole, policy advisor 
and investigative analyst; John Cuaderes, deputy staff 
director; Howard A. Denis and Peter Haller, senior counsels; 
Adam P. Fromm, director of Member liaison and floor operations; 
Linda Good, chief clerk; Frederick Hill, director of 
communications and senior policy advisor; Christopher Hixon, 
deputy chief counsel, oversight; Jim Lewis, senior policy 
advisor; Mark D. Marin, senior professional staff member; James 
Robertson, professional staff member; Laura L. Rush, deputy 
chief clerk; Matthew Tallmer, staff investigator; Peter Warren, 
policy director; Ronald Allen, minority staff assistant; Jaron 
Bourke, minority director of administration; Yvette Cravins, 
minority counsel; Ashley Etienne, minority director of 
communications; Jennifer Hoffman, minority press secretary; and 
Mark Stephenson, minority senior policy advisor/legislative 
director.
    Mr. Gowdy. The committee will come to order.
    Mr. Mayor, Chairman Brown, thank you for being with us 
today.
    It is my understanding, Mr. Mayor, you have city business 
to tend to, which we understand and appreciate, and we want to 
be very good stewards of your time. So my friend Mr. Davis and 
I are going to waive our opening statements so we can spend 
more time with you and Chairman Brown. And again, on behalf of 
all of us, thank you for being with us.
    It is the policy of the committee to swear in all 
witnesses, so I would ask both Mayor Gray and Chairman Brown to 
rise with me and raise your right hands.
    [Witnesses sworn.]
    Mr. Gowdy. May the record reflect both witnesses answered 
in the affirmative.
    It is my pleasure to introduce Mayor Vincent Gray, the 
mayor of the District of Columbia, and recognize him for his 5-
minute opening remarks.

 STATEMENTS OF VINCENT GRAY, MAYOR, DISTRICT OF COLUMBIA; AND 
            KWAME BROWN, CHAIRMAN, D.C. CITY COUNCIL

                   STATEMENT OF VINCENT GRAY

    Mayor Gray. Thank you very much, Chairman Gowdy, and to the 
other members of the committee.
    Mr. Gowdy. Could you turn your mic on, please?
    Mayor Gray. Thank you very much, Chairman Gowdy and other 
members of the committee.
    I am Vincent C. Gray, mayor of the District of Columbia, 
and I am here today to talk about our proposed fiscal year 1912 
District of Columbia budget.
    I have had to make tough choices in submitting this budget, 
choices that, frankly, I wish I didn't have to make. But the 
reality is that the financial health and backbone of our city 
could be imperiled unless thoughtful, balanced, and measured 
choices are made and honored.
    This budget was the product of three very intense months of 
scrubbing agency budgets and exploring every reasonable option 
for additional revenue. I participated in over 100 hours of 
intensive meetings focused exclusively on the budget with the 
city administrator, our deputy mayors, agency directors, and 
our Office of Budget and Finance. This budget meets and 
addresses the reality we face, a reality that I've discussed in 
town hall meetings with District residents in all eight wards 
during the past several weeks.
    In order to close a $322.1 million structural budget gap, I 
employed a balanced approach of expenditure reductions and 
revenue increases. My budget focuses on four key priorities of 
my administration: physical stability, high-quality public 
education, jobs and economic opportunities, and safe 
communities.
    My goal is to ensure a structurally balanced budget. The 
fiscal year 2012 gross funds budget for the District of 
Columbia is $8,986,000,000, representing an increase of 
$164,690,000, or a 1.9 percent increase above the fiscal year 
2011 approved budget. The majority of the 1.9 percent growth 
occurred in two areas. $96 plus million occurred in public 
education largely due to enrollment increases in D.C. public 
schools and D.C. public charter schools, and $67.76 million 
occurred in our financing and other appropriation titles due 
largely to mandatory increases in debt service for capital 
borrowing under the previous administration. This budget has 
been certified as balanced by the independent chief financial 
officer, who you will hear from later.
    I would like to take this opportunity to detail each one of 
my four key priorities in this budget.
    The first is to introduce a budget that reestablishes 
fiscal stability in the District of Columbia. When we met with 
the bond rating agencies in February, all three agencies 
highlighted three recommendations for ensuring the District's 
reputation on Wall Street after the last 4 years in which our 
fund balance was spent down by 41 percent, from $1\1/2\ billion 
to $890 million. They underscored the need to have a 
structurally balanced budget, meaning we would not spend more 
than we take in; to live within the debt cap of 12 percent, 
which we have established; and rebuild a fund balance. My 
fiscal year 1912 budget achieves those goals.
    High-quality education is the second of my four key 
priorities. Providing high-quality education for all district 
residents is critical to our long-term prosperity. This budget 
provides the resources necessary to continue the pace of school 
reform and to provide an educational continuum from ages 3 to 
24. My ultimate goal will be to extend this continuum to ages 1 
to 2 as the economy rebounds and more funding becomes 
available.
    The increases in the budget for D.C. public schools and 
D.C. public charter schools are due principally to increased 
enrollment. We're now beginning to witness the success of the 
universal pre-kindergarten program. We're retaining students 
who enter the pre-K programs at its inception through a growth 
of enrollment in grades K through 2.
    We also have included increases for the first time in years 
for the University of the District of Columbia, especially our 
community college, including $4 million.
    And, also, this budget focuses on beginning to solve a 
longstanding problem of spending tens of millions of dollars to 
educate children with disabilities in nonpublic schools.
    Job creation and economic opportunities for all District 
residents is a third of my key priorities. Despite reductions 
to Federal and special purpose revenue, I'm continuing to fund 
adult job training by adding $2.6 million to the fiscal year 
1912 budget.
    As everyone knows, I've been a major proponent of the 
concept of ``one city.'' However, the current disparity between 
areas of our city is particularly pronounced in the area of 
jobs, with a number of communities experiencing chronic 
unemployment. In ward 7, 17 percent; ward 8, 25 percent.
    The fourth priority is sustaining safe communities so that 
residents feel safe in their neighborhoods. Most of the agency 
budgets in the public safety and justice cluster were held 
constant at their fiscal year 2011 level, but we're providing 
funding to hire 140 police officers to reopen the police 
academy which essentially had been shut off.
    Mr. Chairman and the members of the committee, the District 
of Columbia raises over $5\1/2\ billion per year in local funds 
from our residents in property taxes, sales taxes, and income 
taxes. A majority of the functions of the District Government, 
including all the services provided by any other State, are 
funded through those locally raised dollars. Nevertheless, it 
is the lengthy and complicated Federal appropriations process 
that has severe effects on the District Government.
    As you know, in order to comply with the Federal process, 
the District must develop its budget months in advance of the 
timeframe needed by the city. In fact, the District has had to 
adopt the Federal fiscal year of October 1st to September 30th, 
when another fiscal year may be more appropriate for the city.
    The congressional appropriation schedule prevents the 
District from being able to make better and more current 
revenue estimates and expenditure needs that lead to a budget 
based on better and more complete data.
    Further, the dual nature of the Federal appropriations 
process requires two affirmative actions by Congress. The 
District's appropriations are often caught up in national 
policy disputes that typically delay our local budget enactment 
and have nothing to do with the District of Columbia. This flaw 
was made abundantly clear a month ago when the District was 
forced to spend its very limited funds preparing for a 
potential shutdown. Our chief financial officer in an 
assessment indicated we could have lost between $1 million and 
$6 million a week as a result of the shutdown.
    Mr. Chairman, the District of Columbia's overall fiscal 
health is strong. For more than a decade, we have presented a 
balanced budget; and we have received clean audits in each of 
those years. As have been noted by Members of Congress, we have 
clearly demonstrated our fiscal responsibility.
    I believe strongly, Mr. Chairman, that the financial rigor 
the District exhibits proves that we are more than capable of 
managing our own resources. It is time for Congress to adopt 
legislation that would remove the approval of the District's 
local budget from the Federal appropriation process. This 
request does not remove the oversight authority of Congress, of 
course, as provided for in the Constitution. It will simply 
allow the District to spend its local funds in the same way 
other States and local jurisdictions do. I've detailed reasons 
why I believe budget autonomy will facilitate the ability to 
run the city, and we hope that the Congress and this committee 
will consider that.
    Again, thank you very much for your time in having me here 
today to talk about the fiscal year 1912 budget, and we will be 
happy to try to answer any questions you may have today and as 
we move forward.
    As a final point, Mr. Chairman, I want to thank you for 
coming over to meet with us a few weeks ago at the Wilson 
Building. It's most appreciated. I think it has established a 
constructive working environment, and we look forward to 
continuing to work with you.
    [The prepared statement of Mayor Gray follows:]



    Mr. Gowdy. Well, Mr. Mayor, before I introduce Chairman 
Brown, you were a very gracious host. To take somebody from 
South Carolina, who hadn't visited the District of Columbia 
since he was a kid in high school, you've done a wonderful job 
helping introduce me to your beautiful, magnificent city, and I 
thank you for your time. I know you have a very busy schedule. 
For you to take time to meet with me a couple weeks ago was 
very much appreciated.
    Mayor Gray. I was delighted to do it, Mr. Chairman.
    Mr. Gowdy. Yes, sir.
    It is my pleasure to recognize the Honorable Kwame Brown, 
Chairman of the District of Columbia City Council.
    Mr. Brown.

                    STATEMENT OF KWAME BROWN

    Mr. Brown. Good morning, Chairman Gowdy, Ranking Member 
Davis, and members of the Subcommittee on Health Care, District 
of Columbia, Census and the National Archives.
    I am Kwame R. Brown, chairman of the Council of the 
District of Columbia, the District's elected legislature. I'm 
pleased to speak with you today about the Council's role in 
developing the District's fiscal year 2012 appropriations 
request.
    This year, the Council has the difficult task of reviewing 
and finalizing a budget that continues to provide necessary 
services to residents, businesses, and visitors of the District 
of Columbia, despite the slow pace of recovery from the 
recession. I would like to commend Mayor Gray and the CFO for 
submitting a balanced and structurally sound budget proposal to 
the Council. I think the mayor's proposal does not use the 
District's fund balance to pay for reoccurring services. It 
keeps in place funds created to reduce the debt and replenish 
our reserve. These aspects of the District's budget are 
particularly important to bond rating companies, a message that 
was conveyed to Mayor Gray and CFO Gandhi and myself during a 
recent visit expressing that this was an issue for them.
    Over the next 2 weeks, the Council will continue to review 
their budget proposal before voting on the fiscal year 2012 
Budget Request Act on May 25th. We are poised to follow the 
District's practice, Mr. Chairman, now entering its 16th year, 
of submitting a balanced budget to Congress.
    Major cost drivers for the budget include ever-increasing 
health care costs, as well as the District's continuing 
education reform efforts, a commitment shared by both the mayor 
and the Council. These pressures, together with revenues that 
have not fully rebounded to pre-recession levels, of course 
makes it difficult to continue to be competitive while 
providing much-needed services and programs to the residents of 
the District of Columbia, as well as businesses.
    But let me say to this committee that we will rise to the 
challenge. The budget passed by the Council will represent a 
focus on the District's core priorities of being fiscally 
responsible, continuing education reform, economic opportunity, 
and public safety.
    Because of the ongoing legislative process I'm unable to 
forecast exactly where each dollar will be budgeted until we 
vote, of course, on the Budget Request Act on May 25th. We will 
comply with, of course, our open meetings law by openly 
debating proposals for spending cuts as well as revenue 
enhancements. Each Council member's priorities will be the 
subject of negotiation. Every budgetary shift will be reviewed. 
However, let me guarantee you as the chairman of the Council of 
the District of Columbia we will pass a balanced and 
structurally sound budget request to send to this Congress.
    After the Council reaches consensus and passes the budget I 
welcome, quite frankly, the opportunity to brief any member of 
this subcommittee personally on the Council's modifications to 
the mayor's budget proposal.
    In order for the District to provide vital services to the 
public, I ask that you pass this year's appropriation act in a 
time for the start of the new fiscal year and that you provide 
those citizens of the United States of America who call the 
District their home the right to govern their own affairs 
through the representation of their elected officials.
    Let me stop to thank all of the members of this committee, 
Congress, as well as the President, for keeping the government 
open. As you know, had negotiations failed and the government 
shut down, the District of Columbia would have been the only 
place in the United States of America where U.S. citizens would 
have been left without the basic government services enjoyed by 
developing countries, such as trash collection or pest control 
or interpretation services for the blind. All of these services 
and many more would have been suspended because the District 
lacks the power to continue to spend even its tax dollars in 
the event of a Federal shutdown. As you know, these services, 
no matter where you are, no matter who you are, constituents 
should not go without. Yet even under the circumstances where 
no government shutdown is at stake the citizens in the District 
should always be able to assert local control over its local 
funds, and I would hope that you would work with the members of 
this committee to give the district budget autonomy that the 
residents in the District deserve.
    In closing, let me say that we are willing and able to 
stand with this committee to work together, to work together on 
the things that we can move this great city for, knowing that 
we may not agree on everything, but the things that we do agree 
and have in common we should do everything in our power to 
continue to give the residents of this great country the 
opportunity to flourish and to continue to make this the 
greatest Nation in the universe.
    On that note, I look forward to questions and answers, and 
thank you for allowing me an opportunity to testify.
    [The prepared statement of Mr. Brown follows:]



    Mr. Gowdy. Thank you, Mr. Chairman.
    And again, in an effort to be good stewards of both your 
times and recognizing that there's a panel to come behind and 
we want to be good stewards of their times, I'm going to 
recognize myself for 5 minutes of questions; and I'm going to 
hopefully impose the same green, yellow, red light barriers on 
myself that we will subsequently be imposing.
    What I would like to do and acknowledge up front, Mayor 
Gray and Mr. Chairman, is there is not a governmental entity I 
don't think anywhere that's not struggling with the same things 
that you have just elucidated. In Spartanburg County, which is 
my home county, we had furloughs last year of law enforcement 
officers and prosecutors. The State of South Carolina is 
struggling. Heavens knows the U.S. Congress is struggling with 
respect to its fiscal obligations. So what I would love to do 
is ask a question, give both of you a chance to answer it, and 
kind of seek your perspective on the challenges that you faced 
as you proposed your budget.
    It looks like Medicaid, if I read your testimony and the 
documents prepared correctly, Medicaid continues to be the 
largest single expenditure. Are there any lessons that you can 
share with the panel with respect to how you are dealing with 
Medicaid? Any reforms that you would advocate? Any pearls of 
wisdom or perspectives that you could lend to us as we struggle 
with the same thing in South Carolina and the U.S. Government?
    Mayor Gray. Thank you very much, Mr. Chairman.
    As you know, Medicaid is a key part of health care reform 
as we move forward. We have quite a robust Medicaid program in 
the District of Columbia; and, in fact, it has been essential 
in our ability to have such a low rate of uninsured people in 
the District of Columbia. We have only 6 percent of our adults 
who don't have some form of insurance in the city and only 3 
percent of our children who are not insured.
    One of the things that we've done is to start to look at 
every one of our optional services--as you well know, there are 
mandated services and there are optional services--to make sure 
those services are delivered in the most efficient way.
    I'm delighted to have brought in a gentleman, Wayne 
Turnage, who is very experienced. He happened to have worked in 
Virginia for a number of years in health care and health care 
reform and brings that experience to us here in the District of 
Columbia.
    We've brought in an ASO, an administrative services 
organization, that is helping us to manage; and we are 
increasingly now focusing on the use of managed care 
organizations to try to start to influence health care 
behavior.
    One of the things that we have in the city that we're 
working on that is going to take some time is to try to make 
sure that we have health care services spread across the city. 
We will in the next year open three additional clinics in areas 
that have historically been underserved, and we believe that 
will facilitate the use of insurance tools like Medicaid 
because people will have services more accessible to them.
    So I think in terms of lessons, if there have been any, it 
would be to try to make sure that we have external controls, 
external assistance, like with an administrative services 
organization, and try to increasingly make health care more 
accessible to people who may have the insurance, may have the 
coverage, but if they don't have access to services they're not 
likely to use them except on an emergent basis.
    Mr. Gowdy. Chairman Brown, let me ask you this. I had the 
pleasure of meeting your chief of police, with whom I was very 
impressed. I've had the pleasure of meeting your attorney 
general, who I similarly have been impressed with. But it also 
appears as if the budget proposes a cut with respect to public 
safety. How do you decide which areas to cut, given the fact 
that's a core function of government? What process did you go 
through, and can the citizens of the District expect to see any 
diminution in services, given the cuts?
    Mr. Brown. Well, I mean, the budget that's in front of the 
Council in the District of Columbia currently, there is clearly 
a lot of discussion going on to make sure that, from the public 
safety standpoint in a reduction of officers, that doesn't 
happen. I think the mayor's proposal doesn't quite lay that 
out, that it will be a reduction of police officers. But we 
want to get the officers, number of officers, back up to an 
appropriate level; and I think an additional 100 officers or 
200 officers is where we want to go, somewhere between 3,800 
and 3,900 officers. And I think this is a phenomenal 
opportunity to really focus as all the Members want to move in 
that same direction. So I don't think what you will see as 
relates to a budget proposal is a reduction of police officers 
in the District of Columbia.
    Mr. Gowdy. I am going to try to lead by example, and the 
yellow light is on, so I'm going to recognize the distinguished 
gentleman from Illinois, Mr. Davis.
    Mr. Davis. Thank you very much, Mr. Chairman; and, Mayor 
Gray and Mr. Brown, thank you both for being here.
    You know, many American citizens, as well as people around 
the world, would be surprised to learn that the Congress of the 
United States has to approve the local budget of the Nation's 
Capitol, a city of 600,000 residents, before it can spend its 
own local taxpayer money.
    In 2003, a Republican-controlled Senate passed a bill by 
unanimous consent to allow the District's local budget to take 
effect without congressional approval. Former President George 
Bush supported budget autonomy in his fiscal year 2004 to 2006 
budgets, and President Obama supported budget autonomy in his 
fiscal year 2012 budget. Congresswoman Norton has introduced--
reintroduced, actually, her budget autonomy bill this Congress.
    Mayor Gray and Mr. Brown, both, if the District of Columbia 
were to be able to set its own fiscal year and implement its 
local budget without congressional approval, how would that 
affect the District's ability to provide service to its 
residents?
    Mayor Gray. Well, I think, Congressman Davis, that it 
really would provide enormous flexibility to us.
    Now we have a situation where our budget is essentially 
adopted at the city level in June and not later than July, and 
then we have characteristically gone many months thereafter 
without having an approved budget because of the need to send 
it to Congress. The average time has been about 4 months. In 
this instance, I think it was more like 6 or 7 months this 
fiscal year.
    Frankly, it also would probably give us an opportunity to 
adopt a different fiscal year. What we have now is a fiscal 
year that is adapted to the Federal fiscal year, October 1st to 
September 30th. Just one of the practical problems that creates 
is that our school system, and that is the largest budget but 
for Medicaid in the District of Columbia, actually spans 2 
fiscal years, because the school year starts in one fiscal 
year, that is, in August, and you have expenditures associated 
with that school year from August until September 30th, and 
then you have the rest of the fiscal year or the rest of the 
school year beginning October 1st and running until the next 
June. So it will allow us to streamline our operation of our 
services.
    Also, frankly, it would give us more time to have a better 
sense of what the revenue projections are likely to be and to 
be able to look at data from the most recent past as we craft 
the budget for the future.
    So, again, being able to streamline how we operate and 
having a better timetable that we can operate on in terms of 
projecting what our expenditures and revenues would be would be 
two of the biggest gains that we would experience.
    Mr. Davis. Thank you.
    Let me ask you, Mr. Brown. We've had continuing resolutions 
since 1870 technically, but you don't really expect to have 
continuing resolution after continuing resolution after 
continuing resolution up to the point of brinkmanship. How does 
operating under these continuing resolutions affect the 
budgeting process and the operation of city government for the 
District of Columbia?
    Mr. Brown. Well, first of all, let me start by thanking you 
for all of your support of the District of Columbia. Clearly, 
as it relates to budget autonomy, I think you understand the 
importance of it and have always been a strong supporter 
working with Congresswoman Norton on these particular matters.
    Your question has to do with how does Congress amend the 
District's budget and what does the continuing resolution--
clearly, what role does it play? What's interesting is that 
Congress has not amended our budget. And when you look at--
since I've been on the Council, they have never amended the 
budget. So the clear question is, why do we have these 
resolutions over and over and over, DCRs over and over again? I 
think it gives an opportunity to set a clear direction of where 
we want to go, gives a clear understanding how we get there, 
and I look forward to working with you and others to see how we 
can get budget autonomy passed in the District.
    Mr. Davis. Thank you, Mr. Chairman, and I yield back.
    Mr. Gowdy. I thank the gentleman.
    The chair will now recognize the gentleman from Arizona, 
Dr. Gosar.
    Mr. Gosar. Thank you, Mr. Chairman.
    Mr. Mayor, I know we all share a common thread in regards 
to educating our children; and in looking at the budget, we had 
about a 5.4 percent increase in education funding. Are you 
concerned about that?
    Mayor Gray. I'm concerned only, Dr. Gosar, that we can't 
invest even more money in education. Education reform has been 
afoot now for several years in the District of Columbia, and it 
is a huge priority of mine.
    Some of the increases, frankly, reflect an increased 
enrollment. For the first time in 41 years, we saw an increased 
enrollment in our traditional public schools, and for the first 
time since the advent of charter schools we saw an increased 
enrollment in both. We had an increased enrollment of about 900 
children in the traditional D.C. public schools this year and 
another 1,700 in charter schools for an enrollment increase of 
2,600. So carrying that forward, some of the increases in our 
budget are to ensure that we provide an adequate education for 
those children, as well as projected enrollment increases.
    We have made a very healthy investment also in pre-
kindergarten, early childhood education services; and, as a 
result, I think that is a contributing factor to our enrollment 
increases. And we want to continue to do that because we 
recognize getting these children at the earliest possible point 
will make a huge difference in educational outcomes and, 
frankly, life outcomes.
    The other thing that we are doing, Dr. Gosar, is we are 
tackling a problem now that has been longstanding, and that is 
how we educate children with disabilities in the District of 
Columbia. We have had far too many children who have had to be 
educated in nonpublic tuition placements, as we call them, at 
great expense to the city. Last year, we spent about $160 
million on those children, plus another $93 million on 
transportation of kids with disabilities in traditional public 
schools, charter schools, and nonpublic placements.
    So we are going to invest more in our public education 
system next year, hopefully to incentivize that system to begin 
to bring our children back in the public education system to 
comply with the law of the land which changed in 1975 and 
still, of course, exists in 2011 in the form of the Individuals 
with Disabilities Education Act.
    So I think we're making progress on the education front. We 
still have a very, very long ways to go to be able to say that 
we are adequately educating every child, but I think we're 
going in the right direction.
    Mr. Gosar. I'm sure you're aware that we have H.R. 471, the 
Scholarships for Opportunity Results Act. I'm also from Arizona 
that struggles with the same type of educational aspect. And we 
look at everything on the table, all aspects of where we can go 
with assets, to try to attain and help every child. Do you 
support that act?
    Mayor Gray. I support strong public education, Dr. Gosar, 
and that's where I've placed my emphasis. I believe that 
education and strong public education is a great emancipator, 
it is a great liberator, it is what levels the playing field. 
And so I place my emphasis, and I've indicated here before, on 
public education.
    I will continue to do that. I will implement whatever laws 
and programs are required of the District of Columbia, of 
course. But as a product of public education of the city I know 
what it can do for children, I've seen what it can do for 
children, and I want us to have the strongest possible public 
education system.
    And we have a lot of choice. We have a lot of choice in 
terms of 123 traditional public schools; and we now have the 
most robust charter movement in the country, 52 charter schools 
operating on 93 campuses with almost 30,000 children enrolled 
in those programs. So we probably offer the greatest variety of 
choices in public education when compared to anywhere else in 
the Nation.
    Mr. Gosar. Well, I would hope that, particularly in light 
of the Supreme Court ruling with Arizona with the voucher 
system, that we would also embrace the voucher system and look 
at it as a tool in order to facilitate all children all across 
the board. Because you need all opportunities to embrace 
children. So I would hope that we would really, truly look at 
that system and integrate it.
    Thank you, Mr. Chairman.
    Mr. Gowdy. Thank you, Dr. Gosar.
    The chair would now recognize the ranking member of the 
full committee, the distinguished gentleman from Maryland, Mr. 
Cummings.
    Mr. Cummings. Mr. Chairman, I yield to Ms. Norton, please. 
No, you go, please, Ms. Norton.
    Ms. Norton. I thank the ranking member for his generosity 
in yielding to me; and thank you, Mr. Chairman.
    First, let me commend the mayor and the Council chair on 
how well you worked together on the budget even while the 
chairman and his subcommittees have engaged in very rigorous 
oversight of your budget. I know it is awkward for you to 
appear to discuss the budget when there is no budget.
    But as far as you go, I want to commend you on the budget 
that the mayor--first, you, Mayor Gray, have submitted. That 
budget we, of course, see. It is not the final budget. It is 
not the District of Columbia budget. It is a tough budget with 
admirable balance. It spreads the pain. It gives us in--what is 
this--your 13th year of a balanced budget without drawing from 
your cumulative funds balance, your reserve balance. I wonder 
if there is another jurisdiction in the United States that even 
has a reserve, much less not drawing a penny from it in order 
to balance its budget. You have shown yourself not wedded to 
any ideological catechism in drawing your budget but requiring 
the whole city to participate in what it takes to balance a 
budget.
    And you, Chairman Brown, your oversight--and I see from 
channel 16, or was it channel 13, and from the papers--has been 
very rigorous. You are apparently making changes, while keeping 
the rigors represented by the mayor's budget.
    I think both of you are a model for the Congress of working 
together on a budget without rancor and working together in the 
first place.
    I apologize for the extra cost to the District in redundant 
budget processes and hope that the committee will understand 
from your testimony the urgent need for budget autonomy.
    I want to discuss a subject close to my heart. The chairman 
says correctly that the budget is not amended. The budget is 
never amended. No one here would know how to amend the budget. 
I don't have a clue how to change the budget. No one could get 
into those weeds except you.
    The budget is here for one purpose. The budget is here for 
riders, because Members from Arizona want you to do what they 
do in Arizona, or Members from Ohio want you to do what they do 
in Ohio.
    I want to speak about one of those riders. For about 10 
years Congress kept the District from spending its own local 
funds on needle exchange programs, even though every large city 
and many smaller jurisdictions use needle exchange programs 
because they have been found to be effective by all the 
objective organizations in reducing the spread of HIV/AIDS. 
House republicans once again even in light of this evidence 
tried to reimpose this ban this year after we got the ban off 
in the prior years. We were able to resist that.
    But I have to ask both of you, what would be the impact on 
the HIV/AIDS rate in the District of Columbia--first, how would 
it affect the city generally, and what would you do if Congress 
were to reimpose this rider on the District of Columbia, again 
which has taken so many lives here in this city?
    Mayor Gray. Well, frankly, the needle exchange program has 
been an incredibly important tool for us in fighting HIV and 
AIDS in the District of Columbia. The national average is 1 
percent, and anything above that would be regarded as an 
epidemic. We have a 3 percent rate overall in the District of 
Columbia of people who are HIV positive or have AIDS.
    Ms. Norton. Do you think that is directly traceable to the 
rider?
    Mayor Gray. Well, I don't know if it's directly traceable 
to the rider or not, but certainly having a tool available to 
us to attack this problem is going to reduce the transmission 
of the virus. We know that intravenous drug use is now one of 
the most prevalent ways in which the virus is transmitted, and 
being able to have people access clean needles has made a 
difference in how the virus is transmitted. The absence of that 
I think is going to result in a rise in the transmission of the 
virus in the city.
    And, frankly, you asked a question what we would do. When 
the ban was in place before, there was an organization, 
Prevention Works, that came into being that raised private 
dollars in order to run this program; and in fact it is now out 
of business because they could not sustain themselves.
    So, Congresswoman Norton, I'm not really sure what we would 
do. We ought to have the flexibility, as I think more than 200 
cities now nationally do, to be able to continue to operate 
this program. It is an important prevention technique, it has 
proven its worth, and we need to have this available to us.
    Ms. Norton. Thank you very much.
    Chairman Brown, did you want to say anything on that issue.
    Mr. Brown. Well, let me just start to say that the 
Department of Health's HIV/AIDS, Hepatitis, STD, and TB 
Administration----
    Mr. Gowdy. Mr. Chairman, I hate to interrupt you, but I 
want to fair to everyone. And what I would propose is, after I 
recognize the gentleman from Maryland, to maybe have a 
lightning round if, Mr. Mayor, if you would be willing to have 
just maybe one quick question so I could get all of Ms. 
Norton's questions asked but also be fair to the gentleman from 
Maryland.
    So, at this point, I would recognize the ranking member of 
the full committee, the gentleman from Maryland, Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman; and I want 
to thank you for calling this hearing. I want to thank Ms. 
Norton certainly for her advocacy for the District. And to you, 
mayor, and to you, Mr. Chairman, I want to thank you for being 
here.
    I literally reside in two cities: Washington, DC, and 
Baltimore. And I must tell you that, as I listen to you, Mr. 
Mayor, and to you, Mr. Brown, and then I combined what you have 
said this morning to what I read in the Washington Post this 
morning where it said, Alice Rivlin, senior fellow of economic 
studies at Brookings, said, ``for more than a dozen years, D.C. 
has been a model of fiscal responsibility.''
    And it goes on to say that Matt Fabian, managing director 
of the Independent Research Firm Municipal Market Advisor, said 
that the District operates in a highly conservative manner with 
a strong financial management team and institutionalized 
financial controls. Even as the economy struggled, he found the 
District faring better than most other cities and States. He 
says something.
    You know, I notice the media, all of them are up in here 
today, and if we need to do nothing else we need to give you 
credit for what you've done and what your predecessors have 
done.
    But the thing that made my heart glad, as my mother would 
say, is that not only are you doing this thing, managing the 
money that you have well and you're making the cuts that you 
have to do and doing what you got to do, but you're also doing 
it with compassion. I heard you talk about the 6 percent and 3 
percent, the adult, 3 percent children uninsured. I think 
that's what you said, Mr. Mayor, is that right?
    Mayor Gray. That's right, sir.
    Mr. Cummings. You know, and you talked about spreading the 
clinics, having more clinics, and you talked about basically 
wellness and prevention. That's what you're talking about.
    This Congress could take some lessons from D.C. and it is 
interesting that you have to come up here and go through these 
changes. Since the District of Columbia Government cannot 
obligate or expend its locally raised funds until Congress 
appropriates these funds back to the District, the District of 
Columbia Government would have had to shut down if the Federal 
Government shut down during the fiscal year 2012 Federal 
spending fight, even though the District had passed its budget 
the prior spring. Duh.
    If I recall correctly, Congresswoman Norton offered 
multiple amendments at the Rules Committee to allow the 
District of Columbia to continue to spend its local funds for 
the remainder of fiscal year 2011. The Republicans rejected 
each of these amendments and refused to consider her stand-
alone bill that would have accomplished the same goal.
    Mayor Gray, how much time did you and other members of your 
administration have to devote to shut-down-contingency 
planning?
    Mayor Gray. It was scores of hours and scores of people who 
worked on it. The city administrator had the responsibility, 
Mr. Cummings, for directing this effort. We had the city 
administrator, all the deputy mayors, and every department head 
involved in this exercise in putting together a plan, beginning 
with going back and researching what happened about 15 years 
ago when this occurred previously.
    A plan was put together. And, frankly, had it been 
implemented, and you heard the chairman talk about this, 
Chairman Brown talk about this, there would have been service 
shutdowns that really would have affected adversely the people 
of the District of Columbia. Libraries would have been shut 
down. Trash would not have been picked up. The Department of 
Motor Vehicles would have had to shut down. Our Consumer and 
Regulatory Affairs Agency would have had to shut down.
    And, frankly, we have the money in our budget to be able to 
do that. We were being treated like another department of the 
Federal Government, when in fact we aren't. We're not the 
Department of Commerce or Justice or Health and Human Services 
or Interior or any other department like that. We are a 
separate jurisdiction. We raise $5\1/2\ billion a year to 
support those services. We had a balanced budget that we 
adopted, as you've indicated, last spring and early summer; and 
we're ready to implement that.
    We never should have been caught in this; and, frankly, 
having to put together a shutdown plan diverted the attention 
of our department heads, as well as our other leaders, from 
running the services every day in order to craft a plan in 
anticipation of a shutdown.
    Mr. Cummings. Thank you very much.
    I see my time is expired, Mr. Chairman, and thank you.
    Mr. Gowdy. Thank you, Mr. Cummings.
    Mr. Gray, I believe if I recall correctly you have city 
business to tend to beginning at 9:30.
    Mayor Gray. Yes, sir. I have to be back up shortly, back up 
to the Wilson Building.
    Mr. Gowdy. Chairman Brown, I know you have important 
business to tend to as well. We have another panel. So what I 
would propose is maybe a continuing dialog. I know that you 
have one with Ms. Holmes-Norton and I'm sure others and been 
gracious enough to host me as well. Love to talk to you about 
the Metro and anything else on your minds, but I also want to 
keep my word and get you where you need to get.
    Yes, ma'am.
    Ms. Norton. Mr. Chairman, just for the record, in light of 
the fact that Mr. Cummings is here, I would like to note for 
the record that Mr. Cummings' city, Baltimore, has had a needle 
exchange. Baltimore is a city that struggles considerably more 
than the District. This has been a white collar town. The 
District has had the highest AIDS rate in the United States, 
higher than our good sister Baltimore. One would not have 
expected that, and it would not have been the case if the 
Congress of the United States had not denied the District of 
Columbia the right to spend its own local money to save the 
lives of District of Columbia residents.
    Thank you, Mr. Chairman.
    Mr. Gowdy. Yes, ma'am.
    Mayor Gray, the distinguished gentleman from California, 
the chairman of the full committee, a lot of us, as you know, 
have to go from committee to committee. Judiciary is having one 
this morning as well. I don't know whether your schedule will 
allow me.
    Mayor Gray. Of course.
    Mr. Gowdy. Then I would recognize--and thank you for that, 
Mr. Gray. But I would recognize the gentleman from California, 
the chairman of the full committee, Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman.
    Mayor, Chairman, I really appreciate your making the time 
this morning. Hopefully, this can be a regular dialog, not 
always at a formal hearing. But under both of my predecessors, 
I think there continues to be a good relationship.
    One of the challenges--and the gentlelady from the District 
of Columbia does a good job of representing a point of view of 
the District, but one of the things that we seem to see here is 
that there are more views of the District than just hers. And I 
might note and actually comment on the impact of both chartered 
public schools and the private school community within the 
District and how you feel you will work with Federal funding 
that helps in that effort.
    Mayor Gray. Well, we'll try to make everything work that's 
required of us.
    As I indicated, Mr. Chairman, earlier, we have a very 
robust commitment to public education in the city. We're making 
very substantial investments in that regard. The biggest 
increase in this budget proposed for fiscal year 2012 is in 
public education and especially in early childhood education 
and trying to get our kids with disabilities back into public 
education environment. So for me, and I've said it many times 
before, I think that the future lies for us in having a robust 
public education system.
    Our charter movement I think is second to none in the 
Nation. As I indicated earlier, we have 52 charter schools, 
we're adding four more on 93 campuses, and they serve now 
30,000 children, or close to it, which provides an opportunity 
to offer an enormous amount of choice to our kids.
    It's the first time we've seen enrollment increases in our 
traditional public education in 41 years, and the first time 
since the advent of charters back in the 1990's that we've seen 
enrollment increases in both. So I think we're going in the 
right direction.
    Mr. Issa. Let me have a followup question on a completely 
different subject, but I think one that is near and dear to all 
of us who went through a series of continuing resolutions, no 
budget last year, essentially one after another short-term 
financing of the government, and I know that impacts you as the 
Federal city. If we're able to come up with a system that 
allows you to continue operating not with Federal funds but 
with your own means, if for any reason there is a break in full 
funding or, in another way of putting it, even if there isn't, 
if we wait to the 11th hour for you to maintain all services 
even through a period of uncertainty, do you believe you're 
prepared to do that on an annual basis with a budget that 
reflects a contingency for no Federal funds coming?
    Mayor Gray. Well, for the most part, we receive Federal 
funds in the same way as other States do.
    Mr. Issa. No, I understand that. But if the Federal 
Government had not fully funded all aspects of the government, 
the States would have been without certain Federal funds, but 
they would have, for example, picked up Medicaid. No Medicaid 
person would have found themselves without money. Because the 
States, as sovereigns, would have found a way to meet their 
obligation, even if Federal funds were delayed.
    My question to you, and it's an important question, when 
you look at your budget and contingencies, if we essentially 
allow for the city to be, at least on an annual basis, early on 
disconnected from what may or may not happen in a continuing 
resolution, a budget battle, a debt ceiling, all of those which 
I think this committee is concerned, are you able to give us a 
contingent budget that shows that for X period of time you can 
continue to provide all the required services of the Federal 
city?
    And I said ``Federal city'' because we're not just talking 
about school. We're talking about police and all the functions, 
many of which are ultimately services that are provided, often 
with reimbursement. Your city receives a certain amount of 
impact aid equivalent to make up for the fact that embassies 
don't pay property tax and so on.
    So my question today is one of can you now or in the near 
future give us, if you will, a contingency plan so that this 
committee could look at a way to say, OK, per that plan, on an 
annual basis we can forward allocate authorization so that the 
District of Columbia is never caught up in what might be weeks 
or months of uncertainty in the budget process?
    I would like to see the city have that capability on a go-
forward basis, but I'm looking for some sort of a structured 
mechanism to where this committee could say, they have a plan, 
they can live without Federal dollars and still meet the 
requirement. And each time that is received it would allow us 
to say, we have no reason to be in the way of your spending 
your dollars if you can make the commitment. And we all 
understand the contingent plan would not fully fund everything 
you want to do, and it may not be able to do it for a full 
year, but can you comment on that?
    Mayor Gray. Well, first of all, again, as I indicated, we 
raise $5\1/2\ billion in local tax dollars. And many of our 
services----
    Mr. Issa. By the way, I'm very aware that I pay twice as 
much as a nonvoter in the District of Columbia than your voters 
do, and I'm very aware that you have a wonderful scheme to make 
sure those without representation pay twice as much tax. But go 
ahead, please.
    Mayor Gray. I would like to hear more about that so we can 
expand it to others.
    No, I think many of our services----
    Mr. Issa. It's called your homestead, but go ahead.
    Mayor Gray. Many of our services, as you know, Mr. 
Chairman, are completely funded with local dollars; and we 
certainly would be prepared to be able to do that with budget 
autonomy. That's one of the points that we have made.
    Again, and I think you're saying this as well, if it was 
something like Medicaid for us, our Medicaid formula is 70/30, 
70 percent Federal, 30 percent local. And that formula is no 
less than 50/50 for every State. So we wouldn't find ourselves 
in any different situation than the States would on programs 
like that.
    But those things that are wholly funded with local dollars, 
we've demonstrated we can do that, and we are prepared to do 
that. That's one of the, I think, strongest arguments we have 
for budget autonomy. That if you look back over the past 13 to 
15 years we've indicated that we've had balanced budgets, we've 
had clean audits, and demonstrated our ability to manage our 
finances in a very prudent manner.
    Mr. Issa. Thank you. I thank the gentleman for his 
indulgence and yield back.
    Mr. Gowdy. Thank you, Mr. Chairman.
    Let me quickly recognize the gentleman from Illinois, Mr. 
Davis.
    Mr. Davis. Thank you very much, Mr. Chairman; and let me 
appreciate your sensitivity to the needs of our witnesses to 
move on to other pressing business.
    I also appreciate the presence of both the chairman of the 
full committee and the ranking member as an indication of how 
important this issue is to all of us.
    And I would ask unanimous consent to submit for the record 
an opening statement, as well as an editorial from the 
Washington Post entitled Congress Should Loosen Its Fiscal 
Reins on D.C., and I yield back.
    Mr. Gowdy. Yes, sir, Mr. Davis. Without objection, indeed, 
all Members may have 7 days to submit opening statements for 
the record and any other extraneous material.
    [The prepared statement of Hon. Danny K. Davis follows:]



    
    Mr. Gowdy. Mr. Mayor, Mr. Chairman, on behalf of all of us, 
thank you for your time. As the second panel approaches, we'll 
take a brief recess. And if you have an extra second I would 
like to come down and thank you both in person.
    [Recess.]
    Mr. Gowdy. It is my pleasure to recognize our second panel 
and welcome you and thank you for your patience and indulgence 
for being the second panel.
    Pursuant to committee rules, all witnesses will be sworn 
before they testify. So I would ask you to please rise with me 
and raise your right hands.
    [Witnesses sworn.]
    Mr. Gowdy. May the record reflect all of the witnesses 
answered in the affirmative.
    I will introduce the witnesses from my left to right, your 
right to left. First is Dr. Natwar Gandhi, who is the chief 
financial officer of the District of Columbia. In the middle is 
Mr. Matt Fabian, who is the managing director of the Municipal 
Market Advisors. And last but not least is Dr. Alice Rivlin, 
who is a senior fellow at the Brookings Institution and was 
former Chair of the D.C. Control Board.
    I will recognize each of you in the order I introduced you 
for 5-minute opening statements. And again, thank you for 
joining us.

   STATEMENTS OF DR. NATWAR GANDHI, CHIEF FINANCIAL OFFICER, 
DISTRICT OF COLUMBIA; MATT FABIAN, MANAGING DIRECTOR, MUNICIPAL 
  MARKET ADVISOR; AND DR. ALICE M. RIVLIN, SENIOR FELLOW, THE 
 BROOKINGS INSTITUTION, FORMER CHAIR OF THE D.C. CONTROL BOARD

                 STATEMENT OF DR. NATWAR GANDHI

    Mr. Gandhi. Good morning, Mr. Chairman. Thank you, Mr. 
Chairman, members of the subcommittee, Mr. Davis, Ms. Norton, 
Mr. Clay.
    I am, as you pointed out, Natwar Gandhi, chief financial 
officer of the District of Columbia Government. I am pleased to 
be here for the subcommittee's hearing on Mayor Gray's proposed 
2012 budget and financial plan.
    Mr. Chairman, in 1995, the U.S. Congress created the Office 
of the Independent Chief Financial Officer to work with the 
mayor and the Council to maintain the District's fiscal 
stability and enhance its financial liability. Since then, we 
have completed 14 consecutively balanced budgets and expect to 
end the current year in the same manner.
    Between 1996 and 2008, we turned a cumulative $550 million 
deficit into an impressive $1.2 billion fund balance. Further, 
we transformed a nearly bankrupt District Government, plagued 
with junk bond ratings, into a financially credible 
jurisdiction with strong credit ratings.
    Indeed, our turnaround from junk bonds to status A category 
bond ratings was faster than any other major city that has 
undergone similarly a financial crisis, including New York, 
Philadelphia, Cleveland, and Detroit. Attachment 1 to my 
testimony and the board before you on my left tells the story 
of the District's successful return to fiscal solvency and 
financial stability.
    This turnaround is a case study in commitment to improved 
financial management and practices. Our General Obligation bond 
ratings have increased at an unprecedented speed. They now 
stand at A+ from Standard & Poors and are in the AA category 
from Moody's Investor Services and Fitch Ratings. In addition, 
our Income Tax Revenue Bonds are rated AAA by Standard & Poors. 
This is indeed a record of which the District can be 
justifiably proud.
    As in the case of many jurisdictions around the country, 
the recession of the past several years have taken a toll on 
our finances. Our General Fund balance has dropped from a peak 
of $1.6 billion in 2005 to $890 million at the close of 2010, a 
decrease of some $695 million over 5 fiscal years. In early 
February, the newly elected leadership and I visited the three 
rating agencies to discuss the reserves and lay out a plan for 
the future.
    I am pleased to report that the mayor's 2012 budget and 
financial plan meets the rating agency expectation despite the 
difficulties experienced due to loss of about a quarter of 
previously projected 2012 revenues and expiration of the 
Federal stimulus fund, a loss of some $228 million compared to 
the previous fiscal year.
    The mayor's proposed budget meets all the criteria required 
for certification by the chief financial officer, and they are:
    This proposed budget is balanced.
    It does not use any Fund Balance; that is, it requires the 
District to live within its means.
    It is in compliance with our Debt Cap Act which limits the 
debt service on our tax-supported debt to 12 percent of 
expenditures.
    Mr. Chairman, I would like to take the issue with those who 
proclaim that the District's finances are failing to the point 
that a reinstatement of a Control Board is imminent. Yes, the 
District is facing challenges, but none of the seven Control 
Board triggers will be breached. Congress in its wisdom created 
the Office of Chief Financial Officer for the purpose of 
preventing any of those triggers. Our elected leadership 
pledged to the rating agencies, and to District residents, that 
they will do what is necessary to balance the budget without 
the use of fund balance and limit borrowing to stay within the 
debt cap.
    Our challenges, however, are significant. The District, as 
the urban center of a large metropolitan area, houses a 
disproportionately large share of very poor and needy citizens. 
The District's overall poverty rate of 17 percent and the child 
poverty rate of 26 percent are among the highest in the Nation 
and more than three times the comparable rate across the 
neighboring counties. Unlike other jurisdictions that provides 
services to a large share of the region's poor, the District 
cannot divert resources from wealthier suburban areas to serve 
its urban poor.
    In this environment of continuing expenditure needs, the 
challenges posed by reduced revenues is substantial. Kindly 
permit me to briefly note two areas that merit continuous 
attention. Both go to the unfunded mandates that restrict the 
District's own taxing power.
    The prohibition on taxing the income earned by 
nonresidents, including those who commute into the city on a 
daily basis. That 66 percent of income generated in the 
District is earned by nonresidents makes the simple point.
    The District also has an especially high concentration of 
nontaxable real property, much of it off the tax rolls due to 
the presence of the Federal establishment. The value of 
property here by the Federal Government alone is 30 percent of 
the nonresidential property values.
    Mr. Chairman, I will not belabor on the issue of the 
District's budget economy. The mayor and the chairman spoke so 
eloquently about that, but I emphasize my endorsement of their 
views.
    I want to thank you for your leadership, sir, and 
appreciate your wisdom in visiting our offices, and I 
appreciate your interest very much.
    [The prepared statement of Mr. Gandhi follows:]



    Mr. Gowdy. Thank you, Dr. Gandhi. It was a pleasure to meet 
with you.
    Mr. Fabian.

                    STATEMENT OF MATT FABIAN

    Mr. Fabian. I thank you, Mr. Chairman.
    Before I begin to speak about the District of Columbia, I 
just wanted to emphasize that Municipal Market Advisors, my 
firm, is a pure independent research company. So we make no 
money on trading, underwriting, investing in municipal bonds. 
We provide pure research and sell that research for 
subscriptions, and that makes up about 95 percent of our 
revenues.
    You know, normally when we do an awful lot of commentary 
about the municipal bonds--oh, and I have my statement which 
I've submitted but I will speak off of that just to keep things 
time efficient.
    Normally our company talks a lot about the municipal bond 
market in general, and we have spent a disproportionate amount 
of time in recent 2 years looking at distressed credits, 
Jefferson County, Harrisburg, Vallejo, California, so it is a 
real pleasure to spend some time and look at the District of 
Columbia, which has done so well in the financial crisis of 
managing largely through the practices from the management team 
like Dr. Gandhi.
    I have to say that as things have gotten tighter, as credit 
conditions and tax revenues have gotten thinner across the 
country, the financial abilities of city managers across the 
country has been strained, and it has begun to undermine 
willingness in some cases to honor obligations. That is 
completely the opposite of the case in the District. We have 
seen very strong management responses and, if anything, an 
increasing willingness toward bond holders and toward servicing 
their obligations. Just so with that as sort of the opening 
context.
    You know, there's two--and I have an awful lot of 
information in my statement about the structure of the bonds 
and investor perception of the bonds. But you know, let me say 
that there's two particular successes I'd say that management 
has had over the past few years.
    First is the imposition of the more conservative debt cap 
to 12 percent of annual spending. Sorry. Yes. And that has been 
from widely recognized by the rating agencies as a credit 
strength and from looking at, you know, at the future economic 
prospects of the District and the country things will continue 
to be very difficult. The financial crisis for the States and 
for cities and for governments like the District is 
transitioning from a revenue problem into a spending problem.
    So, you know, proactive limits on debt and leverage are 
very well received in the municipal bond market today.
    In addition, their restructuring of their variable rate 
debt over the last few years. Variable rate debt, it is long 
maturity bonds where the coupon resets every week or every day. 
Mostly these are packaged with derivatives. Prior to the 
financial crisis, the District had about 22 percent of its debt 
in these kinds of instruments. It is very difficult because 
that is the exact kind of instrument which came under pressure 
in the financial crisis.
    The District was able to use its new income tax bond 
structure and because of its very high ratings was able to 
restructure a huge amount of that debt, and now its exposure to 
variable rate is a very manageable 9 percent. So I have to say 
they have been very proactive in hitting the exact area where 
the municipal bond market was weakest in their response.
    Looking forward, you know I do say that like I said before 
the financial crisis is not necessarily abating for cities and 
States. The National Governors' Association has talked about a 
lost decade for State revenues starting last year. So 2010 to 
2020 are going to be a very difficult time for government 
managers everywhere. So I think continuing to prepare for the 
fiscal crisis is exactly what the District has done.
    The improvements, the situation that has come up in the 
earlier panel talking about budget autonomy, it is a very 
important one for the municipal bond market. If you think about 
what happened just prior to the government shutdown, you know, 
the District because of its--because of how their debt is 
structured is able to service most of its debt even without 
congressional authorization and without the city budget 
appropriation except for the city certificates of 
participation. So there is a $240 million bonded obligation 
that the District has which under the law would not have been 
able to pay had the Federal Government shut down.
    So there could now--the city managers were doing all they 
could to make sure that didn't happen. But they were taking 
emergency steps to do so. In theory, they may not have been 
able to pay those interest payments, which is something that 
even in the depth of a financial crisis the District did not 
miss a payment.
    So you know in this current municipal bond market where 
there is an enormous amount of concern being put on credit 
quality of State and local issuers, to have the District even 
incidentally miss a debt service payment because of the actions 
of Congress you know would have had a real impact on the debt 
service cost of the District going forward.
    Thank you.
    [The prepared statement of Mr. Fabian follows:]



    
    Mr. Gowdy. Thank you, Mr. Fabian.
    Dr. Rivlin.

                STATEMENT OF DR. ALICE M. RIVLIN

    Ms. Rivlin. Thank you, Mr. Chairman, for inviting me to 
testify today. I have been involved with the District's 
finances for a long time, for more than 2 decades. Over that 
period, our Nation's capital has gone from a financial basket 
case to a responsively managed and fiscally healthy city. In my 
brief remarks, I will try to put the District's situation in 
some historical context.
    This year Washington, like most cities, is dealing with 
difficult budget choices. The deep recession and the 
extraordinary weakness of the housing market has cut city 
revenues, especially property tax revenues. And at the same 
time the increased needs of the jobless and homeless residents 
have put upward pressure on spending.
    This combination has made balancing the budget far more 
challenging in the last 3 years than earlier in the decade when 
things were going better. That's true of all cities. The impact 
of the recession on D.C.'s finances has been considerably less 
serious than in many cities that were hit harder by the 
recession and the foreclosure crisis.
    Compared to other cities, the D.C. economy is actually 
doing quite well. Jobs are up, population is growing, economic 
development is resuming and city revenues are beginning to edge 
up again.
    However, as the mayor and the Council Chair have 
emphasized, Washington is a bifurcated city with prosperous 
areas primarily on the western side of the city and high rates 
of poverty, unemployment, and underemployment primarily on the 
eastern side. So efforts to mitigate these problems make the 
D.C. budget challenging.
    The District must provide both city and State-like services 
and it has a narrow tax base mainly because Congress prohibits 
the District from taxing the incomes earned in the city by 
nonresidents.
    Mayor Gray has proposed a combination of spending cuts and 
revenue increases designed to close a budget gap that was 
estimated at $322 million. This is a rather small shortfall in 
a $9.6 billion budget of which $6.3 billion are locally raised 
funds.
    There will be a debate about this budget in the Council, 
but I am confident that the final budget will be balanced in a 
fiscally responsible way.
    The main reason for my confidence is that the city has a 
strong record of fiscal responsibility stretching back to the 
end of the 1990's. More importantly, the mayor, the Council, 
and the chief financial officer are all committed to 
maintaining that record and avoiding any danger of the 
triggering of a new control period.
    I was personally involved in that unfortunate period of 
D.C. fiscal history and share the view that it must not happen 
again. In early 1995, the District was facing imminent 
bankruptcy. It was a really bad situation. The Federal 
Government had to step in and do what a State normally does: 
Put in place a Control Board.
    I was President Clinton's point person on doing that, and I 
worked closely with Delegate Norton, with Congressman Chair Tom 
Davis of the Congress, with Speaker Newt Gingrich and the 
leadership of the Senate. It was a thoroughly bipartisan 
effort. It had to be. And it resulted in the creation of the 
Control Board and the Office of the Chief Financial Officer.
    We wound up the Control Board successfully in 2001.
    The District residents and officials have taken the lessons 
of that difficult period to heart. For more than a dozen years, 
as has been emphasized before, the District has been a model of 
fiscal responsibility, has continued to balance its budget, 
built up its fund balance and cash reserves and improved its 
credit rating remarkably.
    In the last several years as the recession reduced 
revenues, the District has drawn down its fund balance, that's 
what reserves are for, but not to dangerous levels, and it is 
now in a position to begin replenishing those reserves.
    It is now past time, I believe, for the Congress to 
recognize the District's exemplary fiscal behavior and pass 
legislation giving the District fiscal autonomy, the ability to 
spend its locally raised revenues as its elected government 
sees fit. This would represent your faith in representative 
democracy that works.
    I've testified before on this subject, and I attach my 
testimony of November 2009 for the record.
    [The information referred to follows:]
    [Note.--The information referred to was not provided to the 
committee.]
    Ms. Rivlin. In short, Mr. Chairman, I believe that the 
District of Columbia has a manageable fiscal challenge this 
year and can be counted on to balance its budget in a 
sustainable and responsible manner, and I also believe that the 
Congress should demonstrate its faith in representative 
democracy by granting the District fiscal autonomy.
    Thank you, Mr. Chairman.
    [The prepared statement of Ms. Rivlin follows:]



    
    Mr. Gowdy. Thank you, Dr. Rivlin.
    Dr. Gandhi, can you take maybe a minute or so and update us 
on the hospital in the District?
    Mr. Gandhi. Yes, sir. As you know, we took over the 
hospital in July of last year primarily to make sure that the 
satisfactory health care services are provided in the area 
where there is a large needy population, and we wanted to make 
sure there is no interruption of health care services.
    So at that time we took over the hospital. Like any public 
health hospital, not-for-profit public health hospital, this 
hospital also has its challenges. In addition, it had a 
troubled history and it has substantial issues that we need to 
resolve.
    At the end of the day, the District will have to be quite 
mindful, given of our experience earlier with D.C. General 
Hospital some 10 years ago. When we went to Wall Street, there 
was substantial concern about our owning the hospital again. 
The mayor and the chairman and the leadership at the Council 
and in the Mayor's Office, they're all quite concerned about 
the viability of the hospital. We want to make sure that we 
provide health care services distributed, but at the same time 
we do not want to be in the hospital business. My expectation 
is that the mayor and the Council will resolve the issue 
satisfactorily.
    Mr. Gowdy. Dr. Gandhi, the District has a problem that 
other cities have, although the District problem may be more 
exacerbated, which is tax exempt properties, properties where 
you have to provide the service but you can't collect any 
taxes.
    Do you have a strategy? Do you have a plan? Is there a 
means by which you can adjust for that, the fact that you're 
providing services to buildings and places where you can argue 
there's not a contribution toward the greater good.
    Mr. Gandhi. That is one of the two major issues that we 
presently face in managing of our so-called constrained limited 
restricted tax base. One is of course the inability to tax 
people who work here and don't live here. And second is, as I 
pointed out in my testimony, a large chunk of real property is 
tax exempt. As I pointed out, the Federal Government, the tax 
exempt institutions, the World Bank, IMF, embassies, etc.
    I used to have an office on the 11th floor on the Judicial 
Square building. Outside I look. Beautiful museums, monuments, 
galleries. Nothing I could tax. That is a major problem for the 
city. It is that limited tax base.
    Other cities like Hartford, Cambridge, Philadelphia, they 
do have a PILT payment, payment in lieu of taxes. I am not so 
sure that is going to work here. But I think the Federal 
Government needs to take into account the fundamental 
limitation of our public tax base.
    In spite of all of this, our commitment to you, sir, and 
certainly of the independent chief financial officer, despite 
this limitations on our taxes, we will balance the budget, even 
maintain our financial viability and financial credibility on 
Wall Street.
    Mr. Gowdy. Dr. Gandhi, I've got about a minute left, so 
I'll ask the question quickly and then you can have the 
remainder of the time. Long-term pension liabilities in the 
city, what's the status? Any reason for concern?
    Mr. Gandhi. Well, I think in general we manage our 
liabilities very well. We do not have the major concern of the 
rest of the jurisdictions around the country of the pension 
liabilities. We do not have that. The Federal Government took 
over a bulk of our liability on that front. All of our long-
term liabilities, in particular the pension liabilities, are 
actuarially funded, fully funded, actuarially speaking, so we 
are very blessed and I would give great credit to our elected 
leadership, mayor and the Council, for abiding by that 
requirement.
    Mr. Gowdy. Thank you.
    I would recognize the gentleman from Illinois, Mr. Davis.
    Mr. Davis. Thank you very much, Mr. Chairman. Mr. Chairman, 
given the fact that Representative Clay has a markup that he's 
involved in, I would ask that I switch time with him and let 
him go and then I will take his order. I ask unanimous consent.
    Mr. Gowdy. Without objection.
    Mr. Clay. Again, let me thank the gentleman from Illinois 
and thank the chairman for conducting this hearing.
    A question for all three witnesses. How would you 
characterize the District's fiscal health in relation to other 
large cities?
    Starting with you, Dr. Gandhi.
    Mr. Gandhi. Thank you, sir.
    I'm pleased to say that relatively speaking, Washington, 
DC, is in better financial condition than perhaps any other 
major cities out there. We have still $343 million of so-called 
rainy day fund. We make sure that our budget is always 
balanced. We have a very independent and vigorous Office of 
Independent Chief Financial Officer that tracks our budget on 
a--almost on a weekly basis.
    So when you look at all these considerations, we are in 
very good financial condition. And that is not just me saying 
it. Wall Street says that. They reaffirmed our AAA bond rating 
on income tax bonds, a plus category bonds ratings on our GO 
bonds, with a stable outlook. That is more than what can be 
said about many other jurisdictions around the country.
    Mr. Clay. Mr. Fabian.
    Mr. Fabian. Well, I would agree also with Dr. Gandhi. I 
think that the location of the Federal Government has been a 
tremendous economic stabilizer for the city in addition to its 
management practices.
    Looking forward, you know one of the things that cities and 
States around the country have been very loath to do is to 
raise taxes to help balance the budgets. The District is at 
least considering this. And I think that you know from a Wall 
Street perspective having a city or a jurisdiction that is 
willing to look at all financial options to correct its 
structural budget gap is a real positive.
    Mr. Clay. Thank you. Dr. Rivlin.
    Ms. Rivlin. I agree with Dr. Gandhi and Mr. Fabian. We're 
in relatively good shape. And we're very lucky. I have 
sometimes said to the mayor when he was sounding down about the 
fiscal situation, ``Cheer up. You could be Mayor of Detroit.''
    The situation in cities that were in trouble anyway because 
they were losing their manufacturing base is much worse than it 
is here. And we are lucky that our major industry is the 
Federal Government and the activities that it attracts. And 
those are in pretty good shape.
    Mr. Clay. Thank you all for your response.
    And Mr. Chairman, as well as Chairman Issa, not to engage 
in a debate over the merits of the bill at this time, but as a 
question, could this committee seriously or the full committee 
take a serious look at Representative Norton's bill that gives 
the city control over its own tax dollars? I think that with 
the testimony that we've heard today, the city has certainly 
demonstrated their ability to, in a fiscally prudent way, 
manage their resources. Perhaps it is time that we actually 
take a look at giving the city more responsibility. We are 
guests here. And I just would like to hear.
    Chairman Issa. If the gentleman would yield.
    Mr. Clay. Yes.
    Chairman Issa. I have looked at the gentlelady's draft 
legislation earlier on. And now I am reasonably confident that 
no, we cannot accept budget autonomy fully. But I am going to 
be offering an alternative that I hope the gentlelady will join 
with me on that provides a mechanism for a separate vote and 
separate consideration of the District's funds. And that's what 
I was alluding to in my question with the mayor. And what I 
hope to be able to work with Delegate Norton on is an ability 
to have an early on annual vote to accept the budget--what I 
would call a contingent budget, the budget of exclusive 
jurisdiction of the District, meaning what they do with their 
money as it shall come in.
    I think that we would be hubris for us to assume that we 
could do anything about the appropriation process of other 
funds. But I think by bifurcating them, we can in fact come up 
with something that accomplishes what Ms. Norton is asking for. 
We can do it early on in every Congress and do it separate from 
the sometimes difficult budget process.
    Mr. Clay. Yes, and I thank you for your response. I would 
have to take a look at your proposal in more detail because----
    Chairman Issa. I'm looking for cosponsors when I drop it.
    Mr. Clay. But really I still think that we are treating 
this locale as a stepchild, and it is probably time we loosen 
the strings that we have applied to them since the 1990's and 
move forward. I mean, they have certainly shown fiscal 
responsibility.
    I know my time is up, but I yield back.
    Mr. Gowdy. I thank the gentleman from Missouri.
    At this time I would recognize the chairman of the full 
committee, the gentleman from California, Mr. Issa.
    Chairman Issa. Thank you, Mr. Chairman. Thank you for your 
indulgence as all of us go back and forth to Judiciary today.
    Dr. Gandhi, earlier on when I asked the mayor about 
contingent budget proposals, I knew I was asking the wrong 
person. But he was the right person to be asked first. When you 
look at the finances of the city, as a Federal city with all of 
the responsibilities, certainly we've met with your police 
chief many times and she has a responsibility like no other big 
city police chief because protests come here, other activities 
come here which she must deal with first even though she has 
backup of Federal agents.
    Do you believe that the District could produce an annual 
contingent budget? Now let's assume for a moment that we were a 
three-quarters/one-quarter ratio of all Federal funding to the 
District's self-funding for a moment. Do you believe you could 
produce a full funding document that would say we have a 
contingent capability for, let's say, 10 months meaning that if 
we receive substantially less, we can continue operating. If we 
receive nothing, we can operate for 10 months. And of course if 
it looks like for some reason there is no money coming, you 
could adjust.
    But do you believe that you could produce that contingency 
that would take us, let's just say, from this month to the end 
of the year on an annual basis?
    Mr. Gandhi. Yes, sir. And I say that quite advisedly 
because the Federal contribution to the District, distinctly 
for the District, is less than 2 percent of its budget. We get 
about $174 million, if everything the mayor is asking for 2012, 
the President is asking for is $174 million in a $10 billion 
budget.
    What the budget autonomy that I am endorsing here is that 
let us spend our local dollars and obviously $174 million that 
I'm talking about must be appropriated by the Congress in its 
usual regulatory and legislative way, and that's fine with us.
    All we are suggesting here is that when we pass our own 
budget, as we will in June, that we should be allowed to spend 
money. And second, if you give us budget autonomy, then we 
would like to realign our budget with our specific needs. 
October, September, the timeframe doesn't work for local 
government.
    The next thing I would say is that dependent upon the 
Federal Government----
    Chairman Issa. What date would work for you, Doctor?
    Mr. Gandhi. The date for any other local jurisdiction which 
is June-July.
    Chairman Issa. So echoing what you're saying, if we 
considered a D.C. money only--and by the way, that would 
include, for example, a school lunch program that you expect to 
have Federal money for not getting it. So I want to make sure 
that when we talk about no Federal dollars, that you would 
maintain all that you believe you need.
    If that were the case and we were to deliver, you were to 
deliver us a budget by let's say March, we were to forward it 
through the Congress and have it passed before July as a free-
standing separate from appropriations, that would meet your 
needs very well, recognizing that the dollars that would come 
from the Federal Government would come on a different schedule?
    Mr. Gandhi. Yeah. I understand that. And all, again to 
repeat myself, all we want is to make sure that we spend, are 
allowed to spend our local dollars according to our own wishes 
and according to our own timetable.
    Chairman Issa. Any other comments on the idea of 
bifurcating the two?
    Mr. Fabian. I think that it would be a real credit strength 
from a Wall Street perspective. We're still having that level 
of Federal oversight to make sure that the District keeps its 
game clean. But otherwise, again, absolutely.
    Chairman Issa. You said something and I want to be careful. 
I don't to accept ``game clean'' but the view at least from 
this side of the dais for myself has been that the District, 
although it has done a very good job in recent years, lacks an 
equivalent--Los Angeles does a good job, but ultimately 
Sacramento has a major role in education and so many other 
areas. The view is we don't have as major a role but we have a 
role. And I think that's what you were saying.
    Mr. Fabian. Yes. Exactly, absolutely.
    Ms. Rivlin. Yes. I think this would be possible and that it 
is a very good idea. And the Congress would not be 
relinquishing its ultimate oversight responsibility and the 
provisions that in extremis would bring back a Control Board.
    Chairman Issa. Well, it is the goal of this committee to 
have sufficient oversight and have sufficient good conduct that 
we will never go back to the days in which you had hands in 
every aspect of it far beyond this committee.
    I thank the chairman, and I yield back.
    Mr. Gowdy. Thank you, Chairman Issa.
    The chair would now recognize the distinguished lady from 
the District of Columbia, Ms. Holmes Norton.
    Ms. Norton. The ranking member is taking Mr. Clay's place, 
so I understand.
    Chairman Issa's proposal is something I want to very much--
it is the first I've heard of it, but it is one I certainly 
very much would like to work with him on and to build on. 
Indeed, during the shutdown I had a number of bills just to 
keep us open for the rest of the year. But then I had one bill 
that said in the event of a shutdown, in any year, the District 
may spend its local funds so that we would not have to go 
through what we went through this time.
    If what you say on schools--and I'd like any or all of you 
to speak about that--the incongruity between the fiscal year of 
the Federal Government and the fiscal year of every other 
jurisdiction in the United States I know has created real havoc 
in some years. Could you speak about that incongruity and what 
it does to a local jurisdiction to be faced with schools 
opening in September before the fiscal year has even begun?
    Mr. Gandhi. Yeah. Let me first comment on your suggestion 
on the Federal Government closing itself and impact it has on 
the District Government. My expectation is that we would lose 
anywhere from $1 to $5 million a week and that is just a taxing 
fact.
    Ms. Norton. If we had closed down.
    Mr. Gandhi. Yes, ma'am. And if we talk about the economic 
impact, you're talking about $15 million a week.
    Further, the idea of us deciding on our own gives us a 
flexibility to adjust ourselves. We basically manage our budget 
based upon the revenue assumptions that were made some 18 
months ago. So there is no flexibility when circumstances 
change, revenues decline, expenditures go up. We don't have a 
way to adjust of ourselves.
    Next is that any emergency arises, as in case of hospital, 
when we had to take over the hospital, we had no authority to 
spend money there. So what we had to do is to borrow money from 
other contingency funds just to make sure that hospital remains 
operational, that the emergency care is provided, that doctors 
are paid, the salaries are paid.
    And last on the school issues, because the schoolyear 
doesn't correspond with the fiscal year, what we have to do 
every year, we have to give an advance money so the school can 
start planning ahead of time for that academic year which 
doesn't coincide with the fiscal year.
    So I think it would be a major implement of our ability to 
manage budget if we have the budget autonomy. To repeat myself, 
we are talking about only the local dollars. We're not talking 
about Federal dollars.
    Mr. Fabian. From a bondholder's perspective they certainly 
value predictability and flexibility in any issuer. So having a 
sense that revenues will continue to come in and that they 
could be spent in a predictable way is very important. I think 
that from the idea of the fiscal year shift, you know again it 
speaks to the exact same issue and it may also facilitate the 
District's needs to borrow for cashflow midyear if it does need 
to do that.
    Ms. Norton. Dr. Rivlin.
    Ms. Rivlin. I agree with all of that.
    Back on the school issue, I believe every State has a June-
July fiscal year and the reason they've chosen that is for this 
reason, that schools are majorly inconvenienced by starting in 
August or September and not getting their budgets until the end 
of September.
    Ms. Norton. Can I ask one more question?
    I was very concerned during the shutdown period about 
possible default or having to somehow redo contracts if some of 
them came due during the time or in between the time and what 
those who held these notes would think and whether it would 
have consequences the next year when you went to get contracts 
or notes. And I wish you would comment on the effects on 
possible default or on other contracts and on contracts in the 
future given the fact that you were close to default this time.
    Mr. Gandhi. Yeah. I think that is a major concern for us. 
Obviously our debt service on gender obligations bonds, income 
tax bonds is assured because we put that money in escrow. 
However, we do borrowing on what is known as certificate of 
participation, 240-plus million dollars out there, which we use 
to buy police cars and safety equipments, hospital staff. On 
that we will not be able to pay our debt service because there 
will be no appropriation for us to be able to pay because 
Congress was shut down, and that would cause a major havoc in 
those areas, in public safety, in public health. And as Mr. 
Fabian pointed out, the bond agencies and financial market want 
certainty and what now appears to be a likelihood that 
government, the government may shut down because of the debt 
limit controversy at the Federal level. Then you know that 
causes problem for us.
    Ms. Norton. Mr. Fabian.
    Mr. Gowdy. Mr. Fabian, I hate to cut you off. We ran 
through the red light by about a minute. So we may have time to 
come back to Ms. Holmes Norton, but at this point I'd like to 
recognize the gentleman from North Carolina, Mr. McHenry.
    Mr. McHenry. I thank the chairman, and thank you for your 
testimony, and I read--have taken a look at your testimony and 
I am obviously interested in this issue.
    I have a subcommittee, I chair a subcommittee which 
Chairman Gowdy is also on. We have been looking at State and 
municipal creditworthiness. It is a very interesting issue in 
light of unfunded pension liabilities.
    Now Dr. Rivlin, I know you have a unique experience here, 
but in the 1990's basically the Federal Government did bail out 
D.C.'s pension liabilities, and then D.C. has since switched to 
a defined contribution pension plan. Has that been successful? 
Has it provided stability financially for the District and its 
taxpayers?
    Ms. Rivlin. Yes, it has. The District pension liability was 
very large. I forgot the numbers, now but it had been 
accumulated while the Congress ran the District. It was pre-
home rule liability. So those of us in the District didn't 
think of it as a bailout. We thought of it as the Federal 
Government facing up to the liabilities that it had created. 
Fortunately it did, and the District was able to essentially go 
forward with a better constructed pension plan.
    Mr. McHenry. Dr. Rivlin, you know you certainly have a 
unique perspective and you certainly put forward some 
interesting ideas on entitlement reforms writ large, and we 
appreciate your service to your government. Thank you for being 
here today.
    Ms. Rivlin. Thank you.
    Mr. McHenry. Mr. Fabian, in terms of a municipality or 
State or it is the District's credit profile, does that defined 
contribution versus defined benefit pension liability or 
pension fund, does that have a bearing on their credit profile?
    Mr. Fabian. The existence of one versus the other is really 
inconsequential. It is just about the annual burden of how they 
fund up the contribution and how they manage the long-term 
liabilities. So the fact that we switched to defined 
contribution, it doesn't really impact the credit quality. Bit 
just let me say that going forward in the last year and over 
the next few years, pension liabilities will become a larger 
factor for the rating agencies so they will tend to bring 
ratings down. The fact that the District doesn't have that 
means that the District rating will not be subject to those 
same pressure.
    Mr. McHenry. So net positive going forward that they have a 
defined contribution rather than a defined benefit plan in 
terms of credit rating?
    Mr. Fabian. Yes, sir.
    Mr. McHenry. And in terms of the accounting of those 
pension liabilities. I mean basically what you're saying is if 
you have a well funded, well capitalized pension plan, you 
don't really make a judgment about the contents of it. You just 
simply judge whether or not it is appropriately funded, right?
    Mr. Fabian. That's right.
    Mr. McHenry. But the accounting of these pension funds, do 
you have some concerns about how States, municipalities, and 
the District account for--I'm sorry, not the District but 
larger than this, but the accounting of these defined benefit 
pension plans?
    Mr. Fabian. Well, you know for sure you know there has been 
or there have been accounting issues in the past. I think that 
the efforts of the GASB to reconcile that and begin to organize 
it are definitely a positive. The Nunez-Issa-Ryan bill I think, 
which would require more uniform accounting of those pension 
liabilities, is from a credit analyst's perspective, is maybe a 
step in the right direction, although there are limits on 
looking at limiting the States access to tax exempt markets, 
you know, is also very difficult to say. I think it needs to be 
carefully drawn, you know, encouraging those or requiring those 
conditions but at the same time not necessarily limiting access 
to the capital markets.
    Mr. McHenry. Dr. Gandhi, can you comment on your view in 
terms of your role on whether or not this defined contribution 
pension plan has been helpful in terms of your role in making 
sure the District is fiscally solvent?
    Mr. Gandhi. Well, the District is fiscally solvent. Whether 
we want to have a defined benefit or defined contribution plan, 
it is a policy decision of the mayor and the Council. My 
obligation here is to make sure that we don't land it, suggest 
and implement, to be appropriate for District. That land must 
be properly actuarially funded. And as I pointed out earlier, 
our plan is actuarially fully funded. And I think we may be 
among the very, very few jurisdictions in the country to claim 
that and, as Mr. Fabian pointed out, it suggests a great credit 
strength on our part.
    Mr. McHenry. Thank you, and thank you for your service to 
our government.
    Mr. Gowdy. I thank the distinguished gentleman from North 
Carolina.
    And I would now recognize the distinguished gentleman from 
Maryland, the ranking member of the full committee, Mr. 
Cummings.
    Mr. Cummings. Thank you very much. Again, as I've listened 
to the testimony, I am convinced that, Dr. Rivlin, I'm 
convinced that the District of Columbia could teach the 
Congress some things.
    I find it interesting that we bring the District of 
Columbia here and looking at their budgetary situation, one 
which has been addressed in a very responsible way, as I said, 
combined with compassion, and keeping people well, making sure 
kids are educated. There are cities and States that could, and 
this Congress that could take a few pointers.
    But I want to just ask you, Dr. Gandhi, and then I am going 
to yield, Mr. Chairman, to my colleague Ms. Norton, Holmes 
Norton. You know the one thing that the District has that I 
wish we had in Baltimore is that you've got property--by the 
way, congratulations on your great work.
    Mr. Gandhi. Thank you.
    Mr. Cummings. You've got property values that are going up.
    Mr. Gandhi. Yes, sir.
    Mr. Cummings. Which is phenomenal. I mean that to me is 
major. I mean has there been sort of like a rediscovery of the 
District? I mean, in other words, it seems like everybody wants 
to now live in the District. And I remember when I was a 
student at Howard University a long time ago back in 1969, I 
remember I used to see all of these vacant houses and I used to 
say to myself as a student, it would seem as if every square 
inch of the District of Columbia would be invaluable because it 
literally is the capital of the world. And it seems like people 
are discovering that. And I am just wondering how does that 
help with your stability with your tax base and help you to 
collect that $5 billion plus that the mayor talked about?
    Mr. Gandhi. Your assessment is entirely correct, sir. The 
District is presently perhaps the most sought after commercial 
real property market in the country, if not in the world. The 
last two major investments that have happened in just last 2 
months, one at the city's center, $700 million development, the 
money came from Middle East; $500 million investment in 
Convention Center, a hotel, again money came from the Middle 
East.
    People are flocking to the District, and the amount of the 
revenues that have added roughly $165 million in a--basically 
all of that is real property, commercial real property.
    I think the image of the District of eighties and nineties 
is gone. What you have now is a vibrant, hip city that is 
culturally very diverse. It has cultural climate. It has 
attraction in terms of the entertainment, in terms of 
education, in terms of governance that are truly unique.
    Mr. Cummings. Did you say ``hip'' city? Is that what you 
said?
    Mr. Gandhi. Yes, sir.
    Mr. Cummings. I thought I was hearing things.
    Mr. Gandhi. All I suggest is Mount Pleasant area and 
Gallery Place area. And 30 years ago when I used to be at the 
General Accounting Office--now the Government Accountability 
Office--that area around Gallery Place, Chinatown, you know was 
really not a safe area in the evening. Today you will see 
thousands of people every evening.
    Mr. Cummings. I know. I see it. I go to the movies down 
there.
    Mr. Gandhi. That's our Times Square, sir. That's our Times 
Square. And wait till another few years and you will see the 
area around the stadium is going to be very attractive area.
    Today the city has more theater per person than any other 
city in the country. We have world-class Shakespeare Theater, 
Kennedy Center, Arena Stage. I mean, I can go on and on, and 
great educational institutions here. I think the city has a 
great future ahead, a great future ahead and great credit 
should go to District mayors and Council and community and 
civic leaders like Dr. Rivlin here. I think the city is on a 
great promise here.
    Mr. Cummings. I see Dr. Rivlin wants to say something.
    I'm sorry, Ms. Norton. Dr. Rivlin.
    Ms. Rivlin. I just want to add a cautionary note. I agree 
with everything, the enthusiasm of Dr. Gandhi about the city. 
But that very resurgence and the upward pressure on property 
values and rent creates problems for a city which has a large 
low-income population and creates needs in terms of affordable 
housing that are difficult to meet.
    Mr. Cummings. Thank you. Thank you very much.
    Mr. Gowdy. I thank the gentleman from Maryland.
    The chair would now recognize the distinguished gentleman 
from Illinois, the ranking member of the subcommittee, Mr. 
Davis.
    Mr. Davis. Thank you very much, Mr. Chairman. I thank all 
three of you.
    Dr. Gandhi, tell me, how long have you been involved with 
the financial operation.
    Mr. Gandhi. I have been the chief financial officer now for 
10 years.
    Mr. Davis. And prior to that time?
    Mr. Gandhi. I was head of the Office of Tax and Revenue and 
before that I was with the General Accounting Office [GAO]--now 
the Government Accountability Office [GAO].
    Mr. Davis. I was just as I listened, thinking that probably 
yourself, Dr. Rivlin, and perhaps council member and former 
Mayor Marion Berry probably knows very much about the history 
and operation of District of Columbia finances and government 
as anybody alive. I mean, there would probably be nobody else 
alive who knows much about this as the three of you.
    My question is, and I've served for three terms as a member 
of a large city council, the City Council in the city of 
Chicago, and I was trying to rationalize what is it that 
Congress provides other than money in terms of the oversight 
for resources--and of course we used to get an awful lot of 
Federal money from--we don't get nearly as much anymore, but 
there was a time. And the oversight was of the money, but then 
of course Congress did not approve our budget.
    So what is it that Congress provides that the District of 
Columbia could not provide for itself?
    Ms. Rivlin. Other than the money, which is very--the direct 
money is very, very small, as Mr. Gandhi has pointed out, it is 
hard to think of much of anything.
    I would like to commend the Congress actually for having 
moved over the last few years away from micromanaging the 
District and trying to play City Council. I have sat with 
Delegate Norton in Mr. Istook's office and I couldn't believe 
it. I thought we were just sitting here talking about street 
repairs and potholes and I thought what is the Congressman 
doing wasting his time talking about this?
    Fortunately, that era has passed. And we have not had much 
interference except on some major social issues like the needle 
exchange or abortion.
    Mr. Davis. Last question. I find intriguing the proposal 
that the chairman of the committee has put forth separating or 
having essentially two budgets. I mean while it is possible, 
but do you see where it would pose any challenges, any 
difficulties in the budgeting process?
    Mr. Gandhi. I do not think so because primarily what we are 
asking for is managing our own local dollars. And Congress 
would let us do that, it would facilitate great deal of our 
management of the city, of our school system, and would not 
create any problems for us.
    The Federal appropriation can take its own course, as it 
usually does. So I would wholeheartedly support Ms. Norton's 
idea of a budget autonomy that would give us flexibility to 
manage our own resources.
    Mr. Davis. Thank you very much. I have no further 
questions, Mr. Chairman, and I yield back.
    Mr. Gowdy. I thank the distinguished gentleman. I have just 
been informed that Judiciary is calling for a recorded vote, 
and one of my goals is to not miss those if I can avoid it. But 
on behalf of all of us I want to thank the three witnesses not 
just for your expertise and your acumen, but also for your 
professionalism and civility with which you treat one another 
and the members of this panel. And if you will excuse my poor 
manners, I would like to come thank you in person, but 
Judiciary is calling. So Dr. Gandhi, I look forward you seeing 
you soon. Dr. Fabian, Dr. Rivlin, my colleague and friend Paul 
Ryan has extraordinarily kind things to say about you, and I 
would look forward to the chance to talk to you in person at 
some point in time, too.
    With that, the committee is adjourned.
    [Whereupon, at 10:50 a.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Paul A. Gosar and 
additional information submitted for the hearing record 
follow:]




                                 
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