[Congressional Record Volume 142, Number 59 (Thursday, May 2, 1996)]
[Extensions of Remarks]
[Pages E705-E706]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   DISTRICT OF COLUMBIA PENSION LIABILITY FUNDING REFORM ACT OF 1996

                                 ______


                       HON. ELEANOR HOLMES NORTON

                      of the district of columbia

                    in the house of representatives

                         Thursday, May 2, 1996

  Ms. NORTON. Mr. Speaker, today I have introduced the District of 
Columbia Pension Liability Funding Reform Act of 1996. This bill is 
indispensable to the District's return from insolvency. As long as 10 
percent of the District's operating budget must pay for pensions, the 
District cannot revive.
  This bill is the fraternal twin, or complement, to the D.C. Economic 
Recovery Act (H.R. 3244) which I introduced last month. Together, these 
bills provide the most pragmatic approach available at this time for 
obtaining revenue. Both are critically important to restoring solvency 
by 1999 and enabling the District to achieve a balanced budget as 
contemplated by the Financial Authority legislation.
  The D.C. Pension Liability Funding Reform Act provides the missing 
congressional piece of the city's financial puzzle. The huge pension 
liability passed on at home rule by Congress has been a huge and 
definitive part of the city's financial problems for 16 years. It is 
time that Congress also becomes a part of the solution.
  There has long been bipartisan agreement that the District's pension 
liability is congressional liability and that the Congress must 
contribute more. This bill challenges Congress to play a significant 
role for the first time since home rule in helping the District to 
eliminate the pension liability that Congress alone created. Because 
Congress has required the District to balance its budget in 4 years, 
this is the appropriate time for Congress to begin to pay its fair 
share of contributions to help eliminate this crushing liability.
  A precedent for raising the Federal contribution was established this 
year in the President's fiscal year 1997 budget when the administration 
proposed increasing the Federal contribution to $104 million from its 
current level of only $52 million. Like the administration's 
recommendation, the Federal contribution in my bill recognizes that 
reducing the liability that Congress created is very different from 
providing direct revenue to the District--the action Congress has 
repeatedly refused to take until the District does more to downsize and 
reform its operations. None of the funds my bill will authorize go 
toward operating the District government. Rather, the bill requires the 
D.C. government, residents, employees and retirees alike to make 
significant sacrifices to reduce the pension liability that has become 
a stone around the city's neck.

  Congress instituted pension plans for the District's police officers 
and firefighters in 1916, for teachers in 1920, and for judges in 1970 
but never funded the plans. Instead, Congress paid the pensions of 
individuals as they retired. In 1979, Congress passed the District of 
Columbia Retirement Reform Act and transferred all the unfunded pension 
liability associated with these plans--all $2 billion that had 
accumulated-- from the Federal Government to the District of Columbia. 
The annual pension payments required of the District by the Federal 
Government were to be made on the same pay-as-you-go basis as Congress 
employed, with payments each year covering only that year's benefit 
payments. Thus, the District has fully funded all the pensions under 
its control from the day the city was handed this liability. Stated 
another way, there has been no new unfunded liability of these pensions 
on the District's watch. Since fiscal year 1980, however, the $2 
billion unfunded liability has never been funded but instead has 
increased to $5 billion. Most of the increase is interest on the 
original unfunded liability that accumulated under Federal management. 
The transfer of this liability is an amazing case study in Federal 
fiscal irresponsibility. It is one of those rare instances in U.S. 
history when the Federal Government has off-loaded its indebtedness to 
an American city.
  The unfunded pension liability has grown from an unfair burden to a 
crippling threat to the economic viability of the District of Columbia. 
The District, struggling to survive with a sharply declining taxpayer 
and revenue base and the continuing responsibility for State, 
municipal, and county functions, cannot recover without systematic 
relief from the unfunded pension liability created and passed on to the 
city by Congress. The legislation I am introducing today will provide 
that relief by significantly reducing the District's annual retirement 
plan contribution by 43 percent. The consequence of this one change 
will be to reduce the District's annual pension contribution from about 
$321 million today to a flat rate of $185 million, which will remain 
constant for 40 years. This change is accomplished by allocating to the 
Federal Government 80 percent of the accrued actuarial liability as of 
October 1, 1979 for services rendered by employees hired prior to home 
rule but who continued to work for the District government. As of now, 
the Federal Government has assumed no responsibility whatsoever for 
pension rights accrued by these employees while the District was under 
Federal management. The contribution will prefund the cost of the 
benefits of active employees as they are earned, and will liquidate the 
District's reduced and much more equitable share of the unfunded 
pension liability that accrued before home rule. This change will bring 
critical relief to the District's deficit and allow the District 
desperately needed breathing room in its budget.
  By no means does the bill simply require only the Federal Government 
to increase it share of the responsibility for the liability. Current 
and future retirees will receive only one cost of living adjustment per 
year rather than two, and the rate of contribution from employees will 
increase from 7 to 8 percent of their annual wages. The unions and 
retirees deserve credit for having negotiated these sacrifices. In 
return, the Federal Government will increase its annual pension 
contribution from a virtually token payment of $52 million to a flat 
rate of $295 million per year. This payment will also be extended over 
40 years to liquidate the recalculated amount of the Federal 
Government's share of the unfunded pension liability. These are painful 
prescriptions, especially for the employees and retirees, but as they 
have already recognized, these sacrifices are absolutely necessary. If 
the District is to reach the goal of a balanced budget by the end of 
fiscal year 1999, and sustain that performance, it is necessary that 
the burden be shared.

  These reforms will implement a plan that is the result of years of 
intensive work from the time I came to Congress in 1991 by Members of 
Congress and their staffs in bipartisanship, representatives from the 
affected employee groups, retirees, the Council, the Mayor's office, 
the District of Columbia Retirement Board, the Congressional Research 
Service, and the General Accounting Office. I deeply appreciate all of 
the cooperation and support they have given to this endeavor. The 
evaluation of this bill reflects their thoughtful contributions. This 
plan is the most practical from among numerous alternatives we have 
developed and discarded.
  It is impossible to overemphasize the importance of this legislation 
to the fiscal health and stability of the District. Under the current 
District of Columbia Retirement Act, upon reaching the year 2004, the 
Federal Government's annual payments cease, and the 1979 law requires 
the amount the District contributes to nearly double in order to cover 
both accruing pension obligations and interest payments on unfunded 
obligations. The unfunded pension liability will have reached $7.7 
billion with the District solely responsible for this debt. This

[[Page E706]]

result would be catastrophic, crushing the District financially and 
wiping out its capacity to ensure future pension benefits for covered 
beneficiaries.
  To complement my bill, the Mayor and the city council are developing 
local legislation that will create a third tier within the retirement 
system to cover new hires who will be provided with an adequate but 
modified and less costly benefit plan. Experts here in Congress are now 
assisting the city by reviewing and advising on two bills now pending 
before the city council.
  I feel fully justified in asking my colleagues to support this 
legislation now because it is designed to help the District with a 
problem which is not of its making, but a financial burden created 
solely by Congress. Corrective action is not only fair. It is quite 
simply indispensable.