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39–564 CC 1997

WHITE HOUSE PROPOSAL FOR THE DISTRICT

OF COLUMBIA

HEARING

BEFORE THE

SUBCOMMITTEE ON THE

DISTRICT OF COLUMBIA

OF THE

COMMITTEE ON

GOVERNMENT REFORM

AND OVERSIGHT

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

FEBRUARY 20, 1997

Serial No. 105–4

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

(

(II)

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

J. DENNIS HASTERT, Illinois

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

STEVEN H. SCHIFF, New Mexico

CHRISTOPHER COX, California

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

JOHN SHADEGG, Arizona

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

JOHN E. SUNUNU, New Hampshire

PETE SESSIONS, Texas

MIKE PAPPAS, New Jersey

VINCE SNOWBARGER, Kansas

BOB BARR, Georgia

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

GARY A. CONDIT, California

CAROLYN B. MALONEY, New York

THOMAS M. BARRETT, Wisconsin

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

TIM HOLDEN, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JUDITH MCCOY, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON THE DISTRICT OF COLUMBIA

THOMAS M. DAVIS, Virginia, Chairman

CONSTANCE A. MORELLA, Maryland

ILEANA ROS-LEHTINEN, Florida

STEPHEN HORN, California

ELEANOR HOLMES NORTON, Washington,

DC

THOMAS H. ALLEN, Maine

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

RON HAMM, Staff Director

ROLAND GUNN, Professional Staff Member

ELLEN BROWN, Clerk

CEDRIC HENDRICKS, Minority Professional Staff

(III)

C O N T E N T S

Page

Hearing held on February 20, 1997 ....................................................................... 1

Statement of:

DeSeve, G. Edward, Controller, Office of Management and Budget ............ 24

Raines, Frank, Director, Office of Management and Budget ........................ 7

Letters, statements, etc., submitted for the record by:

Raines, Frank, Director, Office of Management and Budget, prepared

statement of ................................................................................................... 11

(1)

WHITE HOUSE PROPOSAL FOR THE DISTRICT

OF COLUMBIA

THURSDAY, FEBRUARY 20, 1997

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON THE DISTRICT OF COLUMBIA,

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,

Washington, DC.

The subcommittee met, pursuant to notice, at 9:35 a.m., in room

2154, Rayburn House Office Building, Hon. Tom Davis (chairman

of the subcommittee) presiding.

Present: Representatives Davis, Morella, and Norton.

Also present: Representative Wynn.

Staff present: Ron Hamm, staff director; Howard Denis, counsel;

Roland Gunn, professional staff member; Ellen Brown, clerk;

Cedric Hendricks, minority professional staff; and Jean G. Gosa,

minority administrative staff.

Mr. DAVIS. Good morning and welcome to the first hearing of the

105th Congress of the District of Columbia Subcommittee. I would

like to welcome back our ranking minority member, Eleanor

Holmes Norton, the Delegate from the District of Columbia, as well

as our new vice chairperson, Connie Morella of Maryland. Because

of scheduling factors, this hearing is taking place during the President’s Day recess. Therefore, the other members of the subcommittee are unable to join us today. However, I can assure everyone that Representative Steve Horn, who has had several generations from his family born in Washington, DC; Ileana RosLehtinen; and Tom Allen are all highly committed to the goal of

making Washington, DC, the world’s finest Capital City.

Two years ago, the Congress and the Clinton administration, acting together in a bipartisan effort, created the Financial Responsibility and Management Assistance Authority, more commonly referred to as the D.C. Financial Control Board. This board was created in direct response to the overwhelming financial difficulties

that engulfed the District of Columbia. It was the first major step

in a long road to recovery.

During these past 2 years, the Control Board has accomplished

many important things. Among these are canceling wasteful government contracts; stepping in to help the beleaguered school system; moving to reform the police department; and, most importantly, putting the city on a path toward a balanced budget.

In addition to that, Congress has also acted to enable the construction of the new MCI Arena, a new state-of-the-art convention

center, and created a new water and sewer authority, thereby safeVerDate 11-MAY-2000 12:48 Apr 29, 2002 Jkt 078762 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HEARINGS\39564 pfrm09 PsN: 39564
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guarding the metropolitan region’s drinking supply and protecting

taxpayers.

Everyone agrees that there is still a lot to be done. To paraphrase Winston Churchill, we are only at the end of the beginning.

I believe we all must work to the best of our ability this year to

make Washington, DC, a shining example of the best America has

to offer. Many of you have heard me say this before; this goal is

not only in the best interest of the District but also of the region

and, indeed, the entire country.

I strongly believe that the economic health and quality of government in the District is of vital concern to the suburbs. In fact, Dr.

Stephen Fuller of George Mason University, the leading regional

economics expert, has just completed a new study that confirms the

view that the District is vital and beneficial to the suburbs. Improving the economy and governmental performance of the District

of Columbia is crucial to the continuing prosperity of the entire

metropolitan region.

Ladies and gentlemen, we are at a crossroads. In fact, we have

reached a unique set of circumstances. Rarely do we face a situation where all the major political winds are aligned in one direction. The Clinton administration and the leadership of both Houses

of Congress, Republicans and Democrats, all consider the situation

in the District of Columbia one of our top five national priorities.

We must take advantage of this positive environment.

Mr. Raines, I think you deserve a lot of credit for the initiative

that you have shown as the head of OMB. Our agenda is ambitious. It builds on our work and on the work of the Control Board

that we created with the Clinton administration 2 years ago. I am

encouraged that the President has put forth a broad-based proposal

to realign the relationship between the District of Columbia and

the Federal Government. The proposal seeks to enhance the prospects of home rule by more closely matching the District’s resources

and capabilities with its responsibilities.

In other areas, however, the plan may not fully address the concerns of others, most notably tax relief and economic development

for the city. I believe we should use the President’s plan as our

starting point. Therefore, it is my intent to work with this administration, the leadership in Congress, city officials, and the Control

Board to fashion a bipartisan plan that will gain wide support.

I am under no illusions. This will take months of hard work, patience, delicate negotiations, and many more committee hearings.

In fact, I intend to follow today’s hearing with testimony from the

city and the Control Board and then from interested parties from

the District and the region.

After these hearings on this proposal, its key components, significant alternatives, and any other issues, we will work to design the

best and most effective plan for the rebirth of our Nation’s Capitol.

Our challenge is great, but we have no other choice. If we fail to

act now, Washington, DC, may never recover. In short, it is our

duty, our mission, and our responsibility to give our collective best

efforts for this city.

In conclusion, I am pleased to have as our sole witness today

Franklin Raines, Director of the Office of Management and Budget

and the chief architect of the President’s proposal for the District.

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I look forward to hearing Mr. Raines’ testimony today and working

with him and the President in the months ahead.

At this point, I yield to my ranking member and ask if she would

like to make an opening statement.

Ms. NORTON. Thank you very much, Mr. Chairman.

I want to welcome OMB Director Franklin Raines to the first of

several hearings on the National Capital Revitalization and SelfGovernment Improvement Plan, as it is called, for the District of

Columbia. I also want to thank Chairman Tom Davis for skillfully

laying out a series of hearings designed to explore the full details

of the President’s plan and the implications for the District. The

President of the United States deserves the gratitude not only of

District residents but of other Americans as well for bringing forward a workable and well-conceived plan that will help revive the

Capital of the United States.

Much of that gratitude belongs to Frank Raines, a Washingtonian whose understanding of the District’s finances and operations is matched by the exceptional skill he is bringing to national

and Federal financial and economic issues. Already his deft hand

has been a major factor in steering us toward a bipartisan solution

to the budget deficit and to other serious fiscal problems of the

country. All the while he has been designing a plan to help eliminate the most vexing problems of the Nation’s Capital. The plan’s

major strengths are, first, its careful and principled

conceptualization, based on the Federal interest in certain State

functions and in eliminating congressionally created pension liability, and, second, its recognition that the plan must address two audiences at once: District residents, and a Congress whose major

focus this year is deficit reduction.

The President’s plan is not perfect, but it surpasses the expectations of most D.C. residents and analysts. It is the best document

from which to work because it is the only plan for assistance to the

D.C. government that stands any chance of being seriously considered or enacted by this Congress this year.

If the President had not offered a plan, I had intended to offer

a bill that created a quasi-State relationship between the District

and the Federal Government for financial purposes. However, at

every turn I encountered the same barrier that has made most

thinking about the District conventional and unimaginative. That

barrier is money.

Any plan, whatever its merits—if I may paraphrase—that asks

for $1 billion here and $1 billion there will soon end up sounding

like real money of the kind that Congress has systematically denied to the District. This plan takes at least some of the District’s

State functions and, by placing them in larger appropriations, demonstrates how small a difference the District’s portion really makes.

For example, analysts tell us that the District may be only $25

million to $50 million ahead next year if the plan becomes law. The

most controversial aspects of the plan need to be approached with

a problem-solving attitude. Among the most troublesome are the

elimination of the Federal payment, which, ironically, has both

positive and negative consequences, and the application of Federal

criminal law to the District as the price for absorbing Lorton inmates into the Federal system.

4

We have already made progress on both. For example, we can

now say that D.C. criminal law, not Federal criminal law, will continue to apply in the District. There remain outstanding issues

here and in a number of other areas on the proposal. The way to

solve them is by methodically working them through.

The plan also must be subjected to further financial analysis before I can fully embrace it. Will the District consistently come out

ahead, especially when compared with the Federal payment, which

has lost much of its value and is almost never increased? Structural changes such as the President’s proposal should not be expected to endure more than a generation unrevised. I am seeking

an analysis of the plan on a 20-year time line to test its fiscal effectiveness and to ensure that the District will not be left with unintended cash shortfalls and other financial difficulties.

The administration has several working groups perfecting the

concept and the necessary legislation. I hope that they will form a

close relationship with the subcommittee. The progress we have

made on the criminal law matters is an indication that even unacceptable parts of the plan can be resolved. For example, I have met

with Attorney General Janet Reno, Chief Judge Eugene Hamilton,

U.S. Attorney Eric Holder, and Department of Corrections Director

Margaret Moore. Mr. Holder is continuing to work with Justice Department and Bureau of Prison officials to resolve the remaining

criminal law issues, among them parole and determinant sentencing. I have also met with Federal Highway Administration officials and believe we are making headway in helping to shape the

component of the plan that would create a badly needed National

Capital infrastructure fund.

Chairman Davis has wisely found a way to keep the President’s

plan from becoming an uncontrollable octopus, spread across many

committees, risking its necessary and useful coherence.

The plan holds together like a well-wrought puzzle. This subcommittee must help keep it together or it cannot do the job. The

first test for the Congress will be to facilitate prompt and rapid

participation of other specialized committees without losing the

plan’s central purpose and functional utility.

Chairman Davis is the impresario, but this is not the first time

he has been called upon to help lead such a complicated task. The

model for our work on the President’s plan is the financial authority legislation, where we worked in a bipartisan and bicameral way

to quickly put in place a control board. The urgency of this plan

now is just as great as the financial authority statute was then.

I especially appreciate the interest of the members of this subcommittee and of the region in this plan. Regional members may

want to take note of the experience of the Detroit region as reported in yesterday’s Washington Post. The article recounted the

recent and significant progress the city of Detroit has made. Mayor

Dennis Archer reported that the estrangement between the suburbs and the city had become so severe that there were often discussions among friends about the last time they had been in Detroit. According to the article, ‘‘That began to change as Detroit

area firms, even those in the suburbs, realized the city’s dismal

image was hurting their ability to attract employees from elsewhere. Suburban parents began seeing their grown children leave

5

for jobs in other cities, and that became a pivotal issue for a lot

of people. You can try to separate yourself with a different name,

but Southeast Michigan, to most people in the world, is Detroit. So

how people view Detroit will have an impact on economic development and investment elsewhere in the region.’’ The President’s plan is designed to help the District and to help

the region before the District gets to the point of no return. As the

Detroit suburbs have learned, the region can neither run nor hide

from its core city. The District is prepared to pay a great price for

the President’s plan. The plan offers the District scant immediate

relief yet requires the District to balance its budget a year earlier

than the financial authority law requires.

The city is already braced for more cuts in services on top of draconian cuts that have already taken place and have helped hasten

the exit of middle-income taxpayers from the city at frightening

rates. The word ‘‘suffering’’ is not too strong to indicate the effect

of these cuts on residents. Yet the District continues the painful

work of rebuilding its government first by cutting it, the President’s plan is before us, and only the Congress is missing.

Congress has left the city to revive alone, without the undergirding support that New York State gave to New York City, that

Ohio gave to Cleveland, and that Pennsylvania gave to Philadelphia when each of those cities became insolvent. It is time for Congress, the last to step up to the plate, to now come forward.

I welcome Mr. Raines, whose thoughtful work is designed to help

this body meet its constitutional obligations to the Capital of the

United States.

Mr. DAVIS. Thank you, Ms. Norton.

I yield now to the vice chairman of the committee and one of our

new members, Mrs. Morella of Maryland.

Mrs. MORELLA. Thank you very much, Mr. Chairman.

Although I have participated on this panel on several occasions

during the 104th Congress, this is my first hearing as an official

member of the District of Columbia Subcommittee, and I am delighted to serve under your leadership and with the ranking member.

As a representative from Montgomery County, MD, I am deeply

concerned about the future of the District of Columbia. The District

does not exist in a vacuum. The economic health of the District is

important to the economic health of Montgomery County, of the

whole Washington metropolitan region.

When I first came to Congress in the 1980’s, the District government was already showing signs of the deficiencies that marked

the beginning of a spiraling economic crisis. Services in the District

were deteriorating, businesses were relocating, and middle-class

residents were moving to the suburbs in search of lower taxes,

safer streets, better schools.

From 1990 to 1995, the District lost more than 22,000 households, most of them middle-class taxpayers. There has been a lack

of employment growth and a decline in retail sales and the formation of small businesses.

For the past few years there has been a good deal of debate here

on Capitol Hill about how to resolve the District’s financial crisis.

During the last Congress, under your distinguished leadership, Mr.

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Chairman, on a bipartisan basis, we established the District of Columbia Financial Responsibility and Management Assistance Authority, commonly called the Control Board, which represents a

temporary restructuring of the D.C. government and provides oversight and support to improve the District’s financial situation.

The President’s plan would further restructure the District government by allowing the Federal Government to fund the District

government, much in the same way as State governments support

their cities. The White House proposal would eliminate the $660

million Federal payment to the District.

Instead of the Federal payment, the Federal Government would

relieve the District of certain expenses, among them the growing

unfunded pension liability which was incurred by the Federal Government for District employees that were part of the Federal work

force before home rule. The Federal Government also would assume a larger share of the Medicaid costs and take over the operation of the prison system.

If the Federal Government assumes some of the District’s administrative responsibilities, perhaps there will be more time for the

District of Columbia officials to concentrate on the schools and

services that have deteriorated to an alarming degree.

It is the poor and vulnerable citizens of the District who have

suffered the most from the insufficient services that have resulted

from insufficient funds. The economic turmoil in the District must

be reversed, and that is what this first meeting in the whole series

is all about.

The downward spiral of deteriorating services and middle class

flight did not happen overnight. There is no quick and easy solution. Consideration of the White House proposal is, as you said,

just a beginning. There will be many hours of debate. Hopefully we

will choose compromise over confrontation. If we work hard, in the

end we will take a large step toward creating a new and revitalized

District of Columbia.

I look forward to hearing more about the President’s plan from

our expert witness, the craftsman of the plan, Frank Raines, and

look forward to working with members of this subcommittee and

the OMB Director on a plan that will benefit the region and make

the District a safe and thriving Capital City that is the source of

pride for the entire Nation.

Thank you, Mr. Chairman.

Mr. DAVIS. Thank you, Mrs. Morella.

Before I swear in our witness and we hear from the man of the

hour, Mr. Raines, I want to recognize a couple of members of the

city council here today: Charlene Drew Jarvis, chairman pro tem

of the city council. Charlene, thank you very much for being here.

You will have a chance to testify at a later hearing, and we look

forward to your comments on this and your being an important

part of this. And also Carol Schwartz, an important and returning

member of the city council. And Harold Brazil just walked in, too.

Harold, perfect timing. You are here just in time to be introduced.

He is also council member at large from the city. We appreciate

your being here as well.

Frank, at this point it is the committee’s custom to swear in its

witnesses.

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[Witness sworn.]

Mr. DAVIS. Thank you very much for being here and making your

time available. I just preface that you have been making the

rounds on Capitol Hill, speaking with key members of both parties

prior to this, and we are just very pleased to have you here today.

STATEMENT OF FRANK RAINES, DIRECTOR, OFFICE OF

MANAGEMENT AND BUDGET

Mr. RAINES. Thank you very much, Mr. Chairman. I thank the

members of the committee for having me appear before you today.

I am pleased to be here to discuss with you the President’s plan

to revitalize Washington, DC, as the Nation’s Capital, and to improve the prospects for home rule to succeed. After I conclude my

remarks, I would be happy to take any questions that the committee might have.

The Nation’s Capital, which should serve as a symbol of pride to

all Americans, has fallen on hard times. It faces not only serious

budget problems, but even serious obstacles to providing the most

basic services to its residents.

As the President said recently, the District of Columbia suffers

from the ‘‘not quite’’ syndrome. That is, it is ‘‘not quite a State, not

quite a city, not quite independent, not quite dependent.’’ The District is not like other cities, which receive assistance from

their States. In fact, the District has broad responsibilities for what

are—elsewhere in the Nation—State, county, and local functions.

And while Congress has voted to give the city a lump sum annual

payment in recent years, it has kept the payment basically flat

while imposing strict limits on the District’s budget and taxing

powers.

Clearly, the current relationship between the Federal and city

governments does not work. As a result, the President has proposed a landmark plan to significantly re-order that relationship.

In developing his plan, the President had two goals in mind— first, to revitalize Washington, DC, as the Nation’s Capital and,

second, to improve the prospects for home rule to succeed.

Under the plan, the Federal Government will invest nearly $4

billion over the next 5 years in the Nation’s Capital. In exchange,

the plan will end the yearly Federal appropriation and other payments to the District, saving over $3.5 billion over 5 years.

While net Federal costs come to nearly $400 million over 5 years,

the plan will save the District over $800 million over the same period. The difference results, in part, because the Federal Government will assume responsibility for certain pension payments and

assets of the current pension system.

Congress will continue to perform oversight for the District, and

the Appropriations Committee will determine the budgets for those

functions that the Federal Government funds directly. But Congress would no longer appropriate every detail of the District’s

budget, which will, in the future, be funded solely with local funds.

All Federal assistance will be conditioned on the District taking

specific steps to improve its budget and management. The plan will

require the District to submit a balanced budget for 1998 and

thereafter. A Memorandum of Understanding among the Federal

and District governments and the Financial Authority will outline

8

other improvements in performance that the District will have to

meet.

To achieve these goals, the President’s plan proposes four concrete steps.

First, the plan will relieve the District government of major financial and managerial responsibilities—including certain pension

obligations and parts of the criminal justice system—that are beyond its financial capacity, and help the city resolve its cash shortfall that stems from its accumulated deficit.

Beginning in fiscal 1998, the Federal Government will assume

both financial and administrative responsibility for the District’s

retirement programs for law enforcement officers and firefighters,

teachers, and judges. Upon enactment of legislation providing for

the transfer, the Federal Government will take responsibility for

virtually all pension benefits accrued under the plans for all active

and retired employees as of the date of transfer, contingent on the

District establishing replacement plans as specified in the MOU.

The Federal Government will pledge its full faith and credit to

meet its responsibilities to these beneficiaries. This action will be

conditioned on the District setting up new plans for its current and

future employees and providing adequate employment records to a

third-party trustee.

The Federal Government also will take direct responsibility for

funding the District Court system. The courts will remain self-managed, because the current court system is well run. But, court funding is a drain on the District’s budget. Therefore, the Federal Government will take responsibility for it. The costs will total $129

million in the first year and $685 million over 5 years.

Also the Federal Government will assume financial and administrative responsibility for the District’s felony offenders, including

substantial capital investment in providing appropriate prison facilities. The Federal Government will take responsibility for incarcerating the District’s sentenced felons, a function usually borne by

States. During the transition, the Federal Government will provide

funds for incarcerating the District’s felons to a trustee appointed

by the Financial Authority. Funding will include capital for both

constructing new facilities and renovating existing ones. The Bureau of Prisons will be responsible for determining how these capital funds will be used. The trustee will oversee the D.C. Department of Corrections operations related to the incarcerated D.C. felons for 3 to 5 years, after which the Bureau of Prisons will assume

responsibility. The plan assumes that a portion of the existing

Lorton complex will continue to serve as a prison facility. Necessary new construction will take place at Lorton, at other locations, or both.

At the end of the transition period, the Federal Government will

accept all existing prisoners, as well as those new prisoners sentenced in accordance with standards comparable to Federal sentencing guidelines. To manage the inmate population, the Bureau

of Prisons will be able to transfer D.C. inmates elsewhere in the

Federal Prison System. The current D.C. prisons staff will have to

apply for positions with the Bureau of Prisons and meet Federal

standards. After the transition period, the Federal Government will

9

assume responsibility for D.C.’s parole system and a portion of the

community corrections system.

In another matter, the Federal Government will increase its

share of the District’s Medicaid payments from 50 to 70 percent.

In essence, the Federal Government will pay both the Federal and

State share of Medicaid costs, reducing the District’s share to 30

percent—which is the most that localities can pay in States with

a 50 percent Federal match. At the same time, the Department of

Health and Human Services will provide more intensive technical

assistance to help the District improve the management of its Medicaid program and ensure that Federal funds are not mismanaged.

The increased Medicaid funding will be conditioned on the District

following various HHS suggestions for programmatic improvements.

Finally, the Federal Government will allow the District to borrow

from the Treasury to finance all or part of the District’s accumulated deficit of between $400 and $500 million. The terms and conditions for such loans are not yet determined, but will likely enable

the Federal Government to offer Treasury-based interest rates for

a maximum term of 15 years and enable the District to refinance

the loan after the District’s credit picture improves.

Second, the Federal Government will invest considerable resources to improve the city’s capital infrastructure.

The Federal Government will establish a National Capital Infrastructure Authority (NCIA) to benefit District residents and commuters by funding the capital associated with repairing and constructing roads and mass transit facilities. To capitalize the fund

in 1998, the administration will provide $125 million in seed

money from the Federal Highway Trust Fund. Activities eligible for

funds will include the construction of roads and bridges, the local

match for Federal-aid road and bridge projects, and capital expenditures for the Washington Metropolitan Area Transit Authority. In

addition, the NCIA will be able to accept contributions from other

sources, such as voluntary payments in lieu of taxes from tax-exempt organizations, including universities and hospitals.

Third, the plan proposes a number of mechanisms to strengthen

the District’s economic base.

The plan will create an Economic Development Corporation

(EDC) to revitalize the city’s economy, with local planning and control that leverages Federal and private resources. The EDC will be

capitalized with Federal funds. The program will be designed to encourage jobs for disadvantaged D.C. residents and revitalize District areas where development has been inadequate. The plan includes a 5-year, $260 million tax incentive program, with a series

of targeted incentives to build on the administration’s Empowerment Zone and Enterprise Community programs.

Fourth, the plan will draw on Federal technical expertise to help

make the city government more effective in such areas as income

tax collection, education and training, housing, transportation, and

health care delivery.

For instance, the Internal Revenue Service will be able to collect

District income and payroll taxes. The plan will simplify District

residents’ tax filing, allowing one form for both District and Federal taxes, as well as improve enforcement and collections. Other

10

Federal agencies will work with the District to identify other areas

in which the Federal Government might provide technical assistance to help the District government improve the efficiency with

which it delivers services.

The President’s plan is the most ambitious plan that any administration has ever proposed to deal with the problems of the Nation’s Capital. It will benefit the city, the region, and the Nation.

It benefits District residents by reducing their government’s financial burdens, improving the delivery of city services, and investing in the criminal justice system, economic development, and

transportation.

It benefits the region because of the city’s economic recovery; the

financial support given to police, fire, teachers, and judges’ pension

funds; the rebuilding of the District prison system; and the improvement of a key component of the regional transportation infrastructure.

It benefits the Nation, because it begins to create a Capital City

that we can all be proud of, improves its transportation system,

and helps ensure the safety of residents and visitors.

Mr. Chairman, that concludes my testimony. I would be happy

to answer any questions that the committee might have.

[The prepared statement of Mr. Raines follows:]

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Mr. DAVIS. Mr. Raines, thank you very much. I think it shows

the thoughtful preparation that has gone into that. We will have

a number of questions for you.

I am going to start the questioning with Mrs. Morella, who I

know has to leave a little early to go represent the Congress reading George Washington’s farewell address, as I understand it.

Connie, I will start with you.

Mrs. MORELLA. Thank you very much, Mr. Chairman. I appreciate your giving me the opportunity to pose a few questions, since,

as you mentioned, I will be in the Capital City laying the wreathe

and giving the speech from Congress for George Washington’s commemoration.

Thanks, Mr. Raines, for the wonderful testimony that you gave.

There is something I feel was rather omitted in the plan that you

did not mention, either. Some questions have been asked about

where does St. Elizabeth’s fit into this picture. Do you see that as

being something that the Federal Government has a responsibility

to operate, and maintain?

Mr. RAINES. We do not see that as being an appropriate activity

for the Federal Government, primarily because we do not have a

lot of experience in running mental health facilities of that size and

complexity, and would find it difficult to take over the operation of

one such facility and create a whole capacity to do that.

That is the distinction between—with the prisons and St. Elizabeth’s. With the prisons, we run a prison system. We have experienced professionals who know how to do that. Therefore, we view

prisons as something that could be included in the Federal operations. But St. Elizabeth’s really would be in a different category.

Mrs. MORELLA. But you do recognize there is a problem posed by

the fiscal situation at St. Elizabeth’s?

Mr. RAINES. Absolutely. Our plan we view as being one that

gives the city more flexibility and more resources for the city to be

able to deal directly with those areas that we are not taking over.

Mrs. MORELLA. In your testimony, you note that the District’s accumulated deficit is between $400 million and $500 million, right?

Mr. RAINES. Yes.

Mrs. MORELLA. Would you like to comment or explain the impact

of the District and its cash position from carrying this kind of deficit?

Mr. RAINES. As a result of the deficits run up by the city over

the last 5 or so years, the city has developed an accumulated deficit. What that has meant is that the city has not been able to pay

its bills in a timely way, and it has had to indirectly borrow from

vendors by delaying payment of their bills. It means that the city

has periods of time in which it is in a negative cash position, and

therefore needs access to borrowing.

Over the last year, the Treasury Department has been providing

funds to assist the city in meeting its cash-flow needs. But as we

go forward, there will be a need for a permanent solution so that

the city’s cash position is restored. That is why we are proposing

to help the city by financing that deficit over a period of years, so

that the city can recreate its cash balance and pay off that accumulated deficit over a period of time.

21

Mrs. MORELLA. I wondered if you might explain why the initial

Treasury provision to finance this debt in 1995 was dropped from

the Control Board legislation?

Mr. RAINES. I am unaware of the background on that, so I am

not sure what happened in that case.

Mrs. MORELLA. It would be interesting to look into that. In your

experience with cities in trouble, why is it important to finance the

accumulated debt, for the reasons that you gave, and—— Mr. RAINES. The primary need is for the city to be on a sound

financial basis, where it is making its payments in a timely manner, so that it can attract the kind of vendors that the city would

like to be able to have perform its services.

The District, for example, had difficulty lining up contractors to

serve as part of the force dealing with potential snowstorms because of a failure in the past to pay on a timely basis. The city

would be paying extra if vendors did not believe they could be paid

on a timely basis, so it is important in that respect.

It is also important from a financial standpoint with regard to

the city’s bond ratings. Failure to be able to finance current operations with existing cash would be a major negative in the review

of the city’s credit standing.

Mrs. MORELLA. If the Federal payment is done away with, what

will the Treasury use for collateral, and what is the potential impact of that on outstanding bonds and/or new debt?

Mr. RAINES. The Treasury is in the middle of working on that

very issue with the city and the Control Board at this point. They

have not come to a conclusion yet as to what form of collateral they

would be seeking, but we would be careful to ensure that these

loans would not impair the security on the city’s outstanding debt

or future debt that the city issued for capital purposes.

Mrs. MORELLA. I would like to also ask you, jumping to another

topic, about whether or not this plan envisions the use of so-called

empowerment zones or enterprise zones or whatever the current

language is that is used for that in the District of Columbia.

Mr. RAINES. The city already qualifies as an enterprise community, and has received certain benefits from that. But our plan goes

further and proposes the creation of an Economic Development

Corporation that has authority to operate in the downtown areas

as well as in the low-income communities of the city, that will have

additional powers that are similar to but different in some respects

from what is included in the other programs that we believe can

begin to provide the kinds of incentives necessary for increasing

economic development in the city.

Mrs. MORELLA. Can you see that there could be an increase in

the Federal payment to the District, or there could be some amount

in addition to this plan, or do you think that this totally handles

it; in other words, total elimination of——

Mr. DAVIS. Would the gentlewoman yield?

Mrs. MORELLA. Yes.

Mr. DAVIS. Mr. Raines, I would also ask as part of that question,

would the administration remain flexible if Congress, in looking at

this, felt that the city still needed some cash to operate? Is this an

area we are willing to look at together and move forward, or is it

fixed? As Ms. Norton had said earlier, there are pluses and

22

minuses to having this plan for the city. One is you get the annual

appropriations process, and the baggage that comes with it. On the

other hand, you are having that cash involved, and this is something that I know the Control Board has expressed some concern

about. I just want to understand, I think as Mrs. Morella does, the

flexibility we have in dealing with this.

Mr. RAINES. Sure. We put this plan together with the idea that

the city had to come out ahead in any plan such as this, and that

there had to be a net benefit to the city in the first year and an

increasing benefit in future years. We believe that the plan meets

that test, and therefore the city is better off under the plan than

they are with the Federal payment alone.

We also believe there are important benefits to the city in having

the city have final authority over its own budget, and final responsibility for that budget. We thought that was an important improvement in home rule, but also one that would increase management responsibility. But we understand that the committee may

have additional ideas that it would like to put forward, and we

would be happy to talk to the committee about those in your deliberations.

Mrs. MORELLA. I think the concept of the subcommittee is the

fact that this is a beginning, and it is worth looking into, and we

may come up with a package, I hope that we do, that is going to

encompass all of the concerns we have.

Thank you very much, Mr. Chairman. I would like to also be able

to submit questions for Mr. Raines.

Mr. DAVIS. Without objection.

Mr. RAINES. I would be happy to answer them.

Mr. DAVIS. Let me just ask, I don’t think there is any question

that the city is better off under the plan the administration has

submitted than under the current situation. If we can add value to

that, as we hope to do as it moves forward, I think you will join

us in looking at ways we can do that. But when you add it up, one

of the difficulties is the cash situation may not be improved on day

one when you lose that payment. I think that is part of the concern. But that is why we are going to have this dialog and continue

to work together and hear from everybody, because I think we all

want the same result at the end of the day.

This is just a great improvement. I think it has been given a lot

of thought.

I yield to my ranking member, Ms. Norton.

Ms. NORTON. Thank you, Mr. Chairman. To follow on the Federal

payment concern, perhaps you can be as candid with us as you

have been, why had you incorporated in your plan the necessity to

forego the Federal payment in the first place? Why has it become

a necessary element of your plan?

Mr. RAINES. There are several reasons. I think the most important one is that, as we looked forward over the next 5 years, it appeared to us that the likelihood of the Federal payment meeting

the various purposes for which it has been created were small and

maybe decreasing. The pressures on the budget would be very

heavy, and it would be difficult to see increases in the Federal payment. If we looked back at the last 5 years, we could see that the

payment has been basically static during that period, so that when

23

we came to the conclusion that the Federal payment was unlikely

to be, in reality, a significant part of a new plan, because of those

fiscal realities, we began to look to alternatives, and the alternatives we looked to were for the Federal Government to relieve

the District of financial responsibilities that were burdening it, and

that inherently involved increasing expenses for the city over time,

so if we could not index the Federal payment, we could take over

responsibilities which were inherently indexed because their costs

were rising over time.

So we think that we have managed to move from a situation of

a static Federal role with regard to the city to one that is dynamic,

and one that we have included in the President’s balanced budget

plan within the agencies that would be taking over these responsibilities. So that was our thinking in how we looked at the Federal

payment and how we structured the plan, and as I mentioned before, the home rule aspects of not having the entire District budget

appropriated by Congress we believe to be attractive as well. We

do not believe that you get the best out of decisionmakers if they

do not believe their decisions are final, and therefore, we think

there is a real benefit in having the city be responsible for its own

resources.

There is a major benefit in not having the Federal payment in

that all the city’s resources would then be local, and the local officials would be responsible for those resources, and would not harbor in the back of their minds that somehow the Congress would

relieve them of the need to make tough choices.

Mr. DAVIS. Ms. Norton, will you yield?

Ms. NORTON. Yes.

Mr. DAVIS. You make a good statement. We will ask if the city

council agrees with this when they come here. But it seems to me

one of the problems is that the decisions the Mayor and council

make sometimes are not final decisions, and that allows you sometimes not to be quite as responsible in what you are doing because

you are not firing real bullets, so to speak, because somebody else

will make tougher decisions, and that is part of the difficulty when

we build a strong civil service in government.

There has been no tradition in making final decisions and being

accountable for the final result, because Congress has always been

there, to overturn inadequate policies. To me that ought not be.

That is for somebody in local government.

I am going to be interested in the reaction of the Mayor and

council at the appropriate time. With that responsibility and accountability, I think there is a downside to that. But not having

Congress looking over your shoulder on every decision has some advantages as well. We will be interested in how they react. I just

think it is a very good point and something that the city has

lacked, and maybe one of the reasons they have not developed the

culture of accountability that most other jurisdictions have.

I thank the gentlewoman for yielding.

Ms. NORTON. Thank you, Mr. Chairman. The concern, of course,

about the Federal payment is well placed, because the District is

in such a precarious financial position. We have had some numbers

run on the Federal payment, though, and I must say, I have very

serious concerns about the Federal payment as it is.

24

During my first term, we got a very large increase in the Federal

payment. However, that was to make up for no increases for 5 previous years. Every year there is no increase there is a cut, and yet

the District acts as though the Federal payment is something important. Well, it is important, but it is important for cash reasons.

I want to move there.

By the way, when we had the numbers run on the over $700 million Federal payment, it turned out it was worth today about half

a billion dollars. And that may also contribute to the shortfall.

I want to say for the record that it has been all that I could do

to get the Federal payment out every year. Members do not enjoy

voting for a payment for a single district, and what they have done

instead is, over the past 5 years when we got the increase, we have

had caps on the Federal payment. So the Federal payment has not

only lost value in inflationary terms, but Congress has actually cut

the Federal payment. It is a red flag. It is the one thing that people

can cut or not vote for that does not harm them at home.

One of the things that we are all going to have to do as we look

at this plan is to try to think more deeply so that we get over some

of the problems and don’t simply build in the same problems that

we have had all along. And the 5-year deficit reduction plan does

not bode well for the Federal payment.

I can say without fear of being contradicted that if I haven’t been

able to get increases before deficit reduction became the only issue

for the Congress, I cannot imagine what it will take for me to hold

on to the Federal payment in this body.

The District’s concern about cash is important. Any large entity

has periods of shortfalls in revenue where borrowing is necessary.

I guess I have two questions. One has to do with whether or not

there are going to be cash shortfalls at all, and the other has to

do with collateral and what kind of thinking about collateral has

gone on given how borrowed-up the District is and the limits on its

borrowing authority.

Mr. RAINES. Well, as you mentioned, most cities have periods of

cash shortfalls and surpluses because certain taxes, such as property taxes, only are paid twice a year, whereas most expenditures

are on a monthly basis. So the city is going to have to monitor its

cash-flow after the plan is in effect to ensure that it can even out

those periods.

But we are aware that, from a cash standpoint, the city will start

off in the hole. That is why we are proposing to assist the city in

financing its accumulated deficit so it will have the cash on hand,

and that will help the city meet its cash needs.

Ms. NORTON. Would you describe how having the cash from the

accumulated deficit. Many people have overlooked altogether your

proposal to fund the accumulated deficit, even the Control Board,

in its strategic plan, left the accumulated deficit out altogether.

Which would mean that we would arrive at year 4, when we are

supposed to be balanced, still carrying half a billion dollars in deficit, which would mean that we have the Control Board here for a

long time trying to get rid of that accumulated deficit.

How would borrowing to fund the accumulated deficit help the

District with its cash shortfall, and how long would that be available, in your judgment?

25

Mr. RAINES. Well, if the city—the exact amount of the accumulated deficit will depend on the financial operations of the city

through this year. But let’s assume that the city has a $400 million

accumulated deficit. What that means is that they spent $400 million more than they brought in over prior years, and the way that

they have been financing that is by not paying vendors.

If you hold enough bills, it is like any of us if we don’t have

enough money in our paycheck to pay all of our bills that month,

we let a couple of them ride over to the next month. And that

caused a real crisis in the city for a lot of vendors, not just businesses, but also churches, nonprofit groups who had contracts with

the city.

By financing the deficit, the city would get $400 million that

would permit them to pay its bills on a timely basis. But the city

would have to then repay that, and we propose to give them up to

15 years to repay it. So every year—it would be as though the city

were atoning for the prior deficits by now appropriating sufficient

funds to repay the borrowing. So past deficits would be financed,

and they would be repaid over a period of years.

I believe that financing the deficit will go a long way toward, or

will totally meet, the cash-flow needs of the city. But that is something we are going to have to work out with the Financial Authority to ensure that either—that deals totally with the cash-flow

needs or we have an alternative vehicle available for the city to

meet small, intra-year cash-flow shortfalls.

Ms. NORTON. Many residents point up that the Federal payment

is, at least theoretically, to account for the fact that there is a Federal presence and a large Federal impact, because the District has

a height limitation, it has more zoning strictures than any city in

the United States, and of course the most expensive land it can’t

build on at all.

What is your response to those who say that we are still left with

this impact and with whatever services we provide the Federal

Government?

Mr. RAINES. Well, the Federal payment over the years has been

pointed to as the compensation for a wide variety of limitations on

the city, and the value of those limitations has always greatly exceeded the amount of the Federal payment.

What we have tried to do is change the paradigm. What we tried

to say is that this Federal payment can’t carry all of that weight

and what we need to do is, instead of compensating the city by giving an annual lump sum payment, we should compensate the city

by taking over some of its expenses, and if we take over more expenses than the value of the Federal payment, then this is a better

deal for the city.

But it will take a while, I think, before people reconceptualize

the Federal payment and see that what we are proposing is a new

deal. It is not a preservation of the deal cut in home rule, but it

is a new deal that says that the Federal payment is inherently

going to be an inadequate measure over time of compensating the

city for restrictions. We need another method of balancing the responsibilities of the city and the limitation on the resources that

the city has.

26

So our approach is just an alternative way of doing it and, we

believe, one that is better for the city. But I can understand why

people who have grown up with thinking that the Federal payment

was the compensation for a variety of things would have difficulty

moving to a new paradigm, but that is what we are hoping that

they will do.

Ms. NORTON. Mr. Raines, I appreciate that you came and spoke

patiently and heard all the questions at my town meeting on the

President’s plan. Perhaps you would like to respond here as well,

for the record, to the fact that many residents came forward to ask

why there was not direct assistance to the two issues of which— or the two functions which many residents regard as paramount

today: Public safety and education.

Mr. RAINES. The structure of our plan is to relieve the District

budget of certain of its very extensive responsibilities and thereby

provide more room in that budget for the city to tackle those responsibilities that are inherently local. Education and police protection are inherently local responsibilities. We believe that by relieving the city of the other financial burdens that they face, that the

city officials now will have more room in which to deal with the

issues of education and police within their own resources.

We believe it is very important for the future of the city that the

city leadership take dramatic action with regard to public safety

and education. There is no prospect of a financial revitalization and

an economic revitalization of the city unless citizens and visitors

feel safe and unless the young people in the city are trained to join

the work force of the 21st century.

And so there is no higher important issues for the city government than dealing with those. But we believe they are inherently

local, and we believe we are providing additional resources for

them to deal with those issues by removing certain other expenses

from their budget.

Ms. NORTON. During this round—I have just one more question

during this round for you, Mr. Raines. Your plan would have the

District government come into balance a year earlier than the financial authority statute. And you, of course, have watched the

District go through excruciating pain just getting to balance year

by year and then retread itself just to keep from overspending each

year.

Why did you think it was important for the District to balance

its budget this year, in fiscal year 1998, rather than in fiscal year

1999 as the original authority statute indicated?

Mr. RAINES. There are several reasons for our view on that.

First, any additional deficit that is run up is more money that the

District is going to have to borrow and repay with interest going

forward, and it adds to the cash problem that the city has.

Second, it has been my experience that taking decisive action to

balance a budget in as short a time as possible is more likely to

lead to an enduring balance than struggling each year and doing

only what is necessary to move toward a balanced budget without

actually balancing.

Third, I think it is an important symbol and signal to Congress

that the city is taking decisive action, moving ahead of schedule to

deal with the city’s financial problems, and I believe it puts the city

27

in the position of taking aggressive action on its own that I think

is—I know is certainly appreciated within the administration, and

I would think would be appreciated by the Members here, that the

city is doing everything it can to bring its affairs in order as quickly as possible.

Ms. NORTON. Mr. Chairman, before I relinquish the microphone,

in response to what Mr. Raines has just said, there is a thought

here in the Congress, the notion that this is a bailout.

You indicated that one reason for wanting us to come into balance early is to show that the District has stepped forward to do

something that is equally painful as the Congress will find it painful to come up with any additional money. How would you respond

to Congress when it says that this is a bailout?

Mr. RAINES. Well, I think that this is definitely not a bailout in

this sense. First, the Federal Government has an interest in the

Nation’s Capital, and the services that we have targeted for the

Federal Government to finance are services and government programs that directly relate to that Federal interest, and therefore

our first step is in protecting the Federal interest. That we need

to do for ourselves and for the Nation and not simply for the citizens of the District.

Second, we do provide some additional room for the city by relieving it of some of these responsibilities, but by no means are we

obviating the need for the city to make very difficult financial

choices. The city is going to have to significantly rethink everything

it does in order to reach structural balance. This is not just a matter of not spending certain dollars in a year, it is not a problem

that will be solved by furloughs or deferrals, the city will need to

fundamentally rethink what it does, and therefore I don’t think

anyone in the city will view this as a bailout, as keeping them from

having to make tough choices. Indeed, it merely highlights the

need for those tough choices.

So it is anything but a bailout, it is an opportunity for the city,

but I believe it is a necessity for the national government that we

have to have a well-functioning Nation’s Capital. So the national

interest requires us to act, and our concern about home rule and

the well-being of the residents of the District requires us to do it

in the way that increases their chances of success.

Ms. NORTON. Thank you.

Thank you, Mr. Chairman.

Mr. DAVIS. Thank you.

I have a few questions I want to go through with you as well.

First of all, I don’t think there is any question—I will just say this

again—that the city is much better off with this proposal than they

are today, whether you have a Federal payment or not; the city is

much better off financially under this proposal. It is not even a

close call.

In addition to that, you have taken some of the fastest growing

elements of the budget that will increase the deficit in later years

and helped the city by providing a better percent on Medicaid; taking over corrections where there is huge cost avoidance built into

the city that they have not invested; and on the unfunded pension

liability, that stops in the year 2004. If something is not done, it

is going to be 15 percent of the city budget. So this not only helps

28

the city today, but over the long term. I think this is critical to the

city’s success.

You have clearly given this a lot of thought. You have even

thought of some of the cultural changes and incentives and disincentives as you have worked through this. And I even understand

it better now sitting here. I think we are going to be adding some

and moving the plan around a little bit, as it often happens when

it comes here, but you have clearly given this a lot of thought. I

think it hangs together fairly clearly at this point, and we will be

hearing from other perspectives as we proceed. I want to congratulate you on your efforts.

I also want to recognize our colleague from Prince Georges’s

County. Congressman Wynn has just come in, and we will give him

an opportunity to ask questions later.

Let me move to a couple of issues. Mrs. Morella had asked why

the initial Treasury provision to finance the debt in 1995 was

dropped from the Control Board legislation. Mr. DeSeve, who is sitting behind you, has been so helpful in that and other matters, can

answer that more clearly. But as I recollect, that was a scoring

problem as to how that would be scored under the Budget Act. I

would ask Mr. DeSeve if he might want to, just for the record, answer that more fully.

STATEMENT OF G. EDWARD DeSEVE, CONTROLLER, OFFICE

OF MANAGEMENT AND BUDGET

Mr. DESEVE. During the process of creating the financial responsibility and management assistance authority legislation, Treasury

and the committee staff proposed the terming out of the deficit over

a period of time, a 15-year period of time. There were two concerns

raised at that point.

No. 1, without the existence of the Financial Responsibility Authority, people were concerned that the city, having the ability before the Authority had a chance to work and demonstrate what real

fiscal restraint was like, might be inappropriate.

Second, there was and there remains today the likelihood that

under the Credit Reform Act that a loan of that length, 15 years,

would have scoring implications. There are other similar kinds of

loans that are made by various agencies to State and local governments that have that same characteristic. So let the Authority

work was concern No. 1. Concern two was that there was and will

be a scoring component to that particular loan. And for those reasons it was agreed by the administration and the Congress to allow

those provisions not to be included in the Financial Responsibility

and Management Assistance Act.

Ms. NORTON. Will the gentleman yield?

Mr. DAVIS. Happy to yield.

Ms. NORTON. This plan is paid for. Is that not the case at this

time with all of its provisions?

Mr. DAVIS. It is in the President’s budget. Now Congress has to

adopt its own resolutions. But it is.

Mr. RAINES. Yes.

Mr. DAVIS. Thank you very much.

I would like to, if I could, spend this part of my questions on the

corrections issues, which have not only the interest of the Virginia

29

delegation but for all of us because of the crime issues in the city.

The proposal is going to affect crime in the city and the region.

What do you mean by comparable sentences to Federal sentencing guidelines? Does the President’s proposal contemplate the

straight imposition of Federal sentencing guidelines on the District

courts?

Mr. RAINES. We have been meeting extensively with District officials, and there have been meetings within the Justice Department

to further define our call for sentencing guidelines that meet Federal standards. We are proposing the creation of a set of standards

that reflect Federal policies with regard to determinant sentences.

We also are proposing that they be enacted by the D.C. council as

a part of D.C. law.

They need not be the same as Federal sentencing guidelines, but

they need to reflect a difference in philosophy about sentencing,

which primarily involves determinant sentences, so that if someone

is sentenced for 2 years, they serve for 2 years. There also need to

be a much more restrictive use of parole in the sentencing process.

We think it is important for prisons to serve their purposes. It

is also important to have some consistency with the procedures

that affect Federal prisoners, because it is clear that some District

prisoners will need to be in facilities other than those in the local

area, and therefore we are concerned that there be some consistency in sentences. But there is not a requirement that they be

identical to the Federal sentencing guidelines.

Mr. DAVIS. Thank you very much.

There are many District crimes that fit into the municipal or

State category and have no comparable Federal statute. Would you

envision the Federal Sentencing Commission determining new

guidelines for each of these crimes, or how would this—— Mr. RAINES. We envision setting up a Federal/District process to

recommend new sentencing guidelines that would be included in

law by the D.C. council. So these would be sentences that were created to be applicable to the District of Columbia, and that would

fill in any gaps that may exist as between how the Federal Government has conceived of sentencing and how the local government

has. But we view these would be a unique set of guidelines affecting the District of Columbia.

Mr. DAVIS. What is the timeframe for that? Would we be doing

that as part of this legislation as we move through, or would that

come after?

Mr. RAINES. What we will be asking is an authorization for us

to begin that process. We would see it being completed during that

3- to 5-year transition period with the prisons, so that it would be

completed prior to the Bureau of Prisons taking control of the facilities.

Mr. DAVIS. Thanks. I couldn’t help but notice that the proposal

recommends that the Lorton complex be renovated where possible

and even expanded. That was called to my attention by interested

constituents. Is this something that the President intends to insist

on, or are we willing to negotiate on whether Lorton should be retained or moved to a new location?

I know that you have some new cost data coming your way with

the NCCD report that is in your office at this point. Is the adminisVerDate 11-MAY-2000 12:48 Apr 29, 2002 Jkt 078762 PO 00000 Frm 00029 Fmt 6633 Sfmt 6602 E:\HEARINGS\39564 pfrm09 PsN: 39564
30

tration going to be flexible on this, in working with this committee

and with Congress?

Mr. RAINES. Mr. Chairman, we will certainly be flexible in working with the committee on the specifics of how the plan is implemented. Our major concern is to ensure that adequate facilities will

exist for the prison and, as far as possible, that these facilities are

as close to the District of Columbia as possible.

It is our preference to have these facilities renovated and constructed on the Lorton property, because that exists. But we will

be happy to work with the committee on any ideas that the committee might have.

Mr. DAVIS. Thank you. Lorton is there. The land is there. You

don’t have to find new land, and for that reason it is very convenient. And I understand that, and I think that the burden on us is

to go and find that we can do this in a cost-effective manner and

still meet the guidelines that we all want to meet, because Lorton,

as currently constituted, has failed, and I think we all recognize

that.

The numbers that I have seen point to almost $1 billion for replacement of that facility where it is now, but as we get new cost

estimates we want to continue this dialog with you as well. We appreciate the administration’s being willing to take a flexible view

as long as we can meet the final goal that I think we share with

you.

In one of the briefings I received on the proposal, I heard a figure of 10,000 inmates used as a basis of a cost estimate of $850 million

in capital costs. Now my understanding is that there is a new

study currently under final review in OMB that concludes that in

the year 2006 there will be 7,400 felons sentenced from the District. I don’t know how you conclude what you will have in 2006,

but they have people that do that.

Do you know what the rationale is for a 33 percent increase in

population estimate that was concomitant cost increases over the

NCCD estimates that were consensus estimates? Have you gotten

that far in looking at this?

Mr. RAINES. Yes, the study you referred to assumes that there

is no change in sentencing practice. Our estimate of 10,000 assumes that there is a change and that there will therefore be more

inmates who are actually in the facilities.

Now, there was a lot of ups and downs in this because there may

be more prisoners but they may be serving, in some cases, shorter

sentences, and therefore it is not clear all of the details of that. But

we think that the 10,000 estimate is a good planning estimate at

this point, given the changes in sentencing.

Mr. DAVIS. What about the prison privatization issue? The Federal Bureau of Prisons generally does not get into that, it is my understanding. As you know, the District is already moving toward

privatizing at least a large portion of its inmate population control,

and it has a long-range plan to do more in that direction. Does that

remain a viable alternative?

Mr. RAINES. Well, the Bureau of Prisons has spent a lot of time

studying the issue of privatization, and particularly in the context

of a couple of facilities in California. The Department of Justice has

some serious concerns about privatizing prison facilities, given the

31

extraordinary powers that prison guards and officials have over the

lives of the prisoners and the need to take and to use the police

power to maintain order in prisons.

But we did not rule out privatization of some parts of the system

should the Bureau of Prisons believe that that is the most effective

way to go and that it is consistent with the need for the maintenance of order.

Mr. DAVIS. So as we look at these numbers and deal with them,

we could find that it could make sense for the Federal Government

to take over D.C. Corrections and perhaps privatize them ourselves

rather than incur higher BOP costs. We need to work through

those issues?

Mr. RAINES. We need to work through it. I am not sure that

there is going to be a major cost difference here, but again, the Bureau of Prisons has done quite a bit of work on this and has some

fairly strong feelings about the concerns about what happens, for

example, in the case of prisoner disorders and the need for the

guards on the premises to exercise police powers. If it is a purely

private facility, questions arise as to the appropriateness of the use

of force and other measures that have caused them some concern

as they look at the issue.

But I am sure that the representatives from the Bureau of Prisons would be happy to meet with the committee and go over their

concerns as well as provide the committee with the benefit of the

work they have done.

Mr. DAVIS. Just a couple of other questions before I yield to the

gentleman from Maryland. Who would administer the courts under

your proposal, and who administers them now?

Mr. RAINES. The courts are essentially self-administered now, although financed by the city government. The city government provides a lump sum to the courts, and the courts then utilize those

funds to finance themselves.

Under our plan, the management of the courts would remain the

same. We would simply have the funds come from the Federal Government through the Administrative Office of the Courts—of the

Federal Courts, and then to the local court system. So there would

not be a substantial change in how the courts are managed.

Mr. DAVIS. Are there real policy or principal reasons that the Administrative Office of the Courts couldn’t and shouldn’t oversee the

District courts?

Mr. RAINES. Well, we have had a number of discussions with

them. They are quite busy. They have a full plate in administering

the Federal courts, but we believe they are the most appropriate

administrative agent for funds for the D.C. courts.

It would be difficult to do it through the Justice Department because the Justice Department appears before the courts so extensively that some might believe that there was a conflict of interest

if the Justice Department also controlled the funding for the courts.

Mr. DAVIS. Thank you very much.

Well, before I yield to the gentleman from Maryland, I just want

to note that we have had some suburban Members here. I think

the great thing about what you have proposed and the way we

hope to conduct this is that we no longer have suburbs versus city

in these conflicts. We are going to try to move out of this and move

32

to the fact that our destinies are intertwined and we are one region

and we all have a strong investment in making the central city

work. And I know that Mr. Wynn shares that with me, and in that

regard I am happy to recognize the gentleman from Maryland.

Mr. WYNN. Thank you, Mr. Chairman. And I concur with your

sentiments about the interdependence of our region. And I thank

Mr. Raines for appearing today.

I apologize for not being here for the beginning of your presentation. I have a couple of questions that I hope have not been covered or explained.

One of the fundamental issues of concern to me has to do with

law enforcement. I understand and heard your comments with regard to the takeover of the court system. My first question is: Is

there any direct assistance for the District of Columbia Police Department? Is there any aid going to the D.C. Police Department

under this proposal?

Mr. RAINES. Under our plan, we are taking over certain functions

that will provide additional budget room within the District’s budget, that the local officials can choose to invest in the police department.

But we are also quite interested in working with the Financial

Authority on their efforts to try to improve management in the police department, and we will be working with them and providing

whatever technical assistance we can from any of the Federal law

enforcement agencies to help improve the functioning of the police

department.

And so the benefits for the police department come from expanded room in the District budget and technical assistance that

we have offered to make available.

Ms. NORTON. Will the gentleman yield on the police department

question?

Mr. WYNN. Certainly.

Ms. NORTON. I just want to indicate to the gentleman that the Congress negotiated a plan for an additional $42 million for the police department last year. Working with Senator Hatch, the chairman of the Judiciary Committee in the Senate we were able to get

$15 million. The needs of the police department are immediate. I

believe that the Federal Government now owes us $27 million and

that we cannot wait for this plan or any plan to get that money.

And I intend to use the next few weeks to get the additional $27

million that I think we have coming to us.

Mr. WYNN. Well, I certainly share your concern, and have a similar sense of urgency with respect to funds for the police department, which actually led to my next question. I understand that

basically by assuming certain pension liability for the police department, that that would be the basis on which these additional funds,

additional space if you will, would be created to provide. How much

money approximately would be available to the D.C. government as

a result of the takeover of the pension liability that could be used

in whole or in part for the police department?

Mr. RAINES. We have not divided the dollars by the components

of the plan, but I believe we begin, in the first year, in the range

of $60 or $70 million and that rises over time. That is the net value

of what we are taking over minus the Federal payment.

33

Mr. WYNN. Sixty million? OK. And you mentioned that there

were certain management improvements with respect to the police

department that you thought were necessary. Could you comment

briefly on that?

Mr. RAINES. Our plan does not have extensive detail on that, but

let me just say this. The experience in a number of other cities has

been that using information technology, changing patrol practices,

and maximizing the number of officers on the street have a significant impact on crime. And these kinds of changes have been introduced in part in the District, but not as aggressively as in other

cities. We strongly encourage the city to use the most advanced

thinking on deployment of police resources as they deal with the

issues of crime.

The Control Board has just received a study that I have not yet

seen, but I have read the press reports, and I think it begins to address some of these issues. I look forward to working with the Control Board to see what additional help the Federal Government

might provide to assist the police department in becoming one of

the best in the Nation, and in using the most modern techniques

to have a very direct impact on crime.

Mr. WYNN. Well, I agree. I noted in recent reports that New York

City had had significant success by dramatically increasing the

number of officers on the street and that would be something that

I think could work in this area as well.

Let me ask briefly in the area of economic development, I understand that there is some consideration or proposal for a tax incentive program to spur economic development. Could you comment a

little bit about the specifics of what would be envisioned in terms

of the tax incentives?

Mr. RAINES. We have proposed the creation of an Economic Development Corporation that would have certain powers. Among

those, the ability to provide tax incentives to businesses. The actual

details of that are not yet available. I hope that they will be in the

next week or so we will be able to give you the specific items and

what the tax advantages are, how they would work, and who would

qualify. But I think we are still about a week away on that.

Mr. WYNN. Would capital gains relief be included?

Mr. RAINES. It is not our current plan to include any capital

gains provision in the proposal.

Mr. WYNN. All right. Thank you, Mr. Chairman. At this time, I

wouldn’t have any further questions. I would like the opportunity

to perhaps submit some written questions at a later date.

Mr. DAVIS. Happy to. Thank you.

Ms. Norton.

Ms. NORTON. Thank you very much, Mr. Chairman. Mr. Raines,

as you know, when District employees were Federal employees,

Congress saw fit never to set up a trust fund for pensions. When

pensions were finally transferred in 1980, the Congress set up—the

Congress required the District to set up a trust fund and to contribute amounts such that now our pensions since home rule are

significantly overfunded.

In that regard, would you indicate why transferring that entire

amount—why it is that your plan calls for transferring that entire

amount to the Federal Government?

34

Mr. RAINES. Well, our plan involves taking over virtually all of

the unfunded liability of the District pension plans, and that unfunded liability is considerable. It is in excess of $4 billion. The

total liability is in excess of $7 billion. And so that the funding that

has been generated since 1979 has kept the unfunded liability from

growing totally out of control, but the liability is still quite large.

Rather than trying to find a methodology of sharing that unfunded liability, or of coming up with new Federal dollars to go into

the pension plan, it struck us that it was more consistent with our

overall approach to simply relieve the city of the full responsibility.

And if we are going to relieve them of the responsibility for those

benefits, we need, as well, to acquire the assets that are now offsetting part of that liability. And that is what we propose to do.

You should recall that the assets are an estimate of what will be

available to fund the liability. But if for any reason the performance of the economy and the performance of the stock market

doesn’t meet the estimates, then the unfunded liability would be

larger. If we take it over, the pensioners will be assured with the

full faith and credit of the United States that they will receive

their benefits, regardless of the performance of the stock market.

So that from the standpoint of beneficiaries we believe this is a

very—it is very important, and from the standpoint of the city, removing this entire liability and giving the city a fresh start, we

think, is important to the long-term financial health of the city and

to its credit ratings.

Ms. NORTON. You propose that the present pension plan would

be closed with no further accruals to that plan, and that a new

plan would be instituted for the very same employees who are here

and so they would be subject to two plans. Do you envision that

an employee would risk final receipts of pensions in the amount

that she would have had had there been only one pension plan? In

other words, will going to two pension plans in and of itself diminish the pension of individual employees?

Mr. RAINES. No, it should have no impact on the individual employee. They will receive credit for their time served under the existing plan. They will receive a benefit that is calculated based on

looking at their terminal pay, just as they would under the current

plan. So there is nothing in our plan that by itself would result in

any diminished benefits to employees.

And as I mentioned, there is an added improvement in that the

payments would no longer be subject to the vagaries, at least on

the older plan, or whether or not the District would, in fact, be able

to meet that unfunded liability.

One of the issues, I think, that has not been addressed by many,

but Chairman Davis mentioned, the increase in the requirement

for the city contributions to the pension plan in 2004 are enormous.

And I don’t believe anyone has identified a plan whereby the city

would actually be able to make those payments. We think that our

plan forestalls that issue and does so before pensioners and others

would become concerned about the fact that the city does not have

the financial wherewithal to increase its payments by the amount

now required in law.

Ms. NORTON. I can certainly tell you that having worked very

hard on a pension bill last year that I grow very nervous if anyone

35

in the District thinks that the Congress has any interest in stepping up on this issue. It is frightening. It has been frightening to

see how little response I get when I talk about what would really

be the biggest catastrophe of the city and that is either not doing

it or waiting so long to do it that you have untold repercussions on

our bond and on everything else that the District has.

This is a very, very troublesome issue because the Congress is

100 percent responsible and has shown not the slightest interest in

doing anything about it. This is a 100 percent congressionally created liability.

May I ask one more question, and that is about the notion that

the Internal Revenue Service collect taxes for the District, including local taxes. First, how would this occur? What are the mechanics of how this would occur, especially for the ordinary taxpayer?

Second, what efficiency does this build in for the District government? And third, if this is already available to the States, why do

other States not also do it at this point?

Mr. RAINES. From the efficiency standpoint for taxpayers, this

would be a major breakthrough. They would no longer have to file

separate returns with the city, but they could calculate their city

income taxes as well as their Federal income taxes on the same

form. And that would be a major efficiency for the city.

Also, the city, being a small part of a larger region, has some

unique enforcement problems and that is that it is not able to determine what jurisdiction people may be living in and has not been

able to take advantage of some of the matching programs that the

States use in working with the Internal Revenue Service ensuring

enforcement of their tax laws.

Third, I believe that the economic incentives that we will be suggesting as part of the Economic Development Corporation will depend greatly on residence of employees. And one of the ways of ensuring that the city gets the benefit from these incentives in its tax

system is to ensure that those new employees are, in fact, paying

District taxes.

The experience elsewhere with this option has been, at least my

experience in the couple of States that I am aware of who have

looked at this question, has been that those States were large

enough in general and sufficiently isolated in particular from surrounding jurisdictions that they didn’t have these cross-border

problems that were of concern and they are large enough to afford

the kind of system that you need to enforce an income tax jurisdiction.

The District is a relatively small jurisdiction and does not have

access to a lot of the tax tools that other agencies have, and therefore I think the city would uniquely benefit here. Both that the citizens would have a more simplified tax return, but also the Internal

Revenue Service enforcement mechanisms would be available and

we believe it could have a salutary impact on the total amount of

taxes actually paid to the city.

Ms. NORTON. The District has a reputation for inefficiency. No

inefficiency, though, is greater in the District than the notorious inability to collect the taxes that it enacts into law and apparently

doesn’t see. To the extent this would help this, I would be interested in exploring it further. Thank you, Mr. Chairman.

36

Mr. DAVIS. Frank, I just have a few more questions on the Economic Development Corporation. Two things to flush out on that

and I am sure that will have the option of a lot of give and take

as we move through it. I want to make sure I understand what you

have in mind.

Could you explain what would the geographical area of operation

be for the Economic Development Corporation? Would it be the

whole city; what authorities it is intended to have and what is the

funding source and the level?

Mr. RAINES. Well, the primary area of activity of the corporation

will be the central business district and those communities outside

of the central business district that have a large percentage of lowincome people. It is not our current thinking that it would be active

in the higher income areas where there is substantial amount of

economic activity currently taking place.

We intend to fund the corporation with up-front money to capitalize it, but also making available tax credits that could be part

of its program. We also think that the corporation should have an

extensive involvement with the private sector, since economic development in this city as well as any other city, has to be really

driven by private investment, private job creation, and so that

there will be a close tie to private economic activity.

And it is our desire to attract private capital as well to the corporation to supplement the funds made available by the Federal

Government in the initial capitalization so that activities ranging

from major development projects to job training and job creation

would be effective under the corporation.

Mr. DAVIS. OK. Is this at all similar to the Pennsylvania Avenue

Development Corporation and the proposed New York Avenue Development Corporation?

Mr. RAINES. It is really not as geographically focused. They may

well decide to have a focus on a particular area, but it would not

be the entire focus on any one particular area. Second, there would

be more reliance on the tax system and tax incentives as opposed

to direct Federal appropriations.

Mr. DAVIS. What about the redevelopment land authority? Would

this corporation assume or be capable of assuming some or all of

that responsibility?

Mr. RAINES. Well, that is one issue that we have had some discussions on and really don’t have a conclusion. I could see the city

deciding, or this committee deciding, that combining certain other

economic development activities as part of the corporation might be

beneficial. We really haven’t come to a conclusion there. But the

more that we can have a coordinated effort, I think, the better.

Mr. DAVIS. What about the corporation assuming control over existing District-owned land that is determined to be surplus? For example, you could have a number of school sites perhaps coming

available with General Becton looking at some school closings. That

could be a good catalyst if it is put under some central authority.

Mr. RAINES. We think it would be beneficial for the corporation

to have access to land that it could include in its development

plans. Indeed, it would be our hope to make available where we

could Federal lands that had been declared surplus that might be

37

available for economic development and the extent to which the

city could do the same thing, I think that it might be helpful.

The private sector orientation of the corporation, I think, would

be important. There is something of a history of land being allocated for certain developments and those developments not happening for many, many years. And I think it would be necessary

to ensure that development projects could move expeditiously as

the result of the corporation’s activities.

Mr. DAVIS. OK. Do you think it would be helpful for the city to

have one agency authorized and responsible for all surplus district

properties so that it could put together adequate parcels for development? Is that not a determination that this proposal makes?

Mr. RAINES. We have made no determination on that as part of

this plan.

Mr. DAVIS. Many District government buildings, public housing,

schools, police stations, are built on federally owned land. Would

the administration support transferring these parcels, most of

which were acquired for District-only purposes over the years, to

District ownership?

Mr. RAINES. We would be happy to work with the committee in

looking at the particulars to see the extent to which that would

make a difference in the success of the plan.

Mr. DAVIS. Finally, how would this corporation be governed? Is

it intended to have District participation but not domination?

Would it be charged with protecting Federal interests as well as

District interests? Any conclusion on that yet?

Mr. RAINES. Our view is that the corporation ought to be primarily made up of private sector individuals appointed by some

combination of the Federal Government and the local government.

Mr. DAVIS. OK. And moving to the last topic. As you know, all

of the District’s general obligation debt carries a proviso that if

other funds are not available, the Federal payment can be used as

security for the debt. We ran into considerable discomfort from the

existing bondholders on this issue 2 years ago when we allowed the

Federal Treasury to use the Federal payment as collateral for

short-term loans.

How do you expect the elimination of the Federal payment to affect the value and liquidity of outstanding District debt and on the

District’s future bond rating? I don’t know if you want to answer

that or Mr. DeSeve. He doesn’t want to take it.

Mr. RAINES. Well, Mr. Chairman, I actually wrote the bond indenture for the District of Columbia many years ago, and I believe

it is a very strong indenture. As I recall, the actual reference is

that the Federal payment, if any, is available for support of the

bonds.

I think the most important thing we can do in supporting the

value of the District’s bonds is to remove the financial cloud over

the city, particularly by eliminating the concerns about the pension

liability. So if you take the plan as a whole, I believe it would be

a very strong net positive for the bonds, far more than the prospect

of using the Federal payment to meet the payments. Currently, the

bonds have a very strong security in the property tax and, as long

as that security is respected and enforced by the courts, I think it

should be adequate security for bondholders.

38

Mr. DAVIS. Thank you very much. Mr. Wynn, do you have any

additional questions?

Mr. WYNN. Thank you, yes, just one. Going back to the issue of

the Federal Government assuming responsibility for prisons, I note

that prison staff would not be automatically integrated into the

Federal Government system, but would have to reapply based on

their ability to meet Federal standards. That gives me some concern. What exactly is the difference between the current Federal

standards and the District of Columbia’s standards now?

Mr. RAINES. Well, they were developed separately, and I think

the Bureau of Prisons wants to ensure that all of their employees

have met the standards, have had similar training, and will be able

to be successful.

I think there would be a reluctance, as I think there is a reluctance in any of these cases, to simply have a blanket promise that

everyone will be hired who is currently employed. It is one of the

things that will have to be worked out during this transition period, is what is the necessary employment levels; is the structure

of the work force that is currently in the prison system the same

as the one that the Bureau of Prisons would like to operate? What

is the level of supervision and the number of supervisory personnel?

So there are a lot of issues that are going to have to be worked

out, but I think the Bureau would be very reluctant to give a blanket promise that everyone who is currently employed would have

a job under the new system.

Mr. WYNN. Would it make sense to provide for a transition period so that if the issue was training and a number of hours of

training or something like that, that existing personnel could obtain that training without being immediately discharged purely because they lack this specific training component that the Bureau

of Prisons personnel had that they had never been offered?

Mr. DAVIS. Will the gentleman yield? We would be very happy

to work with the administration on those kinds of things to bring

people up to the required hours and so on on this. I would think

that would be a possibility and would be very helpful. You could

retrain people instead of hiring new people with a proven record.

Mr. RAINES. Absolutely. And we provide for a 3 to 5-year transition period and during that period it would be my hope that not

only would the physical facilities be improved, but also any training necessary that would be comparable to that provided to the Bureau of Prisons would also be provided so that the vast majority

of employees would know on the first day that they had been retained once the Bureau of Prisons takes control. So we don’t view

there would be an abrupt moment. We view this 3 to 5-year period

as not only dealing with physical capital, but also human capital

in the system.

Mr. WYNN. It sounds like between your comments and those of

Chairman Davis that this issue could be resolved without the loss

of prison personnel that could otherwise be qualified to be employed by the Bureau of Prisons.

Mr. DAVIS. I would think that the prison employees who have the

experience and would accept the training would be a great asset,

obviously. These are issues that we need to think and work

39

through together. You have a number of affected constituents, but

on the other hand, the Bureau of Prisons has to ultimately make

this determination or they are not going to want to be involved.

But I would think there would be room for most of the people.

Ms. Norton.

Ms. NORTON. To my good friend from Maryland, I should say for

the record that the nature of his questions say all that needs to be

said about where District employees live.

Mr. WYNN. Throughout the region, it is my understanding.

Mr. DAVIS. Is that your question?

Ms. NORTON. No, it is not, and I appreciate his help on that issue

because at least a few of them live in the District.

I have only one question, and that is about an element of the

proposal that your working group is having some difficulty with,

and they are trying very hard and working very well, and that is

the National Capital Infrastructure Fund. Anybody who goes outside now, even after the District has been struggling on the streets,

finds that the potholes have reappeared.

I mean, this is one of the reasons why the morale of citizens cannot be raised. It is what you see and feel and touch. There has just

not been enough of what you see and feel and touch that has

changed in this city to keep people here and to keep their morale

up so they believe something is going to happen.

So, though this amount is small, it is very welcomed because it

is an acknowledgment that the care of roads is also a State function or of many roads is also a State function.

The problem here, and I understand the amount, but the prob- lem here is that we are talking about only $125 million, and with

the thought and forethought and careful craftsmanship that have

you given every part of this proposal, you see this as seed money,

not as money just to be spent on some roads during the next 5

years.

The problem is that it has to be seed money for something, and

you indicate something that the city council could do right now,

and I still don’t understand why it has not been done. You indicate

one thing that could be done that was. It would be payment in lieu

of taxes that right now the city council and the Mayor could, in

fact, be negotiating with the multitude of nonprofits that are in the

city. I know that the National Education Association stepped forward itself and said here we are, negotiate with us. And I still

don’t know if their offer to pay 40 percent of the tax that they

would otherwise pay has been accepted. All I know is that they

have offered it.

You put that in your proposal, except of course it is not directly

related to roads. So it is seed money and perhaps would mean that

that fund would grow because that amount would, I take it, would

come into that fund over time.

Now, if we were a city of another type, the amount could grow

because of a revenue function that might be connected to roads and

bridges themselves, such as tolls for example. That, of course, is

not going to be possible, certainly within the city. And I wonder

whether or not you believe that an amount of this kind can, in fact,

be leveraged sufficiently to help us with local roads and with capital funds as your proposal says, with capital funding so much less,

40

or whether the amount is simply too small to ultimately be leveraged for a purpose beyond, for example, the 5 years.

Mr. RAINES. Well, we would be very desirous of working with the

committee on this issue. It is—in our view it is very important for

the Nation’s Capital and for the region and for the city that the

city’s transportation infrastructure be first rate. And the investment in that transportation infrastructure has lagged over a number of years to the extent that we now have had to waive the local

match for highway funds because the city otherwise would not be

able to move forward on very important projects that affect the

whole region. And we view this National Capital Infrastructure

Fund as a first step in dealing with transportation issues in the

city, but also ones that intimately affect the region.

So many of the employees in the city come from outside the city

that there is a tremendous reliance on this system, on the Federal

Government for its own employees relying on it substantially.

Metro is the heart of our regional transportation system and we believe we have to find ways to increase the investment in that infrastructure. So we believe that this fund is a first step in that direction.

We have suggested that others may be interested in contributing

to this fund because of the regional impact. There has been some

reluctance by entities to provide funds to the city because they

were concerned as to whether or not the funds would be used for

anything that was relevant to their own interest. But because the

roads and bridges and Metro are so clearly of interest to the employers in the city, whether they are for-profit or nonprofit, because

it is of such importance to the region because if the city is unable

to pay its share of these costs, then the Metro and other facilities

would deteriorate to the detriment of the region as a whole, that

we are encouraging as many thoughts as possible about how can

we attract other funds to this fund. And how can we deal with regional transportation issues generally through a mechanism such

as this and starting with the District of Columbia?

Ms. NORTON. So consistent with your plan might be a regional

fund that would be dedicated solely to regional transportation

issues without prejudice to one or another aspect of those issues?

For example, when you say there should be a gas tax and then people say, ‘‘No, I want it for Metro,’’ and when you say, ‘‘It is for

Metro,’’ people in other parts of the region say, ‘‘I can’t use Metro

because of where I live, no, I still need roads.’’ Do you envision that this fund could be the beginning of a larger

regional fund that could be a win-win for the entire region contributing to transportation needs wherever they may be, whether in

rapid transportation or in roads?

Mr. RAINES. Well, as you know, in my role as the Budget Director, I have the opportunity to visit with people in the region about

special regional needs, and the Federal Government has had a special relationship with this region. The most notable example is

Metro, which has its own stream of funding from the Federal Government quite separate from the funding that is made available

through the national programs. And so I, from time to time, hear

about special regional needs, and I think it would be highly desirable if the region were to find a mechanism to deal with regional

41

transportation concerns that provided capital funds on a continuing

basis for these endeavors.

The region has more in common than in some cases the suburbs

in the region have with other parts of the State that they are in.

So it strikes me that if the local leadership in the region could

conceive of a means of financing capital for transportation, it would

be indebted to the region, and, as the Federal budget director, I

could well see how there is a national interest in ensuring that

that mechanism worked well enough because of the impact on the

Nation’s Capital and the National Capital region.

We have employees throughout the region; we have facilities

throughout the region. If the transportation system does not work,

then that is a problem for the Federal Government.

Ms. NORTON. This may be a very important opportunity for the

region to get hold of some of the issues that were raised at the recent metro conference, where the bus system, for example, has broken off to such an extent that there is very serious concern about

the future of Metro.

I hope that the kind of imaginative thinking you have brought

to District matters will encourage the region to bring the same to

its own transportation matters.

Thank you very much, Mr. Chairman.

Mr. DAVIS. Thank you very much.

Do you want to add anything in summarization of anything you

have missed or something you would like to respond to?

Mr. RAINES. Mr. Chairman, I would just like to thank the committee for your interest in this proposal, your moving expeditiously

with hearings, and the opportunity to have worked with the Members as we developed and presented the proposal.

I think it bodes well for the future of the District that Congress

has taken up this issue in such a forthright manner, and I look forward to working with you to see if we can get legislation as expeditiously as possible, so all the work that will be needed to move this

plan into actuality in the next fiscal year, which begins October 1,

can begin as soon as possible.

Mr. DAVIS. I think we should be able to meet that deadline in

working together. Today you have acquitted yourself and have

shown that the administration has planned very well; I think, as

is appropriate in the legislative process where we need to do that.

I am personally energized by the attitude and initiative from the

White House and from congressional leaders. We have a once-ina-generation opportunity to make things happen. We have the Republicans and Democrats, Congress and the administration, city

and suburbs, working together, recognizing we have some structural tasks ahead of us.

I think the Control Board, who we did not talk about today, have

brought about a lot of the changes. Although we read about bad

news, a lot of this has been uncovered by the work they are doing.

The Control Board should be working with the Mayor and council

on the day-to-day functions. Congress should not be doing that. I

think you have correctly focused on the larger structural issues

that have to be addressed if the city is going to be successful.

I also would just note the newly emboldened city council, and the

fact that they are showing some initiative on this cannot help but

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make this a very satisfactory answer at the end of our journey. I

will look forward to hearing from the Mayor and council in the

near future, and I thank my colleagues for being with us today.

The hearing is adjourned. Thank you very much.

[Whereupon, at 11:35 a.m., the subcommittee was adjourned.]

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