GAO/AIMD-00-173R DC Interest Earnings

United States General Accounting Office

Washington, DC 20548

Accounting and Information

Management Division

B-283834

June 30, 2000

The Honorable Ernest J. Istook, Jr.

Chairman, Subcommittee on the District of Columbia

Committee on Appropriations

House of Representatives

Subject: District of Columbia: Interest Earned on Federal Funds During

Fiscal Years 1995 Through 1999

Dear Mr. Chairman:

This letter responds to your request for information on interest earned on federal

appropriated funds to any District of Columbia (District) government entity including

the District’s Financial Responsibility and Management Assistance Authority

(Authority) and other related entities for the operation of the District government.

This interest was earned on appropriated amounts paid to the District or related

entities and held in interest bearing bank accounts until payments were made. As

you requested, we are providing data for the last 5 fiscal years ending September 30,

1999. We are also providing updated information on the use and availability of those

amounts through February 29, 2000.

Specifically, you asked us to determine

• federal funds appropriated to the District government and its related entities for

this period;

• total interest earned on those federal funds received by the District government

and its related entities; and

• the status of those interest earnings, including the unobligated balances that could

be used to support other District initiatives.

Results in Brief

• The District government and its related entities received over $3.5 billion in

appropriated federal funds from October 1, 1994, through September 30, 1999.
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• The District government and its related entities reported total interest earnings of

$56.8 million1 on the above federal funds from October 1, 1994, through

February 29, 2000.

• The District government and its related entities reported a total of $39.8 million of

interest earnings on federal funds that were expended, returned to the U.S.

Treasury, or restricted for specific uses, leaving an unobligated cash balance of

$17 million that was held in escrow by the Authority as of February 29, 2000. An

additional $3.1 million may become available when a property received in

exchange for a grant is ultimately sold.

In the District’s fiscal year 2000 Appropriations Act, the Congress required the

Authority to transfer to the Mayor $23 million in interest earnings that it held in

escrow for the benefit of the District. As part of funding the required transfer, the

Authority stated that all of the unobligated and available balance of interest earnings

on federal funds held by it would be applied and that it would make up the difference

with interest earned on nonfederal funds that it holds in escrow. The District and its

related entities agreed with the contents of this letter.

Background

The Constitution gives the Congress exclusive legislative authority over the District

of Columbia as the seat of the federal government.2Consistent with this

Constitutional mandate, the District of Columbia Home Rule Act was enacted into

law in 1973 delegating certain powers to the District of Columbia government.3

However, the delegation of powers to the District by the Home Rule Act is limited in

that the District may not obligate or spend funds unless authorized by an act of

Congress.4

Some District spending is authorized by permanent provisions of law—for

example, the authority to pay the principal and interest on general obligation bonds

or notes.5 However, other proposed spending is included in the budget adopted by

the District government and submitted to the President for submission to the

Congress as part of the federal government’s annual appropriation process.6

Like any other unit of government, the District raises funds by numerous local

sources such as income and property taxes, fees, reimbursements, fines, penalties,

the sale of property, gifts, interest on deposits, and borrowings from the private

1

This does not include the earnings on the fiscal year 1995 appropriation as discussed in our

“Objectives, Scope, and Methodology” section.

2

U.S. CONST., art. I, § 8, cl. 17.

3

Pub. L. No. 93-198, § 102, 87 Stat. 774, 777 (1973), D.C. Code Ann. § 1-201 (1981, 1999 Replacement

Vol.).

4

Section 446 of the D.C. Home Rule Act, as amended, D.C. Code Ann. § 47-304 (2000 Supp.).

5

See for example, D.C. Code Ann. § 47-331.2(d) (1981, 1997 Replacement Vol.).

6

Sections 442, 446 of the D.C. Home Rule Act, as amended, D.C. Code Ann. §§ 47-301, 47-304 (1981,

1997 Replacement Vol.).
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capital market.7In addition, federal fiscal assistance programs authorize federal

grants to the District, the funding for which is provided in advance or by

reimbursement to the District.8

According to U.S. Treasury officials, grant payments

to the District government are generally made to reimburse it for payments already

incurred (for example, the highway trust fund).

The District’s ability to raise revenues is affected by a number of legal and practical

limitations on its authority, for example, the immunity of federal property from

taxation, the prohibition on the District from passing a law to tax the income of

nonresidents,9

and the relative lack of taxable commercial and industrial property.

The District of Columbia Home Rule Act included a procedure for congressional

review of the budgetary impact of such limitations by requiring the District, to the

extent feasible, to identify the impact of the various limitations and to include, in its

budget submission, a request for an annual federal payment.10 In fiscal year 1995, the

amount appropriated to the District as an annual federal payment was deposited by

the District into its General Fund (consistent with prior year payments) and used

along with funds received from other sources to spend on District government

activities. While the District invests cash balances until needed for disbursements, it

did not separately track and account for the interest earned on the federal payments

deposited in the General Fund.

By 1995, the District’s financial condition had deteriorated to the point where

legislation was enacted establishing the Authority as an entity within the District of

Columbia government to eliminate budget deficits and improve District government

management.11 The legislation provided that the Authority could hold in escrow

certain funds on behalf of the District, for example, the annual federal payment,12 the

bond proceeds associated with, and any funds in a debt service reserve fund

established pursuant to, any borrowing by the Authority on behalf of the District,13

7

For the purpose of this review, such locally generated revenues are not included. See our “Objectives,

Scope, and Methodology” section for a complete discussion of what items will be discussed in this

report.

8

The Cash Management Improvement Act of 1990, Pub. Law No. 101-453, 104 Stat. 1058, 31 U.S.C.

§§ 3335, 6503 (1994), requires that advances to states of fiscal assistance be made so as to minimize the

time between the advance to the state and its use for program purposes and to authorize recovery of

interest earned on such funds if they are not disbursed for program purposes in a timely manner.

9

Sec. 602 (a)(3), (5) of the D.C. Home Rule Act, D.C. Code Ann. § 1-233(a)(3), (5) (1981, 1999

Replacement Vol.).

10Sec. 501 of the D.C. Home Rule Act, D.C. Code Ann. § 47-3405 (1981, 1997 Replacement Vol.).

11Secs. 2 and 101 of the District of Columbia Financial Responsibility and Management Assistance Act

of 1995 (1995 Act), Pub. L. No. 104-8, 109 Stat. 97, 98, and 100 (1995), D.C. Code Ann. § 47-391.1 (1981,

1997 Replacement Vol.).

12Section 205 of the 1995 Act, D.C. Code Ann. § 47-392.5 (1981, 1997 Replacement Vol.).

13Section 213 of the 1995 Act, D.C. Code Ann. § 47-392.13 (1981, 1997 Replacement Vol.).
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and all money requisitioned (borrowed) by the District from the United States.14 In

addition, recent annual District of Columbia appropriation acts appropriated federal

funds for specific District government activities and required, more often than not,

that the Authority hold the funds in escrow until they are used for the purpose for

which they were appropriated.15 With the enactment in August 1997 of the National

Capital Revitalization and Self-Government Improvement Act of 1997 (Revitalization

Act),16 the Authority has been authorized to spend the interest earned on the accounts

held on behalf of the District for such purposes as it considers appropriate to

promote the economic stability and management efficiency of the District

government.17

The Revitalization Act also repealed the provision in the District Home Rule Act

requiring the District to submit an annual federal payment request as part of its

budget request.18 Instead, the federal government took over the funding of certain

District government agencies or activities. Beginning with fiscal year 1998, the

federal government has paid for the operations of the District of Columbia Courts

(DC Courts), the District of Columbia Court Services and Offender Supervision

Agency (CSOSA) Trustee, and the District of Columbia Corrections Trustee

(Corrections Trustee).19 In addition, the Revitalization Act authorized a federal

contribution to the District of $190 million for fiscal year 1998 and an indefinite

amount in subsequent years.20

14Section 204(b) of the 1995 Act, D.C. Code Ann. § 47-392.4(b) (1981, 1997 Replacement Vol.).

15Compare the appropriation for “Metrorail Improvements and Expansion” (making available

$25 million to the Washington Metropolitan Area Transit Authority for improvements and expansion of

the metrorail stop at the new convention center) with the appropriation “Federal Payment for

Management Reform” (making $25 million available to the Authority to be held in escrow for

management reform initiatives), District of Columbia Appropriations Act, 1999, Pub. L. No. 105-277,

§ 101 (c), 112 Stat. 2681, 2681-121 (1998).

16Section 11601(a)(1), Pub. L. No. 105-33, Title XI, 111 Stat. 712, 777 (1997).

17Section 106(d) of the 1995 Act, as added by section 11711(a) of the Revitalization Act, D.C. Code Ann.

§ 47-391.6 (1999 Supp.).

18Section 11601(a)(1) of the Revitalization Act, D.C. Code § 47-3405 (2000 Supp.).

19As a result of the Revitalization Act, the federal government also assumed responsibility to pay the

District’s unfunded pension liability for judges, police and firefighters, and teachers, Subtitle A of the

Revitalization Act, 111 Stat. 715–731 and Subtitle C, Chapter 4, Subchapter B of the Revitalization Act,

111 Stat. 756-759. In addition, the federal government increased its share of District Medicaid

expenditures from 50 percent to 70 percent, section 4725(b) of the Balanced Budget Act of 1997, Pub.

L. No. 105-33, 111 Stat. 251, 518 (1997).

20Section 11601(c) of the Revitalization Act, D.C. Code Ann. § 47-3406.2 (2000 Supp.).
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Over the past 3 years, there has been a decline in the amounts made available to the

District related entities to earn interest.21

• During fiscal years 1998 and 1999, the federal funds were paid to DC Courts and

deposited by it in interest bearing accounts until needed to make payments.

Beginning with fiscal year 2000, the fiscal year 2000 appropriation act requires the

federal funds to remain in the U.S. Treasury until needed by DC Courts to make

payments.

• During fiscal years 1998 and 1999, the federal funds appropriated to the

Corrections Trustee for operations (1-year appropriation available for incurring

obligations for a definite time period) and for capital construction (no-year

appropriation available for incurring obligations for an indefinite period until

exhausted) were also deposited into interest bearing accounts until needed to

make payments. Beginning with fiscal year 2000, federal money appropriated to

the Corrections Trustee for operations (1-year appropriation) is required by law to

remain in the Treasury until needed to make payments. No appropriations for

capital construction were made to the Corrections Trustee for fiscal years 1999

and 2000.

• During fiscal year 1998, the federal funds appropriated to the CSOSA Trustee were

deposited into interest bearing accounts until needed to make payments.

Beginning with fiscal year 1999, the federal funds appropriated to CSOSA are

required by law to remain in the Treasury until needed to make payments.

Objectives, Scope, and Methodology

As we agreed with your office, our review includes only the appropriation of federal

funds that went directly to the Authority, or a District related entity (DC Courts,

Corrections Trustee, and CSOSA). We excluded locally generated revenues and the

appropriation of federal funds received by not-for-profit organizations and federal

agencies as designated in the District of Columbia Appropriations Acts. As we also

agreed, we excluded the federal grants to the District and its related entities because

they are provided on a reimbursement basis and no interest was earned on them. In

addition, we agreed to exclude interest earned on the fiscal year 1995 federal

payment that went directly to the District’s General Fund since those earnings were

not tracked separately or earmarked as interest to be used for a specific purpose.

Instead, those funds were available, along with local funds, for the District’s general

operations.

We included the Washington Metropolitan Area Transit Authority (WMATA) because

it is a corporate body that is a regional instrumentality and common agency of each

21District of Columbia Appropriations Act, 1998, Pub. L. No. 105-100, 111 Stat. 2160, 2161 (1997);

District of Columbia Appropriations Act, 1999, Pub. L. No. 105-277, § 101(c), 112 Stat. 2681, 2681-122

through 2681-123 (1998); and District of Columbia Appropriations Act, 2000, Pub. L. No. 106-113,

Division A, Title I, 113 Stat. 1501, 1502 – 1504 (1999).
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Page 6 GAO/AIMD-00-173R DC Interest Earnings

of the signatory parties to the WMATA Compact22—the District of Columbia, the State

of Maryland, and the Commonwealth of Virginia. The other entities that we have

identified as District-related are not related to any other government. Therefore, we

have separately identified the amounts appropriated to WMATA from amounts

appropriated to District-related entities because WMATA differs from the other

entities identified.

To determine the total federal funds received by the District government and its

related entities for fiscal years 1995 through 1999, we

• analyzed all District appropriation acts from fiscal years 1995 through 1999 and

any other emergency or supplemental appropriations from the Congress to the

District or its related entities during that period;

• interviewed officials at the District entities that had received appropriations

including the Authority, DC Courts, CSOSA, the Corrections Trustee, WMATA,

and the District’s Office of Finance and Treasury and Office of Budget and

Planning; and

• obtained reports, schedules, bank statements, and other financial information of

actual federal funds received by the Authority, DC Courts, CSOSA, the

Corrections Trustee, and WMATA, and reconciled the amounts to the

appropriated amounts.

To determine the interest earnings and uses by the District government and its

related entities from fiscal year 1995 through 1999, as well as the subsequent period

of October 1, 1999, through February 29, 2000, we

• reviewed bank statements, legislative documents, contracts, and other pertinent

data and interviewed officials at DC Courts, the Corrections Trustee, CSOSA, and

WMATA;

• reviewed the working papers and held discussions with the Authority’s external

auditors on the audit work performed for the financial statement audits for fiscal

years 1996 through 1999;

• held discussions with the Authority’s financial staff, external auditors, and

contract accountants on specific detailed information that they provided to us

relating to audits covering fiscal years 1996 through 1999 and performed the

necessary reconciliations of financial information where appropriate; and

• obtained and analyzed reports, schedules, and detailed information that was

provided on additional interest earnings and uses during the subsequent period of

October 1, 1999, through February 29, 2000.

22D.C. Code Ann. § 1-2431 (1981, 1999 Replacement Vol.).
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To determine the available interest balances that could be used to support other

District initiatives, we

• prepared a schedule and obtained an understanding of all of the interest earnings,

uses, and other interest transactions for fiscal years 1995 through 1999 and the

first 5 months of fiscal year 2000 and

• analyzed the interest activity for the 5-year period and the available interest

balance, as of February 29, 2000, subtracting all interest used, returned to the U.S.

Treasury, restricted for a specific purpose, and subsequent commitments relating

to interest earnings.

Some of the above steps represented additional procedures that were needed to

enable us to address each objective since the Authority’s financial statements,

reports, and schedules were not reconciled, adequately explained, or provided to us

in a timely manner throughout the review. The Authority informed us that it did not

have the time to gather “historical” information for us that related to prior years and

that, in some instances, the information needed to be recreated.

We conducted our work from August 1999 through June 2000 in accordance with

generally accepted government auditing standards. We requested comments on a

draft of this report from the District government, the Authority, the Corrections

Trustee, DC Courts, CSOSA, and WMATA. Officials from the District, the Authority,

the Correction Trustee, DC Courts, CSOSA, and WMATA provided comments that are

discussed in the “Entities’ Comments” section.

Federal Funds Appropriated

Over $3.5 billion in federal funds were appropriated to the District of Columbia

government and its related entities during fiscal years 1995 through 1999. The

Authority received and deposited into escrow accounts 51 percent of the federal

funds. The District government received 19 percent and deposited it directly into its

General Fund account. Other federal funds were appropriated directly to related

entities at 19 percent for the Corrections Trustee, 7 percent for DC Courts, 3 percent

for CSOSA, and 1 percent for WMATA. (See figure 1.)
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Figure 1: Federal Funds Appropriated For Fiscal Years 1995 Through 1999

(Dollars in Millions)

These funds moderately increased during fiscal years 1995 through 1997 from

$660 million to $722 million, before reaching a peak in fiscal year 1998 at $828 million

and then dropping to $629 million in fiscal year 1999. The significant changes in fiscal

years 1998 and 1999 resulted from changes in the way the federal government

contributed to the funding of the District government. With the passage of the

Revitalization Act, the federal government took over the funding of certain District

government agencies and activities. These agencies included the Corrections

Trustee, the DC Courts, and CSOSA, which accounted for almost $1 billion (or 68

percent) of the nearly $1.5 billion in federal funds appropriated in fiscal years 1998

and 1999. The Authority also received and held in escrow $437.9 million in other

federal funds during those years for specific programs and support in the District.

WMATA received a $25 million appropriation in fiscal year 1999 for expansion and

improvement of the Mount Vernon Square Metrorail Station located at the site of the

new Washington Convention Center. (See figure 2.)

$660

$236

$656

$1,835

$102 $25

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

DC Authority

Corrections Trustee

DC General Fund

DC Courts

CSOSA

WMATA
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Page 9 GAO/AIMD-00-173R DC Interest Earnings

Figure 2: Federal Funds Appropriated by Entity Over the 5-Year Period

(Dollars in millions)

The appropriations to the District were relatively stable throughout fiscal years 1995

through 1997 due to the annual federal payments of $660 million to the District’s

general fund in fiscal year 1995 and to the Authority in fiscal years 1996 and 1997.

Also, the Congress appropriated additional funds to the Authority for specific

programs during fiscal years 1996 and 1997. For example, in fiscal year 1996, the

Authority received $15 million to assist the District’s Metropolitan Police Department

with local law enforcement,23 and in fiscal year 1997, three other appropriations,

totaling $61.7 million, were received for other District government activities. These

appropriations were $55 million for the financing of the DC Public Schools’

elementary and secondary school facility construction and repair, a $5.7 million

payment in lieu of reimbursement of expenditures for the presidential inauguration,

and a $1 million contribution to repair the District’s drinking water system.

Under the Revitalization Act, the federal government discontinued the annual federal

payments. At the same time, the federal government took over the funding of certain

District government activities. Total appropriations for fiscal years 1998 and 1999

were $828 million and $629 million, respectively. Of those amounts, the Congress

23We reported on the use of these funds in our report entitled District of Columbia: Metropolitan Police

Department’s Use of $15 Million Appropriation (GAO/AIMD-99-21, November 13, 1998).





$108

$128

$185

$471

$59

$43

$25

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

1995 1996 1997 1998 1999



WMATA

DC Courts

CSOSA

Corrections Trustee

DC Government

Passage of Revitalization Act

$675 $722

$206 $232

$660

$629

$828
B-283834

Page 10 GAO/AIMD-00-173R DC Interest Earnings

appropriated $622 million (or 75 percent) in fiscal year 1998 and $397.2 million (or 63

percent) in fiscal year 1999 to the Corrections Trustee, CSOSA, DC Courts, and

WMATA. These funds were allocated for general operations of the Corrections

Trustee, CSOSA, and DC Courts, construction and repair of correctional facilities,

and improvements in the Metrorail Mount Vernon Station associated with the

construction of the District’s new convention center.

In addition to the funds appropriated in fiscal year 1998 to the District related entities

identified above, another $206 million was appropriated to the Authority for district

programs and operations, management reform, and capital improvements to the

District’s public schools. Likewise, in fiscal year 1999, an additional $232 million was

appropriated to the Authority for programs in the District, including funding for the

potential Year 2000 problem, transportation and public safety infrastructure needs,

public schools, police and fire departments, and management reform. The Authority

held all of the funds appropriated for district programs and operations for fiscal years

1998 and 1999 in escrow accounts.

Interest Earnings

As of February 29, 2000, more than $56.8 million of interest was earned on the

$2.9 billion (excluding the fiscal year 1995 federal payment) of federal funds

appropriated and paid to the District government and other District related entities in

fiscal years 1996 through 1999. Of the $56.8 million of interest earnings, the Authority

earned approximately $32.6 million (or 57 percent), the Corrections Trustee earned

about $19.1 million (or 34 percent), and CSOSA, DC Courts, and WMATA earned

almost $1.7 million each (or 3 percent each). (See figure 3.)

Figure 3: Interest Earnings on Federal Funds by Entity Over the 4-Year Period

(Dollars in Millions)

Use of Interest Earnings

For the 4-year period, $39.8 million of the $56.8 million in interest earnings was

reported as (1) expended, (2) returned to the U.S. Treasury, or (3) unspent but

$1.7

$32.6

$19.1

$1.7 $1.7

$0

$5

$10

$15

$20

$25

$30

$35

DC Authority

Corrections Trustee

WMATA

CSOSA

DC Courts
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Page 11 GAO/AIMD-00-173R DC Interest Earnings

unavailable. The Authority, Corrections Trustee, WMATA, DC Courts, and CSOSA

reported the obligation and spending of total interest of $18.1 million, total interest

returned to the Treasury of $13.1 million,24 and another $8.6 million that was unspent

but unavailable. All of the spending occurred between fiscal years 1997 and 1999, and

with the exception of $2.5 million, the Authority was responsible for all uses of

interest. CSOSA spent $1.7 million of interest earnings during fiscal years 1998 and

1999, and DC Courts spent $0.8 million of interest earnings during fiscal year 1998

without the needed authority.25

The $8.6 million of interest that was unspent but unavailable as of September 30,

1999, comprised: (1) $1.7 million for WMATA, (2) $6 million for the Corrections

Trustee, and (3) $0.9 million for DC Courts. According to WMATA officials, the

interest earned on its federal payment will be used to support any additional costs

associated with the Metrorail Mount Vernon Station project. WMATA officials also

stated that should the interest not be used, it will be returned to the U.S. Treasury.

WMATA classified the interest earned on its federal payment as restricted funds.

Of the $6 million of unspent and unavailable interest earnings as of February 29, 2000,

the Corrections Trustee returned $852,000 of this interest that was earned on its fiscal

year 1999 operating federal payment to the U.S. Treasury.26 The Corrections Trustee

stated that the remaining interest earned on federal funds was for restricted purposes

as follows:

• The fiscal year 2000 appropriation act made $4.6 million of interest earned on the

fiscal year 1998 operating federal payment to the Corrections Trustee available to

pay additional operating costs.

• The President’s budget requests that the Corrections Trustee be authorized to use

any remaining interest earned on the federal payments made to it in the District’s

fiscal year 1998 appropriation. Through February 29, 2000, the Corrections

24As of February 29, 2000, the Corrections Trustee had earned $19.1 million on its fiscal years 1998 and

1999 federal payments. During fiscal year 1999, the Corrections Trustee returned $13.1 million of the

interest earned on its fiscal year 1998 capital federal payment to the U.S. Treasury. Of the remaining

$6 million, $4.6 million was restricted and $1.4 million is unspent but unavailable as discussed later is

this section.

25These two entities did not have statutory authority to use the interest income and, as a result, violated

the Anti-Deficiency Act, which prohibits government officials from making obligations or expenditures

in excess of amounts available in an appropriation or fund unless they are otherwise authorized to do

so by law. We reported these findings on the unauthorized use of interest earned on appropriated

funds in our letter to CSOSA (B-283834, February 24, 2000) and in our report entitled DC Courts:

Planning and Budgeting Difficulties During Fiscal Year 1998 (GAO/AIMD/OGC-99-226, September 16,

1999).

26On June 7, 2000, the Corrections Trustee returned a total of almost $893,000 of interest earnings to

the U.S. Treasury. The amount represents the total interest earned through June 1, 2000, on the fiscal

year 1999 federal payment. The Corrections Trustee also returned almost $429,000 of interest that was

earned on fiscal year 2000 funds.
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Page 12 GAO/AIMD-00-173R DC Interest Earnings

Trustee reported $541,000 of interest earned on these federal payments and

estimated that the amount would not exceed $550,000.

In addition, in fiscal year 2000 the DC Courts was authorized to use the interest

earned on its fiscal year 1999 appropriation to pay for obligations incurred during

fiscal year 1999 upon satisfying certain conditions. The conditions were satisfied, as

we certified on DC Courts’ restricted use of interest earnings in our January 2000

letter.27 Consequently, DC Courts used $0.9 million of actual interest earnings to pay

for fiscal year 1999 obligations. (See figure 4.)

Figure 4: Uses of Interest Earned on Federal Funds Over the 5-Year Period

(Dollars in Millions)

Our review of the Authority’s use of the interest earnings revealed that $12.7 million

of the $15.6 million were cash outflows during fiscal year 1999. This amount

represented $8.1 million of expenditures and $4.6 million of grants. The Authority

made the $4.6 million in grants to the District on the condition that if the District

identified other resources it would repay the Authority. According to Authority

officials, the bulk of the grants ($4.4 million, or 96 percent) were paid to the District

in connection with the financial hardships of the Greater Southeast Community

Hospital, while the remaining $0.2 million pertained to other activities. Currently, the

District has returned $1.1 million of the grants to the Authority. The Authority

expects to receive at least another $3.1 million when it sells a property that it

received in exchange for a $3.1 million grant to the District on July 13, 1999.

In addition to the above uses of interest earnings, the District requested about

$16 million of other obligations against the interest earnings. Based on our

discussions with the Authority and according to information submitted in its status

report to the Congress, the Authority obligated $8.8 million of interest earnings in the

27DC Courts Certification (GAO/AIMD/OGC-00-68R, January 27, 2000).

$13.1

$0.9

$6.0

$1.7

$0.8

$15.6

$1.7

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

DC Authority

Corrections Trustee

Corrections Trustee

WMATA

CSOSA

DC Courts

DC Courts

Rturn to Treasury Restriction Expense
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Page 13 GAO/AIMD-00-173R DC Interest Earnings

form of grants to the District government as of February 29, 2000. Subsequently, the

District also requested (1) a grant for interest earnings of $2.2 million to assist in

funding pay bonuses that were approved on December 14, 1999 and (2) other grant

requests for interest earnings of about $5 million. However, based on the Authority’s

criteria for actually awarding a grant, the District has to show that no other funds are

available to support the activity. The Authority stated that based on the audit results

of the District’s Fiscal Year 1999 Comprehensive Annual Financial Report (CAFR),28 it

does not expect to award the above grant requests since the District should be able to

identify the needed funds from its reported surplus. As a result, these additional

obligations are not identified as uses of interest earnings.

Interest Available

As of February 29, 2000, the Authority reported $17 million in available interest

earnings on federal funds that it held in escrow. In addition, the Authority reported

another $30.8 million of interest earnings on funds from nonfederal funds that it held

in escrow. The nonfederal funds consisted of borrowed funds that are primarily

general obligation bond proceeds. The records of the Corrections Trustee, DC

Courts, CSOSA, and WMATA indicated that they did not have any available and

unrestricted interest earnings as of February 29, 2000.

Legislation enacted in November 1999 provided for transferring interest earnings held

in escrow by the Authority during fiscal year 2000. The District’s fiscal year 2000

Appropriations Act required the Authority to transfer to the Mayor $23 million in

interest earnings that were held in escrow by the Authority on behalf of the District.

Specifically, the Congress appropriated $18 million for (1) severance payments to

District employees separated from employment during fiscal year 2000 and

(2) implementation of a system of managed competition among public and private

providers of goods and services by and on behalf of the District. Also, the Congress

appropriated $5 million to provide offsets against local taxes for a commercial

revitalization program.

The Authority’s Chief Financial Officer stated that the order of priority for

committing the interest earnings it holds in escrow on behalf of the District is to first

use earnings from interest on federal funds and then to use earnings from interest on

nonfederal funds.29 Therefore, the $17 million held in escrow by the Authority will be

used in full, and the Authority will use interest earnings from its nonfederal funds to

make up the rest. As a result of the above, the District does not have any interest

earnings on federal funds available. However, the Authority’s balance does not

include $3.1 million of interest earnings on federal funds that would become available

if the grant to the District were repaid upon the sale of the previously referred to

property.

28The CAFR was issued on April 24, 2000, and resulted in an unqualified (clean opinion). The report

showed that the District had a surplus of $86 million for fiscal year 1999 and a positive fund balance of

almost $199 million as of September 30, 1999.

29The Authority reported more than $30.8 million of interest earnings on nonfederal funds that it held in

escrow as of February 29, 2000.
B-283834

Page 14 GAO/AIMD-00-173R DC Interest Earnings

Entities’ Comments

In commenting on a draft of this report, the Chief Financial Officer of the District of

Columbia, the Chief Financial Officer of the Authority, the General Counsel of the

Corrections Trustee, the Director of CSOSA, the acting Executive Officer of DC

Courts, and the Internal Auditor of WMATA stated that they agreed with our findings.

They also provided technical comments, which we have incorporated as appropriate.

In addition to the technical comments, CSOSA provided copies of letters it sent to

Members of the House and Senate transmitting its response to our February 2000

letter on its violation of the Anti-Deficiency Act.30 The letters to the Members stated

that CSOSA has acted to ensure that it complies with federal budgetary guidelines.

The letters also request that these Members consider retroactively approving the

expenditure of interest in fiscal years 1998 and 1999.

-----

We are sending copies of this letter to Senator Kay Bailey Hutchinson, Senator

Richard Durbin, Senator George Voinovich, and Representative James P. Moran,

Representative Thomas M. Davis, III, and Representative Eleanor Holmes Norton in

their capacities as Chair or Ranking Minority Member of Senate and House

Committees and Subcommittees. Copies will be made available to others upon

request.

If you have any questions, please contact me at (202) 512-4476 or by e-mail at

jarmong.aimd@gao.gov or Steven R. Haughton, Assistant Director, at (202) 512-5999

or by e-mail at haughtons.aimd@gao.gov. Key contributors to this letter were John D.

Sawyer, Arkelga L. Braxton, and Richard Cambosos.

Sincerely yours,

Gloria L. Jarmon

Director, Health, Education and Human Services

Accounting and Financial Management Issues

(916295)

30See our letter to CSOSA (B-283834, February 24, 2000).