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THE DISTRICT OF COLUMBIA’S FISCAL YEAR 2010

BUDGET: ENSURING FISCAL SUSTAINABILITY

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF

COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

MAY 12, 2011

Serial No. 112–48

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

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

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

NATIONAL ARCHIVES

TREY GOWDY, South Carolina, Chairman

PAUL A. GOSAR, Arizona, Vice Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

PATRICK T. MCHENRY, North Carolina

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

DANNY K. DAVIS, Illinois, Ranking Minority

Member

ELEANOR HOLMES NORTON, District of

Columbia

WM. LACY CLAY, Missouri

CHRISTOPHER S. MURPHY, Connecticut

(III)

C O N T E N T S

Page

Hearing held on May 12, 2011 ............................................................................... 1

Statement of:

Gandhi, Dr. Natwar, chief financial officer, District of Columbia; Matt

Fabian, managing director, Municipal Market Advisor; and Dr. Alice

M. Rivlin, senior fellow, the Brookings Institution, former Chair of

the D.C. Control Board ................................................................................. 35

Fabian, Matt .............................................................................................. 68

Gandhi, Dr. Natwar .................................................................................. 35

Rivlin, Alice M. .......................................................................................... 73

Gray, Vincent, mayor, District of Columbia; and Kwame Brown, chairman, D.C. City Council ................................................................................. 2

Brown, Kwame .......................................................................................... 14

Gray, Vincent ............................................................................................. 2

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

Brown, Kwame, chairman, D.C. City Council, prepared statement of ........ 16

Davis, Hon. Danny K., a Representative in Congress from the State

of Illinois, prepared statement of ................................................................ 32

Fabian, Matt, managing director, Municipal Market Advisor, prepared

statement of ................................................................................................... 70

Gandhi, Dr. Natwar, chief financial officer, District of Columbia, prepared

statement of ................................................................................................... 38

Gosar, Hon. Paul A., a Representative in Congress from the State of

Arizona, prepared statement of ................................................................... 93

Gray, Vincent, mayor, District of Columbia, prepared statement of ........... 5

Rivlin, Alice M., senior fellow, the Brookings Institution, former Chair

of the D.C. Control Board, prepared statement of ..................................... 75

(1)

THE DISTRICT OF COLUMBIA’S FISCAL YEAR

2010 BUDGET: ENSURING FISCAL SUSTAINABILITY

THURSDAY, MAY 12, 2011

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF

COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 8:50 a.m., in room

2154, Rayburn House Office Building, Hon. Trey Gowdy (chairman

of the subcommittee) presiding.

Present: Representatives Gowdy, Gosar, McHenry, Davis, Norton, and Clay.

Staff present: Ali Ahmad, deputy press secretary; Robert Borden,

general counsel; Molly Boyl, parliamentarian; Lawrence J. Brady,

staff director; Benjamin Stroud Cole, policy advisor and investigative analyst; John Cuaderes, deputy staff director; Howard A.

Denis and Peter Haller, senior counsels; Adam P. Fromm, director

of Member liaison and floor operations; Linda Good, chief clerk;

Frederick Hill, director of communications and senior policy advisor; Christopher Hixon, deputy chief counsel, oversight; Jim Lewis,

senior policy advisor; Mark D. Marin, senior professional staff

member; James Robertson, professional staff member; Laura L.

Rush, deputy chief clerk; Matthew Tallmer, staff investigator;

Peter Warren, policy director; Ronald Allen, minority staff assistant; Jaron Bourke, minority director of administration; Yvette

Cravins, minority counsel; Ashley Etienne, minority director of

communications; Jennifer Hoffman, minority press secretary; and

Mark Stephenson, minority senior policy advisor/legislative director.

Mr. GOWDY. The committee will come to order.

Mr. Mayor, Chairman Brown, thank you for being with us today.

It is my understanding, Mr. Mayor, you have city business to

tend to, which we understand and appreciate, and we want to be

very good stewards of your time. So my friend Mr. Davis and I are

going to waive our opening statements so we can spend more time

with you and Chairman Brown. And again, on behalf of all of us,

thank you for being with us.

It is the policy of the committee to swear in all witnesses, so I

would ask both Mayor Gray and Chairman Brown to rise with me

and raise your right hands.

[Witnesses sworn.]

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Mr. GOWDY. May the record reflect both witnesses answered in

the affirmative.

It is my pleasure to introduce Mayor Vincent Gray, the mayor of

the District of Columbia, and recognize him for his 5-minute opening remarks.

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

STATEMENT OF VINCENT GRAY

Mayor GRAY. Thank you very much, Chairman Gowdy, and to

the other members of the committee.

Mr. GOWDY. Could you turn your mic on, please?

Mayor GRAY. Thank you very much, Chairman Gowdy and other

members of the committee.

I am Vincent C. Gray, mayor of the District of Columbia, and I

am here today to talk about our proposed fiscal year 1912 District

of Columbia budget.

I have had to make tough choices in submitting this budget,

choices that, frankly, I wish I didn’t have to make. But the reality

is that the financial health and backbone of our city could be imperiled unless thoughtful, balanced, and measured choices are

made and honored.

This budget was the product of three very intense months of

scrubbing agency budgets and exploring every reasonable option for

additional revenue. I participated in over 100 hours of intensive

meetings focused exclusively on the budget with the city administrator, our deputy mayors, agency directors, and our Office of

Budget and Finance. This budget meets and addresses the reality

we face, a reality that I’ve discussed in town hall meetings with

District residents in all eight wards during the past several weeks.

In order to close a $322.1 million structural budget gap, I employed a balanced approach of expenditure reductions and revenue

increases. My budget focuses on four key priorities of my administration: physical stability, high-quality public education, jobs and

economic opportunities, and safe communities.

My goal is to ensure a structurally balanced budget. The fiscal

year 2012 gross funds budget for the District of Columbia is

$8,986,000,000, representing an increase of $164,690,000, or a 1.9

percent increase above the fiscal year 2011 approved budget. The

majority of the 1.9 percent growth occurred in two areas. $96 plus

million occurred in public education largely due to enrollment increases in D.C. public schools and D.C. public charter schools, and

$67.76 million occurred in our financing and other appropriation titles due largely to mandatory increases in debt service for capital

borrowing under the previous administration. This budget has been

certified as balanced by the independent chief financial officer, who

you will hear from later.

I would like to take this opportunity to detail each one of my four

key priorities in this budget.

The first is to introduce a budget that reestablishes fiscal stability in the District of Columbia. When we met with the bond rating agencies in February, all three agencies highlighted three recVerDate 17-JUN-2003 14:25 Oct 28, 2011 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\70515.TXT KATIE PsN: KATIE
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ommendations for ensuring the District’s reputation on Wall Street

after the last 4 years in which our fund balance was spent down

by 41 percent, from $11⁄2 billion to $890 million. They underscored

the need to have a structurally balanced budget, meaning we would

not spend more than we take in; to live within the debt cap of 12

percent, which we have established; and rebuild a fund balance.

My fiscal year 1912 budget achieves those goals.

High-quality education is the second of my four key priorities.

Providing high-quality education for all district residents is critical

to our long-term prosperity. This budget provides the resources

necessary to continue the pace of school reform and to provide an

educational continuum from ages 3 to 24. My ultimate goal will be

to extend this continuum to ages 1 to 2 as the economy rebounds

and more funding becomes available.

The increases in the budget for D.C. public schools and D.C. public charter schools are due principally to increased enrollment.

We’re now beginning to witness the success of the universal prekindergarten program. We’re retaining students who enter the preK programs at its inception through a growth of enrollment in

grades K through 2.

We also have included increases for the first time in years for the

University of the District of Columbia, especially our community

college, including $4 million.

And, also, this budget focuses on beginning to solve a longstanding problem of spending tens of millions of dollars to educate

children with disabilities in nonpublic schools.

Job creation and economic opportunities for all District residents

is a third of my key priorities. Despite reductions to Federal and

special purpose revenue, I’m continuing to fund adult job training

by adding $2.6 million to the fiscal year 1912 budget.

As everyone knows, I’ve been a major proponent of the concept

of ‘‘one city.’’ However, the current disparity between areas of our

city is particularly pronounced in the area of jobs, with a number

of communities experiencing chronic unemployment. In ward 7, 17

percent; ward 8, 25 percent.

The fourth priority is sustaining safe communities so that residents feel safe in their neighborhoods. Most of the agency budgets

in the public safety and justice cluster were held constant at their

fiscal year 2011 level, but we’re providing funding to hire 140 police officers to reopen the police academy which essentially had

been shut off.

Mr. Chairman and the members of the committee, the District of

Columbia raises over $51⁄2 billion per year in local funds from our

residents in property taxes, sales taxes, and income taxes. A majority of the functions of the District Government, including all the

services provided by any other State, are funded through those locally raised dollars. Nevertheless, it is the lengthy and complicated

Federal appropriations process that has severe effects on the District Government.

As you know, in order to comply with the Federal process, the

District must develop its budget months in advance of the timeframe needed by the city. In fact, the District has had to adopt the

Federal fiscal year of October 1st to September 30th, when another

fiscal year may be more appropriate for the city.

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The congressional appropriation schedule prevents the District

from being able to make better and more current revenue estimates

and expenditure needs that lead to a budget based on better and

more complete data.

Further, the dual nature of the Federal appropriations process

requires two affirmative actions by Congress. The District’s appropriations are often caught up in national policy disputes that typically delay our local budget enactment and have nothing to do with

the District of Columbia. This flaw was made abundantly clear a

month ago when the District was forced to spend its very limited

funds preparing for a potential shutdown. Our chief financial officer in an assessment indicated we could have lost between $1 million and $6 million a week as a result of the shutdown.

Mr. Chairman, the District of Columbia’s overall fiscal health is

strong. For more than a decade, we have presented a balanced

budget; and we have received clean audits in each of those years.

As have been noted by Members of Congress, we have clearly demonstrated our fiscal responsibility.

I believe strongly, Mr. Chairman, that the financial rigor the District exhibits proves that we are more than capable of managing

our own resources. It is time for Congress to adopt legislation that

would remove the approval of the District’s local budget from the

Federal appropriation process. This request does not remove the

oversight authority of Congress, of course, as provided for in the

Constitution. It will simply allow the District to spend its local

funds in the same way other States and local jurisdictions do. I’ve

detailed reasons why I believe budget autonomy will facilitate the

ability to run the city, and we hope that the Congress and this

committee will consider that.

Again, thank you very much for your time in having me here

today to talk about the fiscal year 1912 budget, and we will be

happy to try to answer any questions you may have today and as

we move forward.

As a final point, Mr. Chairman, I want to thank you for coming

over to meet with us a few weeks ago at the Wilson Building. It’s

most appreciated. I think it has established a constructive working

environment, and we look forward to continuing to work with you.

[The prepared statement of Mayor Gray follows:]

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Mr. GOWDY. Well, Mr. Mayor, before I introduce Chairman

Brown, you were a very gracious host. To take somebody from

South Carolina, who hadn’t visited the District of Columbia since

he was a kid in high school, you’ve done a wonderful job helping

introduce me to your beautiful, magnificent city, and I thank you

for your time. I know you have a very busy schedule. For you to

take time to meet with me a couple weeks ago was very much appreciated.

Mayor GRAY. I was delighted to do it, Mr. Chairman.

Mr. GOWDY. Yes, sir.

It is my pleasure to recognize the Honorable Kwame Brown,

Chairman of the District of Columbia City Council.

Mr. Brown.

STATEMENT OF KWAME BROWN

Mr. BROWN. Good morning, Chairman Gowdy, Ranking Member

Davis, and members of the Subcommittee on Health Care, District

of Columbia, Census and the National Archives.

I am Kwame R. Brown, chairman of the Council of the District

of Columbia, the District’s elected legislature. I’m pleased to speak

with you today about the Council’s role in developing the District’s

fiscal year 2012 appropriations request.

This year, the Council has the difficult task of reviewing and finalizing a budget that continues to provide necessary services to

residents, businesses, and visitors of the District of Columbia, despite the slow pace of recovery from the recession. I would like to

commend Mayor Gray and the CFO for submitting a balanced and

structurally sound budget proposal to the Council. I think the mayor’s proposal does not use the District’s fund balance to pay for reoccurring services. It keeps in place funds created to reduce the

debt and replenish our reserve. These aspects of the District’s

budget are particularly important to bond rating companies, a message that was conveyed to Mayor Gray and CFO Gandhi and myself during a recent visit expressing that this was an issue for

them.

Over the next 2 weeks, the Council will continue to review their

budget proposal before voting on the fiscal year 2012 Budget Request Act on May 25th. We are poised to follow the District’s practice, Mr. Chairman, now entering its 16th year, of submitting a

balanced budget to Congress.

Major cost drivers for the budget include ever-increasing health

care costs, as well as the District’s continuing education reform efforts, a commitment shared by both the mayor and the Council.

These pressures, together with revenues that have not fully rebounded to pre-recession levels, of course makes it difficult to continue to be competitive while providing much-needed services and

programs to the residents of the District of Columbia, as well as

businesses.

But let me say to this committee that we will rise to the challenge. The budget passed by the Council will represent a focus on

the District’s core priorities of being fiscally responsible, continuing

education reform, economic opportunity, and public safety.

Because of the ongoing legislative process I’m unable to forecast

exactly where each dollar will be budgeted until we vote, of course,

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on the Budget Request Act on May 25th. We will comply with, of

course, our open meetings law by openly debating proposals for

spending cuts as well as revenue enhancements. Each Council

member’s priorities will be the subject of negotiation. Every budgetary shift will be reviewed. However, let me guarantee you as the

chairman of the Council of the District of Columbia we will pass

a balanced and structurally sound budget request to send to this

Congress.

After the Council reaches consensus and passes the budget I welcome, quite frankly, the opportunity to brief any member of this

subcommittee personally on the Council’s modifications to the mayor’s budget proposal.

In order for the District to provide vital services to the public,

I ask that you pass this year’s appropriation act in a time for the

start of the new fiscal year and that you provide those citizens of

the United States of America who call the District their home the

right to govern their own affairs through the representation of

their elected officials.

Let me stop to thank all of the members of this committee, Congress, as well as the President, for keeping the government open.

As you know, had negotiations failed and the government shut

down, the District of Columbia would have been the only place in

the United States of America where U.S. citizens would have been

left without the basic government services enjoyed by developing

countries, such as trash collection or pest control or interpretation

services for the blind. All of these services and many more would

have been suspended because the District lacks the power to continue to spend even its tax dollars in the event of a Federal shutdown. As you know, these services, no matter where you are, no

matter who you are, constituents should not go without. Yet even

under the circumstances where no government shutdown is at

stake the citizens in the District should always be able to assert

local control over its local funds, and I would hope that you would

work with the members of this committee to give the district budget autonomy that the residents in the District deserve.

In closing, let me say that we are willing and able to stand with

this committee to work together, to work together on the things

that we can move this great city for, knowing that we may not

agree on everything, but the things that we do agree and have in

common we should do everything in our power to continue to give

the residents of this great country the opportunity to flourish and

to continue to make this the greatest Nation in the universe.

On that note, I look forward to questions and answers, and

thank you for allowing me an opportunity to testify.

[The prepared statement of Mr. Brown follows:]

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Mr. GOWDY. Thank you, Mr. Chairman.

And again, in an effort to be good stewards of both your times

and recognizing that there’s a panel to come behind and we want

to be good stewards of their times, I’m going to recognize myself

for 5 minutes of questions; and I’m going to hopefully impose the

same green, yellow, red light barriers on myself that we will subsequently be imposing.

What I would like to do and acknowledge up front, Mayor Gray

and Mr. Chairman, is there is not a governmental entity I don’t

think anywhere that’s not struggling with the same things that you

have just elucidated. In Spartanburg County, which is my home

county, we had furloughs last year of law enforcement officers and

prosecutors. The State of South Carolina is struggling. Heavens

knows the U.S. Congress is struggling with respect to its fiscal obligations. So what I would love to do is ask a question, give both of

you a chance to answer it, and kind of seek your perspective on the

challenges that you faced as you proposed your budget.

It looks like Medicaid, if I read your testimony and the documents prepared correctly, Medicaid continues to be the largest single expenditure. Are there any lessons that you can share with the

panel with respect to how you are dealing with Medicaid? Any reforms that you would advocate? Any pearls of wisdom or perspectives that you could lend to us as we struggle with the same thing

in South Carolina and the U.S. Government?

Mayor GRAY. Thank you very much, Mr. Chairman.

As you know, Medicaid is a key part of health care reform as we

move forward. We have quite a robust Medicaid program in the

District of Columbia; and, in fact, it has been essential in our ability to have such a low rate of uninsured people in the District of

Columbia. We have only 6 percent of our adults who don’t have

some form of insurance in the city and only 3 percent of our children who are not insured.

One of the things that we’ve done is to start to look at every one

of our optional services—as you well know, there are mandated

services and there are optional services—to make sure those services are delivered in the most efficient way.

I’m delighted to have brought in a gentleman, Wayne Turnage,

who is very experienced. He happened to have worked in Virginia

for a number of years in health care and health care reform and

brings that experience to us here in the District of Columbia.

We’ve brought in an ASO, an administrative services organization, that is helping us to manage; and we are increasingly now focusing on the use of managed care organizations to try to start to

influence health care behavior.

One of the things that we have in the city that we’re working on

that is going to take some time is to try to make sure that we have

health care services spread across the city. We will in the next year

open three additional clinics in areas that have historically been

underserved, and we believe that will facilitate the use of insurance tools like Medicaid because people will have services more accessible to them.

So I think in terms of lessons, if there have been any, it would

be to try to make sure that we have external controls, external assistance, like with an administrative services organization, and try

22

to increasingly make health care more accessible to people who

may have the insurance, may have the coverage, but if they don’t

have access to services they’re not likely to use them except on an

emergent basis.

Mr. GOWDY. Chairman Brown, let me ask you this. I had the

pleasure of meeting your chief of police, with whom I was very impressed. I’ve had the pleasure of meeting your attorney general,

who I similarly have been impressed with. But it also appears as

if the budget proposes a cut with respect to public safety. How do

you decide which areas to cut, given the fact that’s a core function

of government? What process did you go through, and can the citizens of the District expect to see any diminution in services, given

the cuts?

Mr. BROWN. Well, I mean, the budget that’s in front of the Council in the District of Columbia currently, there is clearly a lot of

discussion going on to make sure that, from the public safety

standpoint in a reduction of officers, that doesn’t happen. I think

the mayor’s proposal doesn’t quite lay that out, that it will be a reduction of police officers. But we want to get the officers, number

of officers, back up to an appropriate level; and I think an additional 100 officers or 200 officers is where we want to go, somewhere between 3,800 and 3,900 officers. And I think this is a phenomenal opportunity to really focus as all the Members want to

move in that same direction. So I don’t think what you will see as

relates to a budget proposal is a reduction of police officers in the

District of Columbia.

Mr. GOWDY. I am going to try to lead by example, and the yellow

light is on, so I’m going to recognize the distinguished gentleman

from Illinois, Mr. Davis.

Mr. DAVIS. Thank you very much, Mr. Chairman; and, Mayor

Gray and Mr. Brown, thank you both for being here.

You know, many American citizens, as well as people around the

world, would be surprised to learn that the Congress of the United

States has to approve the local budget of the Nation’s Capitol, a

city of 600,000 residents, before it can spend its own local taxpayer

money.

In 2003, a Republican-controlled Senate passed a bill by unanimous consent to allow the District’s local budget to take effect

without congressional approval. Former President George Bush

supported budget autonomy in his fiscal year 2004 to 2006 budgets,

and President Obama supported budget autonomy in his fiscal year

2012 budget. Congresswoman Norton has introduced—reintroduced, actually, her budget autonomy bill this Congress.

Mayor Gray and Mr. Brown, both, if the District of Columbia

were to be able to set its own fiscal year and implement its local

budget without congressional approval, how would that affect the

District’s ability to provide service to its residents?

Mayor GRAY. Well, I think, Congressman Davis, that it really

would provide enormous flexibility to us.

Now we have a situation where our budget is essentially adopted

at the city level in June and not later than July, and then we have

characteristically gone many months thereafter without having an

approved budget because of the need to send it to Congress. The

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average time has been about 4 months. In this instance, I think it

was more like 6 or 7 months this fiscal year.

Frankly, it also would probably give us an opportunity to adopt

a different fiscal year. What we have now is a fiscal year that is

adapted to the Federal fiscal year, October 1st to September 30th.

Just one of the practical problems that creates is that our school

system, and that is the largest budget but for Medicaid in the District of Columbia, actually spans 2 fiscal years, because the school

year starts in one fiscal year, that is, in August, and you have expenditures associated with that school year from August until September 30th, and then you have the rest of the fiscal year or the

rest of the school year beginning October 1st and running until the

next June. So it will allow us to streamline our operation of our

services.

Also, frankly, it would give us more time to have a better sense

of what the revenue projections are likely to be and to be able to

look at data from the most recent past as we craft the budget for

the future.

So, again, being able to streamline how we operate and having

a better timetable that we can operate on in terms of projecting

what our expenditures and revenues would be would be two of the

biggest gains that we would experience.

Mr. DAVIS. Thank you.

Let me ask you, Mr. Brown. We’ve had continuing resolutions

since 1870 technically, but you don’t really expect to have continuing resolution after continuing resolution after continuing resolution up to the point of brinkmanship. How does operating under

these continuing resolutions affect the budgeting process and the

operation of city government for the District of Columbia?

Mr. BROWN. Well, first of all, let me start by thanking you for

all of your support of the District of Columbia. Clearly, as it relates

to budget autonomy, I think you understand the importance of it

and have always been a strong supporter working with Congresswoman Norton on these particular matters.

Your question has to do with how does Congress amend the District’s budget and what does the continuing resolution—clearly,

what role does it play? What’s interesting is that Congress has not

amended our budget. And when you look at—since I’ve been on the

Council, they have never amended the budget. So the clear question is, why do we have these resolutions over and over and over,

DCRs over and over again? I think it gives an opportunity to set

a clear direction of where we want to go, gives a clear understanding how we get there, and I look forward to working with you

and others to see how we can get budget autonomy passed in the

District.

Mr. DAVIS. Thank you, Mr. Chairman, and I yield back.

Mr. GOWDY. I thank the gentleman.

The chair will now recognize the gentleman from Arizona, Dr.

Gosar.

Mr. GOSAR. Thank you, Mr. Chairman.

Mr. Mayor, I know we all share a common thread in regards to

educating our children; and in looking at the budget, we had about

a 5.4 percent increase in education funding. Are you concerned

about that?

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Mayor GRAY. I’m concerned only, Dr. Gosar, that we can’t invest

even more money in education. Education reform has been afoot

now for several years in the District of Columbia, and it is a huge

priority of mine.

Some of the increases, frankly, reflect an increased enrollment.

For the first time in 41 years, we saw an increased enrollment in

our traditional public schools, and for the first time since the advent of charter schools we saw an increased enrollment in both. We

had an increased enrollment of about 900 children in the traditional D.C. public schools this year and another 1,700 in charter

schools for an enrollment increase of 2,600. So carrying that forward, some of the increases in our budget are to ensure that we

provide an adequate education for those children, as well as projected enrollment increases.

We have made a very healthy investment also in pre-kindergarten, early childhood education services; and, as a result, I think

that is a contributing factor to our enrollment increases. And we

want to continue to do that because we recognize getting these children at the earliest possible point will make a huge difference in

educational outcomes and, frankly, life outcomes.

The other thing that we are doing, Dr. Gosar, is we are tackling

a problem now that has been longstanding, and that is how we

educate children with disabilities in the District of Columbia. We

have had far too many children who have had to be educated in

nonpublic tuition placements, as we call them, at great expense to

the city. Last year, we spent about $160 million on those children,

plus another $93 million on transportation of kids with disabilities

in traditional public schools, charter schools, and nonpublic placements.

So we are going to invest more in our public education system

next year, hopefully to incentivize that system to begin to bring our

children back in the public education system to comply with the

law of the land which changed in 1975 and still, of course, exists

in 2011 in the form of the Individuals with Disabilities Education

Act.

So I think we’re making progress on the education front. We still

have a very, very long ways to go to be able to say that we are adequately educating every child, but I think we’re going in the right

direction.

Mr. GOSAR. I’m sure you’re aware that we have H.R. 471, the

Scholarships for Opportunity Results Act. I’m also from Arizona

that struggles with the same type of educational aspect. And we

look at everything on the table, all aspects of where we can go with

assets, to try to attain and help every child. Do you support that

act?

Mayor GRAY. I support strong public education, Dr. Gosar, and

that’s where I’ve placed my emphasis. I believe that education and

strong public education is a great emancipator, it is a great liberator, it is what levels the playing field. And so I place my emphasis, and I’ve indicated here before, on public education.

I will continue to do that. I will implement whatever laws and

programs are required of the District of Columbia, of course. But

as a product of public education of the city I know what it can do

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for children, I’ve seen what it can do for children, and I want us

to have the strongest possible public education system.

And we have a lot of choice. We have a lot of choice in terms of

123 traditional public schools; and we now have the most robust

charter movement in the country, 52 charter schools operating on

93 campuses with almost 30,000 children enrolled in those programs. So we probably offer the greatest variety of choices in public

education when compared to anywhere else in the Nation.

Mr. GOSAR. Well, I would hope that, particularly in light of the

Supreme Court ruling with Arizona with the voucher system, that

we would also embrace the voucher system and look at it as a tool

in order to facilitate all children all across the board. Because you

need all opportunities to embrace children. So I would hope that

we would really, truly look at that system and integrate it.

Thank you, Mr. Chairman.

Mr. GOWDY. Thank you, Dr. Gosar.

The chair would now recognize the ranking member of the full

committee, the distinguished gentleman from Maryland, Mr.

Cummings.

Mr. CUMMINGS. Mr. Chairman, I yield to Ms. Norton, please. No,

you go, please, Ms. Norton.

Ms. NORTON. I thank the ranking member for his generosity in

yielding to me; and thank you, Mr. Chairman.

First, let me commend the mayor and the Council chair on how

well you worked together on the budget even while the chairman

and his subcommittees have engaged in very rigorous oversight of

your budget. I know it is awkward for you to appear to discuss the

budget when there is no budget.

But as far as you go, I want to commend you on the budget that

the mayor—first, you, Mayor Gray, have submitted. That budget

we, of course, see. It is not the final budget. It is not the District

of Columbia budget. It is a tough budget with admirable balance.

It spreads the pain. It gives us in—what is this—your 13th year

of a balanced budget without drawing from your cumulative funds

balance, your reserve balance. I wonder if there is another jurisdiction in the United States that even has a reserve, much less not

drawing a penny from it in order to balance its budget. You have

shown yourself not wedded to any ideological catechism in drawing

your budget but requiring the whole city to participate in what it

takes to balance a budget.

And you, Chairman Brown, your oversight—and I see from channel 16, or was it channel 13, and from the papers—has been very

rigorous. You are apparently making changes, while keeping the

rigors represented by the mayor’s budget.

I think both of you are a model for the Congress of working together on a budget without rancor and working together in the first

place.

I apologize for the extra cost to the District in redundant budget

processes and hope that the committee will understand from your

testimony the urgent need for budget autonomy.

I want to discuss a subject close to my heart. The chairman says

correctly that the budget is not amended. The budget is never

amended. No one here would know how to amend the budget. I

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don’t have a clue how to change the budget. No one could get into

those weeds except you.

The budget is here for one purpose. The budget is here for riders,

because Members from Arizona want you to do what they do in Arizona, or Members from Ohio want you to do what they do in Ohio.

I want to speak about one of those riders. For about 10 years

Congress kept the District from spending its own local funds on

needle exchange programs, even though every large city and many

smaller jurisdictions use needle exchange programs because they

have been found to be effective by all the objective organizations

in reducing the spread of HIV/AIDS. House republicans once again

even in light of this evidence tried to reimpose this ban this year

after we got the ban off in the prior years. We were able to resist

that.

But I have to ask both of you, what would be the impact on the

HIV/AIDS rate in the District of Columbia—first, how would it affect the city generally, and what would you do if Congress were to

reimpose this rider on the District of Columbia, again which has

taken so many lives here in this city?

Mayor GRAY. Well, frankly, the needle exchange program has

been an incredibly important tool for us in fighting HIV and AIDS

in the District of Columbia. The national average is 1 percent, and

anything above that would be regarded as an epidemic. We have

a 3 percent rate overall in the District of Columbia of people who

are HIV positive or have AIDS.

Ms. NORTON. Do you think that is directly traceable to the rider?

Mayor GRAY. Well, I don’t know if it’s directly traceable to the

rider or not, but certainly having a tool available to us to attack

this problem is going to reduce the transmission of the virus. We

know that intravenous drug use is now one of the most prevalent

ways in which the virus is transmitted, and being able to have people access clean needles has made a difference in how the virus is

transmitted. The absence of that I think is going to result in a rise

in the transmission of the virus in the city.

And, frankly, you asked a question what we would do. When the

ban was in place before, there was an organization, Prevention

Works, that came into being that raised private dollars in order to

run this program; and in fact it is now out of business because they

could not sustain themselves.

So, Congresswoman Norton, I’m not really sure what we would

do. We ought to have the flexibility, as I think more than 200 cities

now nationally do, to be able to continue to operate this program.

It is an important prevention technique, it has proven its worth,

and we need to have this available to us.

Ms. NORTON. Thank you very much.

Chairman Brown, did you want to say anything on that issue.

Mr. BROWN. Well, let me just start to say that the Department

of Health’s HIV/AIDS, Hepatitis, STD, and TB Administration——

Mr. GOWDY. Mr. Chairman, I hate to interrupt you, but I want

to fair to everyone. And what I would propose is, after I recognize

the gentleman from Maryland, to maybe have a lightning round if,

Mr. Mayor, if you would be willing to have just maybe one quick

question so I could get all of Ms. Norton’s questions asked but also

be fair to the gentleman from Maryland.

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So, at this point, I would recognize the ranking member of the

full committee, the gentleman from Maryland, Mr. Cummings.

Mr. CUMMINGS. Thank you very much, Mr. Chairman; and I

want to thank you for calling this hearing. I want to thank Ms.

Norton certainly for her advocacy for the District. And to you,

mayor, and to you, Mr. Chairman, I want to thank you for being

here.

I literally reside in two cities: Washington, DC, and Baltimore.

And I must tell you that, as I listen to you, Mr. Mayor, and to you,

Mr. Brown, and then I combined what you have said this morning

to what I read in the Washington Post this morning where it said,

Alice Rivlin, senior fellow of economic studies at Brookings, said,

‘‘for more than a dozen years, D.C. has been a model of fiscal responsibility.’’

And it goes on to say that Matt Fabian, managing director of the

Independent Research Firm Municipal Market Advisor, said that

the District operates in a highly conservative manner with a strong

financial management team and institutionalized financial controls.

Even as the economy struggled, he found the District faring better

than most other cities and States. He says something.

You know, I notice the media, all of them are up in here today,

and if we need to do nothing else we need to give you credit for

what you’ve done and what your predecessors have done.

But the thing that made my heart glad, as my mother would say,

is that not only are you doing this thing, managing the money that

you have well and you’re making the cuts that you have to do and

doing what you got to do, but you’re also doing it with compassion.

I heard you talk about the 6 percent and 3 percent, the adult, 3

percent children uninsured. I think that’s what you said, Mr.

Mayor, is that right?

Mayor GRAY. That’s right, sir.

Mr. CUMMINGS. You know, and you talked about spreading the

clinics, having more clinics, and you talked about basically wellness

and prevention. That’s what you’re talking about.

This Congress could take some lessons from D.C. and it is interesting that you have to come up here and go through these

changes. Since the District of Columbia Government cannot obligate or expend its locally raised funds until Congress appropriates

these funds back to the District, the District of Columbia Government would have had to shut down if the Federal Government shut

down during the fiscal year 2012 Federal spending fight, even

though the District had passed its budget the prior spring. Duh.

If I recall correctly, Congresswoman Norton offered multiple

amendments at the Rules Committee to allow the District of Columbia to continue to spend its local funds for the remainder of fiscal year 2011. The Republicans rejected each of these amendments

and refused to consider her stand-alone bill that would have accomplished the same goal.

Mayor Gray, how much time did you and other members of your

administration have to devote to shut-down-contingency planning?

Mayor GRAY. It was scores of hours and scores of people who

worked on it. The city administrator had the responsibility, Mr.

Cummings, for directing this effort. We had the city administrator,

all the deputy mayors, and every department head involved in this

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exercise in putting together a plan, beginning with going back and

researching what happened about 15 years ago when this occurred

previously.

A plan was put together. And, frankly, had it been implemented,

and you heard the chairman talk about this, Chairman Brown talk

about this, there would have been service shutdowns that really

would have affected adversely the people of the District of Columbia. Libraries would have been shut down. Trash would not have

been picked up. The Department of Motor Vehicles would have had

to shut down. Our Consumer and Regulatory Affairs Agency would

have had to shut down.

And, frankly, we have the money in our budget to be able to do

that. We were being treated like another department of the Federal

Government, when in fact we aren’t. We’re not the Department of

Commerce or Justice or Health and Human Services or Interior or

any other department like that. We are a separate jurisdiction. We

raise $51⁄2 billion a year to support those services. We had a balanced budget that we adopted, as you’ve indicated, last spring and

early summer; and we’re ready to implement that.

We never should have been caught in this; and, frankly, having

to put together a shutdown plan diverted the attention of our department heads, as well as our other leaders, from running the

services every day in order to craft a plan in anticipation of a shutdown.

Mr. CUMMINGS. Thank you very much.

I see my time is expired, Mr. Chairman, and thank you.

Mr. GOWDY. Thank you, Mr. Cummings.

Mr. Gray, I believe if I recall correctly you have city business to

tend to beginning at 9:30.

Mayor GRAY. Yes, sir. I have to be back up shortly, back up to

the Wilson Building.

Mr. GOWDY. Chairman Brown, I know you have important business to tend to as well. We have another panel. So what I would

propose is maybe a continuing dialog. I know that you have one

with Ms. Holmes-Norton and I’m sure others and been gracious

enough to host me as well. Love to talk to you about the Metro and

anything else on your minds, but I also want to keep my word and

get you where you need to get.

Yes, ma’am.

Ms. NORTON. Mr. Chairman, just for the record, in light of the

fact that Mr. Cummings is here, I would like to note for the record

that Mr. Cummings’ city, Baltimore, has had a needle exchange.

Baltimore is a city that struggles considerably more than the District. This has been a white collar town. The District has had the

highest AIDS rate in the United States, higher than our good sister

Baltimore. One would not have expected that, and it would not

have been the case if the Congress of the United States had not

denied the District of Columbia the right to spend its own local

money to save the lives of District of Columbia residents.

Thank you, Mr. Chairman.

Mr. GOWDY. Yes, ma’am.

Mayor Gray, the distinguished gentleman from California, the

chairman of the full committee, a lot of us, as you know, have to

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go from committee to committee. Judiciary is having one this morning as well. I don’t know whether your schedule will allow me.

Mayor GRAY. Of course.

Mr. GOWDY. Then I would recognize—and thank you for that,

Mr. Gray. But I would recognize the gentleman from California,

the chairman of the full committee, Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman.

Mayor, Chairman, I really appreciate your making the time this

morning. Hopefully, this can be a regular dialog, not always at a

formal hearing. But under both of my predecessors, I think there

continues to be a good relationship.

One of the challenges—and the gentlelady from the District of

Columbia does a good job of representing a point of view of the District, but one of the things that we seem to see here is that there

are more views of the District than just hers. And I might note and

actually comment on the impact of both chartered public schools

and the private school community within the District and how you

feel you will work with Federal funding that helps in that effort.

Mayor GRAY. Well, we’ll try to make everything work that’s required of us.

As I indicated, Mr. Chairman, earlier, we have a very robust

commitment to public education in the city. We’re making very

substantial investments in that regard. The biggest increase in this

budget proposed for fiscal year 2012 is in public education and especially in early childhood education and trying to get our kids

with disabilities back into public education environment. So for me,

and I’ve said it many times before, I think that the future lies for

us in having a robust public education system.

Our charter movement I think is second to none in the Nation.

As I indicated earlier, we have 52 charter schools, we’re adding

four more on 93 campuses, and they serve now 30,000 children, or

close to it, which provides an opportunity to offer an enormous

amount of choice to our kids.

It’s the first time we’ve seen enrollment increases in our traditional public education in 41 years, and the first time since the advent of charters back in the 1990’s that we’ve seen enrollment increases in both. So I think we’re going in the right direction.

Mr. ISSA. Let me have a followup question on a completely different subject, but I think one that is near and dear to all of us

who went through a series of continuing resolutions, no budget last

year, essentially one after another short-term financing of the government, and I know that impacts you as the Federal city. If we’re

able to come up with a system that allows you to continue operating not with Federal funds but with your own means, if for any

reason there is a break in full funding or, in another way of putting

it, even if there isn’t, if we wait to the 11th hour for you to maintain all services even through a period of uncertainty, do you believe you’re prepared to do that on an annual basis with a budget

that reflects a contingency for no Federal funds coming?

Mayor GRAY. Well, for the most part, we receive Federal funds

in the same way as other States do.

Mr. ISSA. No, I understand that. But if the Federal Government

had not fully funded all aspects of the government, the States

would have been without certain Federal funds, but they would

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have, for example, picked up Medicaid. No Medicaid person would

have found themselves without money. Because the States, as

sovereigns, would have found a way to meet their obligation, even

if Federal funds were delayed.

My question to you, and it’s an important question, when you

look at your budget and contingencies, if we essentially allow for

the city to be, at least on an annual basis, early on disconnected

from what may or may not happen in a continuing resolution, a

budget battle, a debt ceiling, all of those which I think this committee is concerned, are you able to give us a contingent budget

that shows that for X period of time you can continue to provide

all the required services of the Federal city?

And I said ‘‘Federal city’’ because we’re not just talking about

school. We’re talking about police and all the functions, many of

which are ultimately services that are provided, often with reimbursement. Your city receives a certain amount of impact aid

equivalent to make up for the fact that embassies don’t pay property tax and so on.

So my question today is one of can you now or in the near future

give us, if you will, a contingency plan so that this committee could

look at a way to say, OK, per that plan, on an annual basis we can

forward allocate authorization so that the District of Columbia is

never caught up in what might be weeks or months of uncertainty

in the budget process?

I would like to see the city have that capability on a go-forward

basis, but I’m looking for some sort of a structured mechanism to

where this committee could say, they have a plan, they can live

without Federal dollars and still meet the requirement. And each

time that is received it would allow us to say, we have no reason

to be in the way of your spending your dollars if you can make the

commitment. And we all understand the contingent plan would not

fully fund everything you want to do, and it may not be able to do

it for a full year, but can you comment on that?

Mayor GRAY. Well, first of all, again, as I indicated, we raise

$51⁄2 billion in local tax dollars. And many of our services——

Mr. ISSA. By the way, I’m very aware that I pay twice as much

as a nonvoter in the District of Columbia than your voters do, and

I’m very aware that you have a wonderful scheme to make sure

those without representation pay twice as much tax. But go ahead,

please.

Mayor GRAY. I would like to hear more about that so we can expand it to others.

No, I think many of our services——

Mr. ISSA. It’s called your homestead, but go ahead.

Mayor GRAY. Many of our services, as you know, Mr. Chairman,

are completely funded with local dollars; and we certainly would be

prepared to be able to do that with budget autonomy. That’s one

of the points that we have made.

Again, and I think you’re saying this as well, if it was something

like Medicaid for us, our Medicaid formula is 70/30, 70 percent

Federal, 30 percent local. And that formula is no less than 50/50

for every State. So we wouldn’t find ourselves in any different situation than the States would on programs like that.

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But those things that are wholly funded with local dollars, we’ve

demonstrated we can do that, and we are prepared to do that.

That’s one of the, I think, strongest arguments we have for budget

autonomy. That if you look back over the past 13 to 15 years we’ve

indicated that we’ve had balanced budgets, we’ve had clean audits,

and demonstrated our ability to manage our finances in a very prudent manner.

Mr. ISSA. Thank you. I thank the gentleman for his indulgence

and yield back.

Mr. GOWDY. Thank you, Mr. Chairman.

Let me quickly recognize the gentleman from Illinois, Mr. Davis.

Mr. DAVIS. Thank you very much, Mr. Chairman; and let me appreciate your sensitivity to the needs of our witnesses to move on

to other pressing business.

I also appreciate the presence of both the chairman of the full

committee and the ranking member as an indication of how important this issue is to all of us.

And I would ask unanimous consent to submit for the record an

opening statement, as well as an editorial from the Washington

Post entitled Congress Should Loosen Its Fiscal Reins on D.C., and

I yield back.

Mr. GOWDY. Yes, sir, Mr. Davis. Without objection, indeed, all

Members may have 7 days to submit opening statements for the

record and any other extraneous material.

[The prepared statement of Hon. Danny K. Davis follows:]

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Mr. GOWDY. Mr. Mayor, Mr. Chairman, on behalf of all of us,

thank you for your time. As the second panel approaches, we’ll take

a brief recess. And if you have an extra second I would like to come

down and thank you both in person.

[Recess.]

Mr. GOWDY. It is my pleasure to recognize our second panel and

welcome you and thank you for your patience and indulgence for

being the second panel.

Pursuant to committee rules, all witnesses will be sworn before

they testify. So I would ask you to please rise with me and raise

your right hands.

[Witnesses sworn.]

Mr. GOWDY. May the record reflect all of the witnesses answered

in the affirmative.

I will introduce the witnesses from my left to right, your right

to left. First is Dr. Natwar Gandhi, who is the chief financial officer

of the District of Columbia. In the middle is Mr. Matt Fabian, who

is the managing director of the Municipal Market Advisors. And

last but not least is Dr. Alice Rivlin, who is a senior fellow at the

Brookings Institution and was former Chair of the D.C. Control

Board.

I will recognize each of you in the order I introduced you for 5-

minute opening statements. And again, thank you for joining us.

STATEMENTS OF DR. NATWAR GANDHI, CHIEF FINANCIAL OFFICER, DISTRICT OF COLUMBIA; MATT FABIAN, MANAGING

DIRECTOR, MUNICIPAL MARKET ADVISOR; AND DR. ALICE

M. RIVLIN, SENIOR FELLOW, THE BROOKINGS INSTITUTION,

FORMER CHAIR OF THE D.C. CONTROL BOARD

STATEMENT OF DR. NATWAR GANDHI

Mr. GANDHI. Good morning, Mr. Chairman. Thank you, Mr.

Chairman, members of the subcommittee, Mr. Davis, Ms. Norton,

Mr. Clay.

I am, as you pointed out, Natwar Gandhi, chief financial officer

of the District of Columbia Government. I am pleased to be here

for the subcommittee’s hearing on Mayor Gray’s proposed 2012

budget and financial plan.

Mr. Chairman, in 1995, the U.S. Congress created the Office of

the Independent Chief Financial Officer to work with the mayor

and the Council to maintain the District’s fiscal stability and enhance its financial liability. Since then, we have completed 14 consecutively balanced budgets and expect to end the current year in

the same manner.

Between 1996 and 2008, we turned a cumulative $550 million

deficit into an impressive $1.2 billion fund balance. Further, we

transformed a nearly bankrupt District Government, plagued with

junk bond ratings, into a financially credible jurisdiction with

strong credit ratings.

Indeed, our turnaround from junk bonds to status A category

bond ratings was faster than any other major city that has undergone similarly a financial crisis, including New York, Philadelphia,

Cleveland, and Detroit. Attachment 1 to my testimony and the

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board before you on my left tells the story of the District’s successful return to fiscal solvency and financial stability.

This turnaround is a case study in commitment to improved financial management and practices. Our General Obligation bond

ratings have increased at an unprecedented speed. They now stand

at A+ from Standard & Poors and are in the AA category from

Moody’s Investor Services and Fitch Ratings. In addition, our Income Tax Revenue Bonds are rated AAA by Standard & Poors.

This is indeed a record of which the District can be justifiably

proud.

As in the case of many jurisdictions around the country, the recession of the past several years have taken a toll on our finances.

Our General Fund balance has dropped from a peak of $1.6 billion

in 2005 to $890 million at the close of 2010, a decrease of some

$695 million over 5 fiscal years. In early February, the newly elected leadership and I visited the three rating agencies to discuss the

reserves and lay out a plan for the future.

I am pleased to report that the mayor’s 2012 budget and financial plan meets the rating agency expectation despite the difficulties experienced due to loss of about a quarter of previously projected 2012 revenues and expiration of the Federal stimulus fund,

a loss of some $228 million compared to the previous fiscal year.

The mayor’s proposed budget meets all the criteria required for

certification by the chief financial officer, and they are:

This proposed budget is balanced.

It does not use any Fund Balance; that is, it requires the District

to live within its means.

It is in compliance with our Debt Cap Act which limits the debt

service on our tax-supported debt to 12 percent of expenditures.

Mr. Chairman, I would like to take the issue with those who proclaim that the District’s finances are failing to the point that a reinstatement of a Control Board is imminent. Yes, the District is

facing challenges, but none of the seven Control Board triggers will

be breached. Congress in its wisdom created the Office of Chief Financial Officer for the purpose of preventing any of those triggers.

Our elected leadership pledged to the rating agencies, and to District residents, that they will do what is necessary to balance the

budget without the use of fund balance and limit borrowing to stay

within the debt cap.

Our challenges, however, are significant. The District, as the

urban center of a large metropolitan area, houses a disproportionately large share of very poor and needy citizens. The District’s

overall poverty rate of 17 percent and the child poverty rate of 26

percent are among the highest in the Nation and more than three

times the comparable rate across the neighboring counties. Unlike

other jurisdictions that provides services to a large share of the region’s poor, the District cannot divert resources from wealthier suburban areas to serve its urban poor.

In this environment of continuing expenditure needs, the challenges posed by reduced revenues is substantial. Kindly permit me

to briefly note two areas that merit continuous attention. Both go

to the unfunded mandates that restrict the District’s own taxing

power.

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The prohibition on taxing the income earned by nonresidents, including those who commute into the city on a daily basis. That 66

percent of income generated in the District is earned by nonresidents makes the simple point.

The District also has an especially high concentration of nontaxable real property, much of it off the tax rolls due to the presence of the Federal establishment. The value of property here by

the Federal Government alone is 30 percent of the nonresidential

property values.

Mr. Chairman, I will not belabor on the issue of the District’s

budget economy. The mayor and the chairman spoke so eloquently

about that, but I emphasize my endorsement of their views.

I want to thank you for your leadership, sir, and appreciate your

wisdom in visiting our offices, and I appreciate your interest very

much.

[The prepared statement of Mr. Gandhi follows:]

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Mr. GOWDY. Thank you, Dr. Gandhi. It was a pleasure to meet

with you.

Mr. Fabian.

STATEMENT OF MATT FABIAN

Mr. FABIAN. I thank you, Mr. Chairman.

Before I begin to speak about the District of Columbia, I just

wanted to emphasize that Municipal Market Advisors, my firm, is

a pure independent research company. So we make no money on

trading, underwriting, investing in municipal bonds. We provide

pure research and sell that research for subscriptions, and that

makes up about 95 percent of our revenues.

You know, normally when we do an awful lot of commentary

about the municipal bonds—oh, and I have my statement which

I’ve submitted but I will speak off of that just to keep things time

efficient.

Normally our company talks a lot about the municipal bond market in general, and we have spent a disproportionate amount of

time in recent 2 years looking at distressed credits, Jefferson County, Harrisburg, Vallejo, California, so it is a real pleasure to spend

some time and look at the District of Columbia, which has done so

well in the financial crisis of managing largely through the practices from the management team like Dr. Gandhi.

I have to say that as things have gotten tighter, as credit conditions and tax revenues have gotten thinner across the country, the

financial abilities of city managers across the country has been

strained, and it has begun to undermine willingness in some cases

to honor obligations. That is completely the opposite of the case in

the District. We have seen very strong management responses and,

if anything, an increasing willingness toward bond holders and toward servicing their obligations. Just so with that as sort of the

opening context.

You know, there’s two—and I have an awful lot of information

in my statement about the structure of the bonds and investor perception of the bonds. But you know, let me say that there’s two

particular successes I’d say that management has had over the

past few years.

First is the imposition of the more conservative debt cap to 12

percent of annual spending. Sorry. Yes. And that has been from

widely recognized by the rating agencies as a credit strength and

from looking at, you know, at the future economic prospects of the

District and the country things will continue to be very difficult.

The financial crisis for the States and for cities and for governments like the District is transitioning from a revenue problem into

a spending problem.

So, you know, proactive limits on debt and leverage are very well

received in the municipal bond market today.

In addition, their restructuring of their variable rate debt over

the last few years. Variable rate debt, it is long maturity bonds

where the coupon resets every week or every day. Mostly these are

packaged with derivatives. Prior to the financial crisis, the District

had about 22 percent of its debt in these kinds of instruments. It

is very difficult because that is the exact kind of instrument which

came under pressure in the financial crisis.

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The District was able to use its new income tax bond structure

and because of its very high ratings was able to restructure a huge

amount of that debt, and now its exposure to variable rate is a very

manageable 9 percent. So I have to say they have been very

proactive in hitting the exact area where the municipal bond market was weakest in their response.

Looking forward, you know I do say that like I said before the

financial crisis is not necessarily abating for cities and States. The

National Governors’ Association has talked about a lost decade for

State revenues starting last year. So 2010 to 2020 are going to be

a very difficult time for government managers everywhere. So I

think continuing to prepare for the fiscal crisis is exactly what the

District has done.

The improvements, the situation that has come up in the earlier

panel talking about budget autonomy, it is a very important one for

the municipal bond market. If you think about what happened just

prior to the government shutdown, you know, the District because

of its—because of how their debt is structured is able to service

most of its debt even without congressional authorization and without the city budget appropriation except for the city certificates of

participation. So there is a $240 million bonded obligation that the

District has which under the law would not have been able to pay

had the Federal Government shut down.

So there could now—the city managers were doing all they could

to make sure that didn’t happen. But they were taking emergency

steps to do so. In theory, they may not have been able to pay those

interest payments, which is something that even in the depth of a

financial crisis the District did not miss a payment.

So you know in this current municipal bond market where there

is an enormous amount of concern being put on credit quality of

State and local issuers, to have the District even incidentally miss

a debt service payment because of the actions of Congress you

know would have had a real impact on the debt service cost of the

District going forward.

Thank you.

[The prepared statement of Mr. Fabian follows:]

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Mr. GOWDY. Thank you, Mr. Fabian.

Dr. Rivlin.

STATEMENT OF DR. ALICE M. RIVLIN

Ms. RIVLIN. Thank you, Mr. Chairman, for inviting me to testify

today. I have been involved with the District’s finances for a long

time, for more than 2 decades. Over that period, our Nation’s capital has gone from a financial basket case to a responsively managed and fiscally healthy city. In my brief remarks, I will try to put

the District’s situation in some historical context.

This year Washington, like most cities, is dealing with difficult

budget choices. The deep recession and the extraordinary weakness

of the housing market has cut city revenues, especially property

tax revenues. And at the same time the increased needs of the jobless and homeless residents have put upward pressure on spending.

This combination has made balancing the budget far more challenging in the last 3 years than earlier in the decade when things

were going better. That’s true of all cities. The impact of the recession on D.C.’s finances has been considerably less serious than in

many cities that were hit harder by the recession and the foreclosure crisis.

Compared to other cities, the D.C. economy is actually doing

quite well. Jobs are up, population is growing, economic development is resuming and city revenues are beginning to edge up

again.

However, as the mayor and the Council Chair have emphasized,

Washington is a bifurcated city with prosperous areas primarily on

the western side of the city and high rates of poverty, unemployment, and underemployment primarily on the eastern side. So efforts to mitigate these problems make the D.C. budget challenging.

The District must provide both city and State-like services and

it has a narrow tax base mainly because Congress prohibits the

District from taxing the incomes earned in the city by nonresidents.

Mayor Gray has proposed a combination of spending cuts and

revenue increases designed to close a budget gap that was estimated at $322 million. This is a rather small shortfall in a $9.6 billion budget of which $6.3 billion are locally raised funds.

There will be a debate about this budget in the Council, but I am

confident that the final budget will be balanced in a fiscally responsible way.

The main reason for my confidence is that the city has a strong

record of fiscal responsibility stretching back to the end of the

1990’s. More importantly, the mayor, the Council, and the chief financial officer are all committed to maintaining that record and

avoiding any danger of the triggering of a new control period.

I was personally involved in that unfortunate period of D.C. fiscal history and share the view that it must not happen again. In

early 1995, the District was facing imminent bankruptcy. It was a

really bad situation. The Federal Government had to step in and

do what a State normally does: Put in place a Control Board.

I was President Clinton’s point person on doing that, and I

worked closely with Delegate Norton, with Congressman Chair

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Tom Davis of the Congress, with Speaker Newt Gingrich and the

leadership of the Senate. It was a thoroughly bipartisan effort. It

had to be. And it resulted in the creation of the Control Board and

the Office of the Chief Financial Officer.

We wound up the Control Board successfully in 2001.

The District residents and officials have taken the lessons of that

difficult period to heart. For more than a dozen years, as has been

emphasized before, the District has been a model of fiscal responsibility, has continued to balance its budget, built up its fund balance

and cash reserves and improved its credit rating remarkably.

In the last several years as the recession reduced revenues, the

District has drawn down its fund balance, that’s what reserves are

for, but not to dangerous levels, and it is now in a position to begin

replenishing those reserves.

It is now past time, I believe, for the Congress to recognize the

District’s exemplary fiscal behavior and pass legislation giving the

District fiscal autonomy, the ability to spend its locally raised revenues as its elected government sees fit. This would represent your

faith in representative democracy that works.

I’ve testified before on this subject, and I attach my testimony of

November 2009 for the record.

[The information referred to follows:]

[NOTE.—The information referred to was not provided to the

committee.]

Ms. RIVLIN. In short, Mr. Chairman, I believe that the District

of Columbia has a manageable fiscal challenge this year and can

be counted on to balance its budget in a sustainable and responsible manner, and I also believe that the Congress should demonstrate its faith in representative democracy by granting the District fiscal autonomy.

Thank you, Mr. Chairman.

[The prepared statement of Ms. Rivlin follows:]

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Mr. GOWDY. Thank you, Dr. Rivlin.

Dr. Gandhi, can you take maybe a minute or so and update us

on the hospital in the District?

Mr. GANDHI. Yes, sir. As you know, we took over the hospital in

July of last year primarily to make sure that the satisfactory

health care services are provided in the area where there is a large

needy population, and we wanted to make sure there is no interruption of health care services.

So at that time we took over the hospital. Like any public health

hospital, not-for-profit public health hospital, this hospital also has

its challenges. In addition, it had a troubled history and it has substantial issues that we need to resolve.

At the end of the day, the District will have to be quite mindful,

given of our experience earlier with D.C. General Hospital some 10

years ago. When we went to Wall Street, there was substantial concern about our owning the hospital again. The mayor and the

chairman and the leadership at the Council and in the Mayor’s Office, they’re all quite concerned about the viability of the hospital.

We want to make sure that we provide health care services distributed, but at the same time we do not want to be in the hospital

business. My expectation is that the mayor and the Council will resolve the issue satisfactorily.

Mr. GOWDY. Dr. Gandhi, the District has a problem that other

cities have, although the District problem may be more exacerbated, which is tax exempt properties, properties where you have

to provide the service but you can’t collect any taxes.

Do you have a strategy? Do you have a plan? Is there a means

by which you can adjust for that, the fact that you’re providing

services to buildings and places where you can argue there’s not a

contribution toward the greater good.

Mr. GANDHI. That is one of the two major issues that we presently face in managing of our so-called constrained limited restricted tax base. One is of course the inability to tax people who

work here and don’t live here. And second is, as I pointed out in

my testimony, a large chunk of real property is tax exempt. As I

pointed out, the Federal Government, the tax exempt institutions,

the World Bank, IMF, embassies, etc.

I used to have an office on the 11th floor on the Judicial Square

building. Outside I look. Beautiful museums, monuments, galleries.

Nothing I could tax. That is a major problem for the city. It is that

limited tax base.

Other cities like Hartford, Cambridge, Philadelphia, they do have

a PILT payment, payment in lieu of taxes. I am not so sure that

is going to work here. But I think the Federal Government needs

to take into account the fundamental limitation of our public tax

base.

In spite of all of this, our commitment to you, sir, and certainly

of the independent chief financial officer, despite this limitations on

our taxes, we will balance the budget, even maintain our financial

viability and financial credibility on Wall Street.

Mr. GOWDY. Dr. Gandhi, I’ve got about a minute left, so I’ll ask

the question quickly and then you can have the remainder of the

time. Long-term pension liabilities in the city, what’s the status?

Any reason for concern?

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Mr. GANDHI. Well, I think in general we manage our liabilities

very well. We do not have the major concern of the rest of the jurisdictions around the country of the pension liabilities. We do not

have that. The Federal Government took over a bulk of our liability

on that front. All of our long-term liabilities, in particular the pension liabilities, are actuarially funded, fully funded, actuarially

speaking, so we are very blessed and I would give great credit to

our elected leadership, mayor and the Council, for abiding by that

requirement.

Mr. GOWDY. Thank you.

I would recognize the gentleman from Illinois, Mr. Davis.

Mr. DAVIS. Thank you very much, Mr. Chairman. Mr. Chairman,

given the fact that Representative Clay has a markup that he’s involved in, I would ask that I switch time with him and let him go

and then I will take his order. I ask unanimous consent.

Mr. GOWDY. Without objection.

Mr. CLAY. Again, let me thank the gentleman from Illinois and

thank the chairman for conducting this hearing.

A question for all three witnesses. How would you characterize

the District’s fiscal health in relation to other large cities?

Starting with you, Dr. Gandhi.

Mr. GANDHI. Thank you, sir.

I’m pleased to say that relatively speaking, Washington, DC, is

in better financial condition than perhaps any other major cities

out there. We have still $343 million of so-called rainy day fund.

We make sure that our budget is always balanced. We have a very

independent and vigorous Office of Independent Chief Financial Officer that tracks our budget on a—almost on a weekly basis.

So when you look at all these considerations, we are in very good

financial condition. And that is not just me saying it. Wall Street

says that. They reaffirmed our AAA bond rating on income tax

bonds, a plus category bonds ratings on our GO bonds, with a stable outlook. That is more than what can be said about many other

jurisdictions around the country.

Mr. CLAY. Mr. Fabian.

Mr. FABIAN. Well, I would agree also with Dr. Gandhi. I think

that the location of the Federal Government has been a tremendous economic stabilizer for the city in addition to its management

practices.

Looking forward, you know one of the things that cities and

States around the country have been very loath to do is to raise

taxes to help balance the budgets. The District is at least considering this. And I think that you know from a Wall Street perspective having a city or a jurisdiction that is willing to look at all financial options to correct its structural budget gap is a real positive.

Mr. CLAY. Thank you. Dr. Rivlin.

Ms. RIVLIN. I agree with Dr. Gandhi and Mr. Fabian. We’re in

relatively good shape. And we’re very lucky. I have sometimes said

to the mayor when he was sounding down about the fiscal situation, ‘‘Cheer up. You could be Mayor of Detroit.’’

The situation in cities that were in trouble anyway because they

were losing their manufacturing base is much worse than it is

here. And we are lucky that our major industry is the Federal GovVerDate 17-JUN-2003 14:25 Oct 28, 2011 Jkt 000000 PO 00000 Frm 00087 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\70515.TXT KATIE PsN: KATIE
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ernment and the activities that it attracts. And those are in pretty

good shape.

Mr. CLAY. Thank you all for your response.

And Mr. Chairman, as well as Chairman Issa, not to engage in

a debate over the merits of the bill at this time, but as a question,

could this committee seriously or the full committee take a serious

look at Representative Norton’s bill that gives the city control over

its own tax dollars? I think that with the testimony that we’ve

heard today, the city has certainly demonstrated their ability to, in

a fiscally prudent way, manage their resources. Perhaps it is time

that we actually take a look at giving the city more responsibility.

We are guests here. And I just would like to hear.

Chairman ISSA. If the gentleman would yield.

Mr. CLAY. Yes.

Chairman Issa. I have looked at the gentlelady’s draft legislation

earlier on. And now I am reasonably confident that no, we cannot

accept budget autonomy fully. But I am going to be offering an alternative that I hope the gentlelady will join with me on that provides a mechanism for a separate vote and separate consideration

of the District’s funds. And that’s what I was alluding to in my

question with the mayor. And what I hope to be able to work with

Delegate Norton on is an ability to have an early on annual vote

to accept the budget—what I would call a contingent budget, the

budget of exclusive jurisdiction of the District, meaning what they

do with their money as it shall come in.

I think that we would be hubris for us to assume that we could

do anything about the appropriation process of other funds. But I

think by bifurcating them, we can in fact come up with something

that accomplishes what Ms. Norton is asking for. We can do it

early on in every Congress and do it separate from the sometimes

difficult budget process.

Mr. CLAY. Yes, and I thank you for your response. I would have

to take a look at your proposal in more detail because——

Chairman ISSA. I’m looking for cosponsors when I drop it.

Mr. CLAY. But really I still think that we are treating this locale

as a stepchild, and it is probably time we loosen the strings that

we have applied to them since the 1990’s and move forward. I

mean, they have certainly shown fiscal responsibility.

I know my time is up, but I yield back.

Mr. GOWDY. I thank the gentleman from Missouri.

At this time I would recognize the chairman of the full committee, the gentleman from California, Mr. Issa.

Chairman ISSA. Thank you, Mr. Chairman. Thank you for your

indulgence as all of us go back and forth to Judiciary today.

Dr. Gandhi, earlier on when I asked the mayor about contingent

budget proposals, I knew I was asking the wrong person. But he

was the right person to be asked first. When you look at the finances of the city, as a Federal city with all of the responsibilities,

certainly we’ve met with your police chief many times and she has

a responsibility like no other big city police chief because protests

come here, other activities come here which she must deal with

first even though she has backup of Federal agents.

Do you believe that the District could produce an annual contingent budget? Now let’s assume for a moment that we were a threeVerDate 17-JUN-2003 14:25 Oct 28, 2011 Jkt 000000 PO 00000 Frm 00088 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\70515.TXT KATIE PsN: KATIE
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quarters/one-quarter ratio of all Federal funding to the District’s

self-funding for a moment. Do you believe you could produce a full

funding document that would say we have a contingent capability

for, let’s say, 10 months meaning that if we receive substantially

less, we can continue operating. If we receive nothing, we can operate for 10 months. And of course if it looks like for some reason

there is no money coming, you could adjust.

But do you believe that you could produce that contingency that

would take us, let’s just say, from this month to the end of the year

on an annual basis?

Mr. GANDHI. Yes, sir. And I say that quite advisedly because the

Federal contribution to the District, distinctly for the District, is

less than 2 percent of its budget. We get about $174 million, if everything the mayor is asking for 2012, the President is asking for

is $174 million in a $10 billion budget.

What the budget autonomy that I am endorsing here is that let us spend our local dollars and obviously $174 million that I’m talking about must be appropriated by the Congress in its usual regulatory and legislative way, and that’s fine with us.

All we are suggesting here is that when we pass our own budget,

as we will in June, that we should be allowed to spend money. And

second, if you give us budget autonomy, then we would like to realign our budget with our specific needs. October, September, the

timeframe doesn’t work for local government.

The next thing I would say is that dependent upon the Federal

Government——

Chairman ISSA. What date would work for you, Doctor?

Mr. GANDHI. The date for any other local jurisdiction which is

June-July.

Chairman ISSA. So echoing what you’re saying, if we considered

a D.C. money only—and by the way, that would include, for example, a school lunch program that you expect to have Federal money

for not getting it. So I want to make sure that when we talk about

no Federal dollars, that you would maintain all that you believe

you need.

If that were the case and we were to deliver, you were to deliver

us a budget by let’s say March, we were to forward it through the

Congress and have it passed before July as a free-standing separate from appropriations, that would meet your needs very well,

recognizing that the dollars that would come from the Federal Government would come on a different schedule?

Mr. GANDHI. Yeah. I understand that. And all, again to repeat

myself, all we want is to make sure that we spend, are allowed to

spend our local dollars according to our own wishes and according

to our own timetable.

Chairman ISSA. Any other comments on the idea of bifurcating

the two?

Mr. FABIAN. I think that it would be a real credit strength from

a Wall Street perspective. We’re still having that level of Federal

oversight to make sure that the District keeps its game clean. But

otherwise, again, absolutely.

Chairman ISSA. You said something and I want to be careful. I

don’t to accept ‘‘game clean’’ but the view at least from this side

of the dais for myself has been that the District, although it has

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done a very good job in recent years, lacks an equivalent—Los Angeles does a good job, but ultimately Sacramento has a major role

in education and so many other areas. The view is we don’t have

as major a role but we have a role. And I think that’s what you

were saying.

Mr. FABIAN. Yes. Exactly, absolutely.

Ms. RIVLIN. Yes. I think this would be possible and that it is a

very good idea. And the Congress would not be relinquishing its ultimate oversight responsibility and the provisions that in extremis

would bring back a Control Board.

Chairman ISSA. Well, it is the goal of this committee to have sufficient oversight and have sufficient good conduct that we will

never go back to the days in which you had hands in every aspect

of it far beyond this committee.

I thank the chairman, and I yield back.

Mr. GOWDY. Thank you, Chairman Issa.

The chair would now recognize the distinguished lady from the

District of Columbia, Ms. Holmes Norton.

Ms. NORTON. The ranking member is taking Mr. Clay’s place, so

I understand.

Chairman Issa’s proposal is something I want to very much—it

is the first I’ve heard of it, but it is one I certainly very much

would like to work with him on and to build on. Indeed, during the

shutdown I had a number of bills just to keep us open for the rest

of the year. But then I had one bill that said in the event of a shutdown, in any year, the District may spend its local funds so that

we would not have to go through what we went through this time.

If what you say on schools—and I’d like any or all of you to

speak about that—the incongruity between the fiscal year of the

Federal Government and the fiscal year of every other jurisdiction

in the United States I know has created real havoc in some years.

Could you speak about that incongruity and what it does to a local

jurisdiction to be faced with schools opening in September before

the fiscal year has even begun?

Mr. GANDHI. Yeah. Let me first comment on your suggestion on

the Federal Government closing itself and impact it has on the District Government. My expectation is that we would lose anywhere

from $1 to $5 million a week and that is just a taxing fact.

Ms. NORTON. If we had closed down.

Mr. GANDHI. Yes, ma’am. And if we talk about the economic impact, you’re talking about $15 million a week.

Further, the idea of us deciding on our own gives us a flexibility

to adjust ourselves. We basically manage our budget based upon

the revenue assumptions that were made some 18 months ago. So

there is no flexibility when circumstances change, revenues decline,

expenditures go up. We don’t have a way to adjust of ourselves.

Next is that any emergency arises, as in case of hospital, when

we had to take over the hospital, we had no authority to spend

money there. So what we had to do is to borrow money from other

contingency funds just to make sure that hospital remains operational, that the emergency care is provided, that doctors are paid,

the salaries are paid.

And last on the school issues, because the schoolyear doesn’t correspond with the fiscal year, what we have to do every year, we

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have to give an advance money so the school can start planning

ahead of time for that academic year which doesn’t coincide with

the fiscal year.

So I think it would be a major implement of our ability to manage budget if we have the budget autonomy. To repeat myself, we

are talking about only the local dollars. We’re not talking about

Federal dollars.

Mr. FABIAN. From a bondholder’s perspective they certainly value

predictability and flexibility in any issuer. So having a sense that

revenues will continue to come in and that they could be spent in

a predictable way is very important. I think that from the idea of

the fiscal year shift, you know again it speaks to the exact same

issue and it may also facilitate the District’s needs to borrow for

cashflow midyear if it does need to do that.

Ms. NORTON. Dr. Rivlin.

Ms. RIVLIN. I agree with all of that.

Back on the school issue, I believe every State has a June-July

fiscal year and the reason they’ve chosen that is for this reason,

that schools are majorly inconvenienced by starting in August or

September and not getting their budgets until the end of September.

Ms. NORTON. Can I ask one more question?

I was very concerned during the shutdown period about possible

default or having to somehow redo contracts if some of them came

due during the time or in between the time and what those who

held these notes would think and whether it would have consequences the next year when you went to get contracts or notes.

And I wish you would comment on the effects on possible default

or on other contracts and on contracts in the future given the fact

that you were close to default this time.

Mr. GANDHI. Yeah. I think that is a major concern for us. Obviously our debt service on gender obligations bonds, income tax

bonds is assured because we put that money in escrow. However,

we do borrowing on what is known as certificate of participation,

240-plus million dollars out there, which we use to buy police cars

and safety equipments, hospital staff. On that we will not be able

to pay our debt service because there will be no appropriation for

us to be able to pay because Congress was shut down, and that

would cause a major havoc in those areas, in public safety, in public health. And as Mr. Fabian pointed out, the bond agencies and

financial market want certainty and what now appears to be a likelihood that government, the government may shut down because of

the debt limit controversy at the Federal level. Then you know that

causes problem for us.

Ms. NORTON. Mr. Fabian.

Mr. GOWDY. Mr. Fabian, I hate to cut you off. We ran through

the red light by about a minute. So we may have time to come back

to Ms. Holmes Norton, but at this point I’d like to recognize the

gentleman from North Carolina, Mr. McHenry.

Mr. MCHENRY. I thank the chairman, and thank you for your

testimony, and I read—have taken a look at your testimony and I

am obviously interested in this issue.

I have a subcommittee, I chair a subcommittee which Chairman

Gowdy is also on. We have been looking at State and municipal

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creditworthiness. It is a very interesting issue in light of unfunded

pension liabilities.

Now Dr. Rivlin, I know you have a unique experience here, but

in the 1990’s basically the Federal Government did bail out D.C.’s

pension liabilities, and then D.C. has since switched to a defined

contribution pension plan. Has that been successful? Has it provided stability financially for the District and its taxpayers?

Ms. RIVLIN. Yes, it has. The District pension liability was very

large. I forgot the numbers, now but it had been accumulated while

the Congress ran the District. It was pre-home rule liability. So

those of us in the District didn’t think of it as a bailout. We

thought of it as the Federal Government facing up to the liabilities

that it had created. Fortunately it did, and the District was able

to essentially go forward with a better constructed pension plan.

Mr. MCHENRY. Dr. Rivlin, you know you certainly have a unique

perspective and you certainly put forward some interesting ideas

on entitlement reforms writ large, and we appreciate your service

to your government. Thank you for being here today.

Ms. RIVLIN. Thank you.

Mr. MCHENRY. Mr. Fabian, in terms of a municipality or State

or it is the District’s credit profile, does that defined contribution

versus defined benefit pension liability or pension fund, does that

have a bearing on their credit profile?

Mr. FABIAN. The existence of one versus the other is really inconsequential. It is just about the annual burden of how they fund up

the contribution and how they manage the long-term liabilities. So

the fact that we switched to defined contribution, it doesn’t really

impact the credit quality. Bit just let me say that going forward in

the last year and over the next few years, pension liabilities will

become a larger factor for the rating agencies so they will tend to

bring ratings down. The fact that the District doesn’t have that

means that the District rating will not be subject to those same

pressure.

Mr. MCHENRY. So net positive going forward that they have a defined contribution rather than a defined benefit plan in terms of

credit rating?

Mr. FABIAN. Yes, sir.

Mr. MCHENRY. And in terms of the accounting of those pension

liabilities. I mean basically what you’re saying is if you have a well

funded, well capitalized pension plan, you don’t really make a judgment about the contents of it. You just simply judge whether or not

it is appropriately funded, right?

Mr. FABIAN. That’s right.

Mr. MCHENRY. But the accounting of these pension funds, do you

have some concerns about how States, municipalities, and the District account for—I’m sorry, not the District but larger than this,

but the accounting of these defined benefit pension plans?

Mr. FABIAN. Well, you know for sure you know there has been

or there have been accounting issues in the past. I think that the

efforts of the GASB to reconcile that and begin to organize it are

definitely a positive. The Nunez-Issa-Ryan bill I think, which would

require more uniform accounting of those pension liabilities, is

from a credit analyst’s perspective, is maybe a step in the right direction, although there are limits on looking at limiting the States

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access to tax exempt markets, you know, is also very difficult to

say. I think it needs to be carefully drawn, you know, encouraging

those or requiring those conditions but at the same time not necessarily limiting access to the capital markets.

Mr. MCHENRY. Dr. Gandhi, can you comment on your view in

terms of your role on whether or not this defined contribution pension plan has been helpful in terms of your role in making sure the

District is fiscally solvent?

Mr. GANDHI. Well, the District is fiscally solvent. Whether we

want to have a defined benefit or defined contribution plan, it is

a policy decision of the mayor and the Council. My obligation here

is to make sure that we don’t land it, suggest and implement, to

be appropriate for District. That land must be properly actuarially

funded. And as I pointed out earlier, our plan is actuarially fully

funded. And I think we may be among the very, very few jurisdictions in the country to claim that and, as Mr. Fabian pointed out,

it suggests a great credit strength on our part.

Mr. MCHENRY. Thank you, and thank you for your service to our

government.

Mr. GOWDY. I thank the distinguished gentleman from North

Carolina.

And I would now recognize the distinguished gentleman from

Maryland, the ranking member of the full committee, Mr.

Cummings.

Mr. CUMMINGS. Thank you very much. Again, as I’ve listened to

the testimony, I am convinced that, Dr. Rivlin, I’m convinced that

the District of Columbia could teach the Congress some things.

I find it interesting that we bring the District of Columbia here

and looking at their budgetary situation, one which has been addressed in a very responsible way, as I said, combined with compassion, and keeping people well, making sure kids are educated.

There are cities and States that could, and this Congress that could

take a few pointers.

But I want to just ask you, Dr. Gandhi, and then I am going to

yield, Mr. Chairman, to my colleague Ms. Norton, Holmes Norton.

You know the one thing that the District has that I wish we had

in Baltimore is that you’ve got property—by the way, congratulations on your great work.

Mr. GANDHI. Thank you.

Mr. CUMMINGS. You’ve got property values that are going up.

Mr. GANDHI. Yes, sir.

Mr. CUMMINGS. Which is phenomenal. I mean that to me is

major. I mean has there been sort of like a rediscovery of the District? I mean, in other words, it seems like everybody wants to now

live in the District. And I remember when I was a student at Howard University a long time ago back in 1969, I remember I used

to see all of these vacant houses and I used to say to myself as a

student, it would seem as if every square inch of the District of Columbia would be invaluable because it literally is the capital of the

world. And it seems like people are discovering that. And I am just

wondering how does that help with your stability with your tax

base and help you to collect that $5 billion plus that the mayor

talked about?

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Mr. GANDHI. Your assessment is entirely correct, sir. The District

is presently perhaps the most sought after commercial real property market in the country, if not in the world. The last two major

investments that have happened in just last 2 months, one at the

city’s center, $700 million development, the money came from Middle East; $500 million investment in Convention Center, a hotel,

again money came from the Middle East.

People are flocking to the District, and the amount of the reve- nues that have added roughly $165 million in a—basically all of

that is real property, commercial real property.

I think the image of the District of eighties and nineties is gone.

What you have now is a vibrant, hip city that is culturally very diverse. It has cultural climate. It has attraction in terms of the entertainment, in terms of education, in terms of governance that are

truly unique.

Mr. CUMMINGS. Did you say ‘‘hip’’ city? Is that what you said?

Mr. GANDHI. Yes, sir.

Mr. CUMMINGS. I thought I was hearing things.

Mr. GANDHI. All I suggest is Mount Pleasant area and Gallery

Place area. And 30 years ago when I used to be at the General Accounting Office—now the Government Accountability Office—that

area around Gallery Place, Chinatown, you know was really not a

safe area in the evening. Today you will see thousands of people

every evening.

Mr. CUMMINGS. I know. I see it. I go to the movies down there.

Mr. GANDHI. That’s our Times Square, sir. That’s our Times

Square. And wait till another few years and you will see the area

around the stadium is going to be very attractive area.

Today the city has more theater per person than any other city

in the country. We have world-class Shakespeare Theater, Kennedy

Center, Arena Stage. I mean, I can go on and on, and great educational institutions here. I think the city has a great future ahead,

a great future ahead and great credit should go to District mayors

and Council and community and civic leaders like Dr. Rivlin here.

I think the city is on a great promise here.

Mr. CUMMINGS. I see Dr. Rivlin wants to say something.

I’m sorry, Ms. Norton. Dr. Rivlin.

Ms. RIVLIN. I just want to add a cautionary note. I agree with

everything, the enthusiasm of Dr. Gandhi about the city. But that

very resurgence and the upward pressure on property values and

rent creates problems for a city which has a large low-income population and creates needs in terms of affordable housing that are difficult to meet.

Mr. CUMMINGS. Thank you. Thank you very much.

Mr. GOWDY. I thank the gentleman from Maryland.

The chair would now recognize the distinguished gentleman from

Illinois, the ranking member of the subcommittee, Mr. Davis.

Mr. DAVIS. Thank you very much, Mr. Chairman. I thank all

three of you.

Dr. Gandhi, tell me, how long have you been involved with the

financial operation.

Mr. GANDHI. I have been the chief financial officer now for 10

years.

Mr. DAVIS. And prior to that time?

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Mr. GANDHI. I was head of the Office of Tax and Revenue and

before that I was with the General Accounting Office [GAO]—now

the Government Accountability Office [GAO].

Mr. DAVIS. I was just as I listened, thinking that probably yourself, Dr. Rivlin, and perhaps council member and former Mayor

Marion Berry probably knows very much about the history and operation of District of Columbia finances and government as anybody alive. I mean, there would probably be nobody else alive who

knows much about this as the three of you.

My question is, and I’ve served for three terms as a member of

a large city council, the City Council in the city of Chicago, and I

was trying to rationalize what is it that Congress provides other

than money in terms of the oversight for resources—and of course

we used to get an awful lot of Federal money from—we don’t get

nearly as much anymore, but there was a time. And the oversight

was of the money, but then of course Congress did not approve our

budget.

So what is it that Congress provides that the District of Columbia could not provide for itself?

Ms. RIVLIN. Other than the money, which is very—the direct

money is very, very small, as Mr. Gandhi has pointed out, it is

hard to think of much of anything.

I would like to commend the Congress actually for having moved

over the last few years away from micromanaging the District and

trying to play City Council. I have sat with Delegate Norton in Mr.

Istook’s office and I couldn’t believe it. I thought we were just sitting here talking about street repairs and potholes and I thought

what is the Congressman doing wasting his time talking about

this?

Fortunately, that era has passed. And we have not had much interference except on some major social issues like the needle exchange or abortion.

Mr. DAVIS. Last question. I find intriguing the proposal that the

chairman of the committee has put forth separating or having essentially two budgets. I mean while it is possible, but do you see

where it would pose any challenges, any difficulties in the budgeting process?

Mr. GANDHI. I do not think so because primarily what we are

asking for is managing our own local dollars. And Congress would

let us do that, it would facilitate great deal of our management of

the city, of our school system, and would not create any problems

for us.

The Federal appropriation can take its own course, as it usually

does. So I would wholeheartedly support Ms. Norton’s idea of a

budget autonomy that would give us flexibility to manage our own

resources.

Mr. DAVIS. Thank you very much. I have no further questions,

Mr. Chairman, and I yield back.

Mr. GOWDY. I thank the distinguished gentleman. I have just

been informed that Judiciary is calling for a recorded vote, and one

of my goals is to not miss those if I can avoid it. But on behalf of

all of us I want to thank the three witnesses not just for your expertise and your acumen, but also for your professionalism and civility with which you treat one another and the members of this

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panel. And if you will excuse my poor manners, I would like to

come thank you in person, but Judiciary is calling. So Dr. Gandhi,

I look forward you seeing you soon. Dr. Fabian, Dr. Rivlin, my colleague and friend Paul Ryan has extraordinarily kind things to say

about you, and I would look forward to the chance to talk to you

in person at some point in time, too.

With that, the committee is adjourned.

[Whereupon, at 10:50 a.m., the subcommittee was adjourned.]

[The prepared statement of Hon. Paul A. Gosar and additional

information submitted for the hearing record follow:]

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