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42–429 CC 1997

THE ECONOMIC DEVELOPMENT SECTION OF THE

PRESIDENT’S NATIONAL CAPITAL REVITALIZATION AND SELF-GOVERNMENT IMPROVEMENT

PLAN

HEARING

BEFORE THE

SUBCOMMITTEE ON THE 

DISTRICT OF COLUMBIA

OF THE

COMMITTEE ON 

GOVERNMENT REFORM 

AND OVERSIGHT 

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

MAY 22, 1997

Serial No. 105–27

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

(

(II)

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT 

DAN BURTON, Indiana, Chairman 

BENJAMIN A. GILMAN, New York 

J. DENNIS HASTERT, Illinois 

CONSTANCE A. MORELLA, Maryland 

CHRISTOPHER SHAYS, Connecticut 

STEVEN H. SCHIFF, New Mexico 

CHRISTOPHER COX, California 

ILEANA ROS-LEHTINEN, Florida 

JOHN M. MCHUGH, New York 

STEPHEN HORN, California 

JOHN L. MICA, Florida 

THOMAS M. DAVIS, Virginia 

DAVID M. MCINTOSH, Indiana 

MARK E. SOUDER, Indiana 

JOE SCARBOROUGH, Florida 

JOHN SHADEGG, Arizona 

STEVEN C. LATOURETTE, Ohio 

MARSHALL ‘‘MARK’’ SANFORD, South 

Carolina 

JOHN E. SUNUNU, New Hampshire 

PETE SESSIONS, Texas 

MIKE PAPPAS, New Jersey 

VINCE SNOWBARGER, Kansas 

BOB BARR, Georgia 

ROB PORTMAN, Ohio 

HENRY A. WAXMAN, California 

TOM LANTOS, California 

ROBERT E. WISE, JR., West Virginia 

MAJOR R. OWENS, New York 

EDOLPHUS TOWNS, New York 

PAUL E. KANJORSKI, Pennsylvania 

GARY A. CONDIT, California 

CAROLYN B. MALONEY, New York 

THOMAS M. BARRETT, Wisconsin 

ELEANOR HOLMES NORTON, Washington, 

DC 

CHAKA FATTAH, Pennsylvania 

ELIJAH E. CUMMINGS, Maryland 

DENNIS KUCINICH, Ohio 

ROD R. BLAGOJEVICH, Illinois 

DANNY K. DAVIS, Illinois 

JOHN F. TIERNEY, Massachusetts 

JIM TURNER, Texas 

THOMAS H. ALLEN, Maine 

HAROLD E. FORD, Tennessee 

———

BERNARD SANDERS, Vermont 

(Independent) 

KEVIN BINGER, Staff Director 

DANIEL R. MOLL, Deputy Staff Director 

JUDITH MCCOY, Chief Clerk 

PHIL SCHILIRO, Minority Staff Director 

SUBCOMMITTEE ON THE DISTRICT OF COLUMBIA

THOMAS M. DAVIS, Virginia, Chairman 

CONSTANCE A. MORELLA, Maryland 

ILEANA ROS-LEHTINEN, Florida 

STEPHEN HORN, California 

ELEANOR HOLMES NORTON, District of 

Columbia 

THOMAS H. ALLEN, Maine 

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California 

RON HAMM, Staff Director 

ANNE MACK, Professional Staff Member 

ROLAND GUNN, Professional Staff Member 

ELLEN BROWN, Clerk 

CEDRIC HENDRICKS, Minority Counsel 

RON STROMAN, Minority Professional Staff Member 

(III)

C O N T E N T S 

Page 

Hearing held on May 22, 1997 ............................................................................... 1

Statement of: 

Barr, Michael S., Deputy Assistant Secretary, Community Development 

Policy, U.S. Treasury .................................................................................... 52

Barry, Marion S., Mayor, District of Columbia; Linda Cropp, chairwoman 

pro tem, District of Columbia City Council; and Charlene Drew Jarvis, 

member, District of Columbia City Council ................................................ 98

Blunt, Roger, chairman, Greater Washington Board of Trade; John L. 

Green, president, DC Chamber of Commerce; and Craig Schelter, executive vice president, Philadelphia Industrial Development Corp ............. 150

Kies, Kenneth, staff director, Joint Committee on Taxation ........................ 69

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

Barr, Michael S., Deputy Assistant Secretary, Community Development 

Policy, U.S. Treasury, prepared statement of ............................................. 55

Barry, Marion S., Mayor, District of Columbia: 

Document entitled, ‘‘Creating an Economic Development Strategy for 

the District of Columbia’’ ...................................................................... 100

Prepared statement of ............................................................................... 123

Blunt, Roger, chairman, Greater Washington Board of Trade, prepared 

statement of ................................................................................................... 153

Cropp, Linda, chairwoman pro tem, District of Columbia City Council, 

prepared statement of ................................................................................... 134

Davis, Hon. Thomas M., a Representative in Congress from the State 

of Virginia: 

Memorandum of Understanding, and Council Resolution 12–116 ........ 3

Prepared statement of ............................................................................... 39

Green, John L., president, DC Chamber of Commerce, prepared statement of ........................................................................................................... 174

Jarvis, Charlene Drew, member, District of Columbia City Council, prepared statement of ........................................................................................ 138

Kies, Kenneth, staff director, Joint Committee on Taxation, prepared 

statement of ................................................................................................... 72

Moran, Hon. James P., a Representative in Congress from the State 

of Virginia, prepared statement of .............................................................. 49

Schelter, Craig, executive vice president, Philadelphia Industrial Development Corp., prepared statement of ............................................................. 182

(1)

THE ECONOMIC DEVELOPMENT SECTION OF 

THE PRESIDENT’S NATIONAL CAPITAL REVITALIZATION AND SELF-GOVERNMENT IMPROVEMENT PLAN 

THURSDAY, MAY 22, 1997 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON THE DISTRICT OF COLUMBIA, 

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 9:40 a.m., in room 

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

of the subcommittee) presiding. 

Present: Representatives Davis, Morella, Horn, and Norton. 

Also present: Representative Moran. 

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

Anne Mack and Roland Gunn, professional staff members; Ellen 

Brown, clerk; Cedric Hendricks, minority counsel; and Ron 

Stroman, minority professional staff member. 

Mr. DAVIS. Good morning and welcome. 

This is the sixth hearing of our subcommittee as we continue to 

review the administration’s National Capital Revitalization and 

Self-Government Plan. Now that the administration and the District government have signed a Memorandum of Understanding, 

we can proceed with our congressional review in an orderly manner. 

I am pleased to welcome my friend and colleague from northern 

Virginia, Jim Moran, a member of the Appropriations Subcommittee for the District, to sit with us on the dais and participate in this hearing. The economic revitalization of the city is 

something that I know Representative Moran has had a strong interest in since he came to Congress. 

I know that the signing of the MOU was preceded by hard negotiating on both sides. All involved should be proud of their diligence. Any underlying legislative language will not be rubberstamped by the Congress. The MOU is essentially the first step in 

a process that will hopefully lead to a bill to be signed by the President. But clearly, you can’t get to second base until you touch first 

base. With the MOU signed, this subcommittee and Congress will 

move forward as rapidly as possible. But all concerned, we must realize that the window of opportunity is very narrow, and we have 

to move ahead promptly or be overtaken by the congressional calendar. 

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With that in mind, I ask unanimous consent that the MOU be 

made part of the permanent record, along with Council Resolution 

12–116. Hearing no objection, so ordered. 

[The information referred to follows:]

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Mr. DAVIS. Today, we will examine a subject that is critical to 

the short-term and long-term health of the District of Columbia, 

the creation and retention of jobs and employers. 

As is true of any municipality, the ability of the District of Columbia to fund the ongoing and growing needs of its community is 

dependent upon an expanding tax base. It is this base which can 

generate the revenues necessary for the city to fulfill its mission. 

As a former local elected official, I am keenly aware of just how 

important it is for a community to be in a competitive position to 

attract and retain jobs. The tax and regulatory climate in a jurisdiction is critical to decisionmakers who continually review the 

cost-effectiveness and competitiveness of their business location 

and its corresponding inventory of jobs. Access to an educated and 

trained labor supply is also a critical factor. 

The flight of jobs and residents from the District to other areas 

where bottom-line costs can be dramatically improved is well 

known. This trend can and must be reversed. 

Economies are increasingly influenced by knowledge-based industries. Communities must be able to respond to the needs represented by these new and rapidly growing businesses, including 

access to capital and a sufficient supply of qualified labor prospects. 

Additionally, the presence of the Federal Government provides 

enormous opportunities to attract and retain employers, provided 

any offsetting disincentives are not so profound that they force decisionmakers to consider locations elsewhere. 

While I believe that there are measures in the administration’s 

proposal that merit strong consideration, I question whether some 

of the provisions will achieve the stated goal. Our objective is to 

provide the District with additional tools to encourage business investment, both downtown and in distressed communities. This 

must be done through coordinated development that connects the 

District’s businesses and people to the fast-growing Washington region and enables the District to be a vibrant participant in the 

growth. 

I remain troubled by approaches that may seek to socially engineer the outcome. I prefer an approach that identifies opportunities 

to promote the assets of the community, an approach that presents 

an attractive tax and regulatory climate. I also prefer an approach 

that connects the education system to the needs of the business 

community by ensuring a qualified pool of employment prospects 

and an approach that stimulates business investment by providing 

incentives that result in measurable outcomes. 

In that way, we can tell the world about the positive educational, 

cultural, recreational, and entertainment assets that exist in this 

community and about the community itself. 

Today, I look forward to hearing from an outstanding group of 

witnesses about their thoughts, ideas, criticisms, and overall views 

regarding the proposed Economic Development Corp., along with 

the tax and financing measures of the President’s plan. Working together, we have the potential to provide both short-term and longterm stability to the District’s economy. 

I would now yield to Delegate Norton for an opening statement. 

[The prepared statement of Hon. Thomas M. Davis follows:]

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Ms. NORTON. Thank you, Mr. Chairman. 

My appreciation to Chairman Tom Davis for holding the sixth 

hearing today on the President’s Revitalization Plan for the District 

of Columbia, this time on the economic development provision. To 

his credit, Chairman Davis has committed to holding a hearing on 

each major section of the President’s plan. There is some concern 

at the White House, however, because we must have a bill through 

both Houses and signed by September 30. 

Consideration of the plan now appears to be back on track, following the recent signing of the Memorandum of Understanding by 

all the parties. The administration is to be commended for its idea 

of an MOU to buttress the chances for passage of the President’s 

plan by demonstrating that the District is committed to responsible 

implementation and improved management. It is now up to the 

Congress to address the very legitimate underlying concerns expressed by Mayor Barry and the Council about the plan itself, as 

we draw bill language. 

The chairman and I share much of that concern. As we have always indicated, it is our intention to address these concerns with 

vigor and determination, while recognizing the challenge of proceeding so as to assure that we attract the votes necessary for passage. 

An Economic Development Corp., for the District, the subject of 

today’s hearing, if given ample time, can help in the work of reviving both the District and its neighborhoods. Downtown revival has 

a head start, thanks to private business, which is putting up most 

of the money for arena and the convention center, because the private sector understands the District’s very considerable unused 

economic potential. 

I am pleased that a representative from the Philadelphia Industrial Development Corp., Philadelphia’s Economic Development 

Corp., will be testifying today. Philadelphia’s skill at inducing its 

recovery from insolvency is instructive. Philadelphia’s revival has 

been rapid, innovative, solid, and lasting. I look forward not only 

to hearing about the Philadelphia experience, but also to hearing 

from city officials, business representatives, and our Federal witnesses. 

Thank you, Mr. Chairman. 

Mr. DAVIS. Thank you. 

Mr. Horn, do you want to make an opening statement? 

Mr. HORN. Thank you, Mr. Chairman. 

I’m delighted you are holding this series of hearings. It’s tremendously important to talk about the infrastructure, the fiscal management, and economic development. And I look forward to hearing 

how, when that economic development occurs, that it meets the 

zoning of this city to preserve and not overshadow the historic 

buildings of the Government. 

I would also add that all of the good deeds we might do in authorizing a sound economic development program and bringing 

around some fiscal reform will be for nought if we do not have a 

professional, talented, incorruptible public service. If we don’t face 

up to that, all of the rest of this is down a rat hole, and we’ll be 

back where we started with this city. 

46

So I would hope, Mr. Chairman, we will face up to that sometime 

this year, because otherwise we’re kidding ourselves. 

Mr. DAVIS. Thank you very much. 

Now, I would like to ask our colleague from the Appropriations 

Subcommittee, Mr. Moran. 

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

I share your belief that a strong urban core is essential to the 

overall health of the entire region. It is heartening to see the importance that the White House and individual Members of Congress have placed on revitalizing the District’s economy. 

I particularly want to applaud President Clinton for the bold proposals that he has made to pull the District out of its financial morass, and Delegate Norton for her numerous and creative efforts to 

improve the District. I wanted to make sure she heard that before 

I said anything else. 

Mr. Chairman, I want you to hear this phrase, because I thought 

this was a good encapsulation. I am concerned that a lot of these 

proposals, however, may become the fiscal equivalent of Michael 

Jackson’s moonwalking, giving the impression of moving forward 

while, in fact, it’s standing still. 

For example, the proposal to reduce Federal taxes for DC residents to 15 percent, I do applaud Ms. Norton for her work on this 

bill, and I know that she has the very best intentions in mind and 

is determined to stem the hemorrhaging of DC’s population, but I 

don’t believe that individual residents are leaving the District solely because they are overtaxed or even primarily because they are 

overtaxed. 

In fact, the individual tax burden on DC residents is less than 

that borne by those living in Prince George’s County, which is the 

most popular destination of former DC residents. Reducing the 

Federal tax burden will make it less expensive to live in the District, and it may help stem the tide, but it is certainly not going 

to reverse the flow of migration out of the city over the last several 

decades. 

The administration’s proposal is also a noble effort to encourage 

greater investment in the District and to stimulate the District’s 

economy, but this plan also appears to be more suitable for spurring development in a disadvantaged area than rebuilding the District’s economy. 

The District is a natural magnet for high-paying jobs. It is both 

the center of Government and the core of one of the wealthiest regions in the country. Rather than trying to create an artificial attraction, as this plan may be perceived as doing, we should instead 

unleash the District’s economic potential by removing the policies 

that sap its financial strength. 

To do so, we have to address and reform the incomprehensible 

and often punitive DC Tax Code. This is the catalyst that is driving 

businesses out of the District and into the suburbs. A recent study 

found that the total tax burden for small businesses in the District 

of Columbia is at least 25 percent greater than in the next highest 

jurisdiction in the region. 

The corporate income tax rate in the District is 10 percent—

9.975 percent—10 percent compared to 6 percent in Virginia and 

7 percent in Maryland. A typical information technology company 

47

would pay more than $22,000 in income tax in the District. In Virginia, that same firm would pay $13,280. They both have the same 

Federal income taxes, but in the District they would pay almost 

twice as much as they would pay in Virginia. And in Maryland, 

they would pay $18,500. 

The DC corporate property tax rate, the corporate property tax 

rate, is an average of $2.15. That is more than twice what it is in 

surrounding jurisdictions. Now, the residential rate is $.96, half of 

what the corporate rate is. But you can’t have a corporate property 

tax rate that is twice as much as other regions and think that businesses are going to act contrary to their own self-interest and move 

into a district with that kind of a tax structure. 

It is not a competitive tax structure. It is a tax structure that 

penalizes businesses for locating and for staying in the District of 

Columbia. If DC is to retain the businesses that are now located 

here and attract new businesses, it has to stop chasing business 

away. 

This will not be done solely through a reduction in Federal taxes 

or a package of economic stimulants like the White House has proposed. It must be done through a fundamental and complete restructuring of the District’s own tax rates. 

The Brookings study and all the followup analysis that was conducted by Carol O’Cleireacain provides good recommendations for 

doing that. It proposes eliminating four taxes on businesses, including the personal property tax rate, the professional license fee, the 

corporate franchise income tax, and the unincorporated franchise 

income tax. It also recommends changes to other taxes, including 

the real property tax. 

To make up for the resulting shortfall in revenues, the study proposes changing the relationship between DC and the Federal Government, with the District relieved of many of its current functions 

that most cities don’t have to shoulder alone, such as Medicaid and 

welfare. Many of those proposals are currently part of the Clinton 

administration’s recovery package, and I would support those. 

Carol O’Cleireacain’s work has been augmented by Stephen 

Fuller’s work. Steve Fuller is with the Greater Washington Research Center. He has been doing a continuing analysis of the region. Together they make the strongest argument that changes 

must be made within the District to revitalize the city and to provide true economic development. 

Those recommendations are promising, and further study and 

discussion of them and of others is required if we are to put the 

District’s economy back on the right track. But we have to have 

more than cosmetic changes or experimental proposals, prized more 

for their novelty than for their practicality. 

With so much local, regional, and national attention now concentrated on the District, we have to seize this opportunity to make 

meaningful changes that will ensure the future health of America’s 

Capital City. 

So I appreciate your having this hearing, Mr. Chairman, and I 

know that you don’t disagree with a lot of what I’ve said. I certainly respect Mr. Horn’s judgment. I wouldn’t be surprised if Mr. 

Horn is not thinking along the same lines. 

48

I would hope that we can put a package together that both Appropriations and the authorizing committee, the principal committee of jurisdiction, knows is going to be a truly constructive and 

long-term, profound improvement to the District of Columbia economy. 

With that, thanks for letting me participate in this, and thanks 

for all your good work on this. 

[The prepared statement of Hon. James P. Moran follows:]

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Mr. DAVIS. Mr. Moran, thank you very much. Let me just add 

that you were mayor of Alexandria. You have a great appreciation 

for the region and the complexities involved, and you are going to 

make a very substantial contribution as we move forward in the 

next 3 weeks to getting this bill ready to go. 

I appreciate your comments today and agree with a large part of 

them. 

Ms. NORTON. Since the gentleman chose to attack my tax bill. 

Mr. MORAN. You were listening. 

Ms. NORTON. I was trying to give you a pass. 

Mr. DAVIS. Ms. Norton, we’re not having a debate here, but I will 

allow you to certainly respond, briefly, before we hear from Mr. 

Barr. 

Ms. NORTON. I thank you, Mr. Chairman. 

I’m sorry, I didn’t hear most of it. We have a serious problem or 

something that might happen with regard to our supplemental, 

which is my immediate concern. 

I support the President’s plan. Let me say that we’re quite aware 

that people don’t move to Virginia because they prefer to live there. 

We understand that they move out of the District. 

Mr. MORAN. All right. 

Mr. DAVIS. Let me just say, I don’t know who the ‘‘we’’ is. Maybe 

that’s your understanding. 

Ms. NORTON. We are aware that they move out of the District 

because of its service problems and because it has the problems of 

large cities. The purpose of the Federal tax cut is not to lower 

taxes, it’s to give people an incentive for remaining in the District. 

It is, as well, sir, an alternative to the commuter tax that you 

and other Members have unjustly denied the people of the District 

of Columbia, who subsidize your much more affluent constituency 

with our services. So you have your nerve attacking us for trying 

to get what we deserve. We are looking for alternatives. I am certainly willing to put a commuter tax bill in, because that is certainly what we deserve. 

We have no representation in the Senate of the United States as 

you do, and we do not have complete representation here. And yet 

the residents of the District of Columbia, sir, are second per capita 

in Federal income taxes. We make no apologies for seeking a reduction in our income taxes, particularly when four territories which 

have full Home Rule pay no taxes whatsoever. 

We need your help, that is what we need from the region. 

Thank you, Mr. Chairman. 

Mr. DAVIS. Ms. Norton, thank you very much. 

Now we are going to hear from Mr. Barr. 

Let me just add, I think all of us want to work together on these 

issues. We have different ideas as to how to get there. We are going 

to hear the administration’s ideas. Regardless of the fact that the 

administration has a concept, the Federal City Council has a concept, Dr. O’Cleireacain has one, as does Ms. Norton, we’re going to 

sit down and work these issues out. And there is, I think, one goal 

here, that is, the city’s taxes have to be reduced; the regulatory 

burden has to be reduced. 

Mr. Barr, let me ask you to stand. It is the committee’s tradition 

to swear in. If you would just stand and raise your right hand. 

52

[Witness sworn.] 

Mr. DAVIS. I would ask unanimous consent that any written 

statement be made part of the permanent record. Please limit your 

oral statements to no more than 5 minutes, then we will get right 

into the questions. 

We appreciate your being here today, and most of all, we appreciate the administration being proactive, and coming up with a 

plan. Anytime you put a plan on the table, somebody’s going to 

have a difference of opinion, but at least we’ve got something to 

work from and we have the engagement of the President of the 

United States. That allows us a lot of possibilities for people to talk 

about these, and that’s what we’re about. 

So thank you for being here. Proceed. 

STATEMENT OF MICHAEL S. BARR, DEPUTY ASSISTANT SECRETARY, COMMUNITY DEVELOPMENT POLICY, U.S. TREASURY 

Mr. BARR. Thank you, Mr. Chairman and distinguished Members. 

Thank you for the invitation to discuss the President’s plan to revitalize our Nation’s Capital. I will focus today on one of its key 

elements, how the President’s plan will help spur economic development in the District. 

The plan is a first step, not a panacea. The District’s government 

and financial authority will have to continue to do the hard work 

necessary to create a city where streets are safe, where children 

enjoy the quality education they deserve, and where every resident 

has a chance to succeed. 

The plan is also not a bailout. The plan will require the District 

to submit a balanced budget for 1998, and for each year thereafter, 

to continue to comply with the requirements of the financial authority, and to take a number of specific reform steps in each area 

of the President’s plan. 

Last week, the DC City Council and the Mayor took an important first step in signing a Memorandum of Understanding with 

the administration, committing the District government to fulfill 

these requirements, including, with respect to economic development, a requirement to implement timely and effective zoning, permitting, and licensing processes by the end of the next fiscal year. 

Let me talk briefly about the President’s plan overall. First, the 

President’s plan would take on major financial and managerial responsibilities that are beyond DC’s current capacity. Second, the 

Federal Government will invest in the city’s transportation infrastructure. Third, the Federal Government will provide technical expertise. And fourth, the plan will spur economic development in the 

Nation’s Capital through new Federal tax incentives and a new 

Economic Development Corp. 

I will be focusing the remainder of this testimony on the economic development component, but I would emphasize that spurring economic growth in the District is not limited to this component of the President’s plan. All of the plan’s elements, taken as 

a whole, will help provide the District with a climate more conducive to economic growth. 

53

In-depth assessments of the economic development efforts of the 

District were undertaken by Treasury and OMB, as well as by private sector organizations, such as the DC Agenda Project. These 

assessments came to the same conclusion: A key missing link in 

the Capital’s ability to advance economically is a private sectordriven Economic Development Corp. to bring the city together behind an economic development strategy and to push that strategy 

to completion. 

This Economic Development Corp. would provide a focal point for 

development. Its mission would be to bring together the private 

sector, civic leaders, and government to develop, market, and promote an economic development strategy for the District; to facilitate longer-term and regional approaches to economic growth; to 

help develop major projects to revitalize the capital; and to link the 

District, including its distressed areas, to local and regional growth 

opportunities. 

Under the proposal, the Economic Development Corp. will be 

governed by a nine-member board of directors. The President would 

appoint five board members in consultation with the Congress, of 

which four will be selected from private sector businesses, and one 

will be selected from community-based organizations. The Mayor, 

with the approval of the City Council, will appoint an additional 

member, and there will be three voting ex officio members, one 

each selected by the President, the Mayor, and the City Council. 

This corporation will be run by a CEO and served by a professional staff. The EDC will be given the authority to spur development with Federal tax credits for loans and investments in DC 

businesses, and to issue project revenue bonds, including tax-exempt private activity bonds. Under the plan, Congress would authorize the capitalization of the development corporation, with an 

initial investment of $50 million in fiscal year 1998. 

The EDC will also have a number of other important powers, including the power of eminent domain and the ability to seek expedited consideration by the District government of necessary permits, requests for land transfers, and the like. 

Let me spend a few minutes on the Federal tax incentives. The 

President’s plan provides for $250 million in Federal tax incentives 

to encourage business investment in the District and to foster job 

growth for District residents. A DC capital credit and new private 

activity bond would flow through the EDC to businesses. A new DC 

jobs credit and small business expensing would be available directly to DC businesses. 

Taken together, these Federal incentives are designed to spur job 

creation and economic growth across the full range of sectors, from 

retail to biomedical, and across the full range of jobs, from entry 

level to high tech jobs. Prudently used, these tax incentives could 

leverage over $1 billion in private sector investment in DC businesses. 

Let me also say that we are very encouraged that Speaker Gingrich and Senate Majority Leader Lott have agreed to seek to include in balanced budget legislation the administration’s proposals 

for tax incentives designed to spur economic growth in DC. 

Let me tell you a little bit more detail about each of these four 

incentives: The DC capital credit. Under the plan, the EDC would 

54

be authorized to allocate $95 million in Federal tax credits for investors in or lenders to DC businesses; these tax credits would be 

worth up to 25 percent of the amount invested or loaned. This incentive would be available for businesses located throughout the 

District. 

Private activity bonds. The plan provides for the development 

corporation to issue a new category of tax-exempt, private activity 

bonds to finance commercial and retail development projects in 

areas of the District with poverty rates of 15 percent or more. Some 

45 percent of the District’s population and 37 percent of its land 

area are included in such areas. 

Third, a DC jobs tax credit. The plan provides for a DC jobs cred- it, a 40 percent tax credit on the first $10,000 of eligible wages in 

the first year of employment. The credit would be available to businesses that hire DC residents earning up to $28,500 a year, who 

live in the census tracts I have described, in areas with 15 percent 

poverty or greater. 

Over the next 5 years, 78,000 workers could be expected to benefit from higher wages or new jobs because of this DC jobs credit. 

It will help create jobs for DC residents, increase the tax base, reduce dependency on public assistance, and lower the costs of labor 

to the full range of DC firms. 

Finally, additional small business expensing will be made available. These tax deductions will be able to encourage the creation 

or expansion of small businesses in economically distressed neighborhoods of the District. 

Mr. Chairman, that concludes my description of the economic development component of the President’s plan. I would be happy to 

take any questions you might have. 

[The prepared statement of Mr. Barr follows:]

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Mr. DAVIS. Mr. Barr, thank you. Thank you very much. 

I’m going to start the questioning with my colleague from California, Mr. Horn. 

Mr. HORN. Thank you, Mr. Chairman. 

I mentioned in my opening remarks the problems of zoning. 

Would the jurisdiction of this corporation intrude in any way on assuring that the great vistas of this Capital and the great historic 

buildings are not intruded upon by a developer that wants to make 

a fast buck and suddenly build a 100-story tower here, or something? How are we handling that? 

Mr. BARR. Under the proposal, Mr. Horn, the existing mechanisms for zoning and for dealing with historic preservation are kept 

intact. There’s a provision that permits the corporation to seek expedited review, but that does not change any of the substantive 

standards. 

Mr. HORN. I’ll tell you what worries me. I saw what happened 

at L’Enfant Plaza. They had the beautiful HUD building there, and 

suddenly everything else is crammed around it. And it does block 

access and views of the Capitol from the Virginia side, depending 

on where you are. And it just seems to me we don’t need fast buck 

artists wrecking the historic nature of this city. 

Mr. BARR. I would fully agree. 

Mr. HORN. So I hope we have an absolute veto on some of that, 

if they get out of hand. 

Mr. BARR. The existing mechanisms would all remain in place. 

Mr. HORN. Well, apparently it didn’t work at L’Enfant Plaza, and 

I worry about that, and we’ll pursue that more later. 

I think one of the key questions here is, would it be useful and 

appropriate for the EDC to take over the economic development operations of the District’s government and the RLA? And the point 

is, obviously, that the District’s efforts have not succeeded, and consideration should therefore be given to at least including them in 

the EDC. 

It seems to me you would get more bang for the buck by combining these operations or getting rid of the other operations. You 

certainly don’t want these agencies competing with each other and 

not cooperating. So let’s have your thinking in that area. 

Mr. BARR. Our thinking is, we did take a look at existing development organizations in the course of coming up with a plan for 

the Economic Development Corp. What we found is that, in most 

areas of the country where Economic Development Corp.’s are successful, there’s a division of labor between that entity and other entities operating in the area. We would expect a similar type of division of labor in this instance. 

I think the development corporation is going to have a lot on its 

hands as it begins to perform its five core missions. So one might 

be cautious about giving it other duties, as well. 

Mr. HORN. I happened to, in a past incarnation, be one of the 

several founders of the Long Beach, CA, Economic Development 

Corp. What we ran into with that corporation—and, granted, this 

is much more of a government one than that one was—was that 

we were sued right and left by people that didn’t want us to 

change, run over, clean up what was, in essence, a slum landlord 

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situation, where small, little firms did exist and violated every single city zoning code I could think of. 

And we were tied up in court forever. And finally, we folded the 

whole works into the city government. Unfortunately, the city 

agreed that they wouldn’t do anything by eminent domain; they 

would simply wait them out. Well, that could take 80 years in some 

of those. When you look at what has not even been turned around 

since the riots of the late 1960’s, you can see some of the problems 

that are here, obviously, under our nose. 

How do you suggest we deal with that? 

Mr. BARR. I think that you are correct, that is an important area 

of concern. The way that that is treated in the proposal is that 

there are limitations on the time in which suit may be brought 

against this entity, which is somewhat of a check against the kind 

of problems you have described. 

Mr. HORN. So you are saying it is not a complete ‘‘Tort Lawyers 

Relief Act of 1997.’’ Mr. BARR. I do not believe so, sir, no. 

Mr. HORN. It seems to me we have to think through just how 

much do we permit that kind of nonsense from going on, where 

they are trying to blackmail the city, blackmail the people, and all 

the rest of it. So I think we need to ask a few more questions on 

that. 

Thank you, Mr. Chairman. Those are my main concerns. 

Mr. DAVIS. Thank you. 

I now recognize our ranking member, Ms. Norton. 

Ms. NORTON. Thank you, Mr. Chairman. 

When the administration released its document, March 11, included in the package along with all the other items was a onetime, $50-million investment. We looked at the recently signed 

MOU, and this language is found there: ‘‘The administration will 

seek an authorization of appropriations in fiscal year 1998 to carry 

out economic development in the District of Columbia.’’ Why is there no mention of the $50-million investment which 

was supposed to already be in the package? Is it in the package? 

Is the $50 million in the package or not? 

Mr. BARR. Yes, it is. 

Ms. NORTON. What is the authorization about? That means when 

the package is authorized, it ought to be authorized? 

Mr. BARR. That’s correct. I don’t have the precise MOU language 

in front of me, but in the legislative bill that we would propose, 

there is a $50-million authorization for the development corporation in fiscal year 1998. And that is what we would be seeking. 

Ms. NORTON. Now, the major part of this package consists of tax 

credits. Virtually all of it is tax credits, $250 million. 

Mr. BARR. Right. 

Ms. NORTON. The experience of the District in the use of tax 

credits has produced only limited results. And that’s kind. That’s 

a kind way to state what has happened. How does what you are 

offering differ, and why do you believe it will produce better results 

than has been the case with such tax credits in the past, in the 

city? 

Mr. BARR. We believe that there are two main reasons. One is 

that the tax credits that we have developed are part of a broader 

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plan to revitalize the District. I think the evidence is that tax credits, on their own, without a broader plan around them, are usually 

not enough. And the broader plan is really one reason why we are 

more confident in that. 

The second is that, in developing these incentives, we’ve really 

tried to learn the lessons of other tax incentives, both at the Federal level and at the State and local level around the country, that 

have been used. And the DC capital credit that we have proposed 

is a quite flexible tool that we think we will be able to use much 

more rapidly, for instance, than bond financing generally is. And 

the labor incentive really builds on the lessons learned from prior 

incentives and from the work opportunity tax credit. 

Ms. NORTON. The District got the least favored treatment from 

the administration when it came forward with its empowerment 

zones. I think we were 1 of 66 things called ‘‘enterprise communities,’’ which was consolation prizes to people who essentially got no money, like Baltimore and Detroit, who got $100 million. 

I wish you would compare what was in the empowerment zone, 

what our neighboring city, Baltimore, what Detroit, what a number 

of other cities got, I wish you would compare the elements of those 

empowerment zone packages to this package. 

Mr. BARR. The incentives that are on the table in this package 

are quite robust. I would have to go city by city to compare how 

they are used, because there is flexibility in the empowerment zone 

situation. But here $250 million in tax incentives and $50 million 

in grants are put on the table for the city. Depending on how those 

are used, those would be significant leverage in comparison with 

similar tax incentives offered in the empowerment zone program. 

Ms. NORTON. My question was to compare them. 

Mr. BARR. Under the empowerment zone proposal, there is a taxexempt bond finance provision, with certain limitations on the use 

of tax-exempt bond financing that are not present here. So in the 

bond finance area, this is a more flexible package. 

In the area of wage incentives, the empowerment zone wage incentives are available not just for hiring but for existing jobs. This, 

in the DC context, is a hiring incentive. In the empowerment zone 

context, that wage incentive is limited to a small area, whereas 

here it covers 37 percent of the District. 

The additional allocated tax credit for capital investment is not 

available in the empowerment zones but is available in the District. 

Ms. NORTON. Mr. Barr, just let me say, I want to say once again 

how well thought out I think the administration’s plan was. And 

I say that as someone who has some clear disagreements with sections of it. But I do want to say for the record that the District 

didn’t expect anything like the President’s plan. 

And for all of the fuss that was heard, which kind of megaphoned 

some of the problems that all of us had with it—and I must say, 

not to the great benefit of our being able to get it through here— the fact is, the District did not expect an empowerment zone, and 

I’m not sure the District expected much beyond trying to do something with pensions. 

Not that that would have begun to do it, but the fact is that what 

the administration deserves credit for is trying to think through 

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ahead of time what it would take, comprehensively, for a total revival of the District. 

It’s the only thing that I have seen from the District or from the 

Congress that is truly visionary, that says, what would you need? 

And then they go through the big ones: Medicaid, no city can pay 

that. Pensions, ours not theirs, can’t possibly revive without that. 

Prisons, no city would be left standing. Those were on the wish list. 

And then, of course, there are four or five other elements of this 

plan. 

I do not know that all of the elements of this plan will survive, 

very frankly, particularly since we are pressing, as well, for the 

Federal payment. I do know this, there is no free lunch up here. 

The District may get some Federal payment, but we’re going to 

have a hard time piling on, as we would like to. And the kind of 

criticism you heard from Mr. Moran, much of which was valid, you 

will find all across the Congress. 

The Economic Development Corp. was perhaps the least expected. It is a very creative, good way to try to move the District. 

We have problems with it, because it does not have, even as the 

Council has been able to move the numbers forward, a majority of 

appointments from DC. 

I have to tell you that I do not know what the fate of the Economic Development Corp. is over here. It has been subject to a lot 

of criticism in the House and in the Senate, even though these corporations generally enjoy support from Republicans and Democrats. 

I do not know what the fate is. I do not know whether this is the 

highest and best use for economic development in the District. 

Now, I do know that, if it done right, at least over a period of 

years you would begin to see some improvement. And the reason 

I think it has particular potential is because the private sector has 

already begun to do what is necessary. They are the leaders. And 

when you have an Economic Development Corp. coming in behind 

a private sector willing to take its own risks, it seems to me you 

do have something going for you. 

So I’m going to certainly try my best, not only because I think 

it is a good idea, but because, for all of the whipping that the administration took over something that had almost nothing to do 

with this bill—which is, was the District prepared to do what it’s 

supposed to do, essentially—for all it took, the fact is that the bill 

does look at every part of the District where there is weakness, sits 

down and tries to figure it out. 

It does not always come up with something all of us can agree 

upon, but I really want to commend the approach that the administration took, the big picture, then saying, what is doable, what can 

pass, what can we do to buttress what can pass, which is what the 

MOU is about. It wasn’t supposed to start a big fight. It was simply 

to wave a piece of paper at the bulls up here and say, that’s all 

right, we’ve got something. 

The approach is to be commended, and I hope you all will forgive 

me and the chairman as we go at parts of this plan which we think 

must be revised. And I hope that we will see the kind of flexibility, 

on the part of the administration, that we saw when we began. 

The rigidity that got built in when you were negotiating with the 

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ed officials do. The response of the administration to suddenly become very inflexible did harm to the bill up here, got people who 

wouldn’t have been for us anyway, being more against us. 

So I hope that the kind of flexibility that you all have always 

showed, except for that period, and the visionary way you have approached this, and the very pragmatic approach that is also built 

into the way you have gone at this, and all of that, will come again 

on the table, so that we can get this through in short order. We 

recognize that the time is passing very quickly. 

Mr. DAVIS. Thank you. The gentlelady’s time has expired. 

Let me just ask a few questions. Mr. Barr, this is a philosophical 

question: If you are going to use money for breaks in taxation for 

the city, it looks like the administration’s proposal is—you’ve got 

an Economic Development Corp—we’re going to use these and 

sprinkle these to certain companies that meet a certain criteria. 

Aren’t you better off reducing the regulatory burden on everybody, tax and regulatory burden on everybody, and letting the market pick winners and losers, as opposed to letting Government pick 

winners and losers, which is basically what you’re doing when you 

allow one group to get a tax break and maybe another group that’s 

here won’t qualify? 

Mr. BARR. That’s an excellent question. I think our belief is that 

the private sector is the engine of growth in any community. 

Yes, it’s important to reduce regulatory and other burdens. What 

we really tried to focus on was, what additional targeted tools could 

the Federal Government bring to the table to address particular aspects of economic development that were necessary for the District, 

that were missing in the District, and to focus on, for example, 

parts of the labor market that do not function as well. The low end 

of the labor market is much less efficient right now than the other 

end of the labor market. 

So we really believed, given the limited resources available, that 

we should focus in a targeted way on the additional elements that 

the Federal Government could bring to the table. The other elements, I think you’re right, the DC government really needs to look 

at its current regulatory and tax structures. 

Mr. DAVIS. Do you agree that those structures need to be reduced, in addition to what you are providing? 

Mr. BARR. I agree that the District should take a careful look at 

its existing regulatory and tax structures. We would be happy to 

provide any technical assistance to you or to them in doing so. 

Mr. DAVIS. I mean, it seems evident to me, in talking to people 

who do and used to do business in the city, that it’s expensive to 

do business in the District. Rents and parking are higher. When 

you add to that a tax and regulatory burden in the city that you 

don’t find in surrounding areas, you have to ask why would anybody want to be in the city. 

If you can bring those tax and regulatory burdens down, it 

makes it a little more palatable for everybody. Then you could fashion special tax breaks, as Maryland and Virginia employ. I’m not 

a great fan of them but everybody’s doing it, so it’s the kind of 

issue where to stay competitive tax breaks become bidding wars for 

individual industries. 

66

So I think I want to look at it in that vein. Unless you reduce 

the tax and regulatory burden for everybody across the board, I 

think that the sprinkling of these special benefits to a given company are just not going to be as successful as they might in combination with bringing taxes and regulatory burdens down. We will 

be working with you as we draft this, to try to allow the city’s tax 

base to expand. 

What about the residential tax base? What’s the vision for having that expand at this point? Ms. Norton’s bill at least focuses on 

the fact that it’s a high tax burden for residents. You can argue, 

well, it’s a city; the Federal tax burden is even across the lot, and 

the city has an artificially high burden. 

But coupled with poor service levels, that high tax burden helps 

to move the middle class out of the city. This proposal doesn’t really address the residential component, except in trying to focus on 

service levels by relieving the city of some services they are currently providing, which would free up funds to others. Is that fair? 

Mr. BARR. Representative Davis, I think you have the last point 

exactly on, which is that the plan really does try and improve the 

District government’s ability to provide the basic services that will 

make the city attractive for the middle class. The city needs to improve its provision of public services, improve public safety, better 

the schools. And I think, until it does that, the middle class will 

continue to leave. 

Mr. DAVIS. I really appreciate the administration coming up with 

a plan, and having the guts to put it on the table. I mean, people 

have been talking about these things for years in a theoretical 

sense. A lot of pieces make a lot of sense. 

I think we want to add some value to that along the lines I’ve 

talked about and Mr. Moran has talked about, Ms. Norton, Mr. 

Horn, and others. But we look forward to the dialog and working 

with you and just appreciate the attitude that we’re getting from 

the President in addressing these issues. Hopefully, in short order, 

we can move this at least through the House, and move on from 

there. 

I am going to now yield—we have three other panels—to my 

friend from Virginia, Mr. Moran. 

Mr. MORAN. Thank you very much, friend and chairman. 

First of all, let me make—I am not surprised. I am very glad to 

see that we are thinking exactly along the same lines here. It will 

help to have both authorizing and appropriations thinking in the 

same direction. 

Mr. Horn, let me make a comment about the very important 

point that you made with regard to zoning. All of us want to protect both the visual clearance of all of our national monuments and 

the physical, immediate surroundings of them, as well. 

But, you know, we don’t do that to any other city. And if we’re 

going to do it to DC, then we’ve got to somehow compensate them 

for that kind of additional aesthetic imposition upon their economic 

development capacity. Again, this is another point that can be 

raised legitimately in justifying a Federal payment. 

I should mention, though, that it is not the private developers 

who are trying to make a killing off a high-rise building that make 

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ment. If we want to find the problem, we can look right in the mirror, in the larger sense. I don’t mean you. 

But, I mean, GSA has built some of the schlockiest looking buildings that most private developers never would have thought of. 

When you look at DOT and HUD, and you go down Independence 

Avenue, that stuff is junk. The developers and the architects, particularly, ought to be ashamed of themselves. Then you see some 

of the beautiful buildings. 

Mr. DAVIS. Why don’t you tell it the way it is here. 

Mr. MORAN. I’m going to try. It’s a shame. You know, when you 

look at what the Federal Government is capable of doing, the Old 

Executive Office Building, and there are a few buildings that are 

just gorgeous, but recently, in the last 30, 35 years, everything they 

put up is just so mundane and uncreative. There are some exceptions. 

I feel very strongly, Mr. Barr, as does Mr. Davis and Ms. Norton, 

and I know Mr. Horn, as well, that the White House deserves a lot 

of credit. 

Mr. BARR. Thank you. 

Mr. MORAN. You gave us a good plan, and you led with it. You 

know, you showed some leadership. That’s terrific. But it is inadequate. If we want to do it right, we’re going to have to do more 

than that, more than the Economic Development Corp., more than 

taking over a number of obvious functions that are State-oriented. 

We can’t expect any municipality, particularly a municipality like 

DC that has lost so much of its tax base, to maintain not only the 

local share but the State share of Medicaid, AFDC, and the like. 

Medicaid, we may even want to think about the rate that New 

York State provides, which, combined with the Federal payment, is 

75 percent. 

Given those State functions, which we agree on, given the Economic Development Corp. initiatives, which, for the most part, I 

think we agree on, although some of them are more geared toward 

a city with very little growth capacity, so that you’re trying to subsidize employment, and so on, I’m not sure—this is what Mr. Davis 

was saying—that we really need to do that. 

If we bring in the businesses, we don’t need to pick and choose 

which businesses. They will provide the jobs. And if we bring in the 

right businesses, we don’t need to supplement them with $4,000 

per employee, as long as those employees have a basic education 

and some skills with them. 

But in addition to that, we’re not going to be able to drop the 

Federal payment, I don’t think. I think we’re going to have to have 

a Federal payment that is exactly in lieu of taxes, which comes to 

about $382 million today, and it would go up with the increased 

value of property. 

And we have to reform these local taxes and fee structures that 

are mitigating so strongly against local economic development 

within the District. If you pull in a number of the employers that 

Tom and I represent and ask them, why wouldn’t you move to the 

District, they might at first say, well, it’s so obvious. 

But then you pin them down, and they will start talking about 

a commercial property tax rate that is more than twice what it is 

in Virginia, $2.15; ours is about $1.07. So it’s exactly twice. Your 

68

residential base is 96 cents. We don’t split the residential from the 

commercial base. They are going to talk about these workmen’s 

comp. laws that are unbelievable, to think you have to pay three 

times as much for workmen’s comp. That kind of thing has to be 

reformed. 

One of the things they are going to say is, the labor structure is 

impossible to work with in some of these industries. That’s going 

to have to be addressed. It’s vastly different in the suburbs, obviously. They are going to talk about some of the fees and permits 

and the responsiveness of the Government to even getting those 

fees and permits. A whole long list of things. 

Those are things I think are the first things they are going to 

talk about. I never hear them talking about, well, you know, if I 

could get a $4,000 rebate on my low-income employees, that would 

convince me to move to the District. It might convince a few construction firms. I doubt it. They don’t mention any of the subsidies, 

the incentives that you’re talking about. They mention basic, profound, structural problems. So I think we need to look at those in 

addition to what you have suggested. 

What you have suggested is kind of the traditional Government 

response, to subsidize lower income workers. Well, I won’t argue 

whether it’s traditional government, but I think, in many ways, it’s 

assuming that we’re starting from a pretty low base here and 

somehow we’ve got to subsidize businesses for coming into the District. 

I’m not sure we need to subsidize businesses. I think we just 

need to create an equal playing field with the suburbs in order to 

entice them, and particularly to entice the businesses that are 

growing, that have high profit margins, that are employing those 

50,000 unfilled jobs that you can see in the classified pages every 

single Sunday, 19,000 high-tech jobs. 

Those are the jobs that are growing. Those are the jobs that will 

pick it up and carry the economic ball without the need for any 

subsidies. I’m not sure that this directly addresses that. 

I thank the chairman. I’ve used up my time. I thank him for giving me the time. 

Mr. DAVIS. Thank you, Mr. Moran. 

Mrs. Morella, do you want to ask any questions? 

Mrs. MORELLA. No. 

Mr. DAVIS. Mr. Barr, thank you for being here. We will have 

some followup questions we might want to send you on a written 

basis, but more importantly, we just look forward to sitting with 

you across the table as we try to construct something that will 

work for the city. 

You have heard a wide variety of views here, and I’m not sure 

that any of us are disagreeing with anybody’s views. It’s a question 

of how do we best use them with limited priorities and tax incentives? We’re going to have to sit down and try to hopefully come 

up with something that works. 

We appreciate, again, your being here today, your testimony, and 

look forward to working with you. Thank you. 

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

Mr. DAVIS. I call our next witness, Mr. Kenneth Kies, the staff 

director of the Joint Committee on Taxation. 

69

Ken, as you know, it’s the policy of this committee that all witnesses be sworn before they testify. Would you just raise your right 

hand with me? 

[Witness sworn.] 

Mr. DAVIS. Thank you very much. You may be seated. 

The subcommittee will carefully review any written statements 

you care to submit, and I ask unanimous consent that any such 

statement be made part of the permanent record. 

As I requested of the previous witness, I would ask you to limit 

your oral testimony to 5 minutes so that we may have sufficient 

time for questions and subsequent panels. 

Thank you. 

STATEMENT OF KENNETH KIES, STAFF DIRECTOR, JOINT 

COMMITTEE ON TAXATION 

Mr. KIES. Thank you, Mr. Chairman. 

My name is Ken Kies. I’m the chief of staff of the Joint Committee. It is my pleasure to present the testimony of the Joint Committee at this hearing, concerning the administration’s proposals 

for the District of Columbia. 

The administration has proposed a package of tax and nontax 

initiatives to revitalize the District’s economy. I will briefly describe 

the administration’s proposals, which your prior witness already 

summarized. 

The first proposal would establish a new District of Columbia 

Economic Development Corp. to develop and oversee a comprehensive economic development strategy for the District. 

Second, the proposal would provide four new tax incentives for 

businesses conducting business activities in the District: a new employment credit; extension of the proposed ‘‘welfare-to-work’’ credit; 

additional expensing under section 179 and expanded tax-exempt 

development bonds; and finally, tax credits for certain equity investment in or loans to District of Columbia businesses. 

It is acknowledged that the District faces two key problems: residents migrating from the District and insufficient economic development activity. The administration’s proposals directly address 

the second of these problems but would not have a direct effect on 

stemming migration of District residents. 

In any event, the efficacy of tax incentives to address one or both 

problems is severely limited, absent fundamental structural reform 

of the District’s government and economy. Many of these issues 

would be addressed by other aspects of the administration’s proposals. 

Let me just address some of the compliance and administrative 

issues that will be raised by the proposed tax incentives. These 

issues arise primarily because of slightly differing residency and 

work location tests applied to determine a taxpayer’s eligibility for 

each tax incentive. 

For example, for an employer to claim the proposed employment 

credit with respect to an employee, three tests must be satisfied: 

the residence test, the work location test, and an income test. To 

satisfy the residence test, the employee must live in the District 

throughout the entire first year of employment. If the employee 

70

moves out of the District at any point during the year, they become 

ineligible for the entire credit. 

To satisfy the income test, the employee must either be a member of a targeted group for purposes of the work opportunity tax 

credit, or the employee must live in a census tract in the District 

that has a poverty rate of 15 percent or more, and reasonably expect to be paid less than $28,500 for the year. 

Finally, to satisfy the work location test, substantially all the 

services provided by the employee must be in the District, or the 

employer’s principal place of business must be located in the District. 

Each of these tests requires extensive recordkeeping and 

verification procedures throughout the period the credit is earned. 

The difficulties inherent in collecting and maintaining necessary 

information to ascertain credit eligibility mean that there is a high 

probability of noncompliance, intentional as well as unintentional. 

Similar complexity in compliance issues arise with respect to 

each of the other proposed tax incentives, all of which incorporate 

slightly different requirements with respect to employee residency 

or the location of business activities. 

In addition, because the complex eligibility tests are not based on 

one-time determinations, but rather must be satisfied on a yearlong basis, business owners would have to speculate at the time of 

employment or when an investment decision is made as to whether 

they would be able to claim the special tax incentives at the end 

of the year. Thus, the incentive effect of the proposals would be 

limited. 

My written testimony does raise one constitutional issue which 

the committee and the Congress will have to consider as they act 

on this legislation. It specifically relates to the uniformity clause. 

In particular, as this legislation is developed, a more detailed 

record as to the basis for the classifications chosen would be highly 

recommended in order to avoid a potential uniformity clause problem. 

Finally, the staff of the Joint Committee estimates that the proposals would reduce Federal budget receipts by just over $300 million in the 10-year budget period from fiscal 1998 to fiscal year 

2007. The proposed tax incentives attempt to encourage the startup 

and retention of business in the District and the hiring of lower income District residents. 

In general, the proposed incentives are sufficiently modest in 

scope so that it is not anticipated that they will result in any major 

increase in the growth of the economy of the District metropolitan 

area as a whole. However, concentrated allocation of the capital incentives by the Economic Development Corp. could result in significant revitalization of targeted areas within the District. 

In addition, the removal of current obstacles that inhibit the District’s ability to issue debt and the creation of a new category of 

private activity bonds should enable the District to make substantial use of its private activity bond volume cap within 4 or 5 years. 

These private activity bonds will provide a cheaper source of funds 

for both startup businesses and business expansions within the 

District, as will the startup capital generated by the tax credits. 

71

Finally, the revenue estimate also assumes that there is likely to 

be some confusion about the exact boundaries of eligible areas and 

the residency of particular employees that will result in some ineligible businesses claiming the expensing and or wage credits. 

The issues I have touched on this morning are discussed in more 

detail in my written testimony. I will be happy to answer any questions that you have, Mr. Chairman, or members of the committee. 

[The prepared statement of Mr. Kies follows:]

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Mr. DAVIS. Ken, thank you very much. 

What has been the experience with enterprise zones, in your 

judgment, around the country? Are they showing more success? I 

mean, a couple of years ago, I looked at it, when I was head of the 

county government in Fairfax, and really there was very limited 

success because, generally, the areas that were targeted had so 

many other problems that tax incentives alone couldn’t make up, 

if you will, the investment deficit that would cause people to put 

private capital into them. 

Mr. KIES. Mr. Chairman, the recent experience with the empowerment zones, which provide the most significant tax benefits, 

and in particular the key tax benefit that is provided in the case 

of empowerment zones is a permanent wage credit that goes to all 

employees located within the empowerment zone—and it does not 

only go to the first year of wages, but rather it applies to each year 

that the business employs people within the empowerment zone 

area—has proven, at least in recent experience, to be rather effective at getting new investment. 

For example, in the city of Detroit, in the empowerment zone created there, Chrysler chose to build a plant in that empowerment 

zone, and that decision was largely a consequence of the wage credit. 

Mr. DAVIS. A wage credit, basically, to a company means you’re 

paying less dollars in wages than you would have to pay otherwise. 

Mr. KIES. That’s exactly correct. And the distinction between the 

wage credit in the empowerment zone proposals versus the one in 

the proposal of the administration for the District is that that wage 

credit applies each year, to each employee, as compared to the District proposal, which would only apply to an employee for the first 

year of employment. And that’s a significant distinction. 

Mr. DAVIS. When you’re making a long-term capital investment, 

it doesn’t really help. 

Mr. KIES. Exactly. 

Mr. DAVIS. I appreciate it. Let me ask you this: For the amount 

of money that is called for in the administration’s package for economic development, do you think there are better ways—and I 

gather from your testimony that you think it can be done more efficiently and that there is a way you can get more economic bang 

for the dollar. 

Mr. KIES. Well, Mr. Chairman, I would say that the $95 million 

of credits that the development corporation will have the ability to 

distribute, those credits, assuming that the development corporation exercises good judgment in how those are allocated, could 

produce some fairly significant results, because they could be targeted and given to entities that are going to put other capital in. 

So that probably offers the greatest potential for a good return, 

in terms of the tax dollars invested. 

Mr. DAVIS. But the key is, how is that allocated; is it done on 

a favored basis? 

Mr. KIES. The Economic Development Corp. has a series of criteria that they are supposed to take into account in exercising that 

judgment. 

The wage credit is the one that we probably would identify as 

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cause of the fact that, for example, it’s only for 1 year, but in addition, the employer, when they hire the individuals, will not know 

whether any of the wages paid will qualify for the credit until the 

entire first year of employment is completed. 

Mr. DAVIS. So how would you make a decision? 

Mr. KIES. That’s the problem. Because if the individual violates 

the residency test at any time during the year, they lose the entire 

credit. That’s, I think, a problem that really needs to be looked at 

carefully. 

Mr. DAVIS. Have you looked at the Southeast Federal Center or 

the area around the Navy Yard at all? Are you familiar with that 

at all? 

Mr. KIES. I’m familiar, generally, with the area. 

Mr. DAVIS. It would seem to me, with the additional governmental expenditure that will be going there, with new offices and 

so on, that some creative urban planners could look at that and 

provide appropriate incentives, to make that attractive. It seems to 

me, if there was ever the opportunity for an empowerment zone to 

work, it’s right there where you have a critical mass to begin with. 

Any thoughts on that? 

Mr. KIES. Well, that’s certainly correct, Mr. Chairman. The Economic Development Corp., in choosing how to allocate its tax credits, should probably take those kinds of criteria into account. The 

probability of success is certainly going to be related to what is already there, in terms of the investments that they help to 

incentivize through how they hand out the tax credits. 

Mr. DAVIS. Finally, on a philosophical basis, are you better off 

with empowerment zones, or are you just better off essentially 

picking areas, picking business winners and losers ahead of time 

by who qualifies for a special tax credit; in other words, Government picking winners? 

Or are you better off letting the marketplace pick them and 

using those dollars to lower the economic, tax, and regulatory burden for everybody? 

Mr. KIES. Mr. Chairman, I think you have correctly identified it 

as a philosophical question on which there is great debate. The 

tradeoffs are that the more targeted the delivery of the incentive, 

the greater the ability to try and pick the projects that have the 

greatest probability of success. On the other hand, that is picking 

winners and losers. 

Mr. DAVIS. It’s also assuming that Government somehow knows 

more than the marketplace in picking those, and the track record 

is very mixed on that, I would submit. 

Mr. KIES. That is clearly one of the concerns that people try and 

wrestle with in choosing which of these two directions to go in. 

Mr. DAVIS. I understand. And I think there is merit on both 

sides. With the economy in this region as complex as it is, government-driven in some cases, building and development-driven in 

others, technology-driven, and telecommunications-driven, particularly in the suburbs, where the city’s niche is with its employment 

base, it’s more complex. What the tourism business can bring, 

international business; what is the mix? What is the city’s role in 

that? 

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There is, I think, an honest debate over what is the best way to 

go. I have studied this and talked to experts. If we bring down the 

regulatory burden, allowing the market to pick that, sometimes we 

learn things that we wouldn’t know just trying to analyze the data. 

Mr. KIES. Mr. Chairman, I would just say that one of the points 

we made in our written testimony is that these tax incentives 

alone, on their own, would probably not do much, that it has to 

really be part of a much bigger picture, including many of the 

things the administration already has in their proposal. I think the 

regulatory burden is a very significant component of that. 

Mr. DAVIS. Well, thank you. I would just say, as with Mr. Barr, 

we look forward to working with you. We appreciate your being 

here. I know of the Speaker’s interest. I know of Chairman Archer’s 

interest in this. We know that there is a reservation in the budget 

agreement for some tax incentives. We just want to make sure 

since these are taxpayer dollars, essentially, and it has an impact 

on the budget that we’re getting the most bang for the dollar that 

we can for it. 

Thank you very much. 

I now recognize my vice chairman of this subcommittee, Mrs. 

Morella. 

Mrs. MORELLA. Thank you. 

Thank you for your analysis, too. I may want to get back to you 

at some point later, after I digest more of the ramifications with 

regard to questioning. 

One of the serious disincentives that appears in the District of 

Columbia to business is the regulatory nightmare that has been 

put in place over the last 20 years, and the fact that many of the 

personnel in these agencies appear to be undertrained or simply 

not qualified for the job in some way. 

I just wonder, do you see a role for Congress in trying to remedy 

both the regulatory nightmare and to make sure that there is 

training which brings about efficiency and streamlining? 

Mr. KIES. Well, as I understand part of the overall project to do 

a complete revitalization project for the District, one of the areas 

that will be focused on is how do these regulatory burdens get 

eased so businesses can more efficiently operate in the District. 

I would think that, particularly your committee, as you would 

put together your overall plan, that’s a key area that Congress 

ought to try and see what can be done to try and ease that, because 

that apparently is a substantial concern of businesses trying to 

come into the District. 

Mrs. MORELLA. Would it be considered micromanaging if we 

looked at, like, performance measures or standards? Is that the 

role of Congress, as you see it, in terms of bringing about this desirable result? 

Mr. KIES. Well, I mean, I think those are the kinds of tradeoffs 

you’re going to have to think about. The bottom line is that I think 

you’re going to want to ensure as much regulatory flexibility as 

possible so businesses have a better environment. 

Mrs. MORELLA. At any rate, even though you say this is not really your jurisdiction, you do see this as a major problem? 

Mr. KIES. I see it as a major problem, because tax incentives 

won’t work if there are these regulatory burdens. 

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Mrs. MORELLA. Absolutely. Absolutely. And if we’re not using 

people power, you know, adequately. 

You had a brief discussion about the enterprise zone and the 

EDC. The enterprise zone is something that is spotty. I mean, an 

area is chosen for that. The EDC would cover everything and would 

set up a board for that. 

Mr. KIES. Correct. And that’s why the EDC perhaps offers the 

greatest potential for producing some significant economic development in the District, because they do have the flexibility as to how 

they use these tax credits. 

And one of the requirements is that, for every dollar of tax credit 

that is provided to an investor in the District, there has to be a 

substantial amount of money also being put up by the investor. So 

it has a multiple effect to it, in terms of the potential for economic 

investment, almost as much as $400 million worth that could occur 

through the use of these credits. 

Mrs. MORELLA. From your point of view and perspective, and as 

an expert, do you think that these tax benefits in the President’s 

plan can enhance the District’s competitive position in retaining 

and attracting jobs across the economic spectrum? 

Mr. KIES. I think we believe that the credits that the development corporation has offer a good potential there. I think the wage 

credit has some significant problems associated with it because of 

its temporary nature and some of the complexities associated with 

qualifying for it. So I think that’s an area where the Congress is 

going to want to look carefully in maybe trying to shape that, if 

that’s going to be part of the tax package that is provided to the 

District. 

Mrs. MORELLA. I want to thank you very much, Mr. Kies. 

Thank you, Mr. Chairman. I yield back. 

Mr. DAVIS. Mr. Kies, thank you very much. We look forward to 

working with you. 

Mr. KIES. Thank you, Mr. Chairman. 

Mr. DAVIS. I now call our next panel which will consist of Mayor 

Marion Barry, Council Chair Pro Tem Linda Cropp, and 

Councilmember Charlene Drew Jarvis. 

As you know, it’s the policy of the committee that all witnesses 

be sworn before they may testify. 

Linda, congratulations on your new position. 

Charlene, good to have you back again. 

If you would all just join with me and raise your right hands. 

[Witnesses sworn.] 

Mr. DAVIS. I am going to ask unanimous consent that any written statements be made part of the permanent record. As I have 

requested of the previous witnesses, if you would limit your oral 

statements to no more than 5 minutes, in order to leave time for 

questions. 

I am going to ask the Mayor to testify first, followed by Council 

Chair Pro Tem Cropp, and then Councilmember Jarvis. 

Mayor, thank you, and welcome. 

Mr. BARRY. Good morning, Mr. Chairman and Mrs. Morella. 

Mr. DAVIS. Let me just announce that we have visiting second 

and third-grade students from the Owl School, a private school, 

here in the District of Columbia, studying citizenship. We welcome 

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you all today. As you look around here you will see the city leadership, the Mayor, the Council Chairman, and Charlene Drew Jarvis, 

a member of the District of Columbia City Council. We welcome 

your being with us today. 

Mrs. MORELLA. And as you know, Mr. Chairman, the owls are 

wise young people. 

Mr. DAVIS. And they give a hoot; right? OK. [Laughter.] 

Mr. BARRY. Everybody is sharp this morning. 

STATEMENTS OF MARION S. BARRY, MAYOR, DISTRICT OF COLUMBIA; LINDA CROPP, CHAIRWOMAN PRO TEM, DISTRICT 

OF COLUMBIA CITY COUNCIL; AND CHARLENE DREW JARVIS, MEMBER, DISTRICT OF COLUMBIA CITY COUNCIL 

Mr. BARRY. Thank you, Mr. Chairman. 

I was talking with some of the young people. One young man 

asked me, ‘‘What are you all doing in here?’’ I said, ‘‘We’re discussing President Clinton’s plan to help the District.’’ He said, ‘‘Oh. 

Will it work?’’ Mr. Chairman, let me express, I am pleased to appear before you 

today to offer comments on the Economic Development Section of 

President Clinton’s National Capital Revitalization Plan. I would 

like to ask that my entire statement be entered into the record. I 

have some other documents I want to enter at the proper time. 

Mr. Chairman, in early 1995, when we were wrestling with the 

financial crisis of our city, it was generally agreed that we ought 

to take a three-pronged approach, that we ought to drastically restructure and downsize the city government, make the government 

more efficient, more effective, more responsive to our citizens, our 

visitors, and to our business people. 

The second leg of that was that we should seek to transfer certain State functions to the Federal Government. Additionally, we 

also talked about increased Federal payment. The third part of 

that was to improve the District’s services, but that we would figure out ways to assist in economic growth for the District. 

Quite frankly, what has happened over the last 21⁄2 years has 

been an obsession with just the first area: How do you reduce the 

size of the DC government? How do you make it more responsive, 

et cetera? Until President Clinton submitted his plan to transfer 

certain State functions, there was no discussion about that by the 

Congress or by the control board. 

And there was virtually nothing done in the third area. The District’s budget didn’t reflect any extra money for economic growth, 

in terms of job training, or business retention, or business attraction, et cetera. So I am glad that we finally have decided to discuss 

the second point and the third, and President Clinton’s proposal 

deals with the second. 

Also, Mr. Chairman, I think we have done our share of trying to 

restructure the DC government, reducing expenditures, reducing 

the size of the work force. Anytime a municipality or a State or 

county can reduce its work force by almost 20, 25 percent in a year 

and a half, it’s phenomenal. From 47,000 FTEs down to 33,000 in 

a year and a half is phenomenal. 

In fact, I was talking to Mayor Rendell, he couldn’t believe it. He 

thought it was just incredible that we have been able to do that, 

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and restructure our government, and establish a privatization plan 

which has saved us money in our correctional facilities, Oak Hill, 

et cetera. 

If you look at my statement, we could go right on down the line 

as to the kinds of sacrifices and the kinds of commitments the DC 

government has made, its Council and its Mayor, to make the government more efficient, to make it more effective. 

And we have suffered—I have suffered the political consequences 

of that, because I’ve had to make some very unpopular decisions, 

which means that people not only didn’t like the message, they 

didn’t like the messenger. But we’ve done that in order to take the 

first part of this. I would urge you to look at all the kinds of things 

that we have done. 

And then we know what the other parts of the President’s plan 

are; they have been discussed. But let me discuss, Mr. Chairman, 

a little bit about the District of Columbia, economically. 

I would like to enter into the record a document which says, ‘‘Creating an Economic Development Strategy for the District of 

Columbia.’’ This was done by McKinsey and Co. for the DC Agenda. 

I would like to ask that this be entered into the record. 

Mr. DAVIS. Without objection, that will be entered in the record. 

[The information referred to follows:]

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Mr. BARRY. Let’s talk about our city. We are landlocked. Unlike 

Charlotte, unlike Nashville and Memphis, we cannot annex property, which means that, in some cities, when people flee from the 

city into the suburbs, the cities merely annex that part of the suburbs and therefore equalize the situation. But Baltimore and Philadelphia and New York, and other cities, are suffering the same 

plight, losing population. We’re not unique in that regard, but we 

cannot annex. 

Second, we have a situation where 56 percent of the land is 

owned by someone else besides the DC taxpayers; 41 percent by the 

Federal Government, the other by nonprofit organizations and 

parks, et cetera, which means, from a taxing perspective, we can 

only tax, either through residents or businesses, 41 percent of the 

land. Now, that’s a disadvantage. 

Third, the District is noncompetitive with our neighbors. We’re 

not competitive because our commercial property taxes are higher 

than the neighbors. Our unemployment insurance, our Workers’ Compensation, our utilities, and our business corporation taxes are 

higher. 

Why are they higher? They are higher for several reasons. First 

of all, because we can’t tax income at its source, we’re subsidizing Maryland and Virginia by $700 million. 

We also don’t have a fair Federal payment. Even though the Federal Government owns 41 percent of the land, we get about onethird of what we ought to get in lieu of taxes. If we could get our 

fair share of Federal payment, about $2 billion, and get our share 

of income tax here, we would have the lowest commercial tax rate 

in the region. So part of the plan has to be a continued Federal 

payment. 

My own view is that, if we pass the dollar amount of the President’s plan—it may have a different structure, particularly in 

criminal justice—and give us at least almost $400 million of Federal payment, the city government could begin to drastically reduce 

our commercial property taxes, reduce our business taxes, and 

other related activities that would make us more competitive. 

The Council and the Mayor are in the process now of getting legislation through the Council that will lower the unemployment 

compensation tax, that will lower the Workers’ Comp. comparable 

to the surrounding areas. 

Then there is the area of business reform and regulatory reform. 

We talk about that, but when you look at the reality, if you look 

at the MCI Center, it was easy to move in here, to get the necessary permits, and to build this in record time. 

The only basic requirement of a business coming into Washington is to file your corporation tax, give a business tax, and that’s 

it. If you talk to developers, they will tell you that it is easier to 

develop a building in Washington than it is in the suburbs, in 

terms of regulations. 

Now, we need to look at it again, but I don’t think regulatory reform is a major impediment when you really talk to people, Congressman Davis, one-on-one, about, what do you mean by that? 

They are not responsible for a certificate of occupancy. Now, lawyers have to get a business license. Doctors have to get a business 

license, and others, but that’s not true all over. 

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So I think we need to focus on the Federal payment. We need 

to focus on the Economic Development Corp. You know what it’s 

all about. I’m not going to spend a lot of time doing that. But that’s 

not enough. 

If you look at the McKinsey study, the McKinsey study says that 

we ought to have a five-pronged approach: We should attract and 

retain businesses through government action; that is, taxes, lowering taxes, streamlining the regulatory processes, review land use. 

Work force development. We need to put more money into skills 

development, because our schools have not done a good job, and 

therefore we have to make up for what they did. 

Neighborhood revitalization. We put very little money in neighborhood revitalization, either through the Council’s budget, the 

Mayor’s budget, or the controller’s budget. We have not promoted 

industry. 

The other one is, how do you attract and retain residents? You 

have to reduce taxes on those of us who are taxed to death in 

Washington. And we are taxed at the high rate that we are because we are subsidizing the Federal Government and Maryland 

and Virginia. I support Ms. Norton’s approach, the 15 percent flat 

tax. That’s one way you begin to do that. 

Also, improve services. Let me say that we are working every day 

to make our services more efficient, make our government more responsive, and you’re seeing results. This time last year, because of 

our budget problem, our trash trucks were broken down, and we 

couldn’t pick up trash on time. We need 40 trucks every day; we 

had 29 or 30. We now have 45 trucks every day. Trash is being 

picked up on time, and our city is looking cleaner and looking better. 

We have put police officers on the streets, some 400 of those. We 

have seen a reduction in crime, 30 percent; in March, the lowest 

homicide rate in 10 years, for the first quarter. And so we are improving services. Things are getting better, in terms of delivery of 

services. 

The other one is to engage the business leadership. If you go to 

Baltimore or Fairfax County or other places, you find the business 

community more involved with the local government than here. 

Somehow or another, it’s been very difficult to get the business 

community fully engaged. They have been engaged, but not ‘‘fully 

engaged.’’ The Washington Board of Trade has been engaged but 

not fully engaged. The Chamber of Commerce has been more engaged, because it is more of a local operation. 

So I think, with all of that, with the President’s plan, Ms. Norton’s flat tax, with the DC government improving its delivery of 

services, which we are doing every day, with neighborhood development being financed and funded, both through the President’s plan 

and the DC government, through work force development training—and finally, Mr. Chairman, one thing that the Federal Government can do and the private sector can do that will give us an 

immediate shot in the arm, in terms of economic growth, and that 

is to hire DC residents. 

The McKinsey study indicates here that for every 100 DC residents that are hired in existing jobs, as they become vacant, in 

both Washington and the suburbs, the District government receives 

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about $350,000 of revenue, which means, out of those 60,000 unemployed DC residents, if for next year we could convince the Federal 

Government—190,000 jobs here—and convince the private sector to 

put focus on qualified DC residents and hire up to 10,000 residents, 

that’s $35 million of new tax revenue for the District government. 

The other part of what makes our taxes so high is that we have 

a disproportionate share of the region’s poor. We are 8 percent of 

the population; 44 percent of the poor, eating up Medicaid, AFDC, 

food stamps, $800 million in Medicaid. 

So my formula for success is to focus on the second part of the 

President’s plan, transferring State functions, and economic development, Ms. Norton’s plan, neighborhood revitalization, and hiring 

DC residents. The Congress can contribute, starting tomorrow, by 

asking the architect of the Capitol, whoever makes decisions about 

hiring around here, to start hiring DC residents. That’s a good shot 

right there. 

[The prepared statement of Mr. Barry follows:]

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Mr. DAVIS. Well, Mr. Mayor, I will address that in the question 

and answer period. I think we want to hire qualified people that 

can get the job done. 

Mr. BARRY. I said qualified DC residents, ‘‘qualified.’’ Mr. DAVIS. Exactly. 

Ms. NORTON. That includes DC residents. 

Mr. DAVIS. Of course it does. Of course it does. 

Mr. BARRY. Qualified, Mr. Chairman. We have some very, very 

qualified DC residents who are out of work. 

Mr. DAVIS. Well, we’ll talk about that, Mr. Mayor. 

Ms. Cropp, thank you very much. Thanks for being here today. 

Ms. CROPP. Thank you very much. 

Mr. Davis, Ms. Norton, Mrs. Morella, good afternoon. I am very 

pleased to be with you today to discuss the economic development 

component of the President’s plan to revitalize Washington, DC. 

Few cities across the Nation would have survived if they performed the State functions that we do in the District of Columbia. 

As you may know, the Council feels strongly that a Federal payment should remain as part of the budget. Mr. Chairman, we look 

forward to working with you to keep the Federal payment as a part 

of the budget. 

We have the resolve to correct the management problems. we 

need your help to correct the structural problems within the District of Columbia. A successful economic development program 

could be the cornerstone on which to recast Washington as a vibrant and flourishing urban center. 

The District of Columbia Economic Development Corp., as proposed in the President’s plan, would be substantially capitalized 

and substantially empowered to help revitalize the District’s economy. We thank the President for recognizing a need with regard 

to the economic development in the District, and we look forward 

to working with Congress to craft the final details of enacting the 

legislation. 

With me today is Councilmember Charlene Drew Jarvis, who is 

the chair of the Committee on Economic Development of the Council of the District of Columbia, and she will be presenting the Council’s position on the President’s economic plan. 

[The prepared statement of Ms. Cropp follows:]

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Mr. DAVIS. Thank you very much. 

Charlene, welcome. 

Ms. JARVIS. Thank you very much, Congressman Davis. I am delighted to join my chair and the Mayor this morning, and to say 

good morning to Ms. Norton and to Mrs. Morella. 

On behalf of the District of Columbia, I am very pleased to have 

this opportunity to testify at today’s hearing on the President’s National Capital Revitalization and Self-Government Improvement 

Plan. 

The elected officials who represent the residents of the District 

continue to embrace this historic opportunity to address the city’s 

financial condition and the fundamental inequities that have long 

existed in the relationship between the District and the Federal 

Government. 

We have done this by signing the Memorandum of Understanding with the Office of Management and Budget and the District Executive. And now we welcome the opportunity to engage 

members of this subcommittee and other Members of Congress in 

a continuing dialog about various aspects of municipal partnership. 

I have been asked to testify today on the portion of the plan in 

which the President proposes a federally funded commitment to 

help capitalize a new, non-Federal public-private partnership called 

the District of Columbia Economic Development Corp. 

The Council supports the establishment of what I will refer to as 

the EDC, which would have broad authority to spur private development, including the use of Federal tax credits, both for hiring 

District residents and business loans and investments. The EDC 

would be able to use tax-exempt private activity and revenue bonds 

and use limited authority to acquire property by eminent domain 

in furtherance of its statutory objectives. 

The Council requests that the Economic Development Corp. provide for considerable local participation and input, in order to guide 

and direct development opportunities throughout the city. This 

would be accomplished through increased local representation on 

the board of directors. 

In order to leverage private sector development projects throughout the city, the corporation would be capitalized, in part, with 

Federal and District funds, land grants, and property development 

rights. 

I believe that economic turnaround in the District depends upon 

the private sector, and that government can provide the catalyst 

for this development. Examples of the recently successful publicprivate partnership include the MCI Center, the Opera, and the 

planned convention center. 

An Economic Development Corp. operating citywide would address both community development and business improvement 

needs. An Economic Development Corp. would provide the District 

with necessary tools and resources to improve the prospects for 

Home Rule to succeed, while concurrently addressing the concerns 

respecting DC’s unique position and additional responsibilities as 

the capital city. 

An EDC with the mission of promoting investment in the District 

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take useful economic development projects and assist the District 

in all aspects of revitalization. 

Likewise, the Council also strongly supports the Memorandum of 

Understanding’s endorsement of amendments to the Home Rule 

Act which would help improve the institutional and fiscal capacity 

of our government by providing for the same legal capacity to finance economic development projects as in other jurisdictions. 

Thus, the District would no longer be competitively disadvantaged, because the amendments would clarify the District’s authority to use taxable and tax-exempt bonds for business development 

and job creation purposes, to the same extent permitted other State 

and local governments. We would be able to promote quick, 60-day 

settlement through expedited approval of revenue bond transactions that do not involve the pledge of District revenues or assets. 

These transactions would assist in financing public and private, 

nonprofit, elementary, secondary, vocational, and charter schools, 

and other private and governmental capital projects that enhance 

economic and employment opportunities in the District. 

We would also be able to pledge special fund revenues, including 

tax increments, fees, and payments in lieu of taxes, to secure the 

costs of municipal parking facilities and public infrastructure redevelopment for utilities, streetscape improvements, and park enhancement projects cosponsored by neighborhood associations, including business improvement districts. These measures are as 

critical to ensuring the financial success of major revitalization 

projects as is the EDC to the success of project implementation. 

Toward this end, the Council requests Federal assistance to complete the financing of the planned new convention center. We ask 

this particularly because the Council recognizes the substantial 

economic benefit to the District and the region of a new and larger 

convention center in the Nation’s Capital. 

History has proven that most of the Nation’s convention centers 

have needed external support to develop these facilities. We want 

to be proud of our new national convention center and attract people with a world-class facility design and the ability to market to 

groups of all sizes. 

Mr. Chairman, may I also, if you would permit me, indicate that 

I think that one of the most important reasons for the establishment of the Economic Development Corp. is to have a single, focused activity and a push for the kind of creative development that 

is critical in the District. The economic development structure within the government has its people and its resources spread so thinly 

as not to be able to focus on the issue of economic growth and economic development to the extent that ought to occur. 

The Business Services and Economic Development Agency has, 

as a part of its responsibility, the Department of Consumer and 

Regulatory Affairs. Those issues are critical to business development, and they must be focused on, as well. But if the same people 

are to do the business regulatory reform as are to do the development, then we have what we have had in the past, which is without that single, major focus on the activity that produces jobs in 

the District of Columbia. 

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The Business Regulatory Commission, Mrs. Morella, will be making its report within 60 days, and that goes to your question of the 

District’s ability to regulatory reform. 

The Tax Revision Commission will be reporting within 60 days, 

and a tax incentive package is going to be produced through legislation which the Mayor is sending to the Council, as a result of 

having had an outside firm do a study of such tax incentives. And 

that is in response to repeated concerns that I hear this morning 

about restructuring of the tax system for the District. 

Thank you. 

[The prepared statement of Ms. Jarvis follows:]

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Mr. DAVIS. Thank you very much. 

Let me start the questioning. I am going to address the issue you 

brought up about the hiring of residents. What it tells me, Mr. 

Mayor, is that you still don’t understand and don’t get what’s happening in the economy in this region. That you don’t understand 

why you have an outflow of jobs from the city to the suburbs. 

It is taxes, and you mentioned taxes. I’m going to do everything 

I can to reduce the tax burden, whether it’s through Ms. Norton’s 

bill or Mr. Moran’s requirements or whoever’s, because I think the 

tax burden has to come down. But you’ve got to reduce regulation, 

as well. 

And every time you pass a bill that may get points out there 

with some constituency group, but you hinder the market process, 

you, in essence, are putting more regulation on business, requirements on business that lead people not only to not want to invest 

but who end up voting with their feet by leaving to go elsewhere, 

creating greater inefficiencies. 

Take for example, your proposal, that your contractors for the 

city have to hire city residents. One of the leading procurement 

people we had in Fairfax County was a District resident who was 

a very capable person. I wouldn’t have required him to move. He 

headed up our computer operations in the county. He was the best 

qualified person we could have. We felt, when the taxpayers are 

paying dollars, they ought to get the best people, wherever they 

live. 

For people coming in, whether they are experts or the lowest 

ranking jobs, you certainly want to make sure that that District 

labor pool is included in that, and that you can find as many jobs. 

But that kind of requirement is rebuffed by people who have to invest the money and put their capital at stake. 

So many decisions the city has made, however well-intentioned 

and well-sounding they may be, have the effect of chasing capital 

out of the city instead of attracting capital and investment into the 

city. 

I just want to read one of the local comments about your plan. 

‘‘The Mayor said that he didn’t talk with business people before he 

sent the legislation to the council, and it was immediately rebuffed 

by the Board of Trade and other business organizations.’’ You need 

to work and form a partnership with the business community. 

The way Cleveland came out of their doldrums was, the leadership in that city worked with the business community. The way 

that Philadelphia and Mayor Ed Rendell have moved ahead is, the 

city formed a partnership with the business community. The way 

New York City came out of the doldrums is, they formed partnerships with the business community, not constantly putting a stick 

in their eye and talking about other things. 

That’s what the city needs to do, and they need to reduce the 

regulatory burdens and form a partnership working with it. And 

frankly, in the plan here, I don’t see that. In fact, I see this as another indication of not trying to understand the marketplace, or 

trying to work with the marketplace. 

The plan sounds so 1960’s to me, and it’s not really where you 

need to go to move in the 21st century. This city has so many great 

opportunities ahead of it over the next decade. The high technology 

141

boom in the suburbs right now, 18,000 jobs we can’t fill in northern 

Virginia. 

I know the consortium of universities has come up with a proposal—I’m going to ask you how you have responded to that, but 

I understand it hasn’t been as proactive as they would have liked— to start training people and have UDC move their curriculum to 

train people for some of the jobs available now in the region. We’d 

love to have them out in the suburbs. 

We’ll take anybody we can find right now, because these jobs are 

going to India, they are going to the Pacific Rim, or offshore, and 

to other parts of the country, because we can’t find qualified people 

here. We have systems where the city ought to be able to add value 

to those equations. 

The Southeast Development Center, the Navy Yard where we’re 

going to have a huge Federal presence, hopefully, in the very near 

future, is a great opportunity for the city. I know Ms. Jarvis has 

been active in trying to make sure that we have a zoning envelope 

and maybe a regulatory envelope down there that can be attractive 

to private sector investment around there, and do the kinds of 

things that Crystal City and Rosslyn and other areas have done, 

in northern Virginia, to attract private capital. 

But to rely on government to manipulate this and move it is not 

what the city needs. It needs to be more entrepreneurial, in my 

judgment. If you take a look at the models of cities that have succeeded, that’s what they have done. Unfortunately, I don’t think 

this proposal passes that test, and I think it’s a step backward. 

I will give you a chance to respond. I would be happy to hear Ms. 

Jarvis. Otherwise, let’s work together. We can reduce the tax and 

regulatory burden in this city, and we can continue to make this 

a great city. We have a great opportunity ahead of us. 

The economy in this region is very healthy, and the growth in 

some of these segments is such that the city can grow with some 

proactive movement on the tax and regulatory front, and some targets that the Economic Development Corp. can bring. 

Also, the MCI Center, if we can ever get the city to get its act 

together—and it is a city problem at this point, not a Federal problem—in terms of moving the convention center forward, offers job 

opportunities to people in the hospitality industry, downtown, who 

don’t have to even have a high school education. We can increase 

tourism and get that going. 

So we have some great possibilities ahead of us. All we need is 

the right blend of leadership and vision to move forward. We are 

ready here to add to the equation. But I don’t think this proposal, 

frankly, passes the laugh test. 

Mr. BARRY. What proposal are you talking about, Mr. Chairman? 

Mr. DAVIS. This is the one about contractors just hiring city residents and all. 

Mr. BARRY. Mr. Chairman, let me say that no other city in America is burdened with the inability to tax income. Our income tax 

in the District of Columbia, and in the Federal Government, and 

in State governments, is our largest single source of income. 

New York City has regulations and requirements that when you 

do business in New York City, you have to, first of all, in some instances, have your corporation located in the city. 

142

And second, there are 24,000 businesses in the District of Columbia. The DC government does business with less than 2,000 businesses. We have not found any road construction contractor who 

said, ‘‘I don’t want to hire qualified DC residents.’’ This law has 

been on the books since 1984. A number of companies are using 

that law. They use it at the Department of Employment Services. 

If you were to give us the authority to tax income in Washington, 

at its source, I would withdraw that proposal, because there would 

be no need for it. Wherever you lived, if you worked in the District 

of Columbia, you would then be able to get that income. You can’t 

downplay that. 

Second, in terms of hiring DC residents, you imply that we don’t 

have qualified people in Washington. 

Mr. DAVIS. Well, that is absolutely wrong. 

Mr. BARRY. I said you implied it. 

Mr. DAVIS. I started my statement by talking about the head of 

the computer systems in Fairfax, who is a DC resident, and how 

talented he was. I don’t think that talent has any residential 

bounds. So I will just—don’t turn that around on me. I didn’t say 

that. I didn’t imply it, and I don’t mean it. 

Mr. BARRY. Well, Eleanor leaned over and told you something 

about that. Anyway, that’s another story. 

Mr. DAVIS. No, she didn’t lean over. She said it publicly, and I 

agree with her. 

My time is up. I’m going to pass the baton now to Ms. Norton. 

If she wants to get up and defend you, I’ll allow her, under her 5 

minutes. 

Ms. Norton. 

Ms. NORTON. Well, the chairman clarified that he did not mean 

to say that there weren’t qualified people in the District, so I accept 

that. I know that that’s what he meant. 

But the Mayor’s frustration is well placed. You know, you hear 

Jim Moran sit up here and say, ‘‘Don’t lower their income taxes,’’ and also, ‘‘Don’t tax commuters from my jurisdiction.’’ You will see 

frustration on the part of the District residents, who, after all, are 

Stateless and have very limited places from which to get new revenue. 

I believe it was Ms. Jarvis who testified that the Tax Revision 

Commission report would be coming forward; is that 60 days from 

today? 

Ms. JARVIS. Yes. Sorry, it’s the Business Regulatory Commission 

that will be within 60 days. It’s the Tax Revision Commission in 

December. 

Ms. NORTON. I applauded when the Tax Revision Commission 

was appointed. I know how difficult it is to get through taxes and 

to come up with—this is very complicated stuff. The same should 

be said of the Regulatory Commission. 

But I believe that the city may be overtaken on taxes, in one way 

or the other, if we are waiting until December. I may want, as we 

get close to finality on this bill—remember, we’re aiming—if we’re 

going to get it, we’ve got to get it through before September 30. 

I may have to ask you all to come in and talk with me, because 

some of the proposals go to lowering business taxes, certainly, and 

there is some talk here, frankly, about putting things in the bill 

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that we pass that would have an effect on regulations in the District. You know what I say on that stuff, that I oppose anything 

happening from up here. 

One of the things I would like each of you to think about is, if 

we have to go on a fast track, how we might do so. One of the ways 

I’m usually able to get people up here from sticking things into 

bills is to indicate that action will be taken in the District. I do not 

believe I will be able, if this talk continues, to do so on the basis 

of a study that is underway. 

So, to the extent that you have a sense of what the major features are, it would help me to keep people up here from deciding 

that the President’s plan is a vehicle for doing that. I will continue 

to oppose that. 

I want to commend you for having gotten ahead of the game on 

this, because I know that the studies that you have underway do 

require time. Under ordinary circumstances, I don’t think it would 

be a question, and I don’t think it should be one now. 

And I think we can do it. I think we can work together, but I 

want you to begin to think about what major changes in taxes and 

regulations you, yourself, desire, because you know this as none of 

the rest of us know it. 

Mr. DAVIS. Would the gentlelady yield just on that point, briefly? 

I think we’re going to have to move quickly on legislation. As Ms. 

Norton indicated, we may not have time for you to do it, so we’ll 

have you at the table advising us, and have you provide as much 

information as you can. We clearly are going to need your great assistance and support as we write this legislation, but it may come 

faster than time allows. It’s not under our control; it has to do with 

the whole budget reconciliation process. 

So just stay on call. We need you. 

Ms. CROPP. Mr. Chairman, we would encourage you to keep us 

informed. And we would love to work, Ms. Norton, with you on it. 

We would like to be an active participant and at the table with regard to any discussion on the District, any changes. 

Mr. BARRY. Plus, Ms. Norton, most of this tax reform will probably not be revenue-neutral; it would be a loss of revenue. So if 

we’re going to get money above what the President’s plan is, if it’s 

$300 million or $400 million, I think we could very quickly figure 

out what category of taxes we want to reduce. 

Ms. NORTON. You say, if we get what? I’m sorry. 

Mr. BARRY. I’m saying that most of this tax reform is not revenue-neutral; it’s a loss of revenue. And if we knew whether a pot 

of money was available, say, if the Federal payment was $400 million, giving us $400 million above what the President’s plan is, we 

could very quickly put together a series of options as to what taxes 

we would reduce. 

The Business Regulatory Commission has done some preliminary 

work already. Most of that does not require additional moneys; 

they require different laws and changes that would make it easier 

for people to do business here. 

Ms. NORTON. Well, one of the reasons that this is being discussed 

now is precisely what you have pointed to, that there would be 

some adjustments within the President’s plan. 

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I have encouraged everybody to understand that I’m going to 

have a hard time keeping what we’ve got in here. I do that in order 

to encourage you all to begin thinking, in case they slip something 

away from us in this plan, what your preferences are for keeping. 

Because the notion of, you know, $400 million on top of that is less 

likely than I would like. 

There is a separate tax package that the District is in. It is not 

configured at the moment, and there are lots of differences over 

what it should say. There are some people who are for elements of 

my package. There are some people for lowering taxes in the District. You are perfectly right, Mr. Mayor, that would mean you 

would have to make up for it in revenue. 

None of that will be done without complete and total consultation 

with the District. I regard that matter, as I do anything affecting 

the District, as a Home Rule matter. But what I want to encourage 

you to do is to think dynamically about what happens if something 

gets pushed off the table, and where your preference would lie. 

I certainly am not asking you to do that now, but I want to encourage it, because I think I would do a disservice if I said, ‘‘Now 

let’s talk about what we want on top of what the President’s package is.’’ You had a concern about eminent domain powers that are in the 

Economic Development Corp. I can certainly understand it. The interesting thing is, when I was initially briefed by the administration, the eminent domain powers were not in there. They were put 

in there at the request of the business community. 

They wanted land in there. They wanted to make sure that they 

did not have to go through, I guess, the hurdles that one would 

have to go through in the District. On the other hand, your concern 

is perfectly understandable, as well. 

Were you able to clarify that with the administration, and could 

I know where you now stand on the issue? 

Mr. BARRY. It’s still—it’s barely clarified, Congresswoman Norton. It has ‘‘limited eminent domain,’’ and we still are discussing 

with them, even to this morning, as to what means, more specifically. I think they have conceded that, obviously, any eminent domain has to comply with the local District zoning laws, but it’s still 

not quite as clear as it needs to be. 

Ms. NORTON. I think that that probably could be assisted by 

some understanding with them about a streamlined way to get 

eminent domain. I mean, since they were people who obviously are 

your allies who wanted the eminent domain, they weren’t trying to 

undercut Home Rule, but obviously, if they could just go in and do 

whatever they wanted to, they have. 

I think the reason they came forward is they thought it would 

take them a long time to get access to land to complete their plan. 

I guess my question is, is there a way to streamline that, whether 

for everybody or not, at least for them, so that we could straighten 

out—and that part wouldn’t be a matter of contention. 

Mr. BARRY. Someone suggested that—I’m not saying that this is 

a solution—that any proposed taking of land that was in the private sector would have to be approved by resolution of the city 

council. Someone suggested that may be one way of check and balance. 

145

Ms. JARVIS. We did not actually include that proposal in the recommended language. What we did say is that there ought to be 

limited eminent domain powers consistent with the scope of the 

corporation’s mission and consistent with local zoning and regulatory provisions. 

The term ‘‘limited eminent domain’’ was incorporated in the 

MOU, ‘‘limited eminent domain authority,’’ with the hope that 

there could be some further structuring of the language within the 

act itself over here on the Hill. So that is something that we desire 

to do and are continuing to try to do. 

The important point about eminent domain authority and about 

the Economic Development Corp. itself, Ms. Norton, I think, is that 

the corporation becomes a singular focus for an entity which does 

not now exist; that is, there is not a single-minded focus on economic development in the District because of the many levels of responsibility of the person who sits as the head of that agency. And 

that is really the predicament that we face. 

Ms. NORTON. I think you have described exactly why they piled 

these powers in this one entity, were trying to do that. They 

weren’t trying to undercut your authority. In the process, they have 

done so. 

You would help me a lot if you would begin to think about, the 

three of you would being to think about bill language that fed off 

of what you just said, Ms. Jarvis, but allowed for the fact of the 

existing independent jurisdiction. And in order for it to be effective, 

for me to be able to sell it up here, it would have to bypass a lot 

of the regulatory points. 

Something like the Mayor said just now, or if you wanted to have 

more steps, so few steps that you’re talking a kind of 30-day thing 

as opposed to the longer kind of period, it would help. 

Mr. BARRY. Ms. Norton, another approach would be possibly requiring a simple majority. That would give local officials a greater 

say in this. This process works with the airport authority where 

the budget has to be approved by a simple majority. The District 

only has three votes, which means that one vote could make the 

simple majority, which gives you a chance to negotiate any differences by either locally appointed officials or people appointed by 

local people. 

I think that ought to be looked at. 

Ms. CROPP. Ms. Norton, that’s what I was just getting ready to 

say. The simple majority is one way in which it could be handled. 

There is another possibility, and that is that anything dealing with 

the eminent domain issue would have to have the approval of the 

Mayor and the chair, who would be members of that. 

Then, in doing that, it would also protect the interests of the District of Columbia citizens as a whole. And I think there are precedents established for that type of provision, also. 

Ms. NORTON. So it does look like there are shortcuts here that 

you are already thinking about. 

Thank you very much. 

Mr. DAVIS. Thank you. 

Mrs. Morella. 

Mrs. MORELLA. Thank you. I appreciate your being willing to testify again before this subcommittee. 

146

I want to look at the education point of view and issue. The District, no doubt, has many well-educated residents, but also a very 

high number of undereducated persons, who are untrained, unskilled, and unable to meet the expanding needs of the technological workplace. 

I know the chairman has alluded to that. I just think that it’s 

important that we look ahead, in terms of what we’re going to do 

about that. Is there anything in the President’s plan that you feel 

will address this problem? 

I would address it to all of you. 

Mr. BARRY. In terms of the President’s plan, in the Economic De- velopment Corp. there is $20 million that would be set aside for 

nonprofit organizations to train people in skill development, as well 

as just lifestyles, you know, how you come to work on time. 

Unfortunately, the DC public school system is suffering from 

some of the same needs of other major cities. How do you reform 

this system? How do you make it work for the great majority of our 

students? That’s General Becton’s greatest challenge, I think, outside of getting books on time, et cetera. How do you get a larger 

number of young people graduating from our high schools with 

skills in the workplace? 

I’m in the process of developing a proposal which I’m going to 

send to the schools; that is, that the DC school system ought to establish a specialized school of science and technology, similar to our 

Duke Ellington School for the Arts or Banneker Academic School. 

There again, that’s not going to give us any short-term solutions, 

but it seems to me that if we had a school that was in tune and 

in touch with the reality of technology development, we could train 

young people in the District who could take a number of those jobs 

that are vacant in Fairfax County and in Montgomery County. 

But our schools need great reform. I don’t have much control 

over that except to make commentary about it and urge them to 

do it, because the Control Board has set up this super board of 

trustees that has absolute control over the schools. 

But that’s a serious problem, Congresswoman. It is tragic that 

too many of our young people are not graduating from our high 

schools, 40 percent not graduating, and then even some of those 

who graduate don’t have the skills to go to northern Virginia and 

other places to get these high-tech jobs that are out there. 

Ms. JARVIS. Mrs. Morella, the Economic Development Corp.’s criteria for projects could include, as do our local criteria, that there 

be a training component of the development project. 

For example, when we’ve done industrial revenue bond financing, 

the financing requirement is that there be a training program; 

when we did NPR, for example, that young people be trained in the 

area of audio technology; when we financed the AAAS, American 

Association for the Advancement of Science, a requirement that 

there be an internship program that would give young people access to science and science training. 

It would be my recommendation that the corporation incorporate 

those kinds of training components in their criteria when evaluating the projects. The President’s proposal does not specifically 

speak to that, but it certainly would be an authority of the corporation to make sure that that happens. 

147

Ms. CROPP. Mrs. Morella, as we look at the President’s plan, we 

have to also be careful that we don’t look at it in isolation of everything else that we need to do in the District of Columbia. 

When you talk about education and economy, we probably need 

to say the two E’s. If we want a strong economy, then it means also 

that we must have a strong educational program, and they must 

go together, and it must be an integration of the two. 

When you look at the reasons why businesses locate in certain 

jurisdictions, they look at who is graduating from the school system. And what that means is that there has to be a marriage of 

the two: economy and education. We need to have our business 

group, our economic group, to play a more integral part with our 

school system, to make sure that we are graduating students who 

will meet the needs of the work force, so that we can supply graduates to fill that particular work force. 

So, while the President’s plan has one component, as Ms. Jarvis 

was saying, with the training part of it, we must not take it in isolation of what we do with the rest of the city with education, we 

must start merging the two together, if we truly want to be successful, not only for the short term, but in the long term also. 

Mrs. MORELLA. I couldn’t agree with you more. I do agree a 

training component is critically important, but I also agree with 

the concept of a partnership, and maybe we will hear this from the 

Board of Trade in the next panel. You’ve got to pull your business 

community in to help you make these decisions, in terms of what 

they need, how they can help, and other community groups, too. 

It isn’t that we need rocket scientists, we need an awful lot of 

technicians, just plain technicians, to be trained and to know that 

this is a job that’s going to have promise in the future. 

Mr. BARRY. Mrs. Morella, we have a larger problem, and that is, 

our experience, or my experience, has been, it is difficult to get a 

significant number of DC residents to apply for and take these jobs 

in the suburbs. I don’t know whether it’s transportation that’s a 

problem or whether it’s just a cultural difference. 

I don’t know what it is, but we’ve found that, even when we have 

gotten people trained in some areas and have gotten them potential 

jobs in northern Virginia or in Montgomery County, they don’t 

make it very long. They can do the work, but they just decide that, 

for some reason or other, it’s—we’ve got to figure out how to deal 

with that. 

Mrs. MORELLA. Well, we want to do both things. We want to 

demonstrate that we continue to support the Metro and it reaches 

out to the high-tech community, but we also want to make sure 

that there are jobs in the District of Columbia, too. And there are, 

I mean, there are, where these skills are needed. So they don’t 

have to exit the District of Columbia for employment, they should 

be able to also find it in the District. 

Could I ask just more question? 

Mr. DAVIS. Sure. Let me just add to that. 

Mrs. MORELLA. Yes. 

Mr. DAVIS. We have a group of business leaders in northern Virginia prepared to step up any way they can to work, if transportation is the issue, to get qualified workers. It is a lot cheaper to 

worry about getting people out there than it is to have to move 

148

those jobs somewhere else. We can work through that as we go 

through. 

A lot of these high technology businesses aren’t on Metro lines 

at all. As you know, Mr. Bursoff of the Board of Trade, and others, 

have been working with you to try to get you a high technology 

school. I think you need more magnets to keep qualified people in 

the public school system and attract them back in. I think that is 

needed. So we will work with you. 

Mr. BARRY. We’d like to get the names of the people, Congressman, so we can get busy, today, working on putting that coalition 

together and figuring out how to solve this problem. 

Mr. DAVIS. Sure. We’ll put it together. I’m meeting with the 

group. 

Mrs. MORELLA. Listen, there’s just no way you should leave out 

Montgomery County. We have a Suburban Maryland High Technology Council that is exquisite. But I also wanted to point out 

simply that we’re not talking about people leaving the District of 

Columbia. We hope there will also be a presence—we know there 

is—where there are some of these jobs. 

Mr. BARRY. We would welcome the same kind of information, 

Mrs. Morella. We will work diligently to get these groups together 

and begin to try to get something done. 

Ms. CROPP. Mrs. Morella, I think it begs the question, also, that 

with over half of the District’s children living below the poverty 

level, there’s a great need for us to have early childhood development programs, and we encourage the Federal Government to continue funding the early childhood development programs. We have 

found that when our children start at an early age learning the 

outcome, it’s so much more positive, and I think we will also see 

that impact the economy. 

Mrs. MORELLA. Just no doubt about it. No doubt about it. 

Just one brief question. Actually, the Council passed the Business Improvement District legislation, and I just wondered what 

this legislation does and how it can be utilized with the President’s 

plan. 

Ms. JARVIS. Mrs. Morella, the Business Improvement District 

legislation authorizes the establishment of self-taxing business districts. Those districts create a pool of money which then stays within the confines of that geographical business improvement district, 

and those dollars are used to create an additional security force, or 

they are used to create an additional cleaning force for the area. 

They are remarkably effective because they do what is critical in 

commercial areas, which is to create an environment which is clean 

and safe. People in brightly colored jackets are seen sweeping the 

streets. People in brightly colored jackets, with two-way walkietalkies are seen communicating with one another and with the Police Department. They are walking customers to their cars or to the 

parking lot, and creating a sense of safety and cleanliness. 

There are 1,000 business improvement districts in 700 cities 

throughout the United States, which have been remarkable in their 

ability to attract a customer base. We are very fortunate in the District that Bob Peck, at GSA, has now indicated a willingness for 

GSA to participate in the business improvement districts, at least 

for those buildings where GSA has tenants. They can then pass 

149

through the taxes that are imposed on those tenants, through to 

the business improvement district, and that will really augment 

the ability of downtown business districts to thrive. 

We are expecting to see the first such bid just before the opening 

of the arena, so that when 20,000 people come to Washington or 

come from other places within the city to see those games, they will 

see those brightly colored security forces and cleanup crews, and 

there will be a sense of safety and cleanliness that will be, in fact, 

occurring. 

Mrs. MORELLA. Thank you. Thank you very much. 

Mr. DAVIS. I would just add, that with the area around the Navy 

Yard, you could have a critical mass down there, because of the 

Federal Government. You know what Virginia has done to Crystal 

City when they had that kind of mass there. 

Appropriate planning and zoning will be critical because there’s 

going to be a lot of neighborhood complaints. People are not going 

to understand the changes coming in, or they may sometimes resent the changes, but from a citywide perspective, if you’re talking 

about an information technology private sector base, you have a 

great opportunity there. 

Ms. JARVIS. And you put your finger, Mr. Chairman, on the real 

reason that this corporation is so vital, because the corporation 

then can assemble the property, get through all the regulatory hurdles, and keep a singular focus on getting that kind of assembly 

going. 

And you mention a very important area of the city, because, first 

of all, there’s water, and the waterfront can be developed. Second 

of all, that area of the city has been identified by NCPC as a focus 

for its monumental core plan, and would be one of the first steps 

in getting the monumental core plan off of the ground. 

It would be a wonderful first step for this corporation to focus 

just on that area, because there is opportunity for commercial, retail, housing, and entertainment complexes in that area, which 

would bring a whole new destination for visitors and for our own 

regional visitors to go to that center. So it would create a whole 

new destination for us. 

Mr. DAVIS. And a new destiny for that area. 

Mr. BARRY. Mr. Chairman, David Watts, who is the deputy city 

administrator, chairs an action task force now that is looking at 

the Navy Yard, the Federal Southeast Center, from North Capitol 

over to 11th Street, and from M Street down to the waterfront. 

I am going to ask him to extend their work from the freeway on 

over to M Street, because if you go down in Southeast from South 

Capitol to 11th Street, you find a lot of abandoned buildings there. 

So we ought to do area planning, not just for the Federal portion 

of that. 

Mr. DAVIS. I agree. I agree. 

Mr. BARRY. This task force would have both Federal, private sector, and government people on it, to come up with a comprehensive 

plan and direction. 

Mr. DAVIS. But talk is cheap. I mean, these are hard decisions, 

and there is going to be opposition to it, because people are going 

to see their neighborhoods changing. We’ve been through this. 

These are royal battles in the suburbs. But this is a great test for 

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the city, because it’s a great economic development opportunity for 

the city to open up a whole new quarter for quality economic development, job growth, tax base, all the things that go with it. 

Charlene, I know you’re on top of this. I’ve heard good things 

about some of the work you all are doing there, but we need to stay 

with it. This corporation, like you know, can give it the appropriate 

focus. So it’s up to all of us. 

Ms. JARVIS. And it gives the insulation. Mr. Chairman, you recognize the problems in development. 

Mr. DAVIS. I’ve been there. 

Ms. JARVIS. There has to be a good balance between insulation 

and input from the public, in order to get development done. And 

it’s a hard thing to do. 

Mr. DAVIS. I understand. 

Well, I thank all of you. I appreciate you all being here. 

Mr. BARRY. Also, Mr. Chairman, I would like to share, when we 

get the reports for the Business Regulatory Commission, share that 

with you, so you can see exactly. 

Mr. DAVIS. I would be happy to do that. And we’re going to sit 

down, Mr. Mayor, you and me, over some of this legislation, as we 

talked about yesterday, over the next few days. 

Mr. BARRY. I’m sorry we got into this tiff about residents. 

Mr. DAVIS. Well, we don’t agree on everything. At least we can 

talk about it, and we keep talking. Right? 

Mr. BARRY. All right. 

Mr. DAVIS. We’ll work it out. We want the same end, and I think 

that’s important. 

We have a vote on the floor. 

Mrs. Morella, if you want to go over and vote now, I can keep 

the hearing going. And then you can come right back, and then I 

will go. Do you want to try that? 

Let’s hold our next panel. We call up Roger Blunt, chairman of 

the Greater Washington Board of Trade; John Green, the president 

of the District of Columbia Chamber of Commerce; and Craig 

Schelter, the executive vice president of the Philadelphia Industrial 

Development Corp. We appreciate everybody being here. 

If you would rise with me, I have to swear you in. 

[Witnesses sworn.] 

Mr. DAVIS. Thank you very much. 

I ask unanimous consent that any written statements be made 

part of the permanent record. As I have requested of the previous 

witnesses, please limit your oral statements to no more than 5 minutes in order to leave time for questions. 

At this time, I would ask Mr. Blunt to testify, followed by Mr. 

Green, and then Mr. Schelter. We appreciate you all being here. 

Roger. 

STATEMENTS OF ROGER BLUNT, CHAIRMAN, GREATER WASHINGTON BOARD OF TRADE; JOHN L. GREEN, PRESIDENT, DC 

CHAMBER OF COMMERCE; AND CRAIG SCHELTER, EXECUTIVE VICE PRESIDENT, PHILADELPHIA INDUSTRIAL DEVELOPMENT CORP. 

Mr. BLUNT. Thank you. 

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Chairman Davis and members of the subcommittee, thank you 

for convening today’s hearing on the President’s proposals to promote economic development in the Nation’s Capital and for the opportunity to testify before you. 

For the record, my name is Roger Blunt, and I am chairman and 

CEO of Essex Construction Corp. I am here today in my capacity 

as co-chair of the National Capital Task Force of the Greater 

Washington Board of Trade. 

Today, you have asked us to comment on the potential effectiveness of the President’s proposals to promote economic development 

in the District, placing special emphasis on the proposal to create 

an Economic Development Corp. I will base my comments today on 

the plan as it has been articulated in the final Memorandum of Understanding. 

When I last appeared before the subcommittee, I testified that 

the Board of Trade believes there must be three fundamental elements in place if we are to restore the city. The first was a functioning, accountable, and efficient local government; the second, a 

clearly defined partnership between the Federal and local governments; and third, an emphasis on economic development and the 

availability of adequate resources. 

The Board of Trade believes the economic development portions 

of the President’s plan to help revitalize the Nation’s Capital are 

critical to the overall effort to restore financial stability and economic viability. Let me start by painting a picture of the landscape 

as we see it. 

There are several efforts to address economic development already underway. Some efforts are being led by the District government and some by the private sector, but there is no overall coordination of these initiatives. With this background in mind, we have 

three concerns about the establishment of an Economic Development Corp. 

First, the mission of the Economic Development Corp. must be 

clearly defined, so as to maximize its effectiveness by appropriately 

collaborating with current efforts to address economic development 

needs within the local government. 

The Economic Development Corp. will come into existence while 

several other groups are already at work. Its mission in relation to 

the other groups is not clear. Will it be responsible for physical development? Will it develop the plans and then let a contract for the 

actual development? Or will the Economic Development Corp. be 

the catalyst for projects of scale, projects which are outside of the 

traditional capabilities of the District government or other locally 

based organizations? 

Second, the composition of the board of directors of the Economic 

Development Corp. should represent neighborhood businesses as 

well as larger corporate interests, and it should not preclude the 

inclusion of local talent and resources. 

We recommend that some thought should be given to having representation from a wide array of businesses as they relate to the 

size of the corporation, the industry, and that all members have 

citywide interests. 

Further, we feel that, by definition, some good people may not be 

eligible to serve on this board, and that the Economic Development 

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Corp. would miss an opportunity to benefit from regional talent 

and resources. Here we would hope that owners of non-District 

businesses, who may not be District residents, could be considered 

for appointment to the board. 

As an aside, I would point out that, while it’s stated on occasion 

that private enterprises are not fully engaged in the District, I 

would point out that for several years we’ve been absolutely engaged. In fact, we have several initiatives already underway. 

The 1,100 businesses in the private sector, members of the Board 

of Trade, come from Virginia and Maryland, principally. And I 

would point out that they are very concerned that the core of this 

region has to be healthy if we as a region are to survive. 

Third, the authority to exercise the power of eminent domain 

must be clearly defined, providing appropriate checks and balances 

to prevent the arbitrary use of this tool in establishing procedural 

timelines for the decisionmaking process. Conscious as we are of 

the Economic Development Corp.’s need to be able to exercise the 

powers of eminent domain, we generally support the concept, with 

some caveats. 

First, the process for exercising this power must be clearly defined. Second, there must be some checks and balances. 

Ms. NORTON. Mr. Chairman. Mr. Chairman. 

Could I beg your indulgence? 

Mr. BLUNT. Surely. 

Ms. NORTON. I am due someplace by car that I can’t possibly get 

to by 12 noon. I wanted to apologize to this panel, which I had so 

looked forward to hearing, because I think their part in the Economic Development Corp. is absolutely critical. I want to personally 

apologize to the three of you that there is no way for me to wait 

any longer. That has nothing to do with you; it has to do with us 

and our questions. 

I want to ask leave of the chairman if I may submit questions 

beyond what may already be clarified in the testimony. 

So ordered. [Laughter.] 

Mr. DAVIS. If she says it, it must be. 

So ordered. 

Mr. BLUNT. Knowing that the testimony is in the record, this 

concludes my remarks. 

[The prepared statement of Mr. Blunt follows:]

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Mr. DAVIS. Roger, thank you very much. 

Mr. Green. 

I’m going to leave in 5 minutes to go over to vote, and Mrs. 

Morella will come back. And then I will be back after that. That’s 

how we rotate the voting back and forth. 

Everything is in the record, and we appreciate your being here. 

Mr. Schelter, we appreciate your coming down from Philadelphia. 

Mr. GREEN. Well, I will be very brief. 

Good morning, Congressman Davis and members of the House 

District of Columbia Subcommittee. My name is John L. Green. I 

am executive vice president of the Medlantic Health Care Group, 

and I am here today in my role as president of the DC Chamber 

of Commerce. 

Before I begin, I would like to thank you for inviting me to testify 

on what we believe is an opportunity for the District of Columbia 

to realize its potential to be a world class capital for government, 

for business, and hopefully, for residential life. 

Since we testified before you in February, we understand that 

there have been well over 100 hours of meetings and negotiations 

between representatives of the executive branch, the Council, the 

DC Control Board, the Mayor, and the Congress in developing the 

MOU. 

While we do not completely agree with the MOU, we understand 

its value as a foundation upon which we can build. We want to underscore our earlier testimony and emphasize that we believe that 

the District of Columbia must be a good value in order to attract 

residents and businesses. It’s the core of the region. 

However, in addition to commenting on the economic development portion of the President’s plan, I would like to take a couple 

minutes and just comment on what we believe to be important as 

an environment and a context for economic development. The 

President’s plan does not address some of these areas. 

For example, there is no revenue strategy, tax relief, or a Federal 

payment, and we think that they are going to be important in 

terms of creating an environment for economic development. The 

DC Chamber supports tax relief for businesses and individuals, 

such as that offered by Congresswoman Norton’s DC Economic Recovery Act. That would jump-start the DC economy and rebuild our 

tax base. 

The President’s plan, as I said earlier, does not contain a reference to a Federal payment. The DC Chamber of Commerce believes that this is a shortcoming that the Congress can and should 

address. We do not believe that the Economic Development Corp. 

will move forward fast enough in order to accommodate that period 

of time in which the District would be without a sound revenue 

source. 

The DC Chamber of Commerce fully supports the creation of the 

Economic Development Corp., the core of the city’s economic recovery. The EDC provides an infrastructure to support businesses that 

might otherwise leave the city and a mechanism to attract new 

businesses to the city. 

We are pleased that the six appointed board members of the 

EDC will either be persons who maintain a primary residence or 

have a primary place of business in the District. 

173

I am going to short-circuit my testimony—it is in the record— and indicate that we are supportive of the concept of the Economic 

Development Corp. There are questions that must be answered. 

However, we also believe that there is a need for a comprehensive 

plan for the District. Economic development alone, without the 

right regulatory environment, tax relief, and ease of doing business 

in the District, all of those are needed along with some form or 

shape of the Federal payment. 

[The prepared statement of Mr. Green follows:]

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Mr. DAVIS. Thank you. 

Mr. Schelter, before you testify, I am going to recess. Mrs. 

Morella is on her way back, and she can start it when she comes. 

I want to hear you, because I’ve got some questions to ask you. And 

I appreciate your being here. 

Mr. SCHELTER. OK. That’s fine. 

Mr. DAVIS. So what I’m going to do is recess the meeting for no 

more than 10 minutes, and we’ll hear your testimony, then take 

questions. 

The committee is in recess. 

[Recess.] 

Mrs. MORELLA [presiding]. I think I’m going to take the prerogative to take the Chair and see if we can pick up until Tom Davis, 

the chairman, comes back, which should be soon. 

Was it Mr. Green, was he involved in his testimony at that time? 

I tell you, may we go on to Mr. Schelter, who is the executive 

vice president of the Philadelphia Industrial Development Corp? 

I appreciate your being here. Thank you very much. I would love 

to have you proceed with your testimony. Any written testimony 

will, in its entirety, be included in the record. 

Mr. SCHELTER. Thank you. Good afternoon, Madam Chairman. 

My name is Craig Schelter. I am executive vice president and 

chief operating officer of the Philadelphia Industrial Development 

Corp., called PIDC, the designated economic development agency of 

the city of Philadelphia. I have been with PIDC since 1983. Prior 

to that time, I spent 15 years at the City Planning Commission, including 4 years as executive director. 

I am honored to be invited to testify here this morning. My comments will focus on just one aspect of the President’s plan, and that 

is the creation of a new Economic Development Corp. for the city 

of Washington. 

While I have not been privy to the discussions on how you propose to structure the new entity in DC, I can perhaps provide some 

historic perspective and observations about those common elements 

which are integral to a local Economic Development Corp., if it is 

to be enduring, successful, and responsive to the local area. 

Just a word of history about PIDC. Over the years, the Philadelphia Industrial Development Corp., a private, nonprofit corporation 

chartered under State law, has been an outstanding example of 

how an Economic Development Corp. evolves, changes, and innovates, based on the needs of community and on market forces. 

Next year, we will celebrate 40 years of a unique public-private 

partnership between local government and the business community 

of Philadelphia. PIDC was founded in 1958, a joint creation of the 

city of Philadelphia and the Greater Philadelphia Chamber of Commerce. We have a dedicated professional staff of 65 people and an 

operating budget of $6 million. 

Since 1958 through the first quarter of this year, we have completed more than 3,300 transactions, totaling almost $4.4 billion. In 

the process, we have retained 166,000 existing jobs and created 

126,000 new jobs, for a total job impact of 292,000 jobs in the city 

of Philadelphia, and that’s against a total payroll of about 676,000 

jobs. 

179

I point out on the last page of my testimony, which I can go to 

later, I included how transactions have increased over those 40 

years, mainly with an eye toward pointing out that you have to 

look at a long-term perspective. If you look at how that $4.3 billion 

is made up, in the first 10 years, we did about $200 million; in the 

next 10 years, about $800 million; and then, in the 1980’s, we exploded with $2.4 billion; and in the 1990’s, we’re getting close to $1 billion. 

A number of factors are worth considering to create a long-term, 

viable economic development entity. One, make the organization a 

true public-private partnership. This must be true at the board and 

policymaking level. In our case, a governing board of 30 members 

approves the budget and sets broad policy for the corporation, in 

close coordination with city government. 

The regular business of the corporation is conducted by a 15-

member executive committee, 8 of whom are named directly by the 

president of the Chamber of Commerce. The other 7 are the 7 highest elected and appointed officials in the city government. They are 

the mayor, the president of the city council, the members of the 

mayor’s cabinet, the commerce director, finance director, managing 

director, city solicitor, and chairman of the city planning commission. 

The remaining 15 members are jointly appointed by the president of the Chamber of Commerce and the city commerce director. 

This structure has ensured a strong business continuity within the 

context of changing mayoralty administrations. Furthermore, it has 

brought broad expertise in finance, law, labor, business, community 

development, design, and real estate development to the board. 

Two, maintain close relationships with existing executive and 

legislative branches of local government. The importance of a clear, 

consistent economic development agenda is critical to the business 

perception of a metropolitan area that things can and do get done. 

Key to this effort, in the last 6 years in Philadelphia, has been 

the city’s participating directly in the lending business, using city 

tax-supported dollars. This initiative was developed under the inspired leadership of Mayor Edward G. Rendell and his administration, working closely with City Council President John Street. This 

initiative provides flexibility and speed without the encumbrance of 

certain other Federal and State programs. 

We also manage the assets and transact all the business of the 

Philadelphia Authority for Industrial Development, where we do all 

manner of real estate, land transfer transactions, including tax-exempt financing. Here again, it is a five-member board that serves 

at the pleasure of the mayor. 

Whether the concern is neighborhood development, loan guarantees for hotel and convention facilities, expanding industrial parks, 

providing tax-exempt financing, or providing the ability to negotiate directly a development transaction using city assets, a key relationship must exist between the local development corporation 

and the city administration. 

Three, create a professional culture that generates and manages 

programs that are based on sound planning and financing guidelines. We have created a loan committee from among private sector 

members of our board of directors. The committee is a key compoVerDate 0ct 02 2002 14:08 Oct 07, 2002 Jkt 081599 PO 00000 Frm 00183 Fmt 6633 Sfmt 6602 W:\DISC\42429 42429
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nent, which not only ensures that appropriate credit underwriting 

standards are used, but provides an institutional memory and continuity critical to success. 

The results speak for themselves. We have managed to nurture 

a financial base of the corporation currently consisting of 500 outstanding loans, and we have a default rate of only 2 percent, comparable to the rate of a solid private lending institution. 

We are currently marketing nationwide a portfolio management 

system that provides greater loan portfolio oversight, allows local 

Economic Development Corp.’s to manage assets more effectively, 

and increases productivity, especially with regard to tracking requirements associated with Federal dollars. 

Four, be entrepreneurial in development of new programs. In the 

early 1980’s, when the first signs of limits on tax-exempt financing 

appeared, we developed direct lending programs using revolved 

Federal dollars. This foresight enabled us to stay in business when 

other IDCs around the country folded. Also, in the 1980’s, it became clear that venture capital was lacking in Philadelphia, so we 

started a small venture fund. The PIDC/Penn Venture Fund was 

the first municipal venture fund in the country. 

In 1992, we expanded our lending capacity to a new market, and we created a nationally recognized $100-million HUD 108 lending 

program. Half of the fund is available for major hotel development. 

The other half is a loan pool which is available for manufacturing 

and other transactions, citywide. 

The innovative aspect is that HUD accepted our process and 

lending criteria for a loan pool, such that each project did not have 

to be approved individually, thereby creating a flexible pool of Federal money to be used at the local level. 

Just this past year, to expand available capital, we successfully securitized an additional portion of our loan portfolio, adding $5 

million to assist new business. We also pioneered, in Philadelphia, 

the use of a novel, if complex, financing tool, tax increment financing. TIFs, as they are called, enable us to close financing gaps, providing access to capital for projects that otherwise would not happen. 

Five, be prepared to mix and match the best elements of Federal, 

State, and local programs. Currently, we have 23 different lending 

programs. The most successful are those that provide long-term 

consistency of approach. Taking 1995 and 1996 as an example, we 

used 19 different programs: 21 percent local, 24 percent State, and 

36 percent Federal. 

The public dollars funnelled through these programs totaled $237 

million, which, in turn, leveraged $100 million in outside financing 

and $63 million in owner equity, for $400 million in total project 

costs. I would also point out that one of the programs, the use of 

Federal dollars, the leverage factor, is about seven to one. 

Focus on core businesses. In our case, our emphasis is on financing small businesses, developing the city’s industrial land resources 

in six industrial parks, providing development management services on major projects, and facilitating defense conversion. 

Developing an overall mission statement and strategic plan for 

your core businesses will be critical. Also, the management of certain high-profile projects can bring added credibility to the new corVerDate 0ct 02 2002 14:08 Oct 07, 2002 Jkt 081599 PO 00000 Frm 00184 Fmt 6633 Sfmt 6602 W:\DISC\42429 42429
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poration. In our case, having leadership roles in the development 

of our convention center, professional sports facilities, major medical complexes, and our central waterfront afforded us that opportunity. 

Seven, attract and maintain a professional staff. There is a need 

for an entrepreneurial spirit grounded with a sound public policy 

core. The breadth of issues facing Economic Development Corp.’s 

requires extensive knowledge of all private development skills, 

skills born of extensive experience and substantial practical knowledge in specialized areas of planning, private and public finance, 

and real estate development. 

Eight, do not underestimate the value of developer services and 

expedited permit processing. PIDC innovated and now manages a 

developer services process on most projects with major job or construction aspects in the city. As part of the process, representatives 

of every city department that is involved in the permitting process, 

as well as the public utilities, meet to discuss a project’s needs and 

mesh them with permitting and other public requirements. I would add, parenthetically, to date we have processed about $4-

million worth of projects through this program. 

This effectively puts every project on a department radar screen 

for approval. While no substitute for detailed review by individual 

departments, it does highlight issues in a timely way, as well as 

give face-to-face contact to the individuals responsible for ultimate 

permit approvals. 

What I have given you here, briefly, is a snapshot. I would be 

happy to answer any questions you would have. In the end, I think 

you need to assume a long-term commitment. As the chart I have 

included illustrates and my comments support, things do not happen overnight. We have learned a lot over 40 years. 

I believe successful urban economic development comes down to 

local initiative and control, with appropriate Federal resources. It 

comes down to balancing public and private resources that, in turn, 

creates business trust. It comes down to a solid, business-like approach, without losing the focus for making economic activity happen across the community. 

Without getting into a public policy debate about the adequacy 

of the funds for this new corporation, it is clear to us that innovation and authority must focus on the local level and be paramount. 

This can be shared by the government and by the business community, and creates the most hope in balanced strategy in the long 

run. 

Thank you. 

[The prepared statement of Mr. Schelter follows:]

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Mr. DAVIS [presiding]. Thank you very much. 

Ted Trabue, is Ted here? 

Ted, let me swear you in and you can answer some questions. 

[Witness sworn.] 

Mr. DAVIS. Mr. Schelter, let me ask you, does the city of Philadelphia have a requirement in its contracting out of having city 

residents? 

Mr. SCHELTER. No, we do not. 

Mr. DAVIS. OK. The city of Philadelphia I think has been a 

model, in many cases. You have a lot of the tough problems that 

just don’t go away, given demographics, aging infrastructure, and 

the like. Yet, under Mayor Rendell—and I just single him out—he 

has been very proactive in, instead of complaining about it, dealing 

with it, dealing with the unions, dealing with some legislative 

structures that aren’t necessarily conducive to economic development. 

But would you agree that one of the key components is working 

in partnership with the business community? Isn’t that what 

you’ve really done here? 

Mr. SCHELTER. Yes, he has been an unbelievable cheerleader for 

the city and for the business community. At the drop of a hat, he 

will get on a plane and fly to the West Coast for a potential investor or developer in the city. And he has done this largely in concert 

with our corporation, and has turned to us, then, to implement a 

lot of his initiatives. 

Mr. DAVIS. Leadership can make a big difference. You know, I 

will tell you, in Fairfax, we literally brought companies in—because 

when I was the head of the county government, we were proactive 

and went out and recruited them, and we made commitments. 

You made a note about timing, getting the permits and plans, 

and how quickly it can happen. That is critical. And if you make 

a commitment, you’ve got to adhere to it. But to do that, you have 

to have a team of inspectors that work well. You’ve got to have information technology and logistics work out. How have you been 

able to deliver on those kinds of things? 

Mr. SCHELTER. Well, the Developer Services Committee, which I 

mentioned in my testimony, is convened on behalf of the city’s commerce director, who is one of the mayor’s cabinet. We staff that 

function. We have a former head of the Department of Licenses 

and Inspections in the city that is a consultant to us. And we have 

our Special Projects Division staff that. 

On every project, whether it’s a major job component or major 

capital investment, at the time the schematic plans are set, we convene a group of about 18 people around a table. It’s at a deputy 

commissioner level among the Departments of Planning, Streets, 

Water, Fire, managing director, LNI, and we go over those plans. 

Everybody gets a chance, one, to raise what their issues are. And 

that developer or that business leaves with not only the business 

card of the person, they have met them face-to-face, they know 

what the issues are, they know what the timing is on the permit. 

And the Commerce Department then rides herd to make sure that 

comments get back to the developer in a timely manner. 

And that has been a very successful thing. Again, it’s more the 

predictability of the way business is done. It doesn’t substitute for 

191

individual departments doing their thing and doing their review, 

but it puts them on notice that this is a project that is supported 

by the administration at the highest level and where there is an 

expectation of a timely review process. 

Mr. DAVIS. It’s focus. Just a lot of it is focus and follow-through, 

which is tough, day-to-day, when you are bombarded with so many 

things and limited staff. 

Mr. SCHELTER. May I go back? 

Mr. DAVIS. Yes. 

Mr. SCHELTER. I answered your first question too quickly, I’m 

afraid. You asked if there was a focus on hiring locally. While we 

do not have a specific requirement of the businesses that we lend 

to to do that, we clearly do encourage them in that regard. 

Mr. DAVIS. Absolutely. 

Mr. SCHELTER. And also, among the consultants that we hire, 

generally, our board, the first question they are going to ask, if 

they see it’s a consultant from outside of the city, is why it was 

necessary to go to a consultant from outside the city, given the fact 

that we’ve got lots of talent in the city. 

So while we will never back off from hiring someone from outside 

if they have a particular expertise, we try to keep business local. 

Mr. DAVIS. Absolutely. And I don’t know a jurisdiction in the 

country that doesn’t do that. That’s just good home-grown, hometown bias that we ought to have. If you can’t get it in your hometown, where can you get it? But it’s the difference between a requirement, where you start actually, in some cases, lowering the 

bar, and then that raises a whole host of other issues that I think 

don’t recognize the changing dynamics of the marketplace. 

Let me just ask my friends from the Chamber and the Board of 

Trade. Do you agree that an Economic Development Corp. would 

give the kind of focus that is needed to the city? 

Mr. GREEN. I think it’s extremely important. We support it 

strongly. But, again, Mr. Chairman, I go back to what I have said 

consistently and I think I’ve heard you all say, and that is that 

there have to be some other things, as well, expediting permitting, 

all those other things. 

Mr. DAVIS. Absolutely. And let me just say, I think, as part of 

what we do here, I hope we can do that. And I think we could all 

sit around, but those make such great sense and there is such a 

consensus on those kinds of things. 

Mr. GREEN. We at the Chamber have been very involved with 

the Department of Consumer and Regulatory Affairs on a permitting project that is nearing fruition and is up and running. And 

that has been initiated out of the DC Chamber of Commerce. 

Mr. DAVIS. Also, bringing down taxes and regulation, in general. 

You’ve got to lower the burden structure. I’ve talked to a lot of my 

businesses. Why aren’t you in DC anymore? Why are you doing 

this? And they just say it got so bad, you know. The question is, 

it got so expensive. And that doesn’t help anybody. So people vote 

with their feet. And a lot of people would like to be in the city. 

Mr. GREEN. The emphasis I keep coming back to is, the Economic 

Development Corp. plus those other programs and services around 

the corporation will create the right kind of environment. One of 

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the bills that we are pushing is the reduction in Workers’ Compensation taxes. 

Mr. DAVIS. I even heard the mayor say good things. But, you 

know, talking about it and getting it done are two different things. 

Mr. GREEN. Or the Council. And we’re pushing it very hard. 

Mr. DAVIS. Exactly. And we want these decisions to be made at 

the local level, to the extent they can. I think it’s instructive for 

the local level to understand what it takes to build and maintain 

a tax base. These are not automatic. You can’t bully businesses into 

staying and giving things anymore. 

Business wants to give. I mean, they are the employer. They are 

the contributors to the charities. They drive the tax base that has 

you pay for education and human service and all these other 

things. But the bottom line is, they have to answer to a group of 

shareholders, and if they can’t substantiate a profit, they are going 

to move on. 

Unfortunately, over the last decade and a half, we have seen a 

marked exodus from the city. Now we’re stuck where, despite the 

best intentions of some of the rules that were passed, they end up 

being very anticompetitive and burdensome. 

We all want the same things. 

Mr. Trabue, do you want to say anything? I got you up here, and 

I want to put you on the record here. Is this your first congressional hearing? 

Mr. TRABUE. Yes, it is. Thank you very much, Mr. Chairman. 

Mr. DAVIS. Well, I want you to say something. 

Mr. TRABUE. Thank you for inviting me to appear before you 

today. I would agree with Mr. Green’s comments. We believe, at 

the Board of Trade, that the regulatory environment in town and 

the taxing climate must be coordinated and must be improved. 

The Economic Development Corp. is a primary source of an area 

where we can bring some focus to these efforts and really realize 

some true economic development in our region. 

Mr. DAVIS. Thank you. Thank you very much. 

Were you here for Mr. Moran’s comments earlier in the day? 

Mr. TRABUE. Yes, we were. 

Mr. DAVIS. I’ve got to believe you liked them. Jim, I think, is 

right on target. And I’m not trying to put him against Ms. Norton’s 

plan. You have to look at, with a given amount of dollars, what’s 

the best thing we can do. But bringing down those local business 

taxes is just absolutely critical. 

Mr. TRABUE. I support that wholeheartedly. The only issue I 

raise is that, as we bring them down, we’ve got to be sure that the 

city is stable and has some revenue stream during that period of 

time that the economic engine begins to be energized. So that’s the 

only issue, how do you get that revenue stream at the same time 

that you’re bringing down the taxes? 

Mr. MORAN. We’re going to have to close up anyway, but the idea 

would be that we would have to substitute the loss of DC revenue. 

Because, presumably, when you fix it, there is some reduction of 

revenue. I’m not sure how much. I’m not sure anybody knows how 

much. 

Mr. DAVIS. Short-term anyway. 

Mr. TRABUE. That’s what I’m saying, short-term. 

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Mr. MORAN. In the long run, it’s going to bring a lot more revenue in, and it’s going to be private revenue. 

And I can understand why the business community prefers the 

15 percent flat tax, because that’s a loss of Federal revenue; it’s not 

a loss of local revenue. Presumably, we can better afford it than 

DC. 

Having talked with Tom and from what he is saying now, I don’t 

think there is any disagreement, and apparently there’s no disagreement with you. And this is the best opportunity. Let’s fix the 

local tax structure and make it sensible, but also make it competitive with the metropolitan region. 

And then we’ve got to figure out a way to replace any lost revenue. Maybe that’s from an exact pilot, an exact payment in lieu of taxes, which Brookings estimates at about $382 million. 

But, anyway, Mr. Chairman, thanks for having the hearing. 

Thanks for doing all that you’re doing. And thanks for getting good 

people like this as witnesses. We will look forward to working with 

you. 

Thanks. 

Mr. DAVIS. Thank you very much. 

Mr. TRABUE. Thank you very much. 

Mr. DAVIS. Mr. Green, thank you for being here. 

Mr. Trabue, thank you, on your debut here. Probably the first of 

many hearings, but we appreciate having you here. 

And Mr. Schelter, special thanks to you for coming down from 

Philadelphia. 

Mr. SCHELTER. My pleasure. 

Mr. DAVIS. You have been, in many ways—when you do something right—not everything you’ve done right—but, I mean, by and 

large, you’ve done it right, and you can be a model for other places 

to copy, to look after, to emulate. Again, our congratulations to 

your mayor, who I think is really one of the outstanding mayors 

in the United States. Give him our best. 

Mr. SCHELTER. Thank you. I’ll tell him. 

Mr. DAVIS. Thank you very much. 

Without objection, the record will remain open for 10 days. 

Without objection, I ask that any written statements from witnesses or Members be made part of the permanent record. 

The subcommittee will continue to work with all interested parties in an ongoing effort to continue the progress that has been 

made. 

These proceedings are closed. 

[Whereupon, at 12:30 p.m., the subcommittee was adjourned.] 

[Additional information submitted for the hearing record follows:]

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