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| <title> - WHITE HOUSE PROPOSAL FOR THE DISTRICT OF COLUMBIA</title> | |
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| [House Hearing, 105 Congress] | |
| [From the U.S. Government Publishing Office] | |
| WHITE HOUSE PROPOSAL FOR THE DISTRICT OF COLUMBIA | |
| ======================================================================= | |
| HEARING | |
| before the | |
| SUBCOMMITTEE ON THE | |
| DISTRICT OF COLUMBIA | |
| of the | |
| COMMITTEE ON | |
| GOVERNMENT REFORM | |
| AND OVERSIGHT | |
| HOUSE OF REPRESENTATIVES | |
| ONE HUNDRED FIFTH CONGRESS | |
| FIRST SESSION | |
| __________ | |
| FEBRUARY 20, 1997 | |
| __________ | |
| Serial No. 105-4 | |
| __________ | |
| Printed for the use of the Committee on Government Reform and Oversight | |
| 39-564 U.S. GOVERNMENT PRINTING OFFICE | |
| WASHINGTON : 1997 | |
| ____________________________________________________________________________ | |
| For Sale by the Superintendent of Documents, U.S. Government Printing Office | |
| Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800 | |
| Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001 | |
| COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT | |
| DAN BURTON, Indiana, Chairman | |
| BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California | |
| J. DENNIS HASTERT, Illinois TOM LANTOS, California | |
| CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, Jr., West Virginia | |
| CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York | |
| STEVEN H. SCHIFF, New Mexico EDOLPHUS TOWNS, New York | |
| CHRISTOPHER COX, California PAUL E. KANJORSKI, Pennsylvania | |
| ILEANA ROS-LEHTINEN, Florida GARY A. CONDIT, California | |
| JOHN M. McHUGH, New York CAROLYN B. MALONEY, New York | |
| STEPHEN HORN, California THOMAS M. BARRETT, Wisconsin | |
| JOHN L. MICA, Florida ELEANOR HOLMES NORTON, Washington, | |
| THOMAS M. DAVIS, Virginia DC | |
| DAVID M. McINTOSH, Indiana CHAKA FATTAH, Pennsylvania | |
| MARK E. SOUDER, Indiana TIM HOLDEN, Pennsylvania | |
| JOE SCARBOROUGH, Florida ELIJAH E. CUMMINGS, Maryland | |
| JOHN SHADEGG, Arizona DENNIS KUCINICH, Ohio | |
| STEVEN C. LaTOURETTE, Ohio ROD R. BLAGOJEVICH, Illinois | |
| MARSHALL ``MARK'' SANFORD, South DANNY K. DAVIS, Illinois | |
| Carolina JOHN F. TIERNEY, Massachusetts | |
| JOHN E. SUNUNU, New Hampshire JIM TURNER, Texas | |
| PETE SESSIONS, Texas THOMAS H. ALLEN, Maine | |
| MIKE PAPPAS, New Jersey ------ | |
| VINCE SNOWBARGER, Kansas BERNARD SANDERS, Vermont | |
| BOB BARR, Georgia (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 ELEANOR HOLMES NORTON, Washington, | |
| ILEANA ROS-LEHTINEN, Florida DC | |
| STEPHEN HORN, California THOMAS H. ALLEN, Maine | |
| Ex Officio | |
| DAN BURTON, Indiana HENRY A. WAXMAN, California | |
| Ron Hamm, Staff Director | |
| Roland Gunn, Professional Staff Member | |
| Ellen Brown, Clerk | |
| Cedric Hendricks, Minority Professional Staff | |
| C O N T E N T S | |
| ---------- | |
| Page | |
| Hearing held on February 20, 1997................................ 1 | |
| Statement of: | |
| DeSeve, G. Edward, Controller, Office of Management and | |
| Budget..................................................... 24 | |
| Raines, Frank, Director, Office of Management and Budget..... 7 | |
| Letters, statements, etc., submitted for the record by: | |
| Raines, Frank, Director, Office of Management and Budget, | |
| prepared statement of...................................... 11 | |
| WHITE HOUSE PROPOSAL FOR THE DISTRICT OF COLUMBIA | |
| ---------- | |
| THURSDAY, FEBRUARY 20, 1997 | |
| House of Representatives, | |
| Subcommittee on the District of Columbia, | |
| Committee on Government Reform and Oversight, | |
| Washington, DC. | |
| The subcommittee met, pursuant to notice, at 9:35 a.m., in | |
| room 2154, Rayburn House Office Building, Hon. Tom Davis | |
| (chairman of the subcommittee) presiding. | |
| Present: Representatives Davis, Morella, and Norton. | |
| Also present: Representative Wynn. | |
| Staff present: Ron Hamm, staff director; Howard Denis, | |
| counsel; Roland Gunn, professional staff member; Ellen Brown, | |
| clerk; Cedric Hendricks, minority professional staff; and Jean | |
| G. Gosa, minority administrative staff. | |
| Mr. Davis. Good morning and welcome to the first hearing of | |
| the 105th Congress of the District of Columbia Subcommittee. I | |
| would like to welcome back our ranking minority member, Eleanor | |
| Holmes Norton, the Delegate from the District of Columbia, as | |
| well as our new vice chairperson, Connie Morella of Maryland. | |
| Because of scheduling factors, this hearing is taking place | |
| during the President's Day recess. Therefore, the other members | |
| of the subcommittee are unable to join us today. However, I can | |
| assure everyone that Representative Steve Horn, who has had | |
| several generations from his family born in Washington, DC; | |
| Ileana Ros-Lehtinen; and Tom Allen are all highly committed to | |
| the goal of making Washington, DC, the world's finest Capital | |
| City. | |
| Two years ago, the Congress and the Clinton administration, | |
| acting together in a bipartisan effort, created the Financial | |
| Responsibility and Management Assistance Authority, more | |
| commonly referred to as the D.C. Financial Control Board. This | |
| board was created in direct response to the overwhelming | |
| financial difficulties that engulfed the District of Columbia. | |
| It was the first major step in a long road to recovery. | |
| During these past 2 years, the Control Board has | |
| accomplished many important things. Among these are canceling | |
| wasteful government contracts; stepping in to help the | |
| beleaguered school system; moving to reform the police | |
| department; and, most importantly, putting the city on a path | |
| toward a balanced budget. | |
| In addition to that, Congress has also acted to enable the | |
| construction of the new MCI Arena, a new state-of-the-art | |
| convention center, and created a new water and sewer authority, | |
| thereby safeguarding the metropolitan region's drinking supply | |
| and protecting taxpayers. | |
| Everyone agrees that there is still a lot to be done. To | |
| paraphrase Winston Churchill, we are only at the end of the | |
| beginning. I believe we all must work to the best of our | |
| ability this year to make Washington, DC, a shining example of | |
| the best America has to offer. Many of you have heard me say | |
| this before; this goal is not only in the best interest of the | |
| District but also of the region and, indeed, the entire | |
| country. | |
| I strongly believe that the economic health and quality of | |
| government in the District is of vital concern to the suburbs. | |
| In fact, Dr. Stephen Fuller of George Mason University, the | |
| leading regional economics expert, has just completed a new | |
| study that confirms the view that the District is vital and | |
| beneficial to the suburbs. Improving the economy and | |
| governmental performance of the District of Columbia is crucial | |
| to the continuing prosperity of the entire metropolitan region. | |
| Ladies and gentlemen, we are at a crossroads. In fact, we | |
| have reached a unique set of circumstances. Rarely do we face a | |
| situation where all the major political winds are aligned in | |
| one direction. The Clinton administration and the leadership of | |
| both Houses of Congress, Republicans and Democrats, all | |
| consider the situation in the District of Columbia one of our | |
| top five national priorities. We must take advantage of this | |
| positive environment. | |
| Mr. Raines, I think you deserve a lot of credit for the | |
| initiative that you have shown as the head of OMB. Our agenda | |
| is ambitious. It builds on our work and on the work of the | |
| Control Board that we created with the Clinton administration 2 | |
| years ago. I am encouraged that the President has put forth a | |
| broad-based proposal to realign the relationship between the | |
| District of Columbia and the Federal Government. The proposal | |
| seeks to enhance the prospects of home rule by more closely | |
| matching the District's resources and capabilities with its | |
| responsibilities. | |
| In other areas, however, the plan may not fully address the | |
| concerns of others, most notably tax relief and economic | |
| development for the city. I believe we should use the | |
| President's plan as our starting point. Therefore, it is my | |
| intent to work with this administration, the leadership in | |
| Congress, city officials, and the Control Board to fashion a | |
| bipartisan plan that will gain wide support. | |
| I am under no illusions. This will take months of hard | |
| work, patience, delicate negotiations, and many more committee | |
| hearings. In fact, I intend to follow today's hearing with | |
| testimony from the city and the Control Board and then from | |
| interested parties from the District and the region. | |
| After these hearings on this proposal, its key components, | |
| significant alternatives, and any other issues, we will work to | |
| design the best and most effective plan for the rebirth of our | |
| Nation's Capitol. Our challenge is great, but we have no other | |
| choice. If we fail to act now, Washington, DC, may never | |
| recover. In short, it is our duty, our mission, and our | |
| responsibility to give our collective best efforts for this | |
| city. | |
| In conclusion, I am pleased to have as our sole witness | |
| today Franklin Raines, Director of the Office of Management and | |
| Budget and the chief architect of the President's proposal for | |
| the District. I look forward to hearing Mr. Raines' testimony | |
| today and working with him and the President in the months | |
| ahead. | |
| At this point, I yield to my ranking member and ask if she | |
| would like to make an opening statement. | |
| Ms. Norton. Thank you very much, Mr. Chairman. | |
| I want to welcome OMB Director Franklin Raines to the first | |
| of several hearings on the National Capital Revitalization and | |
| Self-Government Improvement Plan, as it is called, for the | |
| District of Columbia. I also want to thank Chairman Tom Davis | |
| for skillfully laying out a series of hearings designed to | |
| explore the full details of the President's plan and the | |
| implications for the District. The President of the United | |
| States deserves the gratitude not only of District residents | |
| but of other Americans as well for bringing forward a workable | |
| and well-conceived plan that will help revive the Capital of | |
| the United States. | |
| Much of that gratitude belongs to Frank Raines, a | |
| Washingtonian whose understanding of the District's finances | |
| and operations is matched by the exceptional skill he is | |
| bringing to national and Federal financial and economic issues. | |
| Already his deft hand has been a major factor in steering us | |
| toward a bipartisan solution to the budget deficit and to other | |
| serious fiscal problems of the country. All the while he has | |
| been designing a plan to help eliminate the most vexing | |
| problems of the Nation's Capital. The plan's major strengths | |
| are, first, its careful and principled conceptualization, based | |
| on the Federal interest in certain State functions and in | |
| eliminating congressionally created pension liability, and, | |
| second, its recognition that the plan must address two | |
| audiences at once: District residents, and a Congress whose | |
| major focus this year is deficit reduction. | |
| The President's plan is not perfect, but it surpasses the | |
| expectations of most D.C. residents and analysts. It is the | |
| best document from which to work because it is the only plan | |
| for assistance to the D.C. government that stands any chance of | |
| being seriously considered or enacted by this Congress this | |
| year. | |
| If the President had not offered a plan, I had intended to | |
| offer a bill that created a quasi-State relationship between | |
| the District and the Federal Government for financial purposes. | |
| However, at every turn I encountered the same barrier that has | |
| made most thinking about the District conventional and | |
| unimaginative. That barrier is money. | |
| Any plan, whatever its merits--if I may paraphrase--that | |
| asks for $1 billion here and $1 billion there will soon end up | |
| sounding like real money of the kind that Congress has | |
| systematically denied to the District. This plan takes at least | |
| some of the District's State functions and, by placing them in | |
| larger appropriations, demonstrates how small a difference the | |
| District's portion really makes. | |
| For example, analysts tell us that the District may be only | |
| $25 million to $50 million ahead next year if the plan becomes | |
| law. The most controversial aspects of the plan need to be | |
| approached with a problem-solving attitude. Among the most | |
| troublesome are the elimination of the Federal payment, which, | |
| ironically, has both positive and negative consequences, and | |
| the application of Federal criminal law to the District as the | |
| price for absorbing Lorton inmates into the Federal system. | |
| We have already made progress on both. For example, we can | |
| now say that D.C. criminal law, not Federal criminal law, will | |
| continue to apply in the District. There remain outstanding | |
| issues here and in a number of other areas on the proposal. The | |
| way to solve them is by methodically working them through. | |
| The plan also must be subjected to further financial | |
| analysis before I can fully embrace it. Will the District | |
| consistently come out ahead, especially when compared with the | |
| Federal payment, which has lost much of its value and is almost | |
| never increased? Structural changes such as the President's | |
| proposal should not be expected to endure more than a | |
| generation unrevised. I am seeking an analysis of the plan on a | |
| 20-year time line to test its fiscal effectiveness and to | |
| ensure that the District will not be left with unintended cash | |
| shortfalls and other financial difficulties. | |
| The administration has several working groups perfecting | |
| the concept and the necessary legislation. I hope that they | |
| will form a close relationship with the subcommittee. The | |
| progress we have made on the criminal law matters is an | |
| indication that even unacceptable parts of the plan can be | |
| resolved. For example, I have met with Attorney General Janet | |
| Reno, Chief Judge Eugene Hamilton, U.S. Attorney Eric Holder, | |
| and Department of Corrections Director Margaret Moore. Mr. | |
| Holder is continuing to work with Justice Department and Bureau | |
| of Prison officials to resolve the remaining criminal law | |
| issues, among them parole and determinant sentencing. I have | |
| also met with Federal Highway Administration officials and | |
| believe we are making headway in helping to shape the component | |
| of the plan that would create a badly needed National Capital | |
| infrastructure fund. | |
| Chairman Davis has wisely found a way to keep the | |
| President's plan from becoming an uncontrollable octopus, | |
| spread across many committees, risking its necessary and useful | |
| coherence. | |
| The plan holds together like a well-wrought puzzle. This | |
| subcommittee must help keep it together or it cannot do the | |
| job. The first test for the Congress will be to facilitate | |
| prompt and rapid participation of other specialized committees | |
| without losing the plan's central purpose and functional | |
| utility. | |
| Chairman Davis is the impresario, but this is not the first | |
| time he has been called upon to help lead such a complicated | |
| task. The model for our work on the President's plan is the | |
| financial authority legislation, where we worked in a | |
| bipartisan and bicameral way to quickly put in place a control | |
| board. The urgency of this plan now is just as great as the | |
| financial authority statute was then. | |
| I especially appreciate the interest of the members of this | |
| subcommittee and of the region in this plan. Regional members | |
| may want to take note of the experience of the Detroit region | |
| as reported in yesterday's Washington Post. The article | |
| recounted the recent and significant progress the city of | |
| Detroit has made. Mayor Dennis Archer reported that the | |
| estrangement between the suburbs and the city had become so | |
| severe that there were often discussions among friends about | |
| the last time they had been in Detroit. According to the | |
| article, ``That began to change as Detroit area firms, even | |
| those in the suburbs, realized the city's dismal image was | |
| hurting their ability to attract employees from elsewhere. | |
| Suburban parents began seeing their grown children leave for | |
| jobs in other cities, and that became a pivotal issue for a lot | |
| of people. You can try to separate yourself with a different | |
| name, but Southeast Michigan, to most people in the world, is | |
| Detroit. So how people view Detroit will have an impact on | |
| economic development and investment elsewhere in the region.'' | |
| The President's plan is designed to help the District and | |
| to help the region before the District gets to the point of no | |
| return. As the Detroit suburbs have learned, the region can | |
| neither run nor hide from its core city. The District is | |
| prepared to pay a great price for the President's plan. The | |
| plan offers the District scant immediate relief yet requires | |
| the District to balance its budget a year earlier than the | |
| financial authority law requires. | |
| The city is already braced for more cuts in services on top | |
| of draconian cuts that have already taken place and have helped | |
| hasten the exit of middle-income taxpayers from the city at | |
| frightening rates. The word ``suffering'' is not too strong to | |
| indicate the effect of these cuts on residents. Yet the | |
| District continues the painful work of rebuilding its | |
| government first by cutting it, the President's plan is before | |
| us, and only the Congress is missing. | |
| Congress has left the city to revive alone, without the | |
| undergirding support that New York State gave to New York City, | |
| that Ohio gave to Cleveland, and that Pennsylvania gave to | |
| Philadelphia when each of those cities became insolvent. It is | |
| time for Congress, the last to step up to the plate, to now | |
| come forward. | |
| I welcome Mr. Raines, whose thoughtful work is designed to | |
| help this body meet its constitutional obligations to the | |
| Capital of the United States. | |
| Mr. Davis. Thank you, Ms. Norton. | |
| I yield now to the vice chairman of the committee and one | |
| of our new members, Mrs. Morella of Maryland. | |
| Mrs. Morella. Thank you very much, Mr. Chairman. | |
| Although I have participated on this panel on several | |
| occasions during the 104th Congress, this is my first hearing | |
| as an official member of the District of Columbia Subcommittee, | |
| and I am delighted to serve under your leadership and with the | |
| ranking member. | |
| As a representative from Montgomery County, MD, I am deeply | |
| concerned about the future of the District of Columbia. The | |
| District does not exist in a vacuum. The economic health of the | |
| District is important to the economic health of Montgomery | |
| County, of the whole Washington metropolitan region. | |
| When I first came to Congress in the 1980's, the District | |
| government was already showing signs of the deficiencies that | |
| marked the beginning of a spiraling economic crisis. Services | |
| in the District were deteriorating, businesses were relocating, | |
| and middle-class residents were moving to the suburbs in search | |
| of lower taxes, safer streets, better schools. | |
| From 1990 to 1995, the District lost more than 22,000 | |
| households, most of them middle-class taxpayers. There has been | |
| a lack of employment growth and a decline in retail sales and | |
| the formation of small businesses. | |
| For the past few years there has been a good deal of debate | |
| here on Capitol Hill about how to resolve the District's | |
| financial crisis. During the last Congress, under your | |
| distinguished leadership, Mr. Chairman, on a bipartisan basis, | |
| we established the District of Columbia Financial | |
| Responsibility and Management Assistance Authority, commonly | |
| called the Control Board, which represents a temporary | |
| restructuring of the D.C. government and provides oversight and | |
| support to improve the District's financial situation. | |
| The President's plan would further restructure the District | |
| government by allowing the Federal Government to fund the | |
| District government, much in the same way as State governments | |
| support their cities. The White House proposal would eliminate | |
| the $660 million Federal payment to the District. | |
| Instead of the Federal payment, the Federal Government | |
| would relieve the District of certain expenses, among them the | |
| growing unfunded pension liability which was incurred by the | |
| Federal Government for District employees that were part of the | |
| Federal work force before home rule. The Federal Government | |
| also would assume a larger share of the Medicaid costs and take | |
| over the operation of the prison system. | |
| If the Federal Government assumes some of the District's | |
| administrative responsibilities, perhaps there will be more | |
| time for the District of Columbia officials to concentrate on | |
| the schools and services that have deteriorated to an alarming | |
| degree. | |
| It is the poor and vulnerable citizens of the District who | |
| have suffered the most from the insufficient services that have | |
| resulted from insufficient funds. The economic turmoil in the | |
| District must be reversed, and that is what this first meeting | |
| in the whole series is all about. | |
| The downward spiral of deteriorating services and middle | |
| class flight did not happen overnight. There is no quick and | |
| easy solution. Consideration of the White House proposal is, as | |
| you said, just a beginning. There will be many hours of debate. | |
| Hopefully we will choose compromise over confrontation. If we | |
| work hard, in the end we will take a large step toward creating | |
| a new and revitalized District of Columbia. | |
| I look forward to hearing more about the President's plan | |
| from our expert witness, the craftsman of the plan, Frank | |
| Raines, and look forward to working with members of this | |
| subcommittee and the OMB Director on a plan that will benefit | |
| the region and make the District a safe and thriving Capital | |
| City that is the source of pride for the entire Nation. | |
| Thank you, Mr. Chairman. | |
| Mr. Davis. Thank you, Mrs. Morella. | |
| Before I swear in our witness and we hear from the man of | |
| the hour, Mr. Raines, I want to recognize a couple of members | |
| of the city council here today: Charlene Drew Jarvis, chairman | |
| pro tem of the city council. Charlene, thank you very much for | |
| being here. You will have a chance to testify at a later | |
| hearing, and we look forward to your comments on this and your | |
| being an important part of this. And also Carol Schwartz, an | |
| important and returning member of the city council. And Harold | |
| Brazil just walked in, too. Harold, perfect timing. You are | |
| here just in time to be introduced. He is also council member | |
| at large from the city. We appreciate your being here as well. | |
| Frank, at this point it is the committee's custom to swear | |
| in its witnesses. | |
| [Witness sworn.] | |
| Mr. Davis. Thank you very much for being here and making | |
| your time available. I just preface that you have been making | |
| the rounds on Capitol Hill, speaking with key members of both | |
| parties prior to this, and we are just very pleased to have you | |
| here today. | |
| STATEMENT OF FRANK RAINES, DIRECTOR, OFFICE OF MANAGEMENT AND | |
| BUDGET | |
| Mr. Raines. Thank you very much, Mr. Chairman. I thank the | |
| members of the committee for having me appear before you today. | |
| I am pleased to be here to discuss with you the President's | |
| plan to revitalize Washington, DC, as the Nation's Capital, and | |
| to improve the prospects for home rule to succeed. After I | |
| conclude my remarks, I would be happy to take any questions | |
| that the committee might have. | |
| The Nation's Capital, which should serve as a symbol of | |
| pride to all Americans, has fallen on hard times. It faces not | |
| only serious budget problems, but even serious obstacles to | |
| providing the most basic services to its residents. | |
| As the President said recently, the District of Columbia | |
| suffers from the ``not quite'' syndrome. That is, it is ``not | |
| quite a State, not quite a city, not quite independent, not | |
| quite dependent.'' | |
| The District is not like other cities, which receive | |
| assistance from their States. In fact, the District has broad | |
| responsibilities for what are--elsewhere in the Nation--State, | |
| county, and local functions. And while Congress has voted to | |
| give the city a lump sum annual payment in recent years, it has | |
| kept the payment basically flat while imposing strict limits on | |
| the District's budget and taxing powers. | |
| Clearly, the current relationship between the Federal and | |
| city governments does not work. As a result, the President has | |
| proposed a landmark plan to significantly re-order that | |
| relationship. | |
| In developing his plan, the President had two goals in | |
| mind--first, to revitalize Washington, DC, as the Nation's | |
| Capital and, second, to improve the prospects for home rule to | |
| succeed. | |
| Under the plan, the Federal Government will invest nearly | |
| $4 billion over the next 5 years in the Nation's Capital. In | |
| exchange, the plan will end the yearly Federal appropriation | |
| and other payments to the District, saving over $3.5 billion | |
| over 5 years. | |
| While net Federal costs come to nearly $400 million over 5 | |
| years, the plan will save the District over $800 million over | |
| the same period. The difference results, in part, because the | |
| Federal Government will assume responsibility for certain | |
| pension payments and assets of the current pension system. | |
| Congress will continue to perform oversight for the | |
| District, and the Appropriations Committee will determine the | |
| budgets for those functions that the Federal Government funds | |
| directly. But Congress would no longer appropriate every detail | |
| of the District's budget, which will, in the future, be funded | |
| solely with local funds. | |
| All Federal assistance will be conditioned on the District | |
| taking specific steps to improve its budget and management. The | |
| plan will require the District to submit a balanced budget for | |
| 1998 and thereafter. A Memorandum of Understanding among the | |
| Federal and District governments and the Financial Authority | |
| will outline other improvements in performance that the | |
| District will have to meet. | |
| To achieve these goals, the President's plan proposes four | |
| concrete steps. | |
| First, the plan will relieve the District government of | |
| major financial and managerial responsibilities--including | |
| certain pension obligations and parts of the criminal justice | |
| system--that are beyond its financial capacity, and help the | |
| city resolve its cash shortfall that stems from its accumulated | |
| deficit. | |
| Beginning in fiscal 1998, the Federal Government will | |
| assume both financial and administrative responsibility for the | |
| District's retirement programs for law enforcement officers and | |
| firefighters, teachers, and judges. Upon enactment of | |
| legislation providing for the transfer, the Federal Government | |
| will take responsibility for virtually all pension benefits | |
| accrued under the plans for all active and retired employees as | |
| of the date of transfer, contingent on the District | |
| establishing replacement plans as specified in the MOU. The | |
| Federal Government will pledge its full faith and credit to | |
| meet its responsibilities to these beneficiaries. This action | |
| will be conditioned on the District setting up new plans for | |
| its current and future employees and providing adequate | |
| employment records to a third-party trustee. | |
| The Federal Government also will take direct responsibility | |
| for funding the District Court system. The courts will remain | |
| self-managed, because the current court system is well run. | |
| But, court funding is a drain on the District's budget. | |
| Therefore, the Federal Government will take responsibility for | |
| it. The costs will total $129 million in the first year and | |
| $685 million over 5 years. | |
| Also the Federal Government will assume financial and | |
| administrative responsibility for the District's felony | |
| offenders, including substantial capital investment in | |
| providing appropriate prison facilities. The Federal Government | |
| will take responsibility for incarcerating the District's | |
| sentenced felons, a function usually borne by States. During | |
| the transition, the Federal Government will provide funds for | |
| incarcerating the District's felons to a trustee appointed by | |
| the Financial Authority. Funding will include capital for both | |
| constructing new facilities and renovating existing ones. The | |
| Bureau of Prisons will be responsible for determining how these | |
| capital funds will be used. The trustee will oversee the D.C. | |
| Department of Corrections operations related to the | |
| incarcerated D.C. felons for 3 to 5 years, after which the | |
| Bureau of Prisons will assume responsibility. The plan assumes | |
| that a portion of the existing Lorton complex will continue to | |
| serve as a prison facility. Necessary new construction will | |
| take place at Lorton, at other locations, or both. | |
| At the end of the transition period, the Federal Government | |
| will accept all existing prisoners, as well as those new | |
| prisoners sentenced in accordance with standards comparable to | |
| Federal sentencing guidelines. To manage the inmate population, | |
| the Bureau of Prisons will be able to transfer D.C. inmates | |
| elsewhere in the Federal Prison System. The current D.C. | |
| prisons staff will have to apply for positions with the Bureau | |
| of Prisons and meet Federal standards. After the transition | |
| period, the Federal Government will assume responsibility for | |
| D.C.'s parole system and a portion of the community corrections | |
| system. | |
| In another matter, the Federal Government will increase its | |
| share of the District's Medicaid payments from 50 to 70 | |
| percent. In essence, the Federal Government will pay both the | |
| Federal and State share of Medicaid costs, reducing the | |
| District's share to 30 percent--which is the most that | |
| localities can pay in States with a 50 percent Federal match. | |
| At the same time, the Department of Health and Human Services | |
| will provide more intensive technical assistance to help the | |
| District improve the management of its Medicaid program and | |
| ensure that Federal funds are not mismanaged. The increased | |
| Medicaid funding will be conditioned on the District following | |
| various HHS suggestions for programmatic improvements. | |
| Finally, the Federal Government will allow the District to | |
| borrow from the Treasury to finance all or part of the | |
| District's accumulated deficit of between $400 and $500 | |
| million. The terms and conditions for such loans are not yet | |
| determined, but will likely enable the Federal Government to | |
| offer Treasury-based interest rates for a maximum term of 15 | |
| years and enable the District to refinance the loan after the | |
| District's credit picture improves. | |
| Second, the Federal Government will invest considerable | |
| resources to improve the city's capital infrastructure. | |
| The Federal Government will establish a National Capital | |
| Infrastructure Authority (NCIA) to benefit District residents | |
| and commuters by funding the capital associated with repairing | |
| and constructing roads and mass transit facilities. To | |
| capitalize the fund in 1998, the administration will provide | |
| $125 million in seed money from the Federal Highway Trust Fund. | |
| Activities eligible for funds will include the construction of | |
| roads and bridges, the local match for Federal-aid road and | |
| bridge projects, and capital expenditures for the Washington | |
| Metropolitan Area Transit Authority. In addition, the NCIA will | |
| be able to accept contributions from other sources, such as | |
| voluntary payments in lieu of taxes from tax-exempt | |
| organizations, including universities and hospitals. | |
| Third, the plan proposes a number of mechanisms to | |
| strengthen the District's economic base. | |
| The plan will create an Economic Development Corporation | |
| (EDC) to revitalize the city's economy, with local planning and | |
| control that leverages Federal and private resources. The EDC | |
| will be capitalized with Federal funds. The program will be | |
| designed to encourage jobs for disadvantaged D.C. residents and | |
| revitalize District areas where development has been | |
| inadequate. The plan includes a 5-year, $260 million tax | |
| incentive program, with a series of targeted incentives to | |
| build on the administration's Empower-ment Zone and Enterprise | |
| Community programs. | |
| Fourth, the plan will draw on Federal technical expertise | |
| to help make the city government more effective in such areas | |
| as income tax collection, education and training, housing, | |
| transportation, and health care delivery. | |
| For instance, the Internal Revenue Service will be able to | |
| collect District income and payroll taxes. The plan will | |
| simplify District residents' tax filing, allowing one form for | |
| both District and Federal taxes, as well as improve enforcement | |
| and collections. Other Federal agencies will work with the | |
| District to identify other areas in which the Federal | |
| Government might provide technical assistance to help the | |
| District government improve the efficiency with which it | |
| delivers services. | |
| The President's plan is the most ambitious plan that any | |
| administration has ever proposed to deal with the problems of | |
| the Nation's Capital. It will benefit the city, the region, and | |
| the Nation. | |
| It benefits District residents by reducing their | |
| government's financial burdens, improving the delivery of city | |
| services, and investing in the criminal justice system, | |
| economic development, and transportation. | |
| It benefits the region because of the city's economic | |
| recovery; the financial support given to police, fire, | |
| teachers, and judges' pension funds; the rebuilding of the | |
| District prison system; and the improvement of a key component | |
| of the regional transportation infrastructure. | |
| It benefits the Nation, because it begins to create a | |
| Capital City that we can all be proud of, improves its | |
| transportation system, and helps ensure the safety of residents | |
| and visitors. | |
| Mr. Chairman, that concludes my testimony. I would be happy | |
| to answer any questions that the committee might have. | |
| [The prepared statement of Mr. Raines follows:] | |
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| Mr. Davis. Mr. Raines, thank you very much. I think it | |
| shows the thoughtful preparation that has gone into that. We | |
| will have a number of questions for you. | |
| I am going to start the questioning with Mrs. Morella, who | |
| I know has to leave a little early to go represent the Congress | |
| reading George Washington's farewell address, as I understand | |
| it. Connie, I will start with you. | |
| Mrs. Morella. Thank you very much, Mr. Chairman. I | |
| appreciate your giving me the opportunity to pose a few | |
| questions, since, as you mentioned, I will be in the Capital | |
| City laying the wreathe and giving the speech from Congress for | |
| George Washington's commemoration. | |
| Thanks, Mr. Raines, for the wonderful testimony that you | |
| gave. There is something I feel was rather omitted in the plan | |
| that you did not mention, either. Some questions have been | |
| asked about where does St. Elizabeth's fit into this picture. | |
| Do you see that as being something that the Federal Government | |
| has a responsibility to operate, and maintain? | |
| Mr. Raines. We do not see that as being an appropriate | |
| activity for the Federal Government, primarily because we do | |
| not have a lot of experience in running mental health | |
| facilities of that size and complexity, and would find it | |
| difficult to take over the operation of one such facility and | |
| create a whole capacity to do that. | |
| That is the distinction between--with the prisons and St. | |
| Elizabeth's. With the prisons, we run a prison system. We have | |
| experienced professionals who know how to do that. Therefore, | |
| we view prisons as something that could be included in the | |
| Federal operations. But St. Elizabeth's really would be in a | |
| different category. | |
| Mrs. Morella. But you do recognize there is a problem posed | |
| by the fiscal situation at St. Elizabeth's? | |
| Mr. Raines. Absolutely. Our plan we view as being one that | |
| gives the city more flexibility and more resources for the city | |
| to be able to deal directly with those areas that we are not | |
| taking over. | |
| Mrs. Morella. In your testimony, you note that the | |
| District's accumulated deficit is between $400 million and $500 | |
| million, right? | |
| Mr. Raines. Yes. | |
| Mrs. Morella. Would you like to comment or explain the | |
| impact of the District and its cash position from carrying this | |
| kind of deficit? | |
| Mr. Raines. As a result of the deficits run up by the city | |
| over the last 5 or so years, the city has developed an | |
| accumulated deficit. What that has meant is that the city has | |
| not been able to pay its bills in a timely way, and it has had | |
| to indirectly borrow from vendors by delaying payment of their | |
| bills. It means that the city has periods of time in which it | |
| is in a negative cash position, and therefore needs access to | |
| borrowing. | |
| Over the last year, the Treasury Department has been | |
| providing funds to assist the city in meeting its cash-flow | |
| needs. But as we go forward, there will be a need for a | |
| permanent solution so that the city's cash position is | |
| restored. That is why we are proposing to help the city by | |
| financing that deficit over a period of years, so that the city | |
| can recreate its cash balance and pay off that accumulated | |
| deficit over a period of time. | |
| Mrs. Morella. I wondered if you might explain why the | |
| initial Treasury provision to finance this debt in 1995 was | |
| dropped from the Control Board legislation? | |
| Mr. Raines. I am unaware of the background on that, so I am | |
| not sure what happened in that case. | |
| Mrs. Morella. It would be interesting to look into that. In | |
| your experience with cities in trouble, why is it important to | |
| finance the accumulated debt, for the reasons that you gave, | |
| and---- | |
| Mr. Raines. The primary need is for the city to be on a | |
| sound financial basis, where it is making its payments in a | |
| timely manner, so that it can attract the kind of vendors that | |
| the city would like to be able to have perform its services. | |
| The District, for example, had difficulty lining up | |
| contractors to serve as part of the force dealing with | |
| potential snowstorms because of a failure in the past to pay on | |
| a timely basis. The city would be paying extra if vendors did | |
| not believe they could be paid on a timely basis, so it is | |
| important in that respect. | |
| It is also important from a financial standpoint with | |
| regard to the city's bond ratings. Failure to be able to | |
| finance current operations with existing cash would be a major | |
| negative in the review of the city's credit standing. | |
| Mrs. Morella. If the Federal payment is done away with, | |
| what will the Treasury use for collateral, and what is the | |
| potential impact of that on outstanding bonds and/or new debt? | |
| Mr. Raines. The Treasury is in the middle of working on | |
| that very issue with the city and the Control Board at this | |
| point. They have not come to a conclusion yet as to what form | |
| of collateral they would be seeking, but we would be careful to | |
| ensure that these loans would not impair the security on the | |
| city's outstanding debt or future debt that the city issued for | |
| capital purposes. | |
| Mrs. Morella. I would like to also ask you, jumping to | |
| another topic, about whether or not this plan envisions the use | |
| of so-called empowerment zones or enterprise zones or whatever | |
| the current language is that is used for that in the District | |
| of Columbia. | |
| Mr. Raines. The city already qualifies as an enterprise | |
| community, and has received certain benefits from that. But our | |
| plan goes further and proposes the creation of an Economic | |
| Development Corporation that has authority to operate in the | |
| downtown areas as well as in the low-income communities of the | |
| city, that will have additional powers that are similar to but | |
| different in some respects from what is included in the other | |
| programs that we believe can begin to provide the kinds of | |
| incentives necessary for increasing economic development in the | |
| city. | |
| Mrs. Morella. Can you see that there could be an increase | |
| in the Federal payment to the District, or there could be some | |
| amount in addition to this plan, or do you think that this | |
| totally handles it; in other words, total elimination of---- | |
| Mr. Davis. Would the gentlewoman yield? | |
| Mrs. Morella. Yes. | |
| Mr. Davis. Mr. Raines, I would also ask as part of that | |
| question, would the administration remain flexible if Congress, | |
| in looking at this, felt that the city still needed some cash | |
| to operate? Is this an area we are willing to look at together | |
| and move forward, or is it fixed? As Ms. Norton had said | |
| earlier, there are pluses and minuses to having this plan for | |
| the city. One is you get the annual appropriations process, and | |
| the baggage that comes with it. On the other hand, you are | |
| having that cash involved, and this is something that I know | |
| the Control Board has expressed some concern about. I just want | |
| to understand, I think as Mrs. Morella does, the flexibility we | |
| have in dealing with this. | |
| Mr. Raines. Sure. We put this plan together with the idea | |
| that the city had to come out ahead in any plan such as this, | |
| and that there had to be a net benefit to the city in the first | |
| year and an increasing benefit in future years. We believe that | |
| the plan meets that test, and therefore the city is better off | |
| under the plan than they are with the Federal payment alone. | |
| We also believe there are important benefits to the city in | |
| having the city have final authority over its own budget, and | |
| final responsibility for that budget. We thought that was an | |
| important improvement in home rule, but also one that would | |
| increase management responsibility. But we understand that the | |
| committee may have additional ideas that it would like to put | |
| forward, and we would be happy to talk to the committee about | |
| those in your deliberations. | |
| Mrs. Morella. I think the concept of the subcommittee is | |
| the fact that this is a beginning, and it is worth looking | |
| into, and we may come up with a package, I hope that we do, | |
| that is going to encompass all of the concerns we have. | |
| Thank you very much, Mr. Chairman. I would like to also be | |
| able to submit questions for Mr. Raines. | |
| Mr. Davis. Without objection. | |
| Mr. Raines. I would be happy to answer them. | |
| Mr. Davis. Let me just ask, I don't think there is any | |
| question that the city is better off under the plan the | |
| administration has submitted than under the current situation. | |
| If we can add value to that, as we hope to do as it moves | |
| forward, I think you will join us in looking at ways we can do | |
| that. But when you add it up, one of the difficulties is the | |
| cash situation may not be improved on day one when you lose | |
| that payment. I think that is part of the concern. But that is | |
| why we are going to have this dialog and continue to work | |
| together and hear from everybody, because I think we all want | |
| the same result at the end of the day. | |
| This is just a great improvement. I think it has been given | |
| a lot of thought. | |
| I yield to my ranking member, Ms. Norton. | |
| Ms. Norton. Thank you, Mr. Chairman. To follow on the | |
| Federal payment concern, perhaps you can be as candid with us | |
| as you have been, why had you incorporated in your plan the | |
| necessity to forego the Federal payment in the first place? Why | |
| has it become a necessary element of your plan? | |
| Mr. Raines. There are several reasons. I think the most | |
| important one is that, as we looked forward over the next 5 | |
| years, it appeared to us that the likelihood of the Federal | |
| payment meeting the various purposes for which it has been | |
| created were small and maybe decreasing. The pressures on the | |
| budget would be very heavy, and it would be difficult to see | |
| increases in the Federal payment. If we looked back at the last | |
| 5 years, we could see that the payment has been basically | |
| static during that period, so that when we came to the | |
| conclusion that the Federal payment was unlikely to be, in | |
| reality, a significant part of a new plan, because of those | |
| fiscal realities, we began to look to alternatives, and the | |
| alternatives we looked to were for the Federal Government to | |
| relieve the District of financial responsibilities that were | |
| burdening it, and that inherently involved increasing expenses | |
| for the city over time, so if we could not index the Federal | |
| payment, we could take over responsibilities which were | |
| inherently indexed because their costs were rising over time. | |
| So we think that we have managed to move from a situation | |
| of a static Federal role with regard to the city to one that is | |
| dynamic, and one that we have included in the President's | |
| balanced budget plan within the agencies that would be taking | |
| over these responsibilities. So that was our thinking in how we | |
| looked at the Federal payment and how we structured the plan, | |
| and as I mentioned before, the home rule aspects of not having | |
| the entire District budget appropriated by Congress we believe | |
| to be attractive as well. We do not believe that you get the | |
| best out of decisionmakers if they do not believe their | |
| decisions are final, and therefore, we think there is a real | |
| benefit in having the city be responsible for its own | |
| resources. | |
| There is a major benefit in not having the Federal payment | |
| in that all the city's resources would then be local, and the | |
| local officials would be responsible for those resources, and | |
| would not harbor in the back of their minds that somehow the | |
| Congress would relieve them of the need to make tough choices. | |
| Mr. Davis. Ms. Norton, will you yield? | |
| Ms. Norton. Yes. | |
| Mr. Davis. You make a good statement. We will ask if the | |
| city council agrees with this when they come here. But it seems | |
| to me one of the problems is that the decisions the Mayor and | |
| council make sometimes are not final decisions, and that allows | |
| you sometimes not to be quite as responsible in what you are | |
| doing because you are not firing real bullets, so to speak, | |
| because somebody else will make tougher decisions, and that is | |
| part of the difficulty when we build a strong civil service in | |
| government. | |
| There has been no tradition in making final decisions and | |
| being accountable for the final result, because Congress has | |
| always been there, to overturn inadequate policies. To me that | |
| ought not be. That is for somebody in local government. | |
| I am going to be interested in the reaction of the Mayor | |
| and council at the appropriate time. With that responsibility | |
| and accountability, I think there is a downside to that. But | |
| not having Congress looking over your shoulder on every | |
| decision has some advantages as well. We will be interested in | |
| how they react. I just think it is a very good point and | |
| something that the city has lacked, and maybe one of the | |
| reasons they have not developed the culture of accountability | |
| that most other jurisdictions have. | |
| I thank the gentlewoman for yielding. | |
| Ms. Norton. Thank you, Mr. Chairman. The concern, of | |
| course, about the Federal payment is well placed, because the | |
| District is in such a precarious financial position. We have | |
| had some numbers run on the Federal payment, though, and I must | |
| say, I have very serious concerns about the Federal payment as | |
| it is. | |
| During my first term, we got a very large increase in the | |
| Federal payment. However, that was to make up for no increases | |
| for 5 previous years. Every year there is no increase there is | |
| a cut, and yet the District acts as though the Federal payment | |
| is something important. Well, it is important, but it is | |
| important for cash reasons. I want to move there. | |
| By the way, when we had the numbers run on the over $700 | |
| million Federal payment, it turned out it was worth today about | |
| half a billion dollars. And that may also contribute to the | |
| shortfall. | |
| I want to say for the record that it has been all that I | |
| could do to get the Federal payment out every year. Members do | |
| not enjoy voting for a payment for a single district, and what | |
| they have done instead is, over the past 5 years when we got | |
| the increase, we have had caps on the Federal payment. So the | |
| Federal payment has not only lost value in inflationary terms, | |
| but Congress has actually cut the Federal payment. It is a red | |
| flag. It is the one thing that people can cut or not vote for | |
| that does not harm them at home. | |
| One of the things that we are all going to have to do as we | |
| look at this plan is to try to think more deeply so that we get | |
| over some of the problems and don't simply build in the same | |
| problems that we have had all along. And the 5-year deficit | |
| reduction plan does not bode well for the Federal payment. | |
| I can say without fear of being contradicted that if I | |
| haven't been able to get increases before deficit reduction | |
| became the only issue for the Congress, I cannot imagine what | |
| it will take for me to hold on to the Federal payment in this | |
| body. | |
| The District's concern about cash is important. Any large | |
| entity has periods of shortfalls in revenue where borrowing is | |
| necessary. | |
| I guess I have two questions. One has to do with whether or | |
| not there are going to be cash shortfalls at all, and the other | |
| has to do with collateral and what kind of thinking about | |
| collateral has gone on given how borrowed-up the District is | |
| and the limits on its borrowing authority. | |
| Mr. Raines. Well, as you mentioned, most cities have | |
| periods of cash shortfalls and surpluses because certain taxes, | |
| such as property taxes, only are paid twice a year, whereas | |
| most expenditures are on a monthly basis. So the city is going | |
| to have to monitor its cash-flow after the plan is in effect to | |
| ensure that it can even out those periods. | |
| But we are aware that, from a cash standpoint, the city | |
| will start off in the hole. That is why we are proposing to | |
| assist the city in financing its accumulated deficit so it will | |
| have the cash on hand, and that will help the city meet its | |
| cash needs. | |
| Ms. Norton. Would you describe how having the cash from the | |
| accumulated deficit. Many people have overlooked altogether | |
| your proposal to fund the accumulated deficit, even the Control | |
| Board, in its strategic plan, left the accumulated deficit out | |
| altogether. Which would mean that we would arrive at year 4, | |
| when we are supposed to be balanced, still carrying half a | |
| billion dollars in deficit, which would mean that we have the | |
| Control Board here for a long time trying to get rid of that | |
| accumulated deficit. | |
| How would borrowing to fund the accumulated deficit help | |
| the District with its cash shortfall, and how long would that | |
| be available, in your judgment? | |
| Mr. Raines. Well, if the city--the exact amount of the | |
| accumulated deficit will depend on the financial operations of | |
| the city through this year. But let's assume that the city has | |
| a $400 million accumulated deficit. What that means is that | |
| they spent $400 million more than they brought in over prior | |
| years, and the way that they have been financing that is by not | |
| paying vendors. | |
| If you hold enough bills, it is like any of us if we don't | |
| have enough money in our paycheck to pay all of our bills that | |
| month, we let a couple of them ride over to the next month. And | |
| that caused a real crisis in the city for a lot of vendors, not | |
| just businesses, but also churches, nonprofit groups who had | |
| contracts with the city. | |
| By financing the deficit, the city would get $400 million | |
| that would permit them to pay its bills on a timely basis. But | |
| the city would have to then repay that, and we propose to give | |
| them up to 15 years to repay it. So every year--it would be as | |
| though the city were atoning for the prior deficits by now | |
| appropriating sufficient funds to repay the borrowing. So past | |
| deficits would be financed, and they would be repaid over a | |
| period of years. | |
| I believe that financing the deficit will go a long way | |
| toward, or will totally meet, the cash-flow needs of the city. | |
| But that is something we are going to have to work out with the | |
| Financial Authority to ensure that either--that deals totally | |
| with the cash-flow needs or we have an alternative vehicle | |
| available for the city to meet small, intra-year cash-flow | |
| shortfalls. | |
| Ms. Norton. Many residents point up that the Federal | |
| payment is, at least theoretically, to account for the fact | |
| that there is a Federal presence and a large Federal impact, | |
| because the District has a height limitation, it has more | |
| zoning strictures than any city in the United States, and of | |
| course the most expensive land it can't build on at all. | |
| What is your response to those who say that we are still | |
| left with this impact and with whatever services we provide the | |
| Federal Government? | |
| Mr. Raines. Well, the Federal payment over the years has | |
| been pointed to as the compensation for a wide variety of | |
| limitations on the city, and the value of those limitations has | |
| always greatly exceeded the amount of the Federal payment. | |
| What we have tried to do is change the paradigm. What we | |
| tried to say is that this Federal payment can't carry all of | |
| that weight and what we need to do is, instead of compensating | |
| the city by giving an annual lump sum payment, we should | |
| compensate the city by taking over some of its expenses, and if | |
| we take over more expenses than the value of the Federal | |
| payment, then this is a better deal for the city. | |
| But it will take a while, I think, before people | |
| reconceptualize the Federal payment and see that what we are | |
| proposing is a new deal. It is not a preservation of the deal | |
| cut in home rule, but it is a new deal that says that the | |
| Federal payment is inherently going to be an inadequate measure | |
| over time of compensating the city for restrictions. We need | |
| another method of balancing the responsibilities of the city | |
| and the limitation on the resources that the city has. | |
| So our approach is just an alternative way of doing it and, | |
| we believe, one that is better for the city. But I can | |
| understand why people who have grown up with thinking that the | |
| Federal payment was the compensation for a variety of things | |
| would have difficulty moving to a new paradigm, but that is | |
| what we are hoping that they will do. | |
| Ms. Norton. Mr. Raines, I appreciate that you came and | |
| spoke patiently and heard all the questions at my town meeting | |
| on the President's plan. Perhaps you would like to respond here | |
| as well, for the record, to the fact that many residents came | |
| forward to ask why there was not direct assistance to the two | |
| issues of which--or the two functions which many residents | |
| regard as paramount today: Public safety and education. | |
| Mr. Raines. The structure of our plan is to relieve the | |
| District budget of certain of its very extensive | |
| responsibilities and thereby provide more room in that budget | |
| for the city to tackle those responsibilities that are | |
| inherently local. Education and police protection are | |
| inherently local responsibilities. We believe that by relieving | |
| the city of the other financial burdens that they face, that | |
| the city officials now will have more room in which to deal | |
| with the issues of education and police within their own | |
| resources. | |
| We believe it is very important for the future of the city | |
| that the city leadership take dramatic action with regard to | |
| public safety and education. There is no prospect of a | |
| financial revitalization and an economic revitalization of the | |
| city unless citizens and visitors feel safe and unless the | |
| young people in the city are trained to join the work force of | |
| the 21st century. | |
| And so there is no higher important issues for the city | |
| government than dealing with those. But we believe they are | |
| inherently local, and we believe we are providing additional | |
| resources for them to deal with those issues by removing | |
| certain other expenses from their budget. | |
| Ms. Norton. During this round--I have just one more | |
| question during this round for you, Mr. Raines. Your plan would | |
| have the District government come into balance a year earlier | |
| than the financial authority statute. And you, of course, have | |
| watched the District go through excruciating pain just getting | |
| to balance year by year and then retread itself just to keep | |
| from overspending each year. | |
| Why did you think it was important for the District to | |
| balance its budget this year, in fiscal year 1998, rather than | |
| in fiscal year 1999 as the original authority statute | |
| indicated? | |
| Mr. Raines. There are several reasons for our view on that. | |
| First, any additional deficit that is run up is more money that | |
| the District is going to have to borrow and repay with interest | |
| going forward, and it adds to the cash problem that the city | |
| has. | |
| Second, it has been my experience that taking decisive | |
| action to balance a budget in as short a time as possible is | |
| more likely to lead to an enduring balance than struggling each | |
| year and doing only what is necessary to move toward a balanced | |
| budget without actually balancing. | |
| Third, I think it is an important symbol and signal to | |
| Congress that the city is taking decisive action, moving ahead | |
| of schedule to deal with the city's financial problems, and I | |
| believe it puts the city in the position of taking aggressive | |
| action on its own that I think is--I know is certainly | |
| appreciated within the administration, and I would think would | |
| be appreciated by the Members here, that the city is doing | |
| everything it can to bring its affairs in order as quickly as | |
| possible. | |
| Ms. Norton. Mr. Chairman, before I relinquish the | |
| microphone, in response to what Mr. Raines has just said, there | |
| is a thought here in the Congress, the notion that this is a | |
| bailout. | |
| You indicated that one reason for wanting us to come into | |
| balance early is to show that the District has stepped forward | |
| to do something that is equally painful as the Congress will | |
| find it painful to come up with any additional money. How would | |
| you respond to Congress when it says that this is a bailout? | |
| Mr. Raines. Well, I think that this is definitely not a | |
| bailout in this sense. First, the Federal Government has an | |
| interest in the Nation's Capital, and the services that we have | |
| targeted for the Federal Government to finance are services and | |
| government programs that directly relate to that Federal | |
| interest, and therefore our first step is in protecting the | |
| Federal interest. That we need to do for ourselves and for the | |
| Nation and not simply for the citizens of the District. | |
| Second, we do provide some additional room for the city by | |
| relieving it of some of these responsibilities, but by no means | |
| are we obviating the need for the city to make very difficult | |
| financial choices. The city is going to have to significantly | |
| rethink everything it does in order to reach structural | |
| balance. This is not just a matter of not spending certain | |
| dollars in a year, it is not a problem that will be solved by | |
| furloughs or deferrals, the city will need to fundamentally | |
| rethink what it does, and therefore I don't think anyone in the | |
| city will view this as a bailout, as keeping them from having | |
| to make tough choices. Indeed, it merely highlights the need | |
| for those tough choices. | |
| So it is anything but a bailout, it is an opportunity for | |
| the city, but I believe it is a necessity for the national | |
| government that we have to have a well-functioning Nation's | |
| Capital. So the national interest requires us to act, and our | |
| concern about home rule and the well-being of the residents of | |
| the District requires us to do it in the way that increases | |
| their chances of success. | |
| Ms. Norton. Thank you. | |
| Thank you, Mr. Chairman. | |
| Mr. Davis. Thank you. | |
| I have a few questions I want to go through with you as | |
| well. First of all, I don't think there is any question--I will | |
| just say this again--that the city is much better off with this | |
| proposal than they are today, whether you have a Federal | |
| payment or not; the city is much better off financially under | |
| this proposal. It is not even a close call. | |
| In addition to that, you have taken some of the fastest | |
| growing elements of the budget that will increase the deficit | |
| in later years and helped the city by providing a better | |
| percent on Medicaid; taking over corrections where there is | |
| huge cost avoidance built into the city that they have not | |
| invested; and on the unfunded pension liability, that stops in | |
| the year 2004. If something is not done, it is going to be 15 | |
| percent of the city budget. So this not only helps the city | |
| today, but over the long term. I think this is critical to the | |
| city's success. | |
| You have clearly given this a lot of thought. You have even | |
| thought of some of the cultural changes and incentives and | |
| disincentives as you have worked through this. And I even | |
| understand it better now sitting here. I think we are going to | |
| be adding some and moving the plan around a little bit, as it | |
| often happens when it comes here, but you have clearly given | |
| this a lot of thought. I think it hangs together fairly clearly | |
| at this point, and we will be hearing from other perspectives | |
| as we proceed. I want to congratulate you on your efforts. | |
| I also want to recognize our colleague from Prince | |
| Georges's County. Congressman Wynn has just come in, and we | |
| will give him an opportunity to ask questions later. | |
| Let me move to a couple of issues. Mrs. Morella had asked | |
| why the initial Treasury provision to finance the debt in 1995 | |
| was dropped from the Control Board legislation. Mr. DeSeve, who | |
| is sitting behind you, has been so helpful in that and other | |
| matters, can answer that more clearly. But as I recollect, that | |
| was a scoring problem as to how that would be scored under the | |
| Budget Act. I would ask Mr. DeSeve if he might want to, just | |
| for the record, answer that more fully. | |
| STATEMENT OF G. EDWARD DeSEVE, CONTROLLER, OFFICE OF MANAGEMENT | |
| AND BUDGET | |
| Mr. DeSeve. During the process of creating the financial | |
| responsibility and management assistance authority legislation, | |
| Treasury and the committee staff proposed the terming out of | |
| the deficit over a period of time, a 15-year period of time. | |
| There were two concerns raised at that point. | |
| No. 1, without the existence of the Financial | |
| Responsibility Authority, people were concerned that the city, | |
| having the ability before the Authority had a chance to work | |
| and demonstrate what real fiscal restraint was like, might be | |
| inappropriate. | |
| Second, there was and there remains today the likelihood | |
| that under the Credit Reform Act that a loan of that length, 15 | |
| years, would have scoring implications. There are other similar | |
| kinds of loans that are made by various agencies to State and | |
| local governments that have that same characteristic. So let | |
| the Authority work was concern No. 1. Concern two was that | |
| there was and will be a scoring component to that particular | |
| loan. And for those reasons it was agreed by the administration | |
| and the Congress to allow those provisions not to be included | |
| in the Financial Responsibility and Management Assistance Act. | |
| Ms. Norton. Will the gentleman yield? | |
| Mr. Davis. Happy to yield. | |
| Ms. Norton. This plan is paid for. Is that not the case at | |
| this time with all of its provisions? | |
| Mr. Davis. It is in the President's budget. Now Congress | |
| has to adopt its own resolutions. But it is. | |
| Mr. Raines. Yes. | |
| Mr. Davis. Thank you very much. | |
| I would like to, if I could, spend this part of my | |
| questions on the corrections issues, which have not only the | |
| interest of the Virginia delegation but for all of us because | |
| of the crime issues in the city. The proposal is going to | |
| affect crime in the city and the region. | |
| What do you mean by comparable sentences to Federal | |
| sentencing guidelines? Does the President's proposal | |
| contemplate the straight imposition of Federal sentencing | |
| guidelines on the District courts? | |
| Mr. Raines. We have been meeting extensively with District | |
| officials, and there have been meetings within the Justice | |
| Department to further define our call for sentencing guidelines | |
| that meet Federal standards. We are proposing the creation of a | |
| set of standards that reflect Federal policies with regard to | |
| determinant sentences. We also are proposing that they be | |
| enacted by the D.C. council as a part of D.C. law. | |
| They need not be the same as Federal sentencing guidelines, | |
| but they need to reflect a difference in philosophy about | |
| sentencing, which primarily involves determinant sentences, so | |
| that if someone is sentenced for 2 years, they serve for 2 | |
| years. There also need to be a much more restrictive use of | |
| parole in the sentencing process. | |
| We think it is important for prisons to serve their | |
| purposes. It is also important to have some consistency with | |
| the procedures that affect Federal prisoners, because it is | |
| clear that some District prisoners will need to be in | |
| facilities other than those in the local area, and therefore we | |
| are concerned that there be some consistency in sentences. But | |
| there is not a requirement that they be identical to the | |
| Federal sentencing guidelines. | |
| Mr. Davis. Thank you very much. | |
| There are many District crimes that fit into the municipal | |
| or State category and have no comparable Federal statute. Would | |
| you envision the Federal Sentencing Commission determining new | |
| guidelines for each of these crimes, or how would this---- | |
| Mr. Raines. We envision setting up a Federal/District | |
| process to recommend new sentencing guidelines that would be | |
| included in law by the D.C. council. So these would be | |
| sentences that were created to be applicable to the District of | |
| Columbia, and that would fill in any gaps that may exist as | |
| between how the Federal Government has conceived of sentencing | |
| and how the local government has. But we view these would be a | |
| unique set of guidelines affecting the District of Columbia. | |
| Mr. Davis. What is the timeframe for that? Would we be | |
| doing that as part of this legislation as we move through, or | |
| would that come after? | |
| Mr. Raines. What we will be asking is an authorization for | |
| us to begin that process. We would see it being completed | |
| during that 3- to 5-year transition period with the prisons, so | |
| that it would be completed prior to the Bureau of Prisons | |
| taking control of the facilities. | |
| Mr. Davis. Thanks. I couldn't help but notice that the | |
| proposal recommends that the Lorton complex be renovated where | |
| possible and even expanded. That was called to my attention by | |
| interested constituents. Is this something that the President | |
| intends to insist on, or are we willing to negotiate on whether | |
| Lorton should be retained or moved to a new location? | |
| I know that you have some new cost data coming your way | |
| with the NCCD report that is in your office at this point. Is | |
| the administration going to be flexible on this, in working | |
| with this committee and with Congress? | |
| Mr. Raines. Mr. Chairman, we will certainly be flexible in | |
| working with the committee on the specifics of how the plan is | |
| implemented. Our major concern is to ensure that adequate | |
| facilities will exist for the prison and, as far as possible, | |
| that these facilities are as close to the District of Columbia | |
| as possible. | |
| It is our preference to have these facilities renovated and | |
| constructed on the Lorton property, because that exists. But we | |
| will be happy to work with the committee on any ideas that the | |
| committee might have. | |
| Mr. Davis. Thank you. Lorton is there. The land is there. | |
| You don't have to find new land, and for that reason it is very | |
| convenient. And I understand that, and I think that the burden | |
| on us is to go and find that we can do this in a cost-effective | |
| manner and still meet the guidelines that we all want to meet, | |
| because Lorton, as currently constituted, has failed, and I | |
| think we all recognize that. | |
| The numbers that I have seen point to almost $1 billion for | |
| replacement of that facility where it is now, but as we get new | |
| cost estimates we want to continue this dialog with you as | |
| well. We appreciate the administration's being willing to take | |
| a flexible view as long as we can meet the final goal that I | |
| think we share with you. | |
| In one of the briefings I received on the proposal, I heard | |
| a figure of 10,000 inmates used as a basis of a cost estimate | |
| of $850 million in capital costs. Now my understanding is that | |
| there is a new study currently under final review in OMB that | |
| concludes that in the year 2006 there will be 7,400 felons | |
| sentenced from the District. I don't know how you conclude what | |
| you will have in 2006, but they have people that do that. | |
| Do you know what the rationale is for a 33 percent increase | |
| in population estimate that was concomitant cost increases over | |
| the NCCD estimates that were consensus estimates? Have you | |
| gotten that far in looking at this? | |
| Mr. Raines. Yes, the study you referred to assumes that | |
| there is no change in sentencing practice. Our estimate of | |
| 10,000 assumes that there is a change and that there will | |
| therefore be more inmates who are actually in the facilities. | |
| Now, there was a lot of ups and downs in this because there | |
| may be more prisoners but they may be serving, in some cases, | |
| shorter sentences, and therefore it is not clear all of the | |
| details of that. But we think that the 10,000 estimate is a | |
| good planning estimate at this point, given the changes in | |
| sentencing. | |
| Mr. Davis. What about the prison privatization issue? The | |
| Federal Bureau of Prisons generally does not get into that, it | |
| is my understanding. As you know, the District is already | |
| moving toward privatizing at least a large portion of its | |
| inmate population control, and it has a long-range plan to do | |
| more in that direction. Does that remain a viable alternative? | |
| Mr. Raines. Well, the Bureau of Prisons has spent a lot of | |
| time studying the issue of privatization, and particularly in | |
| the context of a couple of facilities in California. The | |
| Department of Justice has some serious concerns about | |
| privatizing prison facilities, given the extraordinary powers | |
| that prison guards and officials have over the lives of the | |
| prisoners and the need to take and to use the police power to | |
| maintain order in prisons. | |
| But we did not rule out privatization of some parts of the | |
| system should the Bureau of Prisons believe that that is the | |
| most effective way to go and that it is consistent with the | |
| need for the maintenance of order. | |
| Mr. Davis. So as we look at these numbers and deal with | |
| them, we could find that it could make sense for the Federal | |
| Government to take over D.C. Corrections and perhaps privatize | |
| them ourselves rather than incur higher BOP costs. We need to | |
| work through those issues? | |
| Mr. Raines. We need to work through it. I am not sure that | |
| there is going to be a major cost difference here, but again, | |
| the Bureau of Prisons has done quite a bit of work on this and | |
| has some fairly strong feelings about the concerns about what | |
| happens, for example, in the case of prisoner disorders and the | |
| need for the guards on the premises to exercise police powers. | |
| If it is a purely private facility, questions arise as to the | |
| appropriateness of the use of force and other measures that | |
| have caused them some concern as they look at the issue. | |
| But I am sure that the representatives from the Bureau of | |
| Prisons would be happy to meet with the committee and go over | |
| their concerns as well as provide the committee with the | |
| benefit of the work they have done. | |
| Mr. Davis. Just a couple of other questions before I yield | |
| to the gentleman from Maryland. Who would administer the courts | |
| under your proposal, and who administers them now? | |
| Mr. Raines. The courts are essentially self-administered | |
| now, although financed by the city government. The city | |
| government provides a lump sum to the courts, and the courts | |
| then utilize those funds to finance themselves. | |
| Under our plan, the management of the courts would remain | |
| the same. We would simply have the funds come from the Federal | |
| Government through the Administrative Office of the Courts--of | |
| the Federal Courts, and then to the local court system. So | |
| there would not be a substantial change in how the courts are | |
| managed. | |
| Mr. Davis. Are there real policy or principal reasons that | |
| the Administrative Office of the Courts couldn't and shouldn't | |
| oversee the District courts? | |
| Mr. Raines. Well, we have had a number of discussions with | |
| them. They are quite busy. They have a full plate in | |
| administering the Federal courts, but we believe they are the | |
| most appropriate administrative agent for funds for the D.C. | |
| courts. | |
| It would be difficult to do it through the Justice | |
| Department because the Justice Department appears before the | |
| courts so extensively that some might believe that there was a | |
| conflict of interest if the Justice Department also controlled | |
| the funding for the courts. | |
| Mr. Davis. Thank you very much. | |
| Well, before I yield to the gentleman from Maryland, I just | |
| want to note that we have had some suburban Members here. I | |
| think the great thing about what you have proposed and the way | |
| we hope to conduct this is that we no longer have suburbs | |
| versus city in these conflicts. We are going to try to move out | |
| of this and move to the fact that our destinies are intertwined | |
| and we are one region and we all have a strong investment in | |
| making the central city work. And I know that Mr. Wynn shares | |
| that with me, and in that regard I am happy to recognize the | |
| gentleman from Maryland. | |
| Mr. Wynn. Thank you, Mr. Chairman. And I concur with your | |
| sentiments about the interdependence of our region. And I thank | |
| Mr. Raines for appearing today. | |
| I apologize for not being here for the beginning of your | |
| presentation. I have a couple of questions that I hope have not | |
| been covered or explained. | |
| One of the fundamental issues of concern to me has to do | |
| with law enforcement. I understand and heard your comments with | |
| regard to the takeover of the court system. My first question | |
| is: Is there any direct assistance for the District of Columbia | |
| Police Department? Is there any aid going to the D.C. Police | |
| Department under this proposal? | |
| Mr. Raines. Under our plan, we are taking over certain | |
| functions that will provide additional budget room within the | |
| District's budget, that the local officials can choose to | |
| invest in the police department. | |
| But we are also quite interested in working with the | |
| Financial Authority on their efforts to try to improve | |
| management in the police department, and we will be working | |
| with them and providing whatever technical assistance we can | |
| from any of the Federal law enforcement agencies to help | |
| improve the functioning of the police department. | |
| And so the benefits for the police department come from | |
| expanded room in the District budget and technical assistance | |
| that we have offered to make available. | |
| Ms. Norton. Will the gentleman yield on the police | |
| department question? | |
| Mr. Wynn. Certainly. | |
| Ms. Norton. I just want to indicate to the gentleman that | |
| the Congress negotiated a plan for an additional $42 million | |
| for the police department last year. Working with Senator | |
| Hatch, the chairman of the Judiciary Committee in the Senate we | |
| were able to get $15 million. The needs of the police | |
| department are immediate. I believe that the Federal Government | |
| now owes us $27 million and that we cannot wait for this plan | |
| or any plan to get that money. And I intend to use the next few | |
| weeks to get the additional $27 million that I think we have | |
| coming to us. | |
| Mr. Wynn. Well, I certainly share your concern, and have a | |
| similar sense of urgency with respect to funds for the police | |
| department, which actually led to my next question. I | |
| understand that basically by assuming certain pension liability | |
| for the police department, that that would be the basis on | |
| which these additional funds, additional space if you will, | |
| would be created to provide. How much money approximately would | |
| be available to the D.C. government as a result of the takeover | |
| of the pension liability that could be used in whole or in part | |
| for the police department? | |
| Mr. Raines. We have not divided the dollars by the | |
| components of the plan, but I believe we begin, in the first | |
| year, in the range of $60 or $70 million and that rises over | |
| time. That is the net value of what we are taking over minus | |
| the Federal payment. | |
| Mr. Wynn. Sixty million? OK. And you mentioned that there | |
| were certain management improvements with respect to the police | |
| department that you thought were necessary. Could you comment | |
| briefly on that? | |
| Mr. Raines. Our plan does not have extensive detail on | |
| that, but let me just say this. The experience in a number of | |
| other cities has been that using information technology, | |
| changing patrol practices, and maximizing the number of | |
| officers on the street have a significant impact on crime. And | |
| these kinds of changes have been introduced in part in the | |
| District, but not as aggressively as in other cities. We | |
| strongly encourage the city to use the most advanced thinking | |
| on deployment of police resources as they deal with the issues | |
| of crime. | |
| The Control Board has just received a study that I have not | |
| yet seen, but I have read the press reports, and I think it | |
| begins to address some of these issues. I look forward to | |
| working with the Control Board to see what additional help the | |
| Federal Government might provide to assist the police | |
| department in becoming one of the best in the Nation, and in | |
| using the most modern techniques to have a very direct impact | |
| on crime. | |
| Mr. Wynn. Well, I agree. I noted in recent reports that New | |
| York City had had significant success by dramatically | |
| increasing the number of officers on the street and that would | |
| be something that I think could work in this area as well. | |
| Let me ask briefly in the area of economic development, I | |
| understand that there is some consideration or proposal for a | |
| tax incentive program to spur economic development. Could you | |
| comment a little bit about the specifics of what would be | |
| envisioned in terms of the tax incentives? | |
| Mr. Raines. We have proposed the creation of an Economic | |
| Development Corporation that would have certain powers. Among | |
| those, the ability to provide tax incentives to businesses. The | |
| actual details of that are not yet available. I hope that they | |
| will be in the next week or so we will be able to give you the | |
| specific items and what the tax advantages are, how they would | |
| work, and who would qualify. But I think we are still about a | |
| week away on that. | |
| Mr. Wynn. Would capital gains relief be included? | |
| Mr. Raines. It is not our current plan to include any | |
| capital gains provision in the proposal. | |
| Mr. Wynn. All right. Thank you, Mr. Chairman. At this time, | |
| I wouldn't have any further questions. I would like the | |
| opportunity to perhaps submit some written questions at a later | |
| date. | |
| Mr. Davis. Happy to. Thank you. | |
| Ms. Norton. | |
| Ms. Norton. Thank you very much, Mr. Chairman. Mr. Raines, | |
| as you know, when District employees were Federal employees, | |
| Congress saw fit never to set up a trust fund for pensions. | |
| When pensions were finally transferred in 1980, the Congress | |
| set up--the Congress required the District to set up a trust | |
| fund and to contribute amounts such that now our pensions since | |
| home rule are significantly overfunded. | |
| In that regard, would you indicate why transferring that | |
| entire amount--why it is that your plan calls for transferring | |
| that entire amount to the Federal Government? | |
| Mr. Raines. Well, our plan involves taking over virtually | |
| all of the unfunded liability of the District pension plans, | |
| and that unfunded liability is considerable. It is in excess of | |
| $4 billion. The total liability is in excess of $7 billion. And | |
| so that the funding that has been generated since 1979 has kept | |
| the unfunded liability from growing totally out of control, but | |
| the liability is still quite large. | |
| Rather than trying to find a methodology of sharing that | |
| unfunded liability, or of coming up with new Federal dollars to | |
| go into the pension plan, it struck us that it was more | |
| consistent with our overall approach to simply relieve the city | |
| of the full responsibility. And if we are going to relieve them | |
| of the responsibility for those benefits, we need, as well, to | |
| acquire the assets that are now offsetting part of that | |
| liability. And that is what we propose to do. | |
| You should recall that the assets are an estimate of what | |
| will be available to fund the liability. But if for any reason | |
| the performance of the economy and the performance of the stock | |
| market doesn't meet the estimates, then the unfunded liability | |
| would be larger. If we take it over, the pensioners will be | |
| assured with the full faith and credit of the United States | |
| that they will receive their benefits, regardless of the | |
| performance of the stock market. So that from the standpoint of | |
| beneficiaries we believe this is a very--it is very important, | |
| and from the standpoint of the city, removing this entire | |
| liability and giving the city a fresh start, we think, is | |
| important to the long-term financial health of the city and to | |
| its credit ratings. | |
| Ms. Norton. You propose that the present pension plan would | |
| be closed with no further accruals to that plan, and that a new | |
| plan would be instituted for the very same employees who are | |
| here and so they would be subject to two plans. Do you envision | |
| that an employee would risk final receipts of pensions in the | |
| amount that she would have had had there been only one pension | |
| plan? In other words, will going to two pension plans in and of | |
| itself diminish the pension of individual employees? | |
| Mr. Raines. No, it should have no impact on the individual | |
| employee. They will receive credit for their time served under | |
| the existing plan. They will receive a benefit that is | |
| calculated based on looking at their terminal pay, just as they | |
| would under the current plan. So there is nothing in our plan | |
| that by itself would result in any diminished benefits to | |
| employees. | |
| And as I mentioned, there is an added improvement in that | |
| the payments would no longer be subject to the vagaries, at | |
| least on the older plan, or whether or not the District would, | |
| in fact, be able to meet that unfunded liability. | |
| One of the issues, I think, that has not been addressed by | |
| many, but Chairman Davis mentioned, the increase in the | |
| requirement for the city contributions to the pension plan in | |
| 2004 are enormous. And I don't believe anyone has identified a | |
| plan whereby the city would actually be able to make those | |
| payments. We think that our plan forestalls that issue and does | |
| so before pensioners and others would become concerned about | |
| the fact that the city does not have the financial wherewithal | |
| to increase its payments by the amount now required in law. | |
| Ms. Norton. I can certainly tell you that having worked | |
| very hard on a pension bill last year that I grow very nervous | |
| if anyone in the District thinks that the Congress has any | |
| interest in stepping up on this issue. It is frightening. It | |
| has been frightening to see how little response I get when I | |
| talk about what would really be the biggest catastrophe of the | |
| city and that is either not doing it or waiting so long to do | |
| it that you have untold repercussions on our bond and on | |
| everything else that the District has. | |
| This is a very, very troublesome issue because the Congress | |
| is 100 percent responsible and has shown not the slightest | |
| interest in doing anything about it. This is a 100 percent | |
| congressionally created liability. | |
| May I ask one more question, and that is about the notion | |
| that the Internal Revenue Service collect taxes for the | |
| District, including local taxes. First, how would this occur? | |
| What are the mechanics of how this would occur, especially for | |
| the ordinary taxpayer? | |
| Second, what efficiency does this build in for the District | |
| government? And third, if this is already available to the | |
| States, why do other States not also do it at this point? | |
| Mr. Raines. From the efficiency standpoint for taxpayers, | |
| this would be a major breakthrough. They would no longer have | |
| to file separate returns with the city, but they could | |
| calculate their city income taxes as well as their Federal | |
| income taxes on the same form. And that would be a major | |
| efficiency for the city. | |
| Also, the city, being a small part of a larger region, has | |
| some unique enforcement problems and that is that it is not | |
| able to determine what jurisdiction people may be living in and | |
| has not been able to take advantage of some of the matching | |
| programs that the States use in working with the Internal | |
| Revenue Service ensuring enforcement of their tax laws. | |
| Third, I believe that the economic incentives that we will | |
| be suggesting as part of the Economic Development Corporation | |
| will depend greatly on residence of employees. And one of the | |
| ways of ensuring that the city gets the benefit from these | |
| incentives in its tax system is to ensure that those new | |
| employees are, in fact, paying District taxes. | |
| The experience elsewhere with this option has been, at | |
| least my experience in the couple of States that I am aware of | |
| who have looked at this question, has been that those States | |
| were large enough in general and sufficiently isolated in | |
| particular from surrounding jurisdictions that they didn't have | |
| these cross-border problems that were of concern and they are | |
| large enough to afford the kind of system that you need to | |
| enforce an income tax jurisdiction. | |
| The District is a relatively small jurisdiction and does | |
| not have access to a lot of the tax tools that other agencies | |
| have, and therefore I think the city would uniquely benefit | |
| here. Both that the citizens would have a more simplified tax | |
| return, but also the Internal Revenue Service enforcement | |
| mechanisms would be available and we believe it could have a | |
| salutary impact on the total amount of taxes actually paid to | |
| the city. | |
| Ms. Norton. The District has a reputation for inefficiency. | |
| No inefficiency, though, is greater in the District than the | |
| notorious inability to collect the taxes that it enacts into | |
| law and apparently doesn't see. To the extent this would help | |
| this, I would be interested in exploring it further. Thank you, | |
| Mr. Chairman. | |
| Mr. Davis. Frank, I just have a few more questions on the | |
| Economic Development Corporation. Two things to flush out on | |
| that and I am sure that will have the option of a lot of give | |
| and take as we move through it. I want to make sure I | |
| understand what you have in mind. | |
| Could you explain what would the geographical area of | |
| operation be for the Economic Development Corporation? Would it | |
| be the whole city; what authorities it is intended to have and | |
| what is the funding source and the level? | |
| Mr. Raines. Well, the primary area of activity of the | |
| corporation will be the central business district and those | |
| communities outside of the central business district that have | |
| a large percentage of low-income people. It is not our current | |
| thinking that it would be active in the higher income areas | |
| where there is substantial amount of economic activity | |
| currently taking place. | |
| We intend to fund the corporation with up-front money to | |
| capitalize it, but also making available tax credits that could | |
| be part of its program. We also think that the corporation | |
| should have an extensive involvement with the private sector, | |
| since economic development in this city as well as any other | |
| city, has to be really driven by private investment, private | |
| job creation, and so that there will be a close tie to private | |
| economic activity. | |
| And it is our desire to attract private capital as well to | |
| the corporation to supplement the funds made available by the | |
| Federal Government in the initial capitalization so that | |
| activities ranging from major development projects to job | |
| training and job creation would be effective under the | |
| corporation. | |
| Mr. Davis. OK. Is this at all similar to the Pennsylvania | |
| Avenue Development Corporation and the proposed New York Avenue | |
| Development Corporation? | |
| Mr. Raines. It is really not as geographically focused. | |
| They may well decide to have a focus on a particular area, but | |
| it would not be the entire focus on any one particular area. | |
| Second, there would be more reliance on the tax system and tax | |
| incentives as opposed to direct Federal appropriations. | |
| Mr. Davis. What about the redevelopment land authority? | |
| Would this corporation assume or be capable of assuming some or | |
| all of that responsibility? | |
| Mr. Raines. Well, that is one issue that we have had some | |
| discussions on and really don't have a conclusion. I could see | |
| the city deciding, or this committee deciding, that combining | |
| certain other economic development activities as part of the | |
| corporation might be beneficial. We really haven't come to a | |
| conclusion there. But the more that we can have a coordinated | |
| effort, I think, the better. | |
| Mr. Davis. What about the corporation assuming control over | |
| existing District-owned land that is determined to be surplus? | |
| For example, you could have a number of school sites perhaps | |
| coming available with General Becton looking at some school | |
| closings. That could be a good catalyst if it is put under some | |
| central authority. | |
| Mr. Raines. We think it would be beneficial for the | |
| corporation to have access to land that it could include in its | |
| development plans. Indeed, it would be our hope to make | |
| available where we could Federal lands that had been declared | |
| surplus that might be available for economic development and | |
| the extent to which the city could do the same thing, I think | |
| that it might be helpful. | |
| The private sector orientation of the corporation, I think, | |
| would be important. There is something of a history of land | |
| being allocated for certain developments and those developments | |
| not happening for many, many years. And I think it would be | |
| necessary to ensure that development projects could move | |
| expeditiously as the result of the corporation's activities. | |
| Mr. Davis. OK. Do you think it would be helpful for the | |
| city to have one agency authorized and responsible for all | |
| surplus district properties so that it could put together | |
| adequate parcels for development? Is that not a determination | |
| that this proposal makes? | |
| Mr. Raines. We have made no determination on that as part | |
| of this plan. | |
| Mr. Davis. Many District government buildings, public | |
| housing, schools, police stations, are built on federally owned | |
| land. Would the administration support transferring these | |
| parcels, most of which were acquired for District-only purposes | |
| over the years, to District ownership? | |
| Mr. Raines. We would be happy to work with the committee in | |
| looking at the particulars to see the extent to which that | |
| would make a difference in the success of the plan. | |
| Mr. Davis. Finally, how would this corporation be governed? | |
| Is it intended to have District participation but not | |
| domination? Would it be charged with protecting Federal | |
| interests as well as District interests? Any conclusion on that | |
| yet? | |
| Mr. Raines. Our view is that the corporation ought to be | |
| primarily made up of private sector individuals appointed by | |
| some combination of the Federal Government and the local | |
| government. | |
| Mr. Davis. OK. And moving to the last topic. As you know, | |
| all of the District's general obligation debt carries a proviso | |
| that if other funds are not available, the Federal payment can | |
| be used as security for the debt. We ran into considerable | |
| discomfort from the existing bondholders on this issue 2 years | |
| ago when we allowed the Federal Treasury to use the Federal | |
| payment as collateral for short-term loans. | |
| How do you expect the elimination of the Federal payment to | |
| affect the value and liquidity of outstanding District debt and | |
| on the District's future bond rating? I don't know if you want | |
| to answer that or Mr. DeSeve. He doesn't want to take it. | |
| Mr. Raines. Well, Mr. Chairman, I actually wrote the bond | |
| indenture for the District of Columbia many years ago, and I | |
| believe it is a very strong indenture. As I recall, the actual | |
| reference is that the Federal payment, if any, is available for | |
| support of the bonds. | |
| I think the most important thing we can do in supporting | |
| the value of the District's bonds is to remove the financial | |
| cloud over the city, particularly by eliminating the concerns | |
| about the pension liability. So if you take the plan as a | |
| whole, I believe it would be a very strong net positive for the | |
| bonds, far more than the prospect of using the Federal payment | |
| to meet the payments. Currently, the bonds have a very strong | |
| security in the property tax and, as long as that security is | |
| respected and enforced by the courts, I think it should be | |
| adequate security for bondholders. | |
| Mr. Davis. Thank you very much. Mr. Wynn, do you have any | |
| additional questions? | |
| Mr. Wynn. Thank you, yes, just one. Going back to the issue | |
| of the Federal Government assuming responsibility for prisons, | |
| I note that prison staff would not be automatically integrated | |
| into the Federal Government system, but would have to reapply | |
| based on their ability to meet Federal standards. That gives me | |
| some concern. What exactly is the difference between the | |
| current Federal standards and the District of Columbia's | |
| standards now? | |
| Mr. Raines. Well, they were developed separately, and I | |
| think the Bureau of Prisons wants to ensure that all of their | |
| employees have met the standards, have had similar training, | |
| and will be able to be successful. | |
| I think there would be a reluctance, as I think there is a | |
| reluctance in any of these cases, to simply have a blanket | |
| promise that everyone will be hired who is currently employed. | |
| It is one of the things that will have to be worked out during | |
| this transition period, is what is the necessary employment | |
| levels; is the structure of the work force that is currently in | |
| the prison system the same as the one that the Bureau of | |
| Prisons would like to operate? What is the level of supervision | |
| and the number of supervisory personnel? | |
| So there are a lot of issues that are going to have to be | |
| worked out, but I think the Bureau would be very reluctant to | |
| give a blanket promise that everyone who is currently employed | |
| would have a job under the new system. | |
| Mr. Wynn. Would it make sense to provide for a transition | |
| period so that if the issue was training and a number of hours | |
| of training or something like that, that existing personnel | |
| could obtain that training without being immediately discharged | |
| purely because they lack this specific training component that | |
| the Bureau of Prisons personnel had that they had never been | |
| offered? | |
| Mr. Davis. Will the gentleman yield? We would be very happy | |
| to work with the administration on those kinds of things to | |
| bring people up to the required hours and so on on this. I | |
| would think that would be a possibility and would be very | |
| helpful. You could retrain people instead of hiring new people | |
| with a proven record. | |
| Mr. Raines. Absolutely. And we provide for a 3 to 5-year | |
| transition period and during that period it would be my hope | |
| that not only would the physical facilities be improved, but | |
| also any training necessary that would be comparable to that | |
| provided to the Bureau of Prisons would also be provided so | |
| that the vast majority of employees would know on the first day | |
| that they had been retained once the Bureau of Prisons takes | |
| control. So we don't view there would be an abrupt moment. We | |
| view this 3 to 5-year period as not only dealing with physical | |
| capital, but also human capital in the system. | |
| Mr. Wynn. It sounds like between your comments and those of | |
| Chairman Davis that this issue could be resolved without the | |
| loss of prison personnel that could otherwise be qualified to | |
| be employed by the Bureau of Prisons. | |
| Mr. Davis. I would think that the prison employees who have | |
| the experience and would accept the training would be a great | |
| asset, obviously. These are issues that we need to think and | |
| work through together. You have a number of affected | |
| constituents, but on the other hand, the Bureau of Prisons has | |
| to ultimately make this determination or they are not going to | |
| want to be involved. But I would think there would be room for | |
| most of the people. | |
| Ms. Norton. | |
| Ms. Norton. To my good friend from Maryland, I should say | |
| for the record that the nature of his questions say all that | |
| needs to be said about where District employees live. | |
| Mr. Wynn. Throughout the region, it is my understanding. | |
| Mr. Davis. Is that your question? | |
| Ms. Norton. No, it is not, and I appreciate his help on | |
| that issue because at least a few of them live in the District. | |
| I have only one question, and that is about an element of | |
| the proposal that your working group is having some difficulty | |
| with, and they are trying very hard and working very well, and | |
| that is the National Capital Infrastructure Fund. Anybody who | |
| goes outside now, even after the District has been struggling | |
| on the streets, finds that the potholes have reappeared. | |
| I mean, this is one of the reasons why the morale of | |
| citizens cannot be raised. It is what you see and feel and | |
| touch. There has just not been enough of what you see and feel | |
| and touch that has changed in this city to keep people here and | |
| to keep their morale up so they believe something is going to | |
| happen. | |
| So, though this amount is small, it is very welcomed | |
| because it is an acknowledgment that the care of roads is also | |
| a State function or of many roads is also a State function. | |
| The problem here, and I understand the amount, but the | |
| problem here is that we are talking about only $125 million, | |
| and with the thought and forethought and careful craftsmanship | |
| that have you given every part of this proposal, you see this | |
| as seed money, not as money just to be spent on some roads | |
| during the next 5 years. | |
| The problem is that it has to be seed money for something, | |
| and you indicate something that the city council could do right | |
| now, and I still don't understand why it has not been done. You | |
| indicate one thing that could be done that was. It would be | |
| payment in lieu of taxes that right now the city council and | |
| the Mayor could, in fact, be negotiating with the multitude of | |
| nonprofits that are in the city. I know that the National | |
| Education Association stepped forward itself and said here we | |
| are, negotiate with us. And I still don't know if their offer | |
| to pay 40 percent of the tax that they would otherwise pay has | |
| been accepted. All I know is that they have offered it. | |
| You put that in your proposal, except of course it is not | |
| directly related to roads. So it is seed money and perhaps | |
| would mean that that fund would grow because that amount would, | |
| I take it, would come into that fund over time. | |
| Now, if we were a city of another type, the amount could | |
| grow because of a revenue function that might be connected to | |
| roads and bridges themselves, such as tolls for example. That, | |
| of course, is not going to be possible, certainly within the | |
| city. And I wonder whether or not you believe that an amount of | |
| this kind can, in fact, be leveraged sufficiently to help us | |
| with local roads and with capital funds as your proposal says, | |
| with capital funding so much less, or whether the amount is | |
| simply too small to ultimately be leveraged for a purpose | |
| beyond, for example, the 5 years. | |
| Mr. Raines. Well, we would be very desirous of working with | |
| the committee on this issue. It is--in our view it is very | |
| important for the Nation's Capital and for the region and for | |
| the city that the city's transportation infrastructure be first | |
| rate. And the investment in that transportation infrastructure | |
| has lagged over a number of years to the extent that we now | |
| have had to waive the local match for highway funds because the | |
| city otherwise would not be able to move forward on very | |
| important projects that affect the whole region. And we view | |
| this National Capital Infrastructure Fund as a first step in | |
| dealing with transportation issues in the city, but also ones | |
| that intimately affect the region. | |
| So many of the employees in the city come from outside the | |
| city that there is a tremendous reliance on this system, on the | |
| Federal Government for its own employees relying on it | |
| substantially. Metro is the heart of our regional | |
| transportation system and we believe we have to find ways to | |
| increase the investment in that infrastructure. So we believe | |
| that this fund is a first step in that direction. | |
| We have suggested that others may be interested in | |
| contributing to this fund because of the regional impact. There | |
| has been some reluctance by entities to provide funds to the | |
| city because they were concerned as to whether or not the funds | |
| would be used for anything that was relevant to their own | |
| interest. But because the roads and bridges and Metro are so | |
| clearly of interest to the employers in the city, whether they | |
| are for-profit or nonprofit, because it is of such importance | |
| to the region because if the city is unable to pay its share of | |
| these costs, then the Metro and other facilities would | |
| deteriorate to the detriment of the region as a whole, that we | |
| are encouraging as many thoughts as possible about how can we | |
| attract other funds to this fund. And how can we deal with | |
| regional transportation issues generally through a mechanism | |
| such as this and starting with the District of Columbia? | |
| Ms. Norton. So consistent with your plan might be a | |
| regional fund that would be dedicated solely to regional | |
| transportation issues without prejudice to one or another | |
| aspect of those issues? For example, when you say there should | |
| be a gas tax and then people say, ``No, I want it for Metro,'' | |
| and when you say, ``It is for Metro,'' people in other parts of | |
| the region say, ``I can't use Metro because of where I live, | |
| no, I still need roads.'' | |
| Do you envision that this fund could be the beginning of a | |
| larger regional fund that could be a win-win for the entire | |
| region contributing to transportation needs wherever they may | |
| be, whether in rapid transportation or in roads? | |
| Mr. Raines. Well, as you know, in my role as the Budget | |
| Director, I have the opportunity to visit with people in the | |
| region about special regional needs, and the Federal Government | |
| has had a special relationship with this region. The most | |
| notable example is Metro, which has its own stream of funding | |
| from the Federal Government quite separate from the funding | |
| that is made available through the national programs. And so I, | |
| from time to time, hear about special regional needs, and I | |
| think it would be highly desirable if the region were to find a | |
| mechanism to deal with regional transportation concerns that | |
| provided capital funds on a continuing basis for these | |
| endeavors. | |
| The region has more in common than in some cases the | |
| suburbs in the region have with other parts of the State that | |
| they are in. | |
| So it strikes me that if the local leadership in the region | |
| could conceive of a means of financing capital for | |
| transportation, it would be indebted to the region, and, as the | |
| Federal budget director, I could well see how there is a | |
| national interest in ensuring that that mechanism worked well | |
| enough because of the impact on the Nation's Capital and the | |
| National Capital region. | |
| We have employees throughout the region; we have facilities | |
| throughout the region. If the transportation system does not | |
| work, then that is a problem for the Federal Government. | |
| Ms. Norton. This may be a very important opportunity for | |
| the region to get hold of some of the issues that were raised | |
| at the recent metro conference, where the bus system, for | |
| example, has broken off to such an extent that there is very | |
| serious concern about the future of Metro. | |
| I hope that the kind of imaginative thinking you have | |
| brought to District matters will encourage the region to bring | |
| the same to its own transportation matters. | |
| Thank you very much, Mr. Chairman. | |
| Mr. Davis. Thank you very much. | |
| Do you want to add anything in summarization of anything | |
| you have missed or something you would like to respond to? | |
| Mr. Raines. Mr. Chairman, I would just like to thank the | |
| committee for your interest in this proposal, your moving | |
| expeditiously with hearings, and the opportunity to have worked | |
| with the Members as we developed and presented the proposal. | |
| I think it bodes well for the future of the District that | |
| Congress has taken up this issue in such a forthright manner, | |
| and I look forward to working with you to see if we can get | |
| legislation as expeditiously as possible, so all the work that | |
| will be needed to move this plan into actuality in the next | |
| fiscal year, which begins October 1, can begin as soon as | |
| possible. | |
| Mr. Davis. I think we should be able to meet that deadline | |
| in working together. Today you have acquitted yourself and have | |
| shown that the administration has planned very well; I think, | |
| as is appropriate in the legislative process where we need to | |
| do that. I am personally energized by the attitude and | |
| initiative from the White House and from congressional leaders. | |
| We have a once-in-a-generation opportunity to make things | |
| happen. We have the Republicans and Democrats, Congress and the | |
| administration, city and suburbs, working together, recognizing | |
| we have some structural tasks ahead of us. | |
| I think the Control Board, who we did not talk about today, | |
| have brought about a lot of the changes. Although we read about | |
| bad news, a lot of this has been uncovered by the work they are | |
| doing. The Control Board should be working with the Mayor and | |
| council on the day-to-day functions. Congress should not be | |
| doing that. I think you have correctly focused on the larger | |
| structural issues that have to be addressed if the city is | |
| going to be successful. | |
| I also would just note the newly emboldened city council, | |
| and the fact that they are showing some initiative on this | |
| cannot help but make this a very satisfactory answer at the end | |
| of our journey. I will look forward to hearing from the Mayor | |
| and council in the near future, and I thank my colleagues for | |
| being with us today. | |
| The hearing is adjourned. Thank you very much. | |
| [Whereupon, at 11:35 a.m., the subcommittee was adjourned.] | |
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