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TESTIMONY OF February 20, 1997 Mr. Chairman, Members of the Committee, I am pleased to be with you this morning to discuss the President's plan to revitalize Washington, D.C. as the Nation's capital, and to improve the prospects for homerule to succeed. After I conclude my remarks, I would be happy to take any questions that you have. Overview 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, D.C. as the Nation's capital and, second, to improve the prospects for homerule to succeed. Under the plan, the Federal Government will invest nearly $4 billion over the next five 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 five years. While net Federal costs come to nearly $400 million over five 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 pension payments and the 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 (for example, the criminal justice system). But Congress will no longer appropriate every detail of the District's budget, which is 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 (MOU) among the Federal and District governments and the Financial Authority will outline other improvements in performance that the District will have to meet. Details of the plan 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 five 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 incarcerated D.C. felons for three to five 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 program. 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 (HHS) 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 five-year, $260 million tax incentive program, with a series of targeted incentives to build on the Administration's Empowerment Zone and Enterprise Community programs. Fourth, the plan will draw on Federal technical expertise to help make the city government more effective in such areas as income tax collection, education and training, housing, transportation, and health care delivery. For instance, the Internal Revenue Service will be able to collect District income and payroll taxes. The plan will simplify District residents' tax filing (allowing one form for both District and Federal taxes), as well as improve enforcement and collections. Other 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. Conclusion 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.
* * * Mr. Chairman, that concludes my testimony. I would be happy to answer any questions that you have.
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