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ONE HUNDRED EIGHTH CONGRESS
Congress of the United States
House of Representatives
COMMITTEE ON GOVERNMENT REFORM
2157 RAYBURN HOUSE OFFICE BUILDING
WASHINGTON, DC 20515-6143
Opening Statement of Chairman Davis
Committee on Government Reform
"Budget Autonomy for the District of Columbia: Restoring Trust in Our
Nation's Capital"
June 13, 2003,10:00 a.m., Room 2154 Rayburn House Office Building
Good morning. I would like to welcome everyone to today's hearing to
discuss options for expediting congressional consideration on the District
of Columbia's local budget. After issuing six consecutive balanced
budgets, receiving clean, unqualified financial audits and building up a
general surplus and cash reserves of over a billion dollars, I believe the
time has come for Congress to consider relaxing some of its oversight
controls over the Nation's capital.
The District of Columbia government has come a long way since March of
1995, when this Committee issued a report declaring that "the
District of Columbia is insolvent: the city does not have enough cash to
pay its bills. It is spending at a rate in fiscal year 1995 that would
exceed its mandated expenditure limits by more than $600 million, nearly
20 percent above its congressional appropriation."
Through legislation written in 1995 by me, along with Representative
Eleanor Holmes Norton, called the District of Columbia Financial
Responsibility and Management Assistance Act, Congress established a
Financial Control Board and a Chief Financial Officer essentially to take
over city operations until the District could stand on its own. I am
pleased to say that, at a time when most municipalities throughout the
country are resorting to massive budget cuts in order to balance their
budgets, the District has managed to stay its course of relative financial
stability.
Now, after six years of governance under the Financial Control Board
and two years in a fairly stable post-Control Board environment, it is
time for Congress to reconsider its oversight of the District. Every year,
the District submits its roughly $5.8 billion budget of locally raised
funds to be approved by the United States Congress in conjunction with the
approximately $500 million in federal contributions that Congress
appropriates to the District annually. While Congress's involvement in the
District's budget matters is the result of Congress's responsibility to
ensure the financial well being of our Nation's capital, the unfortunate
reality is that the city's local budget can get tied up in political
stalemates over congressional appropriations that rarely have anything to
do with the District's budget.
We are here today to discuss how to develop legislation that would allow
the District to submit its local budget to Congress for congressional
review and consideration under an expedited review process that would
ensure that the District can begin utilizing the next fiscal year's funds
when the fiscal year begins. I would also like to discuss with the
witnesses how they envision the expedited congressional consideration of
the local budget would work. For example, what timelines are appropriate
for the submission of the local budget to the Congress? How much say, if
any, should the Congress have in the District's budget decisions?
Unlike states, which must first liquidate all assets before turning to
the federal government for financial assistance, the federal government is
directly responsible for the financial well being of the District of
Columbia. Therefore, this legislation must protect Congress's right to
intervene with local spending decisions when necessary. Congress will
continue to have the constitutional responsibility to make sure the
District does not return to the days of fiscal crisis.
The federal government will still be responsible for enacting an annual
D.C. appropriations bill to fiend criminal justice and defender
supervision' functions, courts and tuition assistance, so Congress will
still be intimately involved in the District's operations. In addition,
budget autonomy would be rescinded should the District trigger one of the
"seven deadly sins" that would trigger the reinstatement of a DC
Financial Control Board.
Now that I have laid the general outline of the proposal that we are
discussing here today, I would like to recognize other Members of the
Committee for their opening statements and then turn to the witnesses for
their comments. I welcome the witnesses to today's hearing and I look
forward to their testimony.
Back to top of page
GOVERNMENT OF THE DISTRICT OF
COLUMBIA
EXECUTIVE OFFICE OF THE MAYOR
Committee on Government Reform
United States House of Representatives
The Honorable Thomas M. Davis, III, Chairman
The Honorable Henry A. Waxman, Ranking Member
Budget Autonomy in the District of Columbia
Statement of
Anthony A. Williams
Mayor
District of Columbia
Friday, June 13, 2003
2154 Rayburn House Office Building
10:00 a.m.
Thank you Chairman Davis, Ranking Minority Member Waxman, and members of
the committee for this opportunity to testify on budget autonomy for the
District of Columbia. Chairman Davis, you have truly raised the bar for
leadership and commitment to the District, and I feel encouraged that
the interests of the District will be well served with you in this
position.
As we discuss budget autonomy it is very appropriate that we are doing
so under the leadership of the Committee on Government Reform. This is
true because the critical outcome of budget autonomy will be to greatly
advance the reform of service delivery in the District government. Where
service delivery has been hampered by local management issues, we have
taken aggressive action, and have made great progress. Now, we must
examine where service delivery is hampered by larger constraints such as
the federal approval process for our budget.
For the purpose of budgeting, the District has had the dual identity of
being a local government and a federal agency. In our federal system of
government, this one-of-a-kind structure has created one-of-a-kind
challenges. At the root of all of these problems is the need for an
appropriate level of managerial discretion and flexibility.
As the front line of government service delivery, no local governments
can operate effectively without the ability to respond quickly to
changing public needs. In a complicated society such as ours, there are
new challenges and new opportunities that arise on a monthly; weekly,
and sometimes daily basis. As the primary deliverer of services, local
governments can only be effective if they can respond to changing
circumstances by changing programs and services in a timely and
responsive manner.
All state governments in our nation have this flexibility. They control
their own programs and budget allocations without the need for approval
from Congress. This allows them to allocate funding in a quick and
responsive manner to meet emerging public needs. The District, on the
other hand, must develop its budget according to the extremely
complicated and lengthy federal appropriations process. This requirement
disrupts service delivery in several troublesome ways:
- It lengthens the time period between identifying a service need and
implementing a solution.
In fiscal year 2001, for example, we began cracking down on owners of
slum properties to improve living conditions there. As we did so,
however, we noted that residents of these properties needed to be
relocated during the renovation process. Because of our lack of
autonomy, however, we had to wait over a year for the federal government
to approve this budgetary change in our local budget.
- Service improvements are further hindered by federal delays in the
budget approval process.
Since 1996, the average Congressional delay has been almost three months,
which is almost a
full
quarter of the fiscal year. During these delays critical new investments
cannot be funded.
In FY 2002, for example, the delay affected service improvements such as
new school nurses, prescription drug benefits, police equipment and
staffing, fire fighter hires, and the tenant relocation fund discussed
earlier. In FY 2003, the Congressional delay lasted through February -
almost half a year. That inaction has jeopardized new investments in
foster care, public schools, and improved compensation for police and
firefighters.
- Mid year budget reallocations require an act of Congress, and disrupt
service delivery. Local governments need the flexibility to respond to
rapid changes in their needs. The District is not allowed to significantly
reallocate funds to meet changing needs without an act of Congress. Last year, for
example, DC needed to reallocate funds to support the movement of
children from foster care to adoption. This transfer of funding could not be
complete for months until a supplemental appropriation bill moved through
Congress.
-
Delays negatively affect marketability of District bonds. The
uncertainty about whether the District will have a budget at the start
of the fiscal year must be disclosed to potential buyers of DC's
municipal bonds. In general, greater uncertainty means higher interest
rates for DC, which in turn means that more of the budget goes toward
paying interest, and less goes to other priorities.
-
Program managers must "use or lose"funding at the end of each
year. Congressional approval for spending expires at the end of the year,
which punishes program managers who save funds by not allowing them to
carry those funds forward for other purposes.
To provide even more justification to the case for budget autonomy, it
is important to note that despite the time-consuming budget review
process, recent history shows that neither Congress nor the White House
have made any changes to the actual allocation of local funds in the
District budget. Instead, they have limited their changes to legislative
provisions and direct federal appropriations - two things they can still
add under a streamlined process.
In terms of specific changes required, first and foremost is exempting
the District from future continuing resolutions. Just last week Chairman
Frelinghuysen of our House Appropriations Subcommittee acknowledged the
importance of this change, and committed himself to achieving it. As
valuable as this change would be, however, an even better solution would
be to create a passive review process. In this process, the District's
budget is deemed approved unless Congress passes a joint resolution to
disapprove it. This solution would not only eliminate delays associated
with continuing resolutions, it would allow the District to realign its
budget timeline with a more standard state process, thereby providing the flexibility
needed to further improve services.
The District has demonstrated its readiness for greater flexibility
through a strong record of responsible financial management. For
example, since the sunset of the control board, the District has
balanced our sixth consecutive budget, and we completed our year-end
financial audit with a clean opinion, with a marked reduction in
management letter comments, and on a very timely basis.
Furthermore, the District has managed the recent economic pressures with
great fiscal discipline. States across the country are facing the worst
fiscal crisis since World War II, and the District is no exception. Due
to the national economic downturn, the District experienced a decline in
revenues of approximately $370 million in the first half of FY 2003.
This decline equates to a 10% loss in our local operating budget.
Because the economy has not yet recovered, these challenges continued
into FY 2004, and the District began formulation of that budget with a
projected gap of $114 million.
In facing these challenges, however, the District not only continued its
record of sound fiscal management, we achieved a level of responsible
and conservative budgeting found only among the most financially prudent
governments. As a result, the FY 2004 budget transmitted today is
balanced in the current and future years. More notably, the District's
leaders balanced this budget entirely through budget reductions. No
accounting gimmicks were used, no tax increases were adopted, and not
one dollar of the $250 million in cash reserves was used.
This tremendous discipline demonstrates that the District is ready for
greater budget autonomy. Accountability is a two-sided coin. If the
Congress will restrict the District's autonomy when our performance
lags, it should also increase our autonomy when our performance is
strong.
As assurance that the District will continue its strong financial
performance, the Congress has established Public Law 104-8, the
Financial Responsibility and Management Assistance Act. This law ensures
that the government continues to fulfill its financial obligations in a
timely and responsible way. The District will also maintain an
independent Chief Financial Officer who can support the continued
financial recovery of the District.
In summary, I want to thank this committee for its leadership in
promoting budget autonomy for the District. Last January, the President
Bush issued a strong statement in favor of budget autonomy. That
statement coupled with the support in both the House and Senate, give
great cause for hope that the service improvement in the District can be
greatly enhanced in the very near future.
Thank you for this opportunity to testify. After the statements of
Chairman Cropp and Dr. Gandhi, I will be happy to answer any questions
you may have.
Back to top of page
COUNCIL OF THE DISTRICT OF COLUMBIA
WASHINGTON, D. C. 20004
TESTIMONY OF CHAIRMAN LINDA W. CROPP
COUNCIL OF THE DISTRICT OF COLUMBIA
BEFORE THE
UNITED STATES HOUSE
COMMITTEE ON GOVERNMENT REFORM
ON THE
"DISTRICT OF COLUMBIA BUDGET AUTONOMY ACT OF 2003"
FRIDAY, JUNE 13, 2003
10:00 A.M.
RAYBURN HOUSE OFFICE BUILDING
ROOM 2154
Chairman Davis, Congressman Waxman, Congresswoman Norton, and members of
the Committee on Government Reform, good morning! Let me begin by
thanking you, Mr. Chairman; for holding this public hearing and for
cointroducing, with Congresswoman Norton, the legislation under
consideration here today -- to provide greater autonomy to the locally
elected Mayor and Council over the locally funded portion of the
District of Columbia budget. We also very much appreciate the support of
the President of the United States for this proposal, and your efforts
to make that happen.
If enacted, the "District of Columbia Budget Autonomy Act of
2003" would be the first real advancement of home rule in the
District since Congressional enactment of the limited Home Rule Act
nearly 30 years ago. And let me add, it's about time! Submitted with my
testimony is a proposed resolution signed by all 13 members of the
Council in support of budget autonomy for the District, which I will not
read but ask that it be included within the record of this hearing.
As you have requested
in
your letter of invitation to this hearing, let me provide you with a few
examples of the fiscal discipline exercised by locally elected officials
since the Financial Authority became dormant, and of the mechanisms and
safeguards in place to prevent the District from lapsing into a fiscal
crisis.
Fiscal Discipline and Safeguards
This past February, we received the annual Comprehensive Annual
Financial Report, which certified that the District's fiscal year 2002
budget that ended on September 30, 2002 was our sixth consecutive
balanced or surplus budget. Of course, it was our fourth consecutive
surplus two years ago that caused the dormancy of the Financial
Authority.
Nonetheless, the District is struggling this year to maintain the
current Fiscal Year 2003 budget in balance --- due primarily to two
factors beyond our control:
(1) the continuing revenue losses (particularly income, but also sales,
tax losses) due to the national downturn in the economy, and also due to
the continuing aftermath of September l 11th, anthrax, sniper and
terrorist alerts; and
(2) the continuing structural inequities in the District's financial
relationship with the Federal government, which has been verified by the
recently released report by the United States General Accounting Office,
and which still exists despite the budgetary benefits provided to the
District, under your leadership Mr. Chairman, due to passage of the 1997
Revitalization Act.
In the face of these challenges, the Council took the lead and made
tough decisions with the Mayor in closing a $323-million-dollar-plus
revenue shortfall in this year's FY 2003 budget on the very first day of
the Fiscal Year -- October 1, 2002. Then on April 1 st, six months into the fiscal year, the Council
took emergency action to close another $134 million hole in this year's
budget. Of course, our counterparts in Virginia and Maryland and all
across the country face similar challenges, although we think that the
District has acted more quickly, effectively and responsibly to balance
our budget without gimmicks or one-time-only savings.
Almost two-thirds of the District's initial revenue shortfall (or about
$195 million) this year was closed through spending reductions, and the
remainder was closed through revenue increases (but
no
increases in income, general sales or occupied property tax rates). The
most recent budget pressures and revenue shortfalls this year required
further programmatic reductions, a hiring freeze, suspension of pay step
increases, and other measures.
The Council will continue to squarely face the challenge
of
fiscal discipline and strict oversight
of
financial management, while continuing to
full our commitment to targeting expenditures and investments on critical
priorities. In the Fiscal Year 2004 budget that we just forwarded to Congress, my
colleagues and I worked extremely hard to avoid any tax increases. Instead, we scrubbed
the budget to identify surgical reductions in the growth of spending, and in the
growth of consulting contracts, to a level closer to the 4% level of budget
increases that we
had said a year ago was a more sustainable annual increase in local
spending. For the FY 2005 budget, the Council has mandated that the
Mayor limit growth in local funds expenditures to not more than 3.5%
over the FY 2004 budget.
The Council has been vigilant in its oversight responsibilities --
holding more oversight hearings than ever before, in an effort to hold
officials accountable for living within their means, while delivering
the services they are budgeted to deliver to our residents, visitors and
businesses.
The Chief Financial Officer has instituted an early warning system that
notifies the Council and the Mayor of budget pressures -- whether on the
spending or revenue side of the ledger -- in time to consider and take
the necessary actions on various identified options to address these
pressures before it is too late. Another mechanism utilized by the
District has been Pay-Go funding, which allows appropriated dollars to
be spent only after certain performance or other measurements are
realized and certified. We have also worked with the Mayor and the CFO
to craft local legislation to assure the continued independence of the
Office of the Chief Financial Officer within the home rule context,
which requires amendments to the Home Rule Act which we hope you will
consider.
Congressionally imposed reserve requirements -- both budgeted and cash
reserves -- have also served to cushion the impact of budget shortfalls
or meet unanticipated needs in the District; nonetheless, we think that the
positive aspects of these reserves can still be realized with somewhat
more flexibility in how these reserves are set up and operate.
Perhaps the best evidence of the fiscal discipline that has continually
been exercised by District officials for several years is that we have
finally been recognized and rewarded on Wall Street. As you know, the District's bond
rating was recently upgraded from "stable" to 'positive, " and
there is an expectation for further upgrading. This achievement, which will result in significant
savings in our borrowing costs, has occurred at a time when other jurisdictions' bond
ratings across the country have been downgraded. Our bond rating upgrades are
occurring due to the hard work and positive image of the District that
has been fostered by local officials, working in partnership with our
Congressional counterparts and the business community.
Mr. Chairman, although I think that the District of Columbia has clearly
demonstrated that we have earned the right to local budget autonomy, let
me say, and I hope you would agree, that the fundamental right of
self-determination in a representative democracy should not have to be
earned by "good behavior." Indeed, to be governed by the
consent of the governed is the founding principle of the United States
of America, and it is what our country preaches around the world as a basic human right that is worth fighting wars about. In fact,
increased autonomy for locally elected officials -- both budgetary
autonomy as well as legislative autonomy, which we also hope you will
consider -- will necessarily increase accountability by locally elected
officials for their actions. Autonomy and accountability are what our
form of constitutional government is supposed to be all about.
Having the District's local funds budget of $3.8 billion in locally
raised revenues be subject to the Federal appropriations process of the
U.S. House of Representatives, where we have no vote, and to the process
of the U.S. Senate, where we don't even have an elected voice,
highlights the undemocratic, separate and unequal treatment of the
District by the Federal Government. No other local or state jurisdiction
in the United States is burdened by having the expenditure of its
locally or state-raised revenues subject to Congressional review and
approval. But even if local or state government budgets were subject to
Congressional approval, at least their citizens would have voting
representation in the body controlling their own purse strings.
The current budget process is not only undemocratic -- which should be
enough of a reason by itself to enact budget autonomy legislation; the
existing process is also a bad way to run a government. Requiring
submission of the District's local funds budget as part of the Congressional
appropriations process requires the District to formulate a budget too
far in advance of revised revenue estimates and expenditure needs that
would otherwise be known and lead to more responsible and responsive
decision-making. And requiring affirmative Congressional approval of the
District's local funds budget has often led to the absurd result of the
District getting caught up in national policy disputes that typically
delay our local budget's enactment for several months into the fiscal
year -- delaying new initiatives, preventing organizational reforms and
creating uncertainty about different, often lower, allocations of
spending.
In addition to being counter to principles of democracy and good
government -- as if that also were not enough, Congressional review and
approval of the District's local budget -- and local legislation for
that matter -- is simply not necessary. Congress, as we are reminded
constantly, retains exclusive jurisdiction over the District pursuant to
section 8 of Article I of the U.S. Constitution. As such, Congress can
enact legislation at any time affecting local policy and budgetary
matters in the District.
Moreover, Congress itself, in enacting the Financial Responsibility and
Management Assistance Act of 1995, established the fiscal criteria that
would lead to the re-activation of the Financial Authority. That is more
than enough "hammer" hanging over locally elected officials' heads to take fiscally
responsible actions in the best interests of the citizens of the District of Columbia.
Finally, let me note that the Council has imposed upon itself stringent
fiscal impact requirements for the enactment of legislation. Council
Rule 443(c) provides:
" ....no bill, resolution, or an amendment to a bill or resolution
may be enacted or approved by the Council without a Council fiscal
impact statement and worksheet, if applicable, which has been approved
by the Council Budget Director or the Chief Financial Officer in the
measure or committee report, presented to the Council, at the time of
its consideration. The Council fiscal impact statement shall include the
estimate of costs which will be incurred by the District as a result of
enactment of the measure in the current and each of the first 4 fiscal
years for which the act or resolution is in effect, together with a
statement of the basis for such estimate. The statement shall include
the following:
"(1) A general statement of the effects the measure will have on
the operating and capital budgets for the current and next 4 fiscal
years;
"(2) A quantitative estimate of the expenditures needed to
implement the measures;
"(3) An identification of the revenues and funds currently
available, or likely to be available from existing revenue sources to
implement the measure, if it is to be implemented within the current
fiscal year;
"(4) A statement on the extent to which current appropriations are
available to finance implementation of the measure, if it is to be
implemented within the current fiscal year; and
"(5) An identification of the specific funding source to be
recommended in the forthcoming fiscal years to implement the measure, if
the cost of implementation is estimated to exceed $100,000 in that
fiscal year."
In summary, because Congressional review and approval of the District's
local funds budget and local legislation is undemocratic, unnecessary,
and runs counter to principles of good government, I urge this Committee
and the Congress to take expeditious action to provide both budgetary
and legislative autonomy to the Mayor and the Council of the District of
Columbia.
Thank you again for holding this hearing today, and for the opportunity
to testify in favor of greater self-determination for the citizens of
the District of Columbia.
Back to top of page
HEARING ON BUDGET AUTONOMY
FOR THE DISTRICT OF COLUMBIA
Before the
US House of Representatives
Committee on Government Reform
The Honorable Tom Davis, Chairman
June 13, 2003,10:00 a.m.
Room 2154, Rayburn Building
Natwar M. Gandhi
Chief Financial Officer
Government of the District of Columbia
Good morning, Mr. Chairman and members of the Committee. My name is
Natwar M. Gandhi, and I am the Chief Financial Officer for the
Government of the District of Columbia. I am here today to testify on
the issue of budget autonomy for the District of Columbia. At the
outset, I want to express my view that, both as a citizen of the
District of Columbia and the District's senior financial manager, I
wholeheartedly endorse expanding the authority of the District to manage
its own financial affairs.
In anticipation of this hearing, I re-read clauses 17 and 18 of Article
I, Section 8 of the Constitution of the United States:
Clause 17. (The Congress shall have power) to exercise exclusive
Legislation in all Cases whatsoever, over such District ...as may by the
Cession of particular States, and the Acceptance of the Congress, become
the Seat of Government of the United States... and
Clause 18. (The
Congress shall have power) to make all Laws which shall be necessary for
carrying into Execution the foregoing Powers, and all other Powers
vested by this Constitution in the Government of the United States, or
in any Department or Officer thereof.
This language is unambiguous with respect to congressional authority
over the legislative affairs of the District of Columbia. However, it
gives the Congress wide latitude with respect to the execution of its
constitutional mandate. With this in mind, let me speak to why I
believe, from a financial management perspective, the District should
have discretion with respect to the allocation of funds raised from local sources and, further, how changes to current law would not
affect Congress' constitutional role.
Under current law, all District of Columbia spending is authorized by
the Congress through the federal appropriations process, irrespective of
the source of revenue underwriting such spending. In the District's FY
2003 gross budget of $5.573 billion, enacted by Congress on February 20,
2003, about $3.813 billion, or 68 percent, was comprised -of revenues
raised through local taxes, fees, fines, and user charges ($3.602
billion + $211 million in private and other revenue). Of the remaining
$1.76 billion in federal funds, $1.713 billion was comprised of federal
transfer payments and grants. Only $47 million was uniquely and
especially appropriated from federal revenues for programs and projects
peculiar to the District of Columbia.
I would argue that only the federal funds that are specifically and
uniquely earmarked for District programs or projects must be
appropriated by the Congress - for example, funds provided to support
federal events such as the inauguration or funds for tuition assistance.
In the case of local funds, the Congress rarely alters an allocation
made by the District. Federal transfer and grant payments to the
District have already been appropriated to the federal agency
responsible for program administration, and are reflected in the
District budget for the sole purpose of showing a complete accounting of
planned District spending. Having already been appropriated to a federal
transferring agency, these federal funds do not need to be "reappropriated"
to the District.
Were the Congress to modify current law in the direction of reducing its
role in the District's appropriation process, a range of possibilities
would still remain to exercise oversight over the District's budget and operations. These
might include periodic audits, after-the-fact review of the District's
locally enacted budget, or review of the District's locally enacted budget by the appropriate
oversight group in the Congress. Federal funds directly appropriated to
the District would remain within the federal appropriations process.
Benefits to the District
Faster enactment of budgets.
Because the District currently receives all its authority to spend funds
through the federal appropriations process, the District cannot enact
the budget approved by its elected representatives until Congress passes
and the President signs its appropriations bill. This situation
guarantees a five-month lag between local approval and federal
enactment. However, federal appropriations bills are often delayed
beyond this period. There are adverse consequences for the District
since it is tied to the federal appropriations cycle. Bond rating
agencies take the uncertainties of the federal process into account in
assessing the District's finances for a bond rating. In the case of new
or expanded programs approved and financed locally, no action can be
taken during the fiscal year until Congress passes its appropriations
act. This unnecessarily delays the start of programs and virtually
guarantees programs will not be executed as planned. Also, the more time
that elapses between the formulation of a budget and its execution, the
more likely the operating assumptions underlying that budget will not
hold true.
Conformance to the Standard Local Government Fiscal Year.
Further, the federal appropriations cycle runs on an October-September
fiscal year, a fiscal cycle unsuited to local government. Were the
District to have autonomy to appropriate its own funds like other local
jurisdictions, my recommendation to the Mayor and Council would be to revise the fiscal year to a July 1-June 30 fiscal
year. This would have immediate advantages.
First, it would conform the fiscal year to the school year, greatly
enhancing the ability of D.C. Public Schools (DCPS) and the University
of the District of Columbia to manage their funds effectively. This is
important because public education spending accounts for nearly 25%
percent of District general fund expenditures. In the DCPS planning
cycle, the JulySeptember period is the largest spending quarter. Under
current budget law, this period falls at the end of the fiscal year,
after DCPS has had to deal with all the exigencies of the prior three
quarters. In fact, in recent years, DCPS has had to rely on funds
advanced from the upcoming year's expected appropriation to support
start-up costs for the upcoming school year. Thus, it would clearly be
better for DCPS management, and make greater budgetary sense, to fund
school year start-up costs - purchase of books, start-up maintenance and
the like - at the beginning of the year and with current fiscal year
funds, and then cope with remaining issues as they occur.
Second, it would more closely conform the District's fiscal year to its
revenue cycle. The annual income tax payments are due in April, and the
first semiannual real property tax payment is due on March 31. Data on
these payments is key to updated revenue projections for the upcoming
fiscal year. Were the District to execute its fiscal year budget
beginning in July, it would be proceeding on the most recently
available, and therefore most accurate, revenue information.
Currently, budgets are based in large part on revenue estimates
completed in February, some seven months before the start of the new
fiscal year in October and a total of 19 months before the end of that
fiscal year. The District does not get actual data on how accurate these revenue estimates were, and whether
budgeted expenditures were fully covered, until after the end of that
fiscal year, perhaps 24 months after the original revenue estimates were
made.
Finally, changing the fiscal year also could improve cash
flow
management and reduce some budgeting risks. Larger tax payments received
in September, particularly the local half-year real property taxes due
on September 15, essentially "back load" the cash stream
toward the end of the fiscal year. Even as some $5.6 billion in cash
flows
through our financial systems to pay for the budgeted $5.6 billion in
District expenditures, the District needs additional cash to negotiate
the timing of expected tax receipts during the year. Changing the fiscal
year mitigates this by reducing uncertainty about year-end revenue
accounting, particularly for real estate payments received after
September 30, and by reducing the impact of the distribution of this
revenue between fiscal years.
Increased Local Financial Flexibility. Providing the District with the
authority to direct the spending of its locally raised revenue would
substantially increase the District's ability to react to changing
program and financial conditions. Under current law, the District must
follow the federal supplemental appropriation process to appropriate
additional revenues that become available during the course of the
fiscal year or to make any significant realignment in resources among
its appropriations. All program plans premised on supplemental
appropriations are held in abeyance while Congress considers the
request. The same problem is encountered on more mundane financial
transactions, such as interappropriation transfers and reprogramming
requests. For example, all reprogrammings from one object class of
expense to another in excess of $1 million require a congressional
review period of one month before enactment. In addition, opportunities
to increase revenue arise occasionally, but require spending additional
funds. Particularly in tight budget circumstances, it is difficult for
the District to wait as long as 18 months for a new budget cycle to
begin.
Mechanisms and Safeguards for Assuring Financial Integrity
The District of Columbia Financial Responsibility and Management
Assistance Act of 1995 (the Act), coupled with the continuation of an
independent Office of the Chief Financial Officer, provides the
framework for assuring financial integrity without the need for imposing
the federal appropriation process on local fund budgets. The Act
provides for the reinstitution of a control board and other constraints
should the District fail to meet major financial obligations. By itself,
the Act has been a powerful motivator for our elected officials to
maintain a balanced budget and strong financial controls at all times.
Further, under current law, the Office of the Chief Financial Officer
provides an independent assessment of key financial data - annual
comprehensive financial reports, revenue estimates, fiscal impact
statements, and all other consequential financial data. I believe that a
necessary corollary to increased local financial autonomy is the
inclusion of the authorities and responsibilities of the Office of the
Chief Financial Officer in organic law. Taken together, this legislative
framework should be sufficient to ensure fiscal discipline without the
added complexity of putting local spending plans through the federal
appropriations process.
Were the District to be permitted local spending autonomy, my
recommendation to the Mayor and Council would be that we adapt existing
federal appropriations law for local use. The District is already
accustomed to working within this framework - one that prescribes rules
for the treatment of funds, realignment of funds and other matters related to the formulation and execution of budgets. I
should note in this regard that the District recently enacted a local
anti-deficiency law to stipulate the responsibilities of management
officials in the financial arena and provide sanctions for those that
are not in compliance.
Fiscal Condition and Financial Improvements
I believe the District has the financial infrastructure to permit it to
manage its local funds effectively. We have a strong accounting system
linked to our budget oversight processes. Monthly closings and cash
reconciliation are in place. Financial managers have a clear
understanding of expectations. Unqualified opinions by the District's
independent auditors have become routine and the number of management
findings substantially reduced.
In the budget area, the District has enhanced its analytical
capabilities, moving toward performance budgeting to link agency outputs
to cost. Automated budget monitoring systems have been put in place to
give program and financial managers the capability to review their
financial posture daily.
Further, the District is well along on a project that will integrate all
its significant administrative systems - personnel, payroll,
procurement, budget, accounting, property management, and pension
administration. This integration will substantially enhance both
information on and controls over all transactions affecting expenditures
and do so at lower cost.
The Continuing Role of the Federal Government in District Finances
Notwithstanding the clear advantages to the District of having local
autonomy in the appropriation of locally raised revenue, there remains
the question of the federal government's role in assisting the District in attaining a
structural balance between spending needs and its revenue raising
capability. In its report on Structural Imbalance and Management Issues
in the District of Columbia (GAO03-666), the General Accounting Office
(GAO) clearly demonstrates, using objective, quantifiable criteria, that
the District of Columbia has a substantial gap between its spending
needs and its local revenue resources. This gap is calculated to be
between $470 million and $1.1 billion annually, based on FY 2000
information. In all likelihood, the gap is toward the upper end of this
spectrum, which more closely represents the economic circumstances of a
city like the District.
The report clarifies four fundamental features of the District's fiscal
problems:
1. The District's expenditure requirements for providing a standard
group of services are far higher than any state fiscal system.
The District faces these high expenditure requirements because it
provides public services in a market with high labor costs, it provides
services to a large commuter population, and it has many residents with
high service needs. The report identifies areas where the District has
the potential to improve the efficiency of operations. Even so, the
District's higher costs of providing average services are determined by
factors beyond its control and far beyond possible savings from greater
efficiencies, many of which are now in place, and more of which we
intend to achieve.
2.
The District taxes itself very heavily.
The District's tax effort is much higher than that of the average state.
Although the District's tax capacity is large - more than 47 percent
above the national average - because of its large expenditure
requirements, the District must compensate with a tax effort that is
about 50 percent above that, among the highest, if not the highest, in
the nation.
3. Even with high taxes, the District cannot pay for average levels of
service to residents, commuters, and visitors.
The District's additional tax capacity is not enough to compensate for
the District's higher expenditure burden. The urban composition of the
District's population, and the standard services needed by such a
population, overwhelm even the District's high tax effort.
4. The District has a serious infrastructure problem.
The District faces an accumulated infrastructure backlog of at least
$2.5 billion. The District has deferred capital investment to avert the
operating costs associated with debt service. The problem is obvious
when you consider that the District's general obligation debt service is
about 10 percent of local revenues, and rising. Further, the problem is
acute because our debt levels already are near the ceiling for
maintaining credit-worthy debt ratings. Our capital borrowing analysis
shows that only moderate additional borrowing would be acceptable to the
agencies that rate the District's credit-worthiness. Whether expressed
in per capita terms or in relation to revenue, the District's current
outstanding debt is greater than any state fiscal system.
The report also recognizes that the federal presence imposes costs and
limitations as well. To the extent that the federal government's
property and purchases are off the tax rolls, or that non-resident
income earned in the District cannot be taxed, these limitations are
reflected in the tax base. Given these limitations, in order to try to
pay for even an average level of service from the operating budget,
District tax rates on the tax base available to it must be high. While
the report does not quantify the actual costs of services provided to
the federal government or incurred as a result of being the nation's
capital, it puts these costs in perspective. When millions of dollars of
expenditures related to being the nation's capital are absorbed by the city, this diverts resources from ordinary services to
residents, commuters, and visitors.
The District has made operating budget reductions of over $190 million
in FY 2003, in part to balance expenditures and revenues, but also as
part of a larger effort to deliver services more efficiently. While
significant opportunities for efficiency improvements exist within
District programs, even with such improvements, the GAO report points
out that the District would still face a structural deficit.
By law, the District must balance its budget each year, but making the
spending or revenue adjustments needed to do this is not the same as
solving a structural deficit. Due to this structural deficit, the
District is forced to choose between tax levels that are even higher
than the national average, service levels that are lower than the
national average, or combinations of both in order to balance its
budgets.
Although the GAO report makes no recommendations, it provides a strong
case for federal action to assist the District of Columbia, the nation's
capital. As noted, the structural imbalances in both the operating and
capital areas result primarily from cost and workload factors that are
beyond the District's control, and, in addition, the District must
provide services to the federal government.
With tax and debt burdens higher than other jurisdictions, it is not
feasible for the District to solve the problem through more taxes or
borrowing. One option noted in the report is for the federal government
to relax taxing restrictions on the District to compensate it for its
special status as the capital city.
The GAO report indicates that providing federal assistance to the
District may encourage state fiscal systems with structural deficits to
request the same or similar treatment. However, a strong case can be
made that the District of Columbia is unique among all local and state
jurisdictions and that unique conditions dictate unique solutions. All
states have federally tax-exempt property, but the District has more in
terms of value relative to the size of the economy. All states may
forego some tax activity due to federal commercial activity, but the
District certainly loses much more in relation to the size of its
economy. The District also is subject to revenue and other constraints
that are not imposed by the federal government on any other
jurisdiction. These factors have been many times documented and indicate
that the District merits a unique fiscal relationship with the federal
government that corresponds to its unique operational arrangement.
There is a wide range of options available to the federal government for
assisting the District in overcoming its structural deficit and in
providing a level of service quality that befits the nation's capital.
In contemplating budget autonomy for the District, the Congress would be
well served to also examine its financial relationship with the
District. Unless a change is made, one can predict a gradual
deterioration of services provided by the District to residents,
commuters and visitors. This would be unfortunate in the extreme,
especially in light of the major progress made in all aspects of
District quality of life over the past eight years.
Mr. Chairman, this concludes my remarks. I would be pleased to answer
any questions you might have.
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