League of Women Voters of the District of Columbia
Background Paper:
The District of Columbia’s Financial Crisis
May 1998

OVERVIEW

The District of Columbia is struggling to recover from a financial crisis so severe that in 1995, it threatened to bankrupt the city. The roots of this crisis were both the management failures of local government officials and structural problems stemming from the fact that the District of Columbia is a unique — indeed, a one-of-a-kind, political and financial entity.

This background paper, prepared in February 1998, briefly reviews the city’s long term structural budget problems and discusses the federal government's recent response to these problems through the District of Columbia revitalization legislation enacted by the 105th Congress in 1997. It also explores the question of whether this legislation is sufficient or if other steps need to be taken. Additional approaches to increasing revenue for the city summarized in this paper include allowing the District to tax all income earned within its borders, increasing the federal payment or contribution, and efforts to improve management within the D.C. Government. The paper concludes with a brief discussion of the District's political relationship to the U.S. Congress and the impact of this relationship on the city's financial situation. Structural financial problems are emphasized in this paper because these are the problems on which the majority of League members in the National Capital area can, through their elected Congressional representatives, have an impact.

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THE DISTRICT OF COLUMBIA’S STRUCTURAL PROBLEMS PRIOR TO 1997 REVITALIZATION LEGISLATION

UNIQUE FINANCIAL OBLIGATIONS

STATE FUNCTIONS

Since it is not part of a state, the District of Columbia has had to provide state-type services for its residents. In all other U.S. cities, these public safety, health, and welfare services are, for the most part, paid for with state revenues.

Public Safety and Justice

While most cities and towns operate jails to temporarily restrain criminals or suspected criminals, Washington, D.C. is the only city in the United States that has operated its own prison and court systems. As Line 17 of the FY 1998 Amended Budget and Financial Plan shows, the cost to the District of the prison and courts systems for FY 98 was projected to be over $800 million dollars.

Medicaid

The District of Columbia has always paid a higher percentage of the cost of Medicaid for its citizens than any other U.S. city. Because the federal government has traditionally treated the District as if it were a state, the District has been forced to provide the most burdensome state match of 50 percent. New York City, for example, pays only 25 percent of its total Medicaid costs. In FY 1997, the District’s Medicaid costs were $420.8 million.

Other Health Costs

The District also spends nearly $200 million every year to pay for mental health and substance abuse services and subsidize D.C. General, its public city hospital. The District’s overall health care costs make up more than 15 percent of its total general fund expenditures, over half of which are paid for with local funds. In contrast, Baltimore spends an estimated 7.8 percent of its annual budget on health care services; city revenues pay for only 12 percent of the cost of these services.

Education

The District of Columbia is the only urban area that must rely almost entirely on local tax revenues to fund elementary and secondary public education. Moreover, unlike Baltimore and New York and most other cities, it must also provide all the funding for the University of the District of Columbia and its law school. Baltimore City Community College has been fully funded by the state of Maryland since 1990.

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SERVICES NEEDED TO SUPPORT THE FEDERAL PRESENCE IN THE CITY

Because the District is also the nation’s capital, it must provide services to the federal government and the organizations and companies that locate here in order to do business with the federal government. These services include traffic control, police and fire protection, and road maintenance. Increased demands for these services are often created by national celebrations and demonstrations.

UNFUNDED PENSION LIABILITY

Before 1979, pensions for District police, firefighters, teachers, and Judges were funded from current revenues under the system established by the federal government. After the home rule government was established, the federal government required the city to assume responsibility for the pensions of city police, firefighters, teachers, and judges, and along with this responsibility, a $2 billion unfunded pension liability.

The federal government agreed that it would contribute $52 million a year to build up a pension fund while the city paid benefits to retired police, firefighters, teachers, and judges from current revenues. The expectation was that by 2004 the investment income from the fund’s growth would be sufficient to pay these retirees. In 1979, it was understood that the contribution level was totally inadequate and would have to be adjusted well before 2004. This was never done. Instead, the unfunded pension liability grew to almost $5 billion, and, as line 25 of the FY 1998 Amended Budget and Financial Plan shows, the projected 1998 pension costs were over $307 million, nearly 10 percent of the District's budget for the year. Moreover, the amount of the unfunded liability was expected to exceed the District’s annual budget within a few years and reach $7 billion by 2004. This ballooning debt has made it difficult and very expensive for the District to borrow money.

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LIMITATIONS ON SOURCES OF REVENUE

The income and property tax revenues the District of Columbia is able to raise are limited, not only because the nation’s capital is in the District, hut also by Congressional action. These limitations have an especially severe impact on the District's finances because local tax revenues are such a high proportion of the District’s total budget. The tax rates in the District are among the highest in the nation, severely impacting residents and businesses.

1996 Income Tax Burdens DC and Neighboring Jurisdictions

Source: DC Dept. of Tax and Finance (1996).

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RESTRICTIONS ON TAXING INCOME EARNED IN THE DISTRICT

The District of Columbia Self-Government and Governmental Reorganization Act of 1973 (known as the Home Rule Act) and earlier Congressional action have made Washington, D.C. the only state-level taxing authority that is prohibited by law from taxing the income of non-residents who work in the city. Two of every three dollars earned in the city are paid to people who do not live in the District.

Revenue Sources for Comparable Activities, 1993

This indicates direct, indirect and transfer payments by federal state county and other jurisdictions.
Source: McKinsey & Company Reassessing the District of Columbia’s Future

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RESTRICTIONS ON TAXING DISTRICT OF COLUMBIA PROPERTY AND SALES

Fifty six percent of the District’s land is exempt from property taxes. Most (71 percent) of the District's tax-exempt land is federal property. Tax-exempt property also includes foreign embassies, colleges and universities, and the headquarters of national organizations that have been granted special tax-exemptions by Congress.

Because of military, federal, and diplomatic exemptions, approximately 17 percent of the sales transacted in the District are not subject to sales and use tax.

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FEDERAL PAYMENT OR CONTRIBUTION

For almost 130 years, the District of Columbia has received compensation directly from Congress. The Home Rule Act required the District to submit as part of its annual budget request a proposed amount for the federal payment with supporting documentation on the costs of services provided for the federal government and the revenues unrealized because of the federal presence. Although the District government continued to provide the required costs and documentation, the amount of the payment in any given year was always less that the documented costs of services provided and revenues unrealized.

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IMPACT OF 1997 REVITALIZATION LEGISLATION

Major steps toward resolving the District's structural budget problems were included in the Balanced Budget Act of 1997. Most of the legislative actions which provide financial relief for the District are part of Title Xl — National Capital Revitalization and Self-Government Act of 1997 — often called the Revitalization Act.

REDUCTIONS IN THE DISTRICT’S FINANCIAL OBLIGATIONS

PUBLIC SAFETY AND JUSTICE

Department of Corrections

Under the Revitalization Act — the Federal Bureau of Prisons will assume responsibility for the District's sentenced adult felons by October 1, 2001. During the transition period, the Department of Corrections will he overseen by a Corrections Trustee. The federal government will accept all current prisoners as well as new prisoners, provided they are sentenced according to federal standards. The immediate budgetary impact was to relieve the District of the cost of adult felons as of October 1, 1997. Savings to the city are expected to equal as much as $204 million in FY 98.

Pretrial Services, Parole Board, and Public Defender

The Federal government will assume the responsibilities for parole supervision and both pretrial and public defender services. The estimated savings to the District from this assumption of responsibilities is $18 million for FY 98.

The Court System

The federal government will fund the District's Superior and Appeals Courts and pay for the administrative agency that provides personnel and financial operations to the courts. From the federal funding of the District's court system, the city will realize a $ 114 million savings.

As Line 17 of the FY 1998 Amended Budget and Financial Plan shows, the total public safety and justice savings will be over $347 million.

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MEDICAID

Title IV of the Balanced Budget Act increases the federal match from 50 to 70 percent, but it is still well below the maximum federal match of 83 percent. The projected savings to the District from this higher match will be $136 million in FY 98.

UNFUNDED PENSION LIABILITY

The Revitalization Act freezes pension plans for current and retired police, firefighters, and teachers as of June 30, 1997 and makes pension obligations up to the freeze date the responsibility of the federal government. Within a year from the freeze date, the District must develop a replacement pension plan for police, firefighters, and teachers. The federal government has accepted complete responsibility for the judges' pension plan. As Line 25 of the FY 1998 Amended Budget and Financial Plan shows, the projected savings from the federal assumption of the pension liability and future retirement benefits for judges will be $250 million.

The problem of the ballooning pension liability was not the result of mismanagement on the part of District officials. The Revitalization Act in fact acknowledged that the District pension board fully met its obligations and was in no way delinquent.

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REDUCTION IN FEDERAL PAYMENT/CONTRIBUTION

The Revitalization Act eliminates the federal payment, and instead authorizes a “federal contribution towards the costs of the operations of the government of the nation's capital.” The act authorizes a specific dollar amount of $190 million for FY 98 “and for each subsequent fiscal year such amount as may be necessary.” As Line 4 of the FY 1998 Amended Budget and Financial Plan shows, the replacement of the federal payment (which had been $660,000 in FY 96 and FY 97) with the smaller federal contribution will result in a $470 million revenue loss for the District.

SPECIAL TAX INCENTIVES

As part of the District’s revitalization package, the Taxpayer Relief Act of 1997 provides a set of tax incentives uniquely available to District of Columbia residents and businesses in areas of the city where at least 20 percent of the population, according to the 1990 census, has an income at or below the federal poverty level. In these areas which make up the city's enterprise zone, five types of tax relief are available.

WAGE CREDIT: A tax credit of up to $3,000 per employee is available to employers for wages paid to any District resident.

TAX-EXEMPT FINANCING: The District has the authority to issue enterprise zone facility bonds for businesses operating in the the enterprise zone.

FASTER WRITE-OFFS: Small businesses operating in the enterprise zone have an additional $20,000 of first-year deductions for expenditures on capital equipment.

ZERO PERCENT CAPITAL GAINS RATE: A zero percent capital gains rate is available to investors who purchase business property in areas where at least 10 percent of the population is at or below the federal poverty level between December 31, 1997 and December 31, 2002 and hold the property for at least five years.

HOMEBUYER CREDIT: A tax credit of up to $5,000 for couples and $2,500 for single people is available to first time homebuyers whose modified adjusted gross income does not exceed $70,000 for individual tax filers or $110,000 for couples filing a joint return.

OTHER INCENTIVES: Tax incentives for environmental clean up and hiring of high-risk youth who live in the city are also available to businesses.

According to official estimates, the Taxpayer Relief Act of 1997 provides the District with a total of $1.2 billion in federal tax relief. The value of the new tax incentives, however will not be realized until a significant number of homebuyers and business investors decide to take advantage of them. Moreover, in “A Preliminary Analysis of the New Federal Tax Incentives for the District of Columbia,” prepared for the District of Columbia Tax Revision Commission, Martin A. Sullivan concludes that, “Even though Congress has devoted an estimated $1.2 billion of tax benefits to the District of Columbia, there are no assurances that the objectives can be met.” According to Sullivan, a Harvard and Northwestern University trained economist who has worked for both the U.S. Treasury Department and the Joint Committee 011 Taxation of the U.S. Congress, “Many economic studies have attempted to measure the effects of local tax incentives on economic development. Rut the results of these studies are sufficiently uncertain that they can provide little guidance to legislators.”

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MANAGEMENT REFORMS

The Revitalization Act transfers the authority to appoint and dismiss heads of nine District of Columbia agencies from the Mayor  to the District of Columbia Financial Responsibility and Management Assistance Authority, usually called the Control Board. It also directs the Control Board to establish management reform plans with the assistance of consultants selected by the Control Board. The Control Board is required to implement management reforms based on these plans within 120 days of passage of the Revitalization Act (the end of May, 1998). The act directs the Office of the Mayor, the City Council, and affected departments to form management reform teams to review and implement reforms of the targeted departments.

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VARIETY OF EFFORTS TO MAKE THE DISTRICT GOVERNMENT EFFECTIVE

CONGRESSIONALLY MANDATED REFORMS PRIOR TO 1997 LEGISLATION

ESTABLISHMENT OF CONTROL BOARD AND CHIEF FINANCIAL OFFICER

Congressional legislation in 1995 created both the District of Columbia Financial Responsibility and Management Assistance Authority, known as the Control Board and the Office of Chief Financial Officer or CFO. While appointed by the Mayor, the CFO can be fired only by the Control Board. The legislation also transferred to the Office of the CFO the “functions and personnel” of the DC Controller, the Office of the Budget, and the Department of Finance and Revenue and required the District to achieve a balanced budget by 1999. Under the leadership of Anthony Williams, the new CFO, the District not only balanced its budget for 1997, but also produced a budget surplus of $186 million. This surplus was a dramatic departure from a pattern of budget deficits: $34 million in 1994, $54 million in 1995, and $335 million in 1996.

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CONTROL BOARD MANAGEMENT OF SCHOOL SYSTEM AND POLICE DEPARTMENT

In 1996, the Control Board replaced the Superintendent of Schools with a new Chief Executive Officer chosen by the Control Board and established an Emergency Board of Trustees to take over the role that had been carried out by an elected School Board. In response to a School Board suit against the Control Board for exceeding its authority, the U.S. Court of Appeals for the DC Circuit ruled that the Control Board did not have the authority to delegate the responsibility it had assumed for the schools to the Board of Trustees. In the summer of 1997, General Julius Becton, the school system's CEO, hired Arlene Ackerman, a highly respected educator, as Chief Academic Officer.

Early in 1997, the Control Board hired the management consultant firm of Booz Allen & Hamilton to determine the changes that are needed in the Metropolitan Police Department and to work with the Department on implementing the changes. Since Booz Allen's involvement with the Police Department began, the city’s crime statistics have improved measurably; the Department reported at the end of February, 1998 that the homicide rate has been reduced by 40 percent. However, investigations into police misconduct are being conducted by a special D.C. Council committee, a new Inspector General, and the U.S. Attorneys Office.

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CONGRESSIONALLY MANDATED MANAGEMENT IMPROVEMENT EFFORTS SINCE THE 1997 REVITALIZATION LEGISLATION

The consultant studies ordered by the Revitalization Act have been completed at a cost to District of Columbia taxpayers of over $50 million. The Control Board has also hired a Chief Management Officer (CMO) to work with the nine agencies that the Revitalization Act placed under the authority of the Control Board. The new CMO, Dr. Camille Barnett, began work in January of 1998.

REFORMS INITIATED BY DISTRICT OFFICIALS

In early February of 1998, the DC Council passed comprehensive personnel reform legislation, the Omnibus Personnel Reform Amendment Act of 1997. The purpose of this legislation — developed collaboratively by the Council, the Office of the Mayor, public employee unions, and the Control Board — is to build accountability into the personnel system and provide both incentives for effective performance and disincentives for poor performance. The DC Council also recently passed regulatory reform legislation in order to make the city more “business-friendly.”

D.C. LEAGUE OF WOMEN VOTERS INITIATIVES

D.C. League members believe that the District government will he accountable when the city's electorate is informed, engaged, and powerful enough to insist that elected and appointed officials do the jobs they are being paid to do. The League is, therefore, launching two new initiatives: MAKING OUR VOTES COUNT is a coalition effort in preparation for the 1998 election that will include neighborhood civic education workshops where questions that challenge candidates will be developed, forums where the questions will be posed to the candidates, and a post-election workshop to share information on how to monitor the performance of elected officials. The League is also remobilizing an Observer Corps to monitor and report on meetings and hearings of the D.C. Council, commissions, hoards and other critical activities where the public's business is being conducted.

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WILL 1997 REVITALIZATION LEGISLATION AND MANAGEMENT REFORMS RESOLVE D.C.’S FINANCIAL CRISIS?

A CLOSER LOOK AT THE 1997 BUDGET SURPLUS

The $186 million budget surplus includes $107.5 million for onetime savings — the sale of a correctional treatment facility and a Medicaid adjustment — plus $13.8 million that went unspent because of unsatisfactory contracting and grantmaking operations. The largest source of the surplus is the $110.9 million additional tax revenue that resulted from higher than expected collections. Of this increased tax revenue, one-third was due to the economy, one-third was due to more aggressive monitoring and collection, and one-third to unusually brisk stock trading and office building transactions. These amounts are partially offset by the projected deficit of $74 million.

WHAT ABOUT THE DISTRICT’S FINANCIAL FUTURE?

CONTINUED REVENUE CONSTRAINTS

The District’s tax base remains highly restricted. Not being able to tax the 41 percent of DC property that is owned by the federal government or exempted from taxes by Congress results in an estimated loss of $338 million per year. Because two of every three dollars earned in the District is earned by non-residents whose incomes cannot be taxed, the city loses approximately $728 million a year, assuming a tax rate of 3 percent. If the District, like all other U.S. cities (that routinely receive state support in recognition of special spending needs), had the benefit of similar transfer payments, it would receive an estimated additional $434 million each year.

CONTINUED RESPONSIBILITY FOR STATE FUNCTIONS

The Revitalization Act eliminates a number of “state” financial responsibilities substantially, reducing the District’s exposure to an ever widening gap between expenditures and revenue. However, the District is still responsible, without federal compensation, for certain state-like functions, such as mental health ($114 million in 95), higher education ($68 million in 98), foster care ($60 million in 95), Aid for Dependent Children ($62.8 million in 95), and Developmental Disabilities ($27 million in 95).

DISTRICT’S FINANCIAL FUTURE STILL UNCERTAIN

Because of the shortfall due to lost revenues, compared to other cities of comparable size, the District of Columbia operates at a $1.7 billion disadvantage every year. This figure is conservative because it does not include all of the state-like services provided by the District (i e. mental health and higher education), nor does it include all of the foregone revenues imposed by the federal government (such as lost revenue due to height restriction on DC buildings).

“The conclusion is inescapable,” asserts McKinsey & Company in Reassessing the District of Columbia's Financial Future, a report prepared for DC Agenda in January, 1998. “Even if the DC government functioned flawlessly, the District's structural constraints mean that it would be at a tremendous disadvantage compared to any other American city. . . . The District must still rely on taxing local residents and businesses for the bulk of its revenue.” With this dependence comes the ever present threat of business and resident flight, further eroding the tax base and weakening the District’s financial condition.

Because serious structural budget problems remain, it is possible for District expenditures to again exceed revenues, as they do in two possible scenarios included in the 1998 McKinsey & Company report, projected by the federal Office of Management and Budget: If revenues remain the same and Medicaid expenditures increase at the rate of 8 percent, there could be a deficit as early as FY 2000. If an 8 percent Medicaid growth is coupled with a 3 percent growth in expenditures, a small deficit in FY 99 would increase to over $400 million by 2002.

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POSSIBILITIES FOR ADDITIONAL SOURCES OF DISTRICT REVENUE

The most likely sources of additional revenue for the District are an increased federal payment, a tax on the income of non-residents employed in the District, or a combination of truth sources.

INCREASED FEDERAL PAYMENT

The 1997 revitalization legislation, which reduced the District’s state-like financial obligations and eliminated the pension liability incurred by the federal government, has had no impact on the cost of the services provided by the District for the federal government and the revenue unrealized because of the federal presence. Moreover, the “findings” in the Revitalization Act justifying a contribution echo the rationale for the federal payment in the Home Rule Act. Yet the federal contribution to DC's general fund falls to 6.7 percent in FY 98 and to 0 in FY 99. The financial support that other cities receive from the states in which they are located is greater than the support the federal payment or contribution provides for the District. The state of Maryland, for example, provides 25 percent of Baltimore's general fund revenue.

The issue of increased federal support for the District is a controversial one. Many people think the city “should he able to stand on its own.” The committee which prepared this paper, however, found no research that demonstrates how the District with its current taxing capacity can be assured of raising enough revenue to pay for the services it must provide for District citizens and the federal government.

In her study, The Orphaned Capital, Carol O’Cleireacain makes the case for an increased federal payment:

It is in the national interest to have a capital city that functions well. A fair federal payment would recognize the District's role as the nation's capital, compensate the District for its role, and ensure that it remains viable and its tax costs competitive with surrounding jurisdictions and other cities. Congress must now meet these obligations m order to make America s capital city world renowned again.

According to O’Cleireacain, an economist and former New York City tax commissioner and budget director, a fair federal payment would be approximately $1.2 trillion. This would compensate the city for the tax revenue it cannot collect from federal and exempt property and half of the cost of state-like functions the city performs. It would also provide an amount of financial assistance comparable to the amounts U.S. cities of similar size receive from the states in which they are located.

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COMMUTER OR NON-RESIDENT RECIPROCAL INCOME TAX

Two out of every three wage and salary dollars earned in the District of Columbia are paid to people who live outside the city. They travel to work on city streets and expect to call on DC's police force and fire department should their safety be threatened while they are in the District. If, in 1996, the city had been able to collect a 3 percent income tax from its non-resident workers, the District would have captured $728 million in additional revenue — enough to transform that year’s deficit into a surplus. The additional revenue would have more than doubled the city’s income tax receipts and increased the District’s total revenue by 16 percent.

If the Congressional prohibition against the District taxing non-resident income had been lifted, the states of Maryland and Virginia, no doubt would also have taxed the incomes of non-residents working in those states at 3 percent. In 1996, Maryland would have had a net loss of $438 million, reducing its income tax receipts by 12.5 percent and total revenue by 2.9 percent. In Virginia the net loss would have been $290, a reduction of 6.3 percent in income tax receipts and 1.7 percent in total revenue.

Washington, D.C. is the only state-level taxing authority that is prohibited by law from taxing nonresident income. One reason for this prohibition is the opposition of Senators and Members of Congress from Maryland and Virginia.

Senator Charles Robb: While such a tax might provide some short-term relief for the District’s financial problems, I believe it would be detrimental to the District’s economic development in the long run.

Congressman Steny Hoyer: The Maryland and Virginia Delegations have successfully thwarted this effort in the past and are prepared to do so again.

Congressman James Moran: Absolutely not. It will never happen. A possible alternative is an increase in the gasoline tax. Revenues would be used to decrease the total cost of METRO to municipalities. This would relieve DC of some burdensome payments.

Congressman Frank Wolff: While the District of Columbia is the only jurisdiction prohibited from collecting such a tax, it is also the only jurisdiction which receives a federal subsidy for its operations.

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RELATIONSHIP BETWEEN THE DISTRICT OF COLUMBIA AND THE FEDERAL GOVERNMENT

UNIQUE BUDGET PROCESS

Because of the District’s relationship with the federal government, the city's budget process is cumbersome and inefficient. Moreover, the uncertainties associated with it make long range financial planning difficult.

The budget process for the District of Columbia is unlike that for any other city. There have always been three major governmental entities which exercise budget approval authority — the District of Columbia, the U.S. Congress, and the Office of the President. The Control Board now makes a fourth. No other U.S. city must submit its budget for approval through the state chief executive and the state legislative body.

Although federal revenue accounts for only 6.72 percent of the District’s budget for FY 98, Congress, even under the Home Rule Act, had to approve the entire DC budget before the city could spend any of its own money. The budget for the District is subject to the same authorization and line-item appropriation process as federal agencies. Moreover, congressional controversies, in which the city may have only peripheral involvement, can further delay passage. Because of a disagreement between the President and the Congress over spending priorities’ the city had to wait seven months into the fiscal year for its 96 budget. This forced the District to restrict expenditures and implement expensive short-term borrowing until the President signed the appropriations bill.

The budget process for the cities of Baltimore and Richmond is very different. It is linear, with each step building on the previous one. Neither the federal government nor a state is involved in the budget development and approval process for these cities.

THE FEDERAL GOVERNMENT AS THE DISTRICT OF COLUMBIA’S “STATE”

While the federal government may be the closest thing the District has to a state, there are two critical distinctions in this “city-state” relationship. Every other city in the United States has voting representation in its state legislature. On the other hand, the only jurisdiction that does not have voting representation in the District's “state” is the District itself. Furthermore, the District gets less financial support from the federal government than most cities of comparable size get from their states.

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WHO CARES ABOUT THE DISTRICT’S FINANCIAL AND POLITICAL PROBLEMS?

District residents of course want lower taxes, safer streets and better schools. And they want voting representation in the legislative body that controls their destiny. But what about the people who live in suburban Virginia and Maryland? What's in a financially sound DC for them? And what difference does Congressional representation make?

“The interdependence between the District and suburban economies results in significant economic benefits accruing to the suburban economy from small improvements in the performance of the District’s private sector,” reports Stephen S. Fuller, Professor of Public Policy at George Mason University, in his study, “The Economy of the District of Columbia and Its Impact on the Washington Area and Its Suburbs.” He says that, “gains range from $1.44 to $1.57 in the suburbs for each $1 increase in the District economy. The research indicates that a stronger District economy will generate disproportionally greater benefits for the suburban economy.”

The District’s political reality is very different from a LWVUS position that is almost as old as the organization. “The League of Women Voters of the United States believes that citizens of the District of Columbia should he afforded the same rights of self-government and full voting representation in Congress as are all other citizens of the United States.”

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ACKNOWLEDGEMENTS

This background paper was developed in February 1998 by a study committee representing seven of the local Leagues which make up the League of Women Voters of the National Capital Area. It includes Nancy Bliss and Katherine Ziffer from Montgomery County, Roland Bowers from Falls Church, Arline Calaby from Howard County, Naomi Glass and Elinor Hart from the District of Columbia, Maureen Melton from Fairfax County, and Barbara Sherrill from Arlington County.

Two resources were particularly helpful in preparing this paper: the District of Columbia Office of Chief Financial Officer and publications of DC Agenda. The Office of Chief Financial Officer conducted a special briefing for the study committee and afterward continued to respond to numerous requests for information. DC Agenda preceded the study committee’s efforts with two publications covering the issues discussed in this paper: Washington, D.C. in Transition: Reinventing Our Nation's Capital and Reassessing the District of Columbia’s Financial Future. The study committee made considerable use of these publications.

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BIBLIOGRAPHY

Fuller, Stephen J., The Economy of the District of Columbia and Its Impact on the Washington Area and its Suburbs. George Mason University: December, 1996.
Georgetown Public Policy Institute, Washington, D.C. in Transition: Reinventing Our Nation’s Capital, a summary of research and seminars of the Task Force on District of Columbia Governance. Washington, DC: Georgetown University, 1997.
Government of the District of Columbia, District of Columbia FY1998 Budget and Financial Plan. Washington, DC: September, 1998.
McKinsey & Company, Reassessing the District of Columbia’s Financial Future. Washington, DC: January, 1998.
O’Cleireacain, Carol, The Orphaned Capital: Adopting the Right Revenue for the District of Columbia. Washington, DC: Brookings Institution, 1997.
Sullivan, Martin A., “DC: A Capitalist City? A Preliminary Analysis of the New Federal Tax Incentives for the District of Columbia.” Washington, DC: District of Columbia Tax Revision Commission, 1997.
U.S. Congress, House of Representatives, The Balanced Budget Act of 1997. Washington, DC: 1997.
U.S. Congress, House of Representatives, The District of Columbia Self-Government and Reorganization Act of 1973, as Amended or Modified. Washington, DC: U.S. Government Printing Office, 1989.
U.S. Congress, House of Representatives, The Taxpayer Relief Act of 1997. Washington, D.C.: 1997

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Discussion Questions

1. After implementation of the 1997 Revitalization Legislation, what structural budget problems remain for the District of Columbia?

2. In order to avoid future deficits, what action(s) should be taken by

a) the Government of the District of Columbia?
b) the U.S. Congress?

3. What fiscal controls is it appropriate for the U.S. Congress to have on how the Government of the District of Columbia spends the money it raises from local taxes?

4. What fiscal controls is it appropriate for the U.S. Congress to have on how the Government of the District of Columbia spends?

a) a federal payment that is considered a reimbursement for services provided to the federal government and taxes unrealized because of the federal presence?
b) a federal contribution that is considered a subsidy?

5. What two different kinds of financial inequities for District residents are the result of the District of Columbia not having voting representation in the U.S. Congress?*

6. Why should people outside of Washington, DC, care about the District’s financial and political problems?

7. What topic or topics should be the focus of the second year of the study on D.C. Finances and Political Structure?

___ Additional sources of revenue for the District
___ Management reforms in the District of Columbia
___ Government Strategies for moving forward to implement the LWVUS position on Congressional Representation for the District
___ Reducing the level of federal control over the District of Columbia's budget
___ Other: __________________________________________

Additional Comments for Study Committee::

_______________________________________________________

_______________________________________________________

_______________________________________________________

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*District residents are the only U.S. citizens that have no voice in the spending of the federal tax dollars they provide.

District residents, unlike U.S. Citizens in other cities, are not represented in the legislative body of the larger jurisdiction that can exert control over the way money is spent by their city.