TESTIMONY OF
FRANKLIN D. RAINES
DIRECTOR
OFFICE OF MANAGEMENT AND BUDGET
BEFORE THE
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,
SUBCOMMITTEE ON THE DISTRICT OF COLUMBIA,
UNITED STATES HOUSE OF REPRESENTATIVES
ON
THE PRESIDENT'S NATIONAL CAPITAL REVITALIZATION
AND SELF-GOVERNMENT IMPROVEMENT PLAN
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.
- It benefits District residents by reducing their government's
financial burdens, improving the
delivery of city services, and investing in the criminal justice
system, economic development,
and transportation.
- It benefits the region because of the city's economic recovery;
the financial support given to
the police, fire, teachers, and judges pension funds; the rebuilding
of the District prison system;
and the improvement of a key component of the regional transportation
infrastructure.
- It benefits the Nation because it begins to create a capital
city that we can all be proud of,
improves its transportation system, and helps ensure the safety of
residents and visitors.
* * *
Mr. Chairman, that concludes my
testimony. I would be happy to answer any questions that
you have.