S. HRG. 106–928 DISTRICT OF COLUMBIA APPROPRIATIONS FOR FISCAL YEAR 2001 HEARING BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE ONE HUNDRED SIXTH CONGRESS SECOND SESSION ON H.R. 4942 and 5633/S. 3041 AN ACT MAKING APPROPRIATIONS FOR THE GOVERNMENT OF THE DISTRICT OF COLUMBIA AND OTHER ACTIVITIES CHARGEABLE IN WHOLE OR IN PART AGAINST THE REVENUES OF SAID DISTRICT FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2001, AND FOR OTHER PURPOSES Council of the District of Columbia Financial Responsibility and Management Assistance Authority Office of the Mayor Printed for the use of the Committee on Appropriations ( Available via the World Wide Web: http://www.access.gpo.gov/congress/senate U.S. GOVERNMENT PRINTING OFFICE 62–772 cc WASHINGTON : 2001 For sale by the U.S. Government Printing Office Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 COMMITTEE ON APPROPRIATIONS TED STEVENS, Alaska, Chairman THAD COCHRAN, Mississippi ROBERT C. BYRD, West Virginia ARLEN SPECTER, Pennsylvania DANIEL K. INOUYE, Hawaii PETE V. DOMENICI, New Mexico ERNEST F. HOLLINGS, South Carolina CHRISTOPHER S. BOND, Missouri PATRICK J. LEAHY, Vermont SLADE GORTON, Washington FRANK R. LAUTENBERG, New Jersey MITCH MCCONNELL, Kentucky TOM HARKIN, Iowa CONRAD BURNS, Montana BARBARA A. MIKULSKI, Maryland RICHARD C. SHELBY, Alabama HARRY REID, Nevada JUDD GREGG, New Hampshire HERB KOHL, Wisconsin ROBERT F. BENNETT, Utah PATTY MURRAY, Washington BEN NIGHTHORSE CAMPBELL, Colorado BYRON L. DORGAN, North Dakota LARRY CRAIG, Idaho DIANNE FEINSTEIN, California KAY BAILEY HUTCHISON, Texas RICHARD J. DURBIN, Illinois JON KYL, Arizona STEVEN J. CORTESE, Staff Director LISA SUTHERLAND, Deputy Staff Director JAMES H. ENGLISH, Minority Staff Director SUBCOMMITTEE ON THE DISTRICT OF COLUMBIA KAY BAILEY HUTCHISON, Texas, Chairman JON KYL, Arizona RICHARD J. DURBIN, Illinois TED STEVENS, Alaska, (ex officio) ROBERT C. BYRD, West Virginia (ex officio) Professional Staff MARY BETH NETHERCUTT TERRY SAUVAIN (Minority) Administrative Support LIZ BLEVINS (Minority) (II) CONTENTS TUESDAY, JUNE 13, 2000 Page Council of the District of Columbia ........................................................................ 1 Financial Responsibility and Management Assistance Authority ....................... 1 Office of the Mayor .................................................................................................. 1 Nondepartmental witness ....................................................................................... 87 (III) DISTRICT OF COLUMBIA APPROPRIATIONS FOR FISCAL YEAR 2001 TUESDAY, JUNE 13, 2000 U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, Washington, DC. The subcommittee met at 11:06 a.m., in room SD–192, Dirksen Senate Office Building, Hon. Kay Bailey Hutchison (chairman) pre- siding. Present: Senators Hutchison, Kyl, and Durbin. DISTRICT OF COLUMBIA OFFICE OF THE MAYOR STATEMENT OF HON. ANTHONY A. WILLIAMS, MAYOR COUNCIL OF THE DISTRICT OF COLUMBIA STATEMENT OF LINDA W. CROPP, CHAIRMAN FINANCIAL RESPONSIBILITY AND MANAGEMENT ASSISTANCE AUTHORITY STATEMENT OF DR. ALICE RIVLIN, MEMBER OPENING STATEMENT OF SENATOR KAY BAILEY HUTCHISON Senator HUTCHISON. I would like to make a short opening state- ment, and then we have two other Senators who are going to be late. We are going to start and proceed and then as they come, we will certainly welcome them to take part in the hearing. I want to welcome our witnesses today, Mayor Williams, Council Chairman Cropp, and Dr. Rivlin. Each of you is playing a critical role in the revitalization of the District of Columbia. PERCENT OF FEDERAL FUNDS Today’s hearing, of course, focuses on the District’s 2001 budget. The Federal Government is providing nearly $400 million in direct spending for the District and in combination with Federal grants, the U.S. funds 27 percent of the District’s budget. I think there is good news in the District budget. Clearly, the City is headed in the right direction financially. For fiscal year 2001, I am told you are planning to hold a surplus of approxi- mately $260 million above the 4 percent requirement of $189 mil- lion. (1) 2 RESERVE The District is also doing the right thing with the reserve fund, continuing to hold the $150 million in emergency reserve. There are, I think, some other financial safeguards that should benefit the City, and I hope that we can discuss those as we go through this process. EDUCATION SPENDING Education spending, under this budget, will improve dramati- cally for both the public school system and charter schools. Spend- ing will be on a per-pupil basis so that charter schools are not dis- criminated against. TAX CUT And the District is continuing with its tax cut that was passed last year, reducing property rates and income tax rates, hopefully making the District more competitive with neighboring jurisdic- tions. I think these are positive developments. DEBT POLICY Having said that, I do see some red flags for the future. I believe the District is moving in the wrong direction on debt policy. The City is refinancing its debt, albeit saving on short-term interest costs, but putting itself in debt for a longer term. The City already has $3 billion in debt. And it seems to be intent on expanding that debt, planning nearly $1.6 billion in new debt in the next 5 years. In 1999 Moody’s Investors Service, assessing the District of Co- lumbia, said, ‘‘ The District’s annual debt service burden is pro- jected to remain a heavy 11 to 12 percent of local revenues.’’ PER CAPITA DEBT Cities with low debt that receive high bond ratings have per cap- ita debt of approximately $743 per person. The District’s per capita debt ratio is almost $6,200 per person. As you can see, the Dis- trict’s debt ratio is far beyond what it ought to be. In looking at the Moody’s comments, they say that all of the ra- tios for the District of Columbia are high when you are looking at its debt from any standpoint. So I am going to raise the caution flag and say that I think the one thing that the District must do to get on a track to receive a better bond rating is to look at debt principles and a debt policy that is more restrictive rather than less. I know there are infrastructure needs, but this kind of increasing debt, I think, is the wrong direction. And as we all know, we are going into a higher interest rate market. RESERVE FUNDS During the budget debate, there was considerable discussion about the $150 million reserve fund. I do not believe the fund needs to be cumulative. I do believe, however, that the District 3 must hold a real reserve each year, and that it must only be spent for real emergencies. Further, I think dipping into the reserve should be the funding source of last resort, and all other surplus funds should be ex- hausted before tapping the emergency fund. I will propose that the reserve be placed in a separate interest- bearing account so that the public and the market watchers will know that the reserve is real and tangible, a rainy day account, and not a bookkeeping entry. Additionally, if there is a need for unanticipated expenses, which we did see this year, versus genuine emergencies, then I would be open to providing the City with greater flexibility. UNANTICIPATED NEEDS Unanticipated needs are those spending items that might arise after the budget process or something required by Federal legisla- tion, perhaps something due to severe weather or even a court order. Any new flexibility must be accompanied by more established cri- teria for what is emergency spending and what is simply unantici- pated. I believe we must have very certain parameters if we are going to have greater flexibility, which I think we need. So let me conclude by reiterating that I think the City’s overall financial picture is good. I believe that working together, we have been able to make some great progress. And I think we can craft a budget that will even go further to give you needed flexibility but solid financial parameters, so that you will continue to build to- ward a better bond rating and lower borrowing costs and, of course, a healthier city. I want to thank all of you for being here and for all you are doing and for the great working relationship that I feel that we have. Before we begin with your testimony, I just want to remind you that your entire statement will be made part of the record, so that if you can limit your opening statement to 5 minutes or so, we will put your entire statement on the record. And then I will also say that without objection, the record will remain open until 5 p.m. on Monday, June 19, 2000 for the submis- sion of any additional testimony or responses to questions that members may raise as they come. As I mentioned, Senator Durbin will be here later, and Senator Kyl, as well, will be here later. So with that, I would like to recognize Mayor Williams and wel- come you here. STATEMENT OF MAYOR ANTHONY A. WILLIAMS Mayor WILLIAMS. Thank you, Madam Chairman, and members of the Committee for having us here today to talk about the District of Columbia’s fiscal year 2001 budget. I have submitted my testimony for the record. As I go through it, I will try to give you the highlights to allow the maximum amount of time for my colleagues to submit their testimony and for questions and answers. 4 This budget builds upon the strong financial recovery we have achieved over recent years. We are going to begin the 2001 budget having met the three financial goals set by Congress. FOUR CONSECUTIVE BUDGETS First, we will have balanced four consecutive budgets, those for fiscal year 1997 through fiscal year 2000; second, we will have gained full access to credit markets; and third, we will have estab- lished financial reserves totaling over $400 million.