GOVERNMENT OF THE DISTRICT OF COLUMBIA
Executive Office of the Mayor
Testimony of Anthony A. Williams, Mayor
Council of the District of Columbia
Committee of the Whole
on the FY 2004 Budget and Financial Plan
Education, Public Safety, and Opportunity for All
March 19, 2003
Good morning Chairman Cropp and members of the Council. 1 am pleased to
be here today to discuss the proposed FY 2004 Budget and Financial Plan.
This budget proposes $5.6 billion in total funding and supports 33,638
full-time equivalent (FTE) staff. This change represents a 0.02% funding
decrease from the FY03 approved budget; and an increase of 4 FTEs. In
local funds, this budget proposes $3.8 billion in funding and supports
26,197 FTEs. This local budget change represents a 5.5% funding increase
over the FY03 approved budget and a decrease of 197 FTEs.
As you know, cities and states across the nation are facing the biggest
revenue shortfalls since World War 11, and many are facing massive
deficits. At the source of these troubles are a national economic
downturn, a growing trend of unfunded federal mandates, and the daunting
threat of war. But while these factors generally affect all states, the
District also faces an extra challenge: the federal government requires
that we deliver state-level services, but prohibits us from collecting
revenue like a state. Add to that the fact that we have no vote in
Congress and the District's challenge is greatly compounded.
There is a difference between an explanation and an excuse, however. So
even though the national economy and federal policy may be driving much of
our problem, as local elected leaders we must make the tough choices
required to solve it. What you will see in this proposal is a budget that
addresses the challenge at hand and does so by meeting the highest
standards of fiscal discipline and fairness.
By looking across the country, one sees that different governments are
facing this crisis in different ways. Some fail to find enough
alternatives, so they make draconian cuts in education, child care, and
social services. Others spend their reserves, pursue pie-in-the sky
revenue gimmicks, or attempt to balance their budgets by simply pretending
that giant looming costs do not exist.
Then there are those who take a different approach. Those who recognize
and address the full magnitude of the problem; who have the capacity to
say one thing is a priority and another is not; who have the
ability to find areas of low productivity and reallocate resources; and who
have the courage to call on all members of the community to accept a
fair share of the burden. I believe my budget proposal reflects exactly
this kind of leadership.
Specifically, I propose an FY04 budget that is balanced through a
combination of four key components:
- Focus on community goals
- Strategic spending reductions
- Increases in revenue only as needed Recognition of deferred
I will now present further detail on each of these approaches.
Focus on Community Goals
Based on input from thousands of residents; my administration has
defined and pursued five main priorities. These priorities have been the
focus and organizing guide for our pursuits over the .past four years.
These priorities are (1) children, youth, families, and elders; (2)
building sustainable neighborhoods; (3) economic development; (4) making
government work; and (5) unity of purpose.
After ongoing consultation over the past year, citizens have further
focused their priorities in the following areas:
- education, including early childhood education, public schools, and
- public safety, including greater police presence in communities and
a vastly improved 911 emergency communications system; and
- opportunity for all, which includes the housing, employment, and
health care needed for all residents to become productive and healthy
members of the community and economy.
In times of tight resources, some would set their goals aside in order
to weather the storm, but I believe the opposite must be done: in these
difficult times we must focus on our goals more than ever so that we may
protect them and continue making progress toward achieving them.
The proposed FY 2004 budget reflects this preservation and focus by
proposing no budget reductions in schools, by investing in public safety
responsiveness, and by preserving current funding levels in housing, job
training, and health care. In order to protect these priorities, however,
some reductions had to be made in other areas of the budget. I will now
discuss my approach to identifying these reductions.
Strategic Spending Reduction
Congress requires the District to provide services like a state, but
prohibits the District from collecting revenues like any other state. As a
result, the District faces a major imbalance between revenues and required
spending. Several years ago, McKinsey and Co. (the firm that helped
develop the original Rivlin Commission study) reported that the District
could reduce its spending by $150 million as part of a solution to the
structural imbalance. In FY 2001, the District achieved $52 million in
operating cost reductions. In FY 2002, the government reduced $14 million;
and in the FY 2003 approved budget $193 million was reduced.
Much of these savings came from identifying areas of productivity
savings and efficiency. Now that the District must reduce spending
further, the opportunities for such savings are more elusive. Nonetheless,
the formulation of the FY 2004 budget began by pursuing those remaining
options where available, then developing other options. Specifically, the
approach of my administration consisted of pursuing the following
approaches, in the order presented:
Through this approach, the proposed budget preserves core programs and
minimizes the service reductions felt by the community. In other words,
reduction options were pursued short of the point where core services
became unsustainably affected. At that point, further reductions became
unsupportable because they would threaten the viability of our community
and government. To resolve the remainder of the shortfall, this budget
includes revenue increases.
- Identify remaining areas of productivity savings and efficiency
- Reallocate unspent fund balances
- Freeze administrative spending
- Suspend new increases in service levels
- Reduce non-core programs (i.e., programs not supporting basic safety
Increases in Revenue
Prior to this year, the District had avoided tax increases for almost a
decade. In fact, laws passed in recent years have provided major taxpayer
savings in income, property, and business taxes.1
Likewise, many fees were maintained at historical levels, not even keeping
pace with inflation.
At the beginning of the current year, however, the national economic
downturn became so severe that even the extensive spending reductions made
could not balance the budget, and revenue increases became necessary.
These increases were limited to taxes on property, alcohol, cigarettes,
utilities, telecommunications, and general fines and fees.
In FY 2004, fiscal challenges will require even more spending
reductions and revenue increases, and the government must turn to other
sources of revenue to ensure a fair and responsible tax structure. To this
end, the proposed budget includes three revenue proposals.
The first proposal ends a special sales tax exemption on selected
services such as health clubs, theater admission, and private club
memberships. Under current law, this exemption singles out a small group
for special treatment. Therefore, eliminating it will not only provide
additional revenue, it will also enhance the fairness of the tax code.
The second proposed increase will change the current tax rate on
commercial parking from 12% to 18%, which will add 60 cents to a $10
parking charge. This rate has not been increased in more than 26 years.
Finally, as part of a third proposed increase, this budget creates a
temporary increase in the tax rate on income over $100,000. For each tax
return, the tax rate for income below $100,000 will not change. Only
earnings beyond that amount will be subject to an additional six tenths of
one percent. As a result, an earner with $150,000 in gross income and
$125,000 in net taxable income will pay an additional $150. This temporary
surcharge is proposed to stay in effect for two years only (calendar years
2004 and 2005).
Through these revenue initiatives (coupled with the expenditure
reductions discussed above), the District's FY 2004 and future years'
budgets will be balanced, and the standard of fiscal discipline maintained
by this government over the past six years will be continued.
Although the operating budget has been responsibly balanced, however,
there remains a grave concern about the physical infrastructure of the
District. The final portion of my testimony addresses this concern.
Recognition of Neglected Infrastructure Needs
Like many historic cities, the District has an aging infrastructure
that requires major capital investment. Unlike other cities and states,
however, Congress prohibits the District from accessing the tax base
needed to fund infrastructure improvements. To make matters worse, we do
not have voting members of Congress who can secure federal infrastructure
investments on par with other states.
As a result, the District has financed its capital investment primarily
with borrowings secured by its very limited tax base. These borrowings
have been managed responsibly, earning the District several upgrades in
its bond rating from Wall Street. Because we lack other funding
mechanisms, however, the District has reached the limits of its borrowing
capacity, and must begin to dramatically scale back its capital
investment. In fact, limits on our capital borrowing may threaten the much
needed- renovation of our outdated fire stations, libraries, recreation
centers, and other essential facilities. Moreover, without the state
support neighboring jurisdictions enjoy, the District cannot support the
major new investment needed for the Washington Metropolitan Area Transit
Authority system without further neglect of local projects.
As stated above regarding the operating budget, however, there is a
difference between an explanation and an excuse. We face an operating
budget gap largely due national and federal trends, but we do not use that
as an excuse to avoid difficult decisions. On the capital side of this
equation, however, no state or city could succeed without the basic
revenue tools they have, and it would be irresponsible of this city to
pretend it can.
Therefore, the District has reached the point where it must partner
with the federal government to address our joint infrastructure needs.
Congresswoman Eleanor Holmes Norton has introduced the Fair Federal
Compensation Act and the No Taxation Without Representation Act to
address these issues. It now falls to the President and Congress to create
a level playing field for the District of Columbia.
As we pursue this effort in Congress, I look forward to continued
cooperation between the Mayor and Council. By demonstrating continued
fiscal discipline, we can more effectively encourage the Congress to
create a more appropriate funding structure for the District, and will
best serve the interests of our citizens. As such, for the good of this
cause and for the well-being of our city, I look forward to working with
you as the Council begins its review of the proposed FY 2004 budget and
This concludes my testimony, and I will be happy to respond to any
questions you may have.
1. Moreover, current law includes a schedule for
further tax reductions in FY 2004-07. As the four-year financial plan
demonstrates, however, the proposed budget will not be balanced if the
scheduled tax rate decreases take effect. Therefore, as provided for in
the Tax Rate Revision Act of 2002, these decreases will not take effect as