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Government and People
U.S. Senator Mary L. Landrieu, Louisiana
Report Confirms Fiscal Imbalance in DC: Landrieu: Identifying The Problem Is First Step In -Reaching A Solution(Thursday, June 5, 2003 - Washington, DC) - A new report released today confirms for the first time what city leaders have long suspected- that the budget for our nation's capital is set up for extensive budget challenges outside of their control. Completed and issued by the General Accounting Office, the report indicates the structure of the city's budget pits steep, mandatory expenses unique to the District against revenue sources that are severely and uniquely limited. For the first time, the high cost of providing services in D.C. is shown as the, primary reason for an imbalance of $470-million to $1.1-billion annually. The report was initiated 18 months ago at the request of US Senator Mary Landrieu (D-LA) and Delegate Eleanor Holmes Norton.
"The District faces economic challenges that no other city in the country has to meet, and this report spells them out very clearly," said Senator Mary Landrieu, (D-La), ranking Democratic member of the Senate Appropriations Subcommittee on the District of Columbia. "Many residents of the District are low-income, and generate few tax dollars. Additionally, the hundreds of government agencies here provide no tax base, no revenue whatsoever. Those agencies employ hundreds of thousands of workers, many who live in outlying areas and therefore don't pay District taxes, but who expect and need access to emergency care, security, mass transit, roads, and all of the other services for which tax dollars are expected to pay. This report provides the solid evidence to both clearly define the problem and begin addressing solutions."
The report pinpoints four major cost drivers that create the imbalance: expensive labor and real estate markets; a large, low-income population; a high crime rate; and, no rural or suburban areas. It also acknowledges several issues that exacerbate the structural imbalance, including financial management issues, poor training and inadequate internal control systems.
The General Accounting Office describes two general options for addressing the problem: 1) expanding the District tax base, and 2) providing additional financial support. In announcing the results of the report, both Landrieu and Norton committed to leading an education campaign to help their colleagues understand the issues and the responsibility to act.
"Congress and the District have a shared responsibility to improve the management of government and services in our nation's capital," said Senator Landrieu. "This report is a positive first step in that it provides a solid basis for beginning to address these issues. I am firmly convinced that once my colleagues understand the scope of challenges hereand the reasons for them-they will collaborate with me to reach a solution."
|For Immediate Release
Thursday, June 5, 2003
(202) 225-8050, (202)225-8143-cell
Web Site: http://www.norton.house.gov
Two studies by research organizations with outstanding reputations, released last year, found that the District has a "structural imbalance" beyond its ability to remedy- first, a McKinsey study commissioned by regional business leaders of the Federal City Council, and later a Brookings study led by former control board chair Alice Rivlin, the first director of the Congressional Budget Office and former director of the Office of Management and Budget. Even so, considering that city officials and I were seeking a legislative solution, I believed that a separate study by Congress' own objective research arm, the General Accounting Office (GAO), was appropriate. Separately, Senator Mary Landrieu who was then chair and is now Ranking Member of the D.C. Appropriations Subcommittee and former Representative and chair of the D.C. Subcommittee Connie Morella said that the unique issues raised by the District required a GAO study. Consequently, Senator Landrieu, former Representative Morella, and I consulted and then requested the study that we release today.
Much of what I shall say in my brief remarks involves direct quotations from the GAO report because the GAO's analysis speaks for itself. The GAO's conclusions are unequivocal. (1) GAO "concludes that the District does have a substantial structural imbalance;" (2) "that, even if the District's services were managed efficiently, the District would have to impose above-average tax burdens to provide an average level of services;" and (3) "GAO obtained its lowest estimate of the Districts structural deficit [to be] $470 million and higher estimates of the structural imbalance [to be] up to more than 1.1 billion."The GAO was careful to distinguish the city's operating deficit, stemming in part from "costly management problems-mostly under the District's authority and control," from the District's structural deficit imposed by federal restraints and the federal presence. GAO also found that "the District has taken some actions to correct management inefficiencies."
GAO examined D.C.'s alternatives for closing the structural deficit and commented on them all. GAO found that greater management efficiencies could "reduce budget shortfalls..." but continued, "However management improvements will not offset the underlying structural imbalance because it is caused by factors beyond the dirt control of District officials." As to raising taxes to meet structural problems, GAO concluded that "further raising taxes would likely worsen D.C.'s competitive advantage in attracting new businesses and residents to locate in the District." The option of "cutting services to residents as well as businesses and visitors," GAO concludes, "could also have undesirable consequences for the District's economy."
The GAO does not generally make recommendations. However, after exhausting the available alternatives, GAO draws two important conclusions. First, GAO says "If this imbalance is to be addressed, in the near term it may be necessary to change federal policies to expand the District's tax base or to provide additional financial support." GAO then takes note of the District's stature as the nation's capital and concludes that "justification may exist for a greater role by the federal government to help the District maintain fiscal balance."
I agree with GAO that greater management efficiency can relieve the city's annual budget problems, but that D.C.'s structural deficit cannot be remedied by raising taxes on the District's narrow tax base or by cutting already inadequate services. That leaves only the option of seeking a federal contribution. I believe that a bipartisan and fiscally responsible shared solution can be found that will benefit the federal government, the region and city. The GAO report leaves Congress, the White House, and the city no other viable choice.
Office of Communications
Tony Bullock Director
FOR IMMEDIATE RELEASE
THURSDAY, JUNE 5, 2003
(Washington, DC) Mayor Anthony A. Williams welcomed the report released today by the General Accounting Office (GAO), which found that the District of Columbia does have a substantial structural deficit in the sense that the cost of providing an average level of public services exceeds the amount of revenue the city could raise by applying average tax rates.
"We've been making this case for years," said Mayor Williams. "The federal restrictions on our city's taxing authority make it impossible to provide essential services and protect our basic infrastructure while still balancing the budget. The federal government places a restriction on the District that no other city or state faces in that we cannot tax non-resident income. Additionally, there is a vast physical federal presence in our city, none of which is taxable, creating a situation where an enormous amount of real property in the District is not taxable. The District has been dealt an extremely difficult hand, and the federal government needs to compensate the city for the constraints it places on us."
Mayor Williams praised Senator Mary Landrieu (D-LA) and Congressman Eleanor Holmes Norton (D-DC) for requesting the GAO study. This GAO report is the third report to find that the District has a structural deficit. "For the first time, the GAO has acknowledged the burden that the federal government imposes on the District, thus setting the stage for a frank discussion among District leaders and Congress over how the federal government should compensate our city for its losses," said Mayor Williams. "Now that we all agree that there is a problem, we can discuss appropriate solutions. There are a host of state-level functions that would be very appropriate for the federal government to fund directly, including the Metro system, Medicaid and special education."
"The GAO report clearly shows that the District is not just crying wolf. It is time for the federal government to reimburse the city for the enormous constraints it imposes on us," concluded Mayor Williams.
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