BalWash
February 22nd, 2007, 02:45 AM
It has been proposed that the District of Columbia be given $800,000,000 per year (adjusted every year for inflation). The reasoning behind this is outlined below by the Brookings Institute. The full rational can be found here: http://www.brookings.edu/metro/gwrp/20051116_dcinfrastructure.pdf
How do you feel about the Federal Government's responsibility to the city? Is this the best route?
EXECUTIVE SUMMARY
A 2003 report from the Government Accountability Office (GAO) found that the District of
Columbia faces a large structural budget imbalance—that is, a persistent gap between its ability
to raise revenues and the cost of providing basic services. DC’s imbalance stems largely from its
being a “city without a state” and from revenue limitations caused by the federal presence. The
most logical solution to this problem would be an annual contribution from the federal
government to help address the challenges that arise from DC’s unique status as the nation’s
capital.
A bill introduced by DC Congresswoman Eleanor Holmes Norton and endorsed by the entire
congressional delegation from the Washington region would provide the District with $800
million annually (adjusted each year for rising costs) to address a variety of infrastructure needs.
This paper assesses the proposal’s likely impact. It finds that the bill would give DC leaders
flexibility to make a serious dent in several of the city’s major fiscal challenges. This paper also
considers other options for designing and computing the size of a federal contribution.
Like other large cities, the District faces a number of factors that put upward pressure on its
budget—such as a high cost of living and significant public safety and social service needs. The
GAO found that the cost of providing basic services is far higher in DC than in any state. Yet
the District is not embedded in a larger state that can help share this load. Sixty percent of the
metropolitan area’s homeless residents, for example, live in DC.
While its public service demands are high, DC’s revenues are restricted by the federal
prohibition against taxing the income earned by non-residents, who make up roughly two-thirds
of those who work in the District. DC is also handicapped by the fact that 40 percent of its
property is tax-exempt because it is owned by the federal government, other governments, or
non-profits.
The GAO found that DC’s structural imbalance is in the range of $470 million to $1.1 billion
per year, depending on which assumptions are used. A review of these assumptions suggests
that the most reasonable estimate is between $900 million and $1.1 billion. While the GAO
noted that many states also face structural deficits, the gap in DC is the largest per capita.
One result of this fiscal imbalance is a long-term under-investment in the District’s physical
infrastructure. DC public schools, for example, are, on average, 65 years old. The most recent
estimate of deferred capital needs is in the range of $5.2 billion over the next six years, and this
was not a thorough assessment. Yet the District’s debt is now far higher than any state’s on a per
capita basis, making it virtually impossible to address its infrastructure backlog.
Despite these challenges, the District has balanced its budget for eight years in a row, emerged
from oversight by a federal control board, and enjoyed upgrades in its bond rating. This
progress, however, has been built largely on an anomalous—and perhaps cyclical—upsurge in its
real estate market, and it does not change the fundamental fact that the District faces substantial
DC Fiscal Policy Institute and The Brookings Institution
3
public service costs and a restricted tax base. Notably, the improvement in DC’s financial
position has not helped its ability to address deferred infrastructure needs.
Under the 1997 Revitalization Act, the federal government addressed some of the city’s
greatest fiscal challenges by assuming responsibility for several court and corrections expenses,
increasing the federal share of DC’s Medicaid expenses, and assuming responsibility for DC’s
unfunded pension liability. This came with a cost, however—the elimination of an annual
federal payment that had reached $666 million. Although the Revitalization Act appears to have
provided a net fiscal gain to the District, it did not erase DC’s structural imbalance; GAO’s study
on DC’s budget gap was conducted after the Revitalization Act was fully in effect.
Further federal efforts to address the DC’s structural imbalance are warranted. To be
effective, a federal contribution must be stable and predictable, and it must allow the District to
address its most pressing needs. As noted, an annual contribution of up to $1.1 billion is
justified.
The bill introduced by Congresswoman Norton would devote the federal contribution to a
dedicated fund that could be used for repayment of bonds, school construction, information
technology, and transportation costs, including DC’s share of Metro system expenses. The bill’s
contribution amount—$800 million—is roughly the mid-point of the range of DC’s imbalance as
determined by GAO. This bill would help the District address deferred infrastructure needs
without raising its debt. It also would allow the District to use these federal funds for certain
operating expenses, such as debt payments, which could free up funds that the District could use
to address high service costs in other areas, such as health care.
For example, an annual federal contribution of $800 million would enable the District, over
the next decade, to address one-third of its major deferred capital maintenance needs, cut its high
debt level in half, and address one-fourth of the burdens of state-level services it now provides.
Another way to set the size of a federal contribution would be to measure the services
provided by the District that are funded at the state level elsewhere. Each year the District
spends at least $1.2 billion on services that typically are funded entirely at the state level. This
includes costly program areas, such as mental health and foster care.
Whichever method is used to compute the size of an annual federal contribution, it would
make sense to permit the District to use this contribution to address high service delivery costs,
as well as to make infrastructure investments. This would be an appropriate response to the
problems resulting from DC’s structural imbalance as identified by GAO.
Federal compensation for DC’s structural imbalance would allow the city to make substantial
progress on some its greatest challenges and become an even more welcoming place as the
nation’s capital.
How do you feel about the Federal Government's responsibility to the city? Is this the best route?
EXECUTIVE SUMMARY
A 2003 report from the Government Accountability Office (GAO) found that the District of
Columbia faces a large structural budget imbalance—that is, a persistent gap between its ability
to raise revenues and the cost of providing basic services. DC’s imbalance stems largely from its
being a “city without a state” and from revenue limitations caused by the federal presence. The
most logical solution to this problem would be an annual contribution from the federal
government to help address the challenges that arise from DC’s unique status as the nation’s
capital.
A bill introduced by DC Congresswoman Eleanor Holmes Norton and endorsed by the entire
congressional delegation from the Washington region would provide the District with $800
million annually (adjusted each year for rising costs) to address a variety of infrastructure needs.
This paper assesses the proposal’s likely impact. It finds that the bill would give DC leaders
flexibility to make a serious dent in several of the city’s major fiscal challenges. This paper also
considers other options for designing and computing the size of a federal contribution.
Like other large cities, the District faces a number of factors that put upward pressure on its
budget—such as a high cost of living and significant public safety and social service needs. The
GAO found that the cost of providing basic services is far higher in DC than in any state. Yet
the District is not embedded in a larger state that can help share this load. Sixty percent of the
metropolitan area’s homeless residents, for example, live in DC.
While its public service demands are high, DC’s revenues are restricted by the federal
prohibition against taxing the income earned by non-residents, who make up roughly two-thirds
of those who work in the District. DC is also handicapped by the fact that 40 percent of its
property is tax-exempt because it is owned by the federal government, other governments, or
non-profits.
The GAO found that DC’s structural imbalance is in the range of $470 million to $1.1 billion
per year, depending on which assumptions are used. A review of these assumptions suggests
that the most reasonable estimate is between $900 million and $1.1 billion. While the GAO
noted that many states also face structural deficits, the gap in DC is the largest per capita.
One result of this fiscal imbalance is a long-term under-investment in the District’s physical
infrastructure. DC public schools, for example, are, on average, 65 years old. The most recent
estimate of deferred capital needs is in the range of $5.2 billion over the next six years, and this
was not a thorough assessment. Yet the District’s debt is now far higher than any state’s on a per
capita basis, making it virtually impossible to address its infrastructure backlog.
Despite these challenges, the District has balanced its budget for eight years in a row, emerged
from oversight by a federal control board, and enjoyed upgrades in its bond rating. This
progress, however, has been built largely on an anomalous—and perhaps cyclical—upsurge in its
real estate market, and it does not change the fundamental fact that the District faces substantial
DC Fiscal Policy Institute and The Brookings Institution
3
public service costs and a restricted tax base. Notably, the improvement in DC’s financial
position has not helped its ability to address deferred infrastructure needs.
Under the 1997 Revitalization Act, the federal government addressed some of the city’s
greatest fiscal challenges by assuming responsibility for several court and corrections expenses,
increasing the federal share of DC’s Medicaid expenses, and assuming responsibility for DC’s
unfunded pension liability. This came with a cost, however—the elimination of an annual
federal payment that had reached $666 million. Although the Revitalization Act appears to have
provided a net fiscal gain to the District, it did not erase DC’s structural imbalance; GAO’s study
on DC’s budget gap was conducted after the Revitalization Act was fully in effect.
Further federal efforts to address the DC’s structural imbalance are warranted. To be
effective, a federal contribution must be stable and predictable, and it must allow the District to
address its most pressing needs. As noted, an annual contribution of up to $1.1 billion is
justified.
The bill introduced by Congresswoman Norton would devote the federal contribution to a
dedicated fund that could be used for repayment of bonds, school construction, information
technology, and transportation costs, including DC’s share of Metro system expenses. The bill’s
contribution amount—$800 million—is roughly the mid-point of the range of DC’s imbalance as
determined by GAO. This bill would help the District address deferred infrastructure needs
without raising its debt. It also would allow the District to use these federal funds for certain
operating expenses, such as debt payments, which could free up funds that the District could use
to address high service costs in other areas, such as health care.
For example, an annual federal contribution of $800 million would enable the District, over
the next decade, to address one-third of its major deferred capital maintenance needs, cut its high
debt level in half, and address one-fourth of the burdens of state-level services it now provides.
Another way to set the size of a federal contribution would be to measure the services
provided by the District that are funded at the state level elsewhere. Each year the District
spends at least $1.2 billion on services that typically are funded entirely at the state level. This
includes costly program areas, such as mental health and foster care.
Whichever method is used to compute the size of an annual federal contribution, it would
make sense to permit the District to use this contribution to address high service delivery costs,
as well as to make infrastructure investments. This would be an appropriate response to the
problems resulting from DC’s structural imbalance as identified by GAO.
Federal compensation for DC’s structural imbalance would allow the city to make substantial
progress on some its greatest challenges and become an even more welcoming place as the
nation’s capital.