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higher education and vocational training in the District is increased by the area's lack of private industry to aid in providing on-the-job training and other manpower programs. These Federal capital grants are analogous to State support of higher education capital facilities common in most States.

This legislation is designed to extend to all District borrowing for capital improvement projects the formula ceiling enacted by the Congress for governing debt incurred by the District general fund. The key features of the bill are as follows:

Instead of borrowing directly from the Federal Government, the District will finance its capital outlay programs by issuing taxable bonds at such rates as the District Commissioner may determine are necessary to make them marketable.

These D.C. bonds are, in essence, guaranteed by the Federal Government. The District will have a borrowing rate generally comparable to other municipalities. Because the District's bonds are taxable and will have to be sold at higher interest rates than other municipal bonds which are nontaxable, the Federal Government will provide the District a subsidy to offset the extra interest expense in order to assure such a comparable rate.

Construction of permanent campuses for Federal City College and the Washington Technical Institute would be financed by direct capital grants rather than the direct capital loans now employed.

This legislation is vital to effective and efficient financing of District of Columbia capital improvements projects. It is important to this Administration's objectives for both the future of the District and for prudent financial management of the Government, and I strongly urge early consideration and enactment of this bill by the Congress. Enactment of this proposal would be in accord with the program of the President.

Sincerely,

ROBERT P. MAYO, Director.

SECTION-BY-SECTION ANALYSIS

Section 1 of the bill states that the bill may be cited as the "District of Columbia Capital Program Financing Act of 1970" and section 2 provides definitions for terms used in the bill.

Section 3 of the bill would authorize the District Government to finance its various capital improvements through the issuance of interest-bearing negotiable obligations of the District. The new obligations would be subject to District, Federal and local taxation. This authority to issue obligations would replace existing District authority to borrow from the Treasury to finance capital programs for the District of Columbia.

The District would be limited, under section 3 of the legislation, with respect to the amount of outstanding obligations it could have at any one time. No obligation could be issued which would cause the amount of the principal and interest required to be paid in any fiscal year on the aggregate amount of District obligations to exceed 12% of the District's revenues, including all annual Federal payments to the District, which the Commissioner estimates will be credited to all funds of the District for the current fiscal year.

Section 4 of the bill would authorize the Secretary of the Treasury to purchase from the District any of its obligations when necessary to permit timely payment by the District of principal and interest on any of its outstanding obligations. This provision, which is particularly important since the District's new obligations would be taxable, is designed to improve the marketability of the obligations. It is anticipated that this Federal "back-up" will balance the lack of tax-exempt status for the District's obligations, thus making the obligations attractive to purchasers in the market. In addition, section 4 would authorize the Secretary to purchase from the District all or any part of any proposed issue of its obligations whenever, pursuant to section 5, he determines that this is preferable to Federal payment of the net effective interest expense thereof.

In order to place the District of Columbia in a position comparable to other State and local governments with respect to the issuance of capital improvement obligations, section 5 would authorize the Secretary of the Treasury to make payments to the District to help defray interest expenses of the District's obligations. These payments would be in such amounts as may be necessary (1) to equal one-fourth of the net effective interest expense, including fees, commissions

and other costs of issuance incurred by the District on its obligations, or (2) to equal the difference between the interest expense incurred by the District on account of its obligations and for the interest expense which the District would have incurred had the District borrowed from the Treasury, whichever is greater. Since the District's new obligations will be taxable, and interest rates therefor somewhat higher than for other municipalities' tax-free obligations, the Treasury payments to the District authorized by this legislation will allow the District to be comparable to other jurisdictions insofar as the interest cost to the District of financing capital improvements is concerned.

Section 6 of the bill would provide authority for the District to borrow from the Treasury, on an interim basis, such sums as may be necessary to complete payments on capital outlay contracts which are awarded no later than ninety days after the enactment of the legislation. The District would also receive loans from the Treasury to pay the District's fiscal year 1971 share of the costs of the construction of the mass transit system. After fiscal year 1971, the District's share of the subway system will be financed through issuance of local obligations in the same manner as all other District capital improvement programs. These provisions are designed to allow an orderly transition from the District's present authority to borrow from the Treasury to the District's new authority to issue obligations for capital improvement projects.

Section 7 would make the District's new obligations subject to District, Federal, State, and local taxation to the same extent as the obligations of private corporations are taxed. Section 8 would designate the District's obligations as lawful investments which may be accepted as security for fiduciary, trust, and public funds, the investment or deposit of which are under Federal authority or control. Section 9 would make the District's obligations eligible for purchase by national banks, State banks that are members of the Federal Reserve System, and Federal savings and loan associations, as well as by other banks and savings and loan associations organized and operating under the laws of the District. Section 10 would provide a permanent appropriation for Treasury interest payments to the District as authorized by section 5 of the bill, and section 11 would establish guidelines covering District-built waste treatment facilities used by the entire National Capital Region.

With respect to the District's institutions of higher education, section 12 of the legislation would repeal existing authority in the District of Columbia Public Education Act (Public Law 89-791; 80 Stat. 1426) to borrow from the Treasury for the capital improvement programs of Federal City College and Washington Technical Institute. In place of that borrowing authority, this legislation would authorize payment annually by the Secretary of the Treasury to the District of funds needed to defray the costs of the institutions' capital programs. The Commissioner of the District will include capital projects for Federal City College and Washington Technical Institute in his budget only after he has approved an education program and financial plan submitted to him jointly by the schools. The higher education plan, to be known as the "District of Columbia Higher Education Program and Financial Plan," could be amended from time to time as appropriate and shall include such features as: (1) an estimate of the total cost of construction of all proposed physical facilities for the schools, including construction scheduling and annual capital cost requirements; (2) estimates and projections of student body enrollment; (3) overall financial plans for operating expenses; (4) admission policies as they may affect student body enrollment levels; and (5) estimates of financial assistance for which the District may qualify under various Federal grant-in-aid programs.

The proposed District of Columbia Higher Education Program and Financial plan will enable the Commissioner and City Council of the District, and the Congress to review the projected total capital improvement program for Federal City College and Washington Technical Institute and evaluate proposed annual projects within the context of the total program.

Section 13 provides that the District will issue obligations beginning in fiscal year 1972 for its share of the cost of the mass transit system. Section 14 would repeal all existing borrowing authority for the District's capital improvement programs. Section 15 would authorize appropriations for purposes of the act and section 16 states that the act will become effective on the date of enactment. Section 17 is a separability provision.

Senator EAGLETON. Mr. Mayor, you may proceed.

STATEMENT OF HON. WALTER E. WASHINGTON, MAYOR-COMMISSIONER; ACCOMPANIED BY COMER S. COPPIE, DEPUTY BUDGET OFFICER, DISTRICT OF COLUMBIA

Mayor WASHINGTON. Thank you, Mr. Chairman. That statement "fancier highways to the poorhouse" ought to ring. I heard it put not quite that way but it ought to get home to everybody that is concerned with the problems of financing the programs of the District of Columbia.

I am pleased to have this opportunity to appear before the committee in support of two legislative proposals of the District of Columbia government. One of these, the District of Columbia Federal Payment Authorization Act of 1970, will provide an increased Federal payment to the District of Columbia through a Federal payment formula. The other, the District of Columbia Capital Program Financing Act of 1970, will provide the District with a new, comprehensive, and innovative plan for financing the capital outlay program.

As you will recall, Mr. Chairman, we have over the past years, since 1961, functioned under a Treasury plan which we thought was not flexible enough and comprehensive enough to meet the financing needs of the capital outlay program for the District.

I will first discuss the Federal payment legislation. The proposal will provide a 30-percent Federal payment formula authorization.

This authority is essential not only in immediate terms, as a part of the fiscal year 1971 financing plan, but also in the long-range, as the District must further develop and strengthen its fiscal planning and management capability.

The formula proposal is a familiar one to your committee and the support of this committee in previous years is deeply appreciated by the city government. The proposal is an attempt to formulate a reliable determinant for the amount of the annual Federal payment in support of municipal government of the Nation's Capital.

I need not dwell on the underlying reasons for this payment, for it is an accepted principle that the Federal Government must contribute a fair share to support District operations. It is the amount of that payment that has been subject to debate and change over the years. We believe the proposal to establish this payment at 30 percent of our general fund revenues meets this fair share responsibility and also has distinct advantages for District long-range financial planning.

Over the past few years, our Nation has come to realize the very deep extent of its urban problems and foresee that the present gap between revenues and expenses will continue to expand. The National League of Cities has estimated that our Nation's cities will suffer a $262 billion revenue gap by 1977. The District of Columbia is no different. Indeed, the situation here is more intense as a result of the Federal presence and the revenue loss and increased expenditures as a result of this presence. No one is suggesting, of course, Mr. Chairman, that this presence is not appropriate and in line with the role of the Nation's Capital. We are simply pointing out that the property tax base, for example, is increasingly limited as the Federal establishment expands: Federally owned land has increased from 37.2 percent of the District in 1940 to 43.3 percent in 1969; taxable land has been

reduced from 54.4 to 45.1 percent. This is the nub of the problem that we are now within the confines of, this territory with a tax space of 45.1 percent.

At the same time that this expanding Federal presence has required increases in supportive city services, we have also been a part of the nationwide shift of the more prosperous and educated population from the city to the suburbs. This movement, too, has required higher expenditures and more costly services in health, education, welfare, and public safety.

We believe the Federal payment formula will give us a significant tool to cope with this situation in the most rational and intelligent manner possible.

Sound budget and fiscal planning requires an early estimate of available revenues and program needs. This kind of projection must not be limited to the immediate budget year. To get a grip on where we are going over the next 5 to 10 years, our capability and our alternatives, we must have a firm knowledge of revenue potential.

This is the broad picture. Immediate needs are equally, if not, more compelling to our request for the 30-percent formula. Based on revenue projections under existing authority and the anticipated proposed income tax, the 30-percent formula would yield $132 million in fiscal year 1971.

Present Federal payment authority is for an annual amount not to exceed $105 million. In fiscal year 1970, an additional one-time payment of $5 million was authorized in support of the District's crime program. In 1971, this amount will not be available. At the same time as our revenue is being reduced, the program's 1970 cost of $8 million is being annualized at $17 million. And I think, Mr. Chairman, that that is a significant factor that we are making throughout in connection with the Acts of Congress in 1970. This is simply one illustration. There is $8 million for the crime program in 1970, annualized comes out to $17 million as you will see as I continue that this happened over and over again in connection with the annualization programs that were passed by the Congress in 1970. The need to sustain our crime program is one of many pressures on our limited revenues available for the 1971 fiscal year.

As you are well aware, Mr. Chairman, we made a considerable effort to formulate the 1971 budget within our available revenue. This, of course, was the resounding request of both the Chairman of the House Appropriations Committee and the Senate Appropriations Committee. And our response to that very pursuasive request, we made a thorough examination of our on-going programs. The 1971 budget reflects a substantial redirection of resources. We reduced our base and eliminated 924 permanent authorized positions. From the base, and with the other base reduction we saved, in the 1971 budget, a sum of $24 million.

Nonetheless, the burden of mandatory cost increases-which totaled $71 million-required the District to seek additional revenue. Which means, Mr. Chairman, that annualizing and looking at the mandatory such as pay increases passed by the Congress and annualizing the crime program and other programs, left us even with the $24 million that we were able to cut from the base last year, with a $71 million requirement over our revenue of 1970 or needs over our revenue. And

we required therefore in the 1971 budget to meet this by submitting a request which went beyond that figure. Financing for fiscal year 1971 is based on these requests, the mandatories totaling $71 million, the income tax authorized last week, the 1 percent increase in gasoline tax, a proposed property tax increase, and the proposed Federal payment formula before your comimttee. Those are the elements which are in the city's total revenue package. As you know, some of them were acted on last week in the future fire-police pay raise legislation and some then remained to be acted upon.

Senator EAGLETON: Mr. Mayor, when did you submit your revenue package to the House?

Mayor WASHINGTON. There is some misunderstanding about this, Mr. Chairman. Our revenue package in toto was submitted as an intrical part of our 1971 budget, and that was submitted to both Houses on March 5. The Federal payment was March 5.

Mr. COPPIE. March 5 on the Federal payment formula legislation Mr. Chairman. It was April on our gasoline tax.

Senator EAGLETON. April what?

Mr. COPPIE. April 24 and the income tax requested last fall was part of the police-fire and teachers salary.

Senator EAGLETON. What about the property tax?

Mr. COPPIE. Mr. Chairman, the property tax increase has been before the city council and that has been pending before the city council since February.

Senator EAGLETON. It is the requirement, is it not, that any increase in local taxes other than property taxes as set by city council has to originate in the House, isn't that correct?

Mr. COPPIE. With the exception of the Federal payment formula. Senator EAGLETON. So the House has had the income tax before it since last fall and has had the Federal payment before it since March 5, it has had the gasoline tax before it since April 24, is that right?

Has the House set any hearings or any revenue measure for the city other than

Mayor WASHINGTON. They have not.

Senator EAGLETON. Have you requested the House to hold hearings?

Mayor WASHINGTON. Up to this point, of course, they have been tied up in other legislation. I think we are in the legislative process. Senator EAGLETON. Did they indicate that when they got untied with other legislation they would hold revenue hearings?

Mayor WASHINGTON. Not directly to us. But I, again, point out, Mr. Chairman, that there appears to be some misunderstanding. When our budget is self-cleared, and each year there is a requirement that we finance the budget. We have had before the committee a complete financing plan for our entire budget. There has been hearings, for instance, on this formula which has been indicated now that would involve municipal bonds. There has been substantial hearings on the Senate side in the Appropriations Committee by Senator Proxmire. Senator EAGLETON. These are hearings before the Appropriations Committee chaired by Senator Proxmire. He and his counterpart in the House, so as not to repeat the performance of last year wherein

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