PROPERTY TAX PAYMENTS SUIT

Mayor BARRY. Also we had another court decision which went against us in the latter part of September 1979. That was a suit whereby 2 years previously, the previous Administration had proposed to move property tax payments from one fiscal year forward into another fiscal year and those taxpayers were $100,000 and above taxpayers.

The court threw that out as not being an appropriate measure. This reduced our cash position in fiscal year 1979 by $23 million, which we had expected to carry over into 1980.

IMPACT OF INFLATIONARY COSTS

The third area of concern, Mr. Chairman, as we put this budget together, over some 9 months ago, was we had no idea of the double digit inflation which is now hitting our economy, particularly in the area of energy, oil and electricity. Therefore, you will find that the information in this budget, quite frankly, does not adequately address the real funding needs in the area of energy and only because we had no idea what was going to be and you could not project, as most Americans, what would be the energy cost. The other thing I would like, Mr. Chairman, to clarify for the record-you understand it and members of the committee understand it is I think it is important that we continually reiterate that the District of Columbia is unique and different than any jurisdiction anywhere in America.

UNIQUENESS OF THE NATION'S CAPITAL

Number one, we are unique in the sense that we are our nation's capital and as a result, the Federal Government, as you very well know, Mr. Chairman, owns and controls over 55 percent of the taxable land in our city.

We have the various maps and records which again clearly demonstrate that this is a unique situation in terms of any other city anywhere in America.

Also we provide a number of local services, such as street repair, library services, and public safety activities, that other cities perform. However, we perform the functions that either counties or states perform, such as operating a public hospital, namely, D.C. General, maintaining a state prison system, and operating a motor vehicle registration/inspection system. We are the only city which maintains and operates a complete AFDC public assistance program and also a complete Medicaid program. There are others that we do that no other city does.

LEVEL OF EMPLOYMENT IN THE DISTRICT

That raises the question in the minds of a lot of people as to the level of employment. I think these are legitimate questions, legitimate concerns. But in my view, there can be no way that any city or any county can be compared to the District in this regard because when you raise the question of the level of employees, for instance, it could be that the City of Washington has 160 windows

to be washed whereas in Cleveland there are 160 windows to be washed. The District has 10 windowwashers and Cleveland has six window washers. The question is how frequently are those windows-just using these as examples-washed, how clean are they, what kind of air conditioners do you have to dirty the windows and a number of other factors that can't be measured in numbers alone. There has to be a level of service and the need for certain services to be performed.

So again, I think it is not adequate enough to compare the level of employees of the District with any other city, any other county or any other state. Let me just say that I inferred that there may be some comparison but it wasn't quite taken in the full context when I mentioned San Francisco, because again, there are a number of state functions that the state carries on for all cities and all counties in California. The state has been fairly generous from some peoples' perspective in subsidizing local government. The average subsidation is about 45 percent.

I just want to clear that up. That doesn't mean the question shouldn't be raised; we raise it all the time, as to how we can more efficiently and more effectively deliver services. The numbers alone, by themselves, cannot adequately demonstrate what it is that we do here.

Also, Mr. Chairman, let me point out, that numbers alone, don't demonstrate what we do. To give you an example, if someone tried to make the comparison, because we have the largest number of police officers per capita, that is a problem. But I also pointed out that you have here in the Nation's Capital the Secret Service, the FBI, the National Park Police and the guards that guard federal agencies. But again, these police officers who are armed, and who have sworn powers, don't guard our streets. They don't prevent crime in the sense of patroling the beat and they don't investigate murders, robberies and burglaries. They just happen to be physically located here.

So to compare and say that we have that large number present in the city does not take into consideration that they don't have the authority to investigate.

I take some time on this point because I think that takes us away from the major issue, that is, what this government ought to be doing, how many services can we afford to continue to provide, the number of citizens and what services we cannot and what level of work force do we need to do that.

FEDERAL PAYMENT COMPARED TO LOCAL REVENUES

Let me also say, assuming that the argument holds, that we do, if you look at who pays the bill, the bill is paid by those who live, work and do business in the District of Columbia. The Federal payment, in 1980, is only 17 percent of our total outlay of monies. If you look at the book, you will find a chart which takes us from a high of 42 percent at one point in our history down to a low of almost 17 percent. Assuming that argument holds that we are paying too much for our employees, it is the local citizens who pay for it. I just wanted to make that point.

The other point that I should make, and make it very clearly, there is no way before local Home Rule that this committee, under the distinguished leadership of Mr. Natcher, who, with other members of the committee, certainly tried his best to oversee what was going on in the District of Columbia. There is no way that on a day-to-day basis, any member of this committee could know exactly what transactions took place in terms of any obligations or any checks that were written.

AUDITING THE DISTRICT OF COLUMBIA

Also, as you very well know, Mr. Chairman, the District has not been audited prior to 1979, for a number of years. Some people tell me in as many as 100 years, but it certainly has been more than 50 years that there has not been an outside audit of the District of Columbia.

The whole purpose of auditors is to go into agencies to see whether or not systems are working, and to see whether or not monies are adequately and accurately reported.

So this Administration which came into office in January 1979, inherited a financial situation which Senator Eagleton, some 4 or 5 years ago, said was unauditable. Therefore, the Temporary Oversight Commission, of which you are now a member, and which is meeting this afternoon, has spent millions of dollars to begin to get our system into some type of shape.

So I am taking the brunt, I am going to take it all because I believe we should do that. A number of the past mistakes are now coming home to haunt us. Let me give you a couple of examples.

UNFUNDED PENSION LIABILITIES

As you know we've had a pay-as-you-go pension system. We found that at the beginning of Home Rule, on January 1, 1975, the city had an unfunded liability of over $2 billion. This was a result of actions of the Congress, in terms of legislation, and through the actions of political decisions made by Presidents Nixon and Johnson who mandated that 2,000 additional policemen be added to our police force without any real rationale, as far as I am concerned. However, none of us at this table had anything to do with those decisions.

If all of our police officers and firemen were to retire tomorrow, we would owe $2 billion to those pensioners. I think they deserve it. We promised it to them, but again, that was a practice that should not have ever started, even with the funding that was supported by Congressman Stokes and Congressman Pursell to give us $1.2 billion of federal funding over 25 years.

When you look at it, it is a little bit over $400 million in real money. So again that leaves the District of Columbia government stuck with an unfunded liability of about $1.7 billion in pensions. I personally think that after we finish this 1981 budget, we ought to sitdown with some experts and look at the federal government's responsibility again and see if we can't get the Congress and the President to realistically look at this unfunded liability.

We maintain that any people who came on after January 1, 1975, was our responsibility and we take that responsibility. We have

tightened up on the number of retirees but that is a very serious problem, Mr. Chairman.

CONVERTING TO CASH MANAGEMENT SYSTEM

The other problem is that sometime in 1970, the District changed its accounting procedure and became more like a federal agency. As you know, Federal agencies get budget authority and they don't actually have any cash in the bank. What they do is obligate against that authority and the U.S. Treasury, either pays an employee a check or sends the city or state a check, but the Federal agency itself doesn't have to keep any track of its monies. There is no cash management on its part.

So prior to April 1978, the District was treated from a budgeting point of view and from a cash point of view, as a federal agency. We drew down our cash from the U.S. Treasury. I suspect that from time to time, the District of Columbia, because there was no accounting and no controls, probably overdrew, maybe $20, $30, $40, or $50 million.

Once we moved our money out of the U.S. Treasury to the local banks, just like your bank account and my bank account, you can't spend what you don't have. The bank will return my check and your check if we overdraw. So we have to be very careful about our cash management situation unlike in the past.

We now have to know every morning, and there are people in this Administration who know every morning how much money is in the bank, how much is in investments, and so forth.

BORROWING FOR CAPITAL CONSTRUCTION

The point I am making is that these practices are now hampering us. Let me give you an example of a practice which I think is hampering the District of Columbia.

We borrow, as you know, from the U.S. Treasury for capital projects. We certainly would want to continue to do that until we can get our own bonding authority. In 1980, we owe the Treasury $120 million, primarily interest, of $90 million and the balance in principal.

We received our Federal payment-I don't have any data but just for the sake of this discussion-of $192 million say on October 10, and 4 or 5 days later, we had to pay back to the U.S. Treasury $120 million in one lump sum. Unlike most jurisdictions, and unlike you and I we cannot pay, as we should be doing, in my view, a level payment, say of one-twelfth, each month, like we pay our mortgage. So what we have is $120 million coming in on the 10th, as an example, and going out on the 16th, which would give people an impression that here is $192 million available to the government to be invested, to spend as say in Fairfax County or Montgomery County.

I am taking some time, Mr. Chairman, to detail this for the record, not because I feel you don't know this but I think it is important that the record show that we know what we inherited, we know what some of the problems are and we are moving as quickly as we can to change those problems.

INTENTIONS OF THE MAYOR

Therefore, Mr. Chairman, it is my intention, as long as I am Mayor of the District of Columbia, and as long as I come before this committee and any other committee, to be as truthful and concise about the District's financial status as I can. I certainly take my integrity, I take my veracity, I take my stewardship of the public's monies very, very seriously.

It is true, in some instances, if I get information that I think is accurate at the time I get it, I am going to give it to you. On the other hand, if you find there needs to be a correction, I have a responsibility to say, Mr. Chairman, this information was not quite accurate because it is possible, in human terms, particularly when you are using computers and you know what computers are about. They are not perfect either, they act like they are perfect sometimes but they are not quite perfect which means they may give me a number which has not been as refined as it should be. I am going to give it to you and that is the truth as I know it. As I refine it, as I find errors in it, that might be possible from time to time, I have a responsibility to say, Mr. Chairman, this figure has changed for these reasons.

I would like for you to know, Mr. Chairman, that I am going to always be straightforward, concise and truthful, not only with you and this committee but with the Washington public about what I know to be the affairs of government. I am not going to blame people for that; I am going to explain though that we inherited all of these problems and we are now on top of them and that is the direction in which I would like to go.

AMENDING THE FISCAL YEAR 1981 BUDGET

In terms of the budget before you, it does not reflect the adjustments which we would make in response to our changed circumstances in fiscal year 1980. Mrs. Mack, as I understand it, has been in touch with the staff about the possibility of sending to the Council a revised 1981 budget to take into consideration these actions that we are making to reduce the base of employment and to reduce expenditures.

Once we complete this at the local level, we think we can get it to the subcommittee in time for its consideration as it marks up the 1981 budget. If we reduce the base of the 1980 budget say by $26 million, for example, and we want to continue that reduction in 1981, it would then show in the base of 1981. So I hope you understand that is the situation that was anticipated.

THEME OF FISCAL YEAR 1981 BUDGET

The theme for this budget in 1981 is that new directions, or to paraphrase it, it is new ways of solving old problems. We don't think that the District has any problems that are much different, except our relationships with the Congress, than any other city and we think we have some bright and hardworking people who know how to take old problems and bring new solutions to those problems. Using this budget I have outlined, I have been able to establish some of my priorities.