I. History of the Federal Payment

Why a Federal Payment?

The Federal contribution to the District of Columbia has been the source of considerable controversy since the capital was established here in 1800. Congress has undertaken comprehensive formal reviews of the subject at least seven times in the past 100 years which have thus far reached one consensus-that the extraordinary Federal presence imposes significant costs on the city and, consequently, the Federal Government does have a financial obligation to the District of Columbia.

The general acceptance of a Federal payment to the District flows from Clause 17, Section 8, Article I of the Constitution. This clause states that Congress shall have power "to exercise exclusive legislation in all cases whatsoever over such District (not exceeding 10 miles square) as may, by cession of particular states, and the acceptance of Congress, become the seat of government in the United States." This Constitutional provision places the District in a unique position. Unlike the cities, counties, and other political subdivisions of the fifty states, the Capital City has no intermediate level of government between itself and the Federal government. In essence, a "city-state" was created and charged with handling the functions normally divided among a variety of state and local governmental bodies (e.g., state agencies, counties, cities, special districts, etc.). The activities of the District were very closely regulated at the Federal level (since the District Government was essentially an agency of the Federal Government) until passage of the District of Columbia Self-Government and Governmental Reorganization (Home Rule) Act in 1973. This Act delegated many authorities to an elected city government, but did not change some of the fundamental relationships between the city and Federal governments. Congress, for example, maintains ultimate legislative authority over the District and must still enact annual appropriations for the entire city budget, as well as determine the level of Federal payment.

The great amount of interest and control Congress has over District affairs, coupled with the lengthy history of the Federal payment and the unique relationship established between the city and Federal governments, help explain why a Federal payment is made to the District each year.

For approximately 90 years (1835-1925) the payment level was set according to a formula which ranged from 40-50% of the District budget. In 1925, however, the formula approach was abandoned in favor of a "lump sum" concept with the payment set each year based on negotiations between the District and Congress. Since that time, the Federal share of the District budget has ranged from less than 9% to about 30% of actual appropriations. Exhibit 1 summarizes the most significant changes in the Federal payment since the National Capital was formed in 1800. This negotiated approach has remained essentially unchanged since 1925.

The advent of Home Rule in 1973 brought about two new features to the Federal payment process. For the first time, payment levels were authorized several years in advance, thereby avoiding the

time-consuming process of obtaining new authorization amounts each year. Although actual appropriations were still determined through the regular budget process, the city was allowed to draft its budget under the assumption that it would receive the total authorized amount.

The other innovation brought about in 1973 was the formalizing of the Federal payment justification. Much of the specific information required by the Home Rule Act had previously been submitted as a matter of routine to both the City Council and Federal Office of Management and Budget, but there was no single document which summarized all of the material. This annual report was originated to do just

that summarize and consolidate the various justifications for the Federal payment in one publication.

Since Home Rule, the Federal payment has provided less than one fourth of the funds needed to finance the city's programs as Exhibits 2 and 3 show. The 17.2% Federal share in 1980 represents the smallest percentage of the total operating budget since 1967; the result of the declining Federal input is that a greater portion of the budget must be financed through local revenues. The Appendix contains a year-by-year presentation of the Federal payment amount and its relation to District appropriations for each fiscal year from 1921 through 1980.

EXHIBIT 1

The variability of the Federal payment through the years has made it difficult for the city to develop realistic program and financial plans because the payment level is not known until the final District appropriation is enacted. As shown on Exhibit 4, the formulation of the annual District budget request is nearly completed before the previous year's budget (and Federal payment level) is approved. Late changes in the amount of the Federal payment necessitate last-minute alterations in District program priorities and serve to further complicate a budget formulation process that already begins 18 months before the start of the fiscal year.