stem directly from the Federal presence. The $551.6 million loss for 1980 represents an increase of $60.1 million (12.3%) from the estimate for 1979, which was included in last year's report. Over 90% of the total tax loss comes from the city's two largest tax categories: property and income taxes.

Property tax losses are estimated at $219 million, the bulk of which is attributable to property owned by the U.S. Government. Income tax losses of $303 million are almost entirely caused by the city's inability to tax nonresident income. To indicate the extent of these tax exemptions, the total tax base has been divided into taxable and tax exempt portions. The chart shows that over half of the District's real estate tax base is exempt from property taxes. It also shows that the city is unable to tax nearly two thirds of the income earned by people working in the District.

The following charts take a closer look at the major exemptions by presenting information on property ownership along with earnings and employment in the

District.

Property Ownership

In addition to being the major employer in the District, the Federal Government is also the major landholder. The Constitutional exemption of Federal land from local property taxes results in a sizable loss in District revenues.

As shown in the chart, nearly one-third (32.1%) of the total acreage in the District is owned by the Federal Government. Federal land holdings amount to 43.4 percent of all land after streets and alleys have been excluded. (A detailed breakdown of this information is provided in the Appendix.) The tax loss due to Federal exemptions is placed at $168.1 million for FY 1980, up more than $31 million (22.7%) from last year's total. While the breakdown of exempt property has remained relatively constant through the years,

the amount of foregone local tax dollars from foreign government real estate holdings in the District rose by $360 million in FY 1980. In addition to property tax exemptions, other tax exemptions enjoyed by the diplomatic community result in an estimated revenue loss of $10.6 million.

Aside from Federal and foreign government exemptions, other organizations are also exempted from real estate taxation. These organizations are itemized in the Appendix. The total assessed value of these real estate holdings is $245 million, and the resulting net tax loss to the District is $4.4 million. Approximately $3.2 million of the tax loss would also be exempt from property taxation in any community in the nation by Act of Congress (P.L. 846, 77th Congress).

As the accompanying charts indicate, two-thirds (67%) of all jobs in the District are held by nonresidents the highest commuting rate of any major city in the nation, according to the Urban Institute. This represents a dramatic rise in the number of jobs held by commuters from the 52% level of 1970. In 1975, a total of 376,000 commuters made up nearly three-fourths of the non-military government workforce and almost two-thirds of total private sector employment. Included in the Appendix is a more detailed breakdown of employment statistics for both 1970 and 1975.

Not only have an increasing number of jobs in the District gone to commuters, but on the average, commuters also earn a substantially higher salary than

District residents who work in the city. In 1975, for example, commuter salaries averaged nearly one-third, or about $3.500 per year, higher than the income of District residents. As a result of an expanding employment base and better overall wages, total income earned by commuters rose about 1/2 times faster than resident income from 1971 to 1975.

The large and increasing prevalence of commuters in the District's workforce greatly reduces local tax revenues, since income earned by nonresidents is not subject to the District's personal income tax. In view of the District's progressive income tax structure, the inability to tax commuters exacerbates the District's already strained fiscal condition.

III. Cost of Services

The interests of the Federal Government and the District of Columbia have become intertwined through the years, and a close relationship has developed in terms of services rendered between the two governmental bodies. Assuming that all services which the District provides to the Federal Government can be identified and their costs determined, this concept considers the Federal payment as being, in part, a direct remuneration to the District for benefits received.

The cost-of-services concept gains wide support because, in effect, it treats the Federal payment as a user charge, and provides insight into some of the unique costs incurred by the city. There are significant methodological problems inherent in this treatment of services which must be kept in mind, however. The extraordinary costs identified under this concept, for example, should represent the marginal, or incremental, costs to the city of serving Federal agencies or meeting needs arising from the Federal presence. Marginal costs are the difference between actual expenditures on services (which are known) and expenditures that would be encountered if the Federal Government were not based in the District (which is open to speculation). Isolating and quantifying these marginal costs is extremely difficult and frequently subjective, since it usually is not possible to distinguish between those benefits which accrue to District residents from those which accrue solely to the Federal Government, its employees and officials, or visitors to the National Capital. This is especially true with expenditures for public health, road maintenance, public safety, and traffic control.

Despite limitations which make it impossible to conduct a comprehensive cost/benefit analysis, the

average cost of providing services can be estimated on a selective basis for purposes of illustrating the budgetary impact of the Federal presence. This section presents information from District and Federal agencies on the cost of services which directly benefit the other. Presented first are the services provided by the Federal Government, followed by services provided by the District. Supporting exhibits follow the narrative presentation.

Services provided by the Federal Government

Most of the services the Federal Government provides are directed toward benefiting the Federal interest rather than the interests of individual cities or states. With so much of the Federal establishment centered in the District of Columbia, however, residents of the Washington area are able to share directly in services that are provided for the benefit of citizens throughout the country. Examples of Federal services which also benefit local residents are the presence of the Executive Protective Service and Park Police, the National Zoo, and national museums. Other Federal services are oriented toward more local interests, such as the District Conservationist provided by the Department of Agriculture and the financial services provided by the U.S. Treasury.

Exhibit 12 identifies some of the services that Federal agencies provide to the District. It can be seen that over 97% of the reported $104 million total can be credited to three Federal agencies: the Smithsonian Institution ($7.1 million), the National Park Service of the Department of Interior ($11.5 million), and the Department of Health, Education, and Welfare ($82.3 million).