IV. State Surrogate Many service responsibilities borne by the District of Columbia Government are functions which most other cities do not carry. These include financing for a variety of public services such as income maintenance programs for the poor, physical and mental health care, responsibility for courts and corrections services, and public education. In this nation's Federal system, such functions are normally carried by other governmental units-for example, state and county governments or special service districts-and are accordingly financed from revenues generated by the respective taxing jurisdictions. The availability of different revenue sources coupled with more diversified economic structures at higher levels of government make it possible to spread the cost of such programs over a wide range of individual, business, residential and commercial tax categories. The justification for financing certain public services by governmental units above the municipal level has two principal economic arguments. First, the benefits of many programs-transportation, health, education, and environmental protection, for example-extend beyond the legal borders of the central city. Since the benefits "spillover" into other communities at the county, regional, state and/or national levels, it is sensible to draw the boundaries for program financing wide enough to incorporate most of those benefiting from the services in question. A second criterion of public finance is that the "ability to pay" for public services should be considered since it varies widely across jurisdictional lines. In the case of public assistance payments, for example, municipal governments cannot efficiently redistribute income because high income families generally have the option of moving outside the central city while few low-income families have that same opportunity. Thus, when a sizable mismatch exists between a municipality's needs and its ability to finance them, fiscal responsibilities are frequently placed at the level of government most able to fulfill them. As a result of economic forces such as these during the past ten years or more, the nation has witnessed a clear trend toward shifting the cost of selected services, particularly social and health programs, from municipal governments to larger units, and from states to the Federal Government. There is a growing awareness that cities will be unable to survive unless regions, states and the Federal Government share more extensively in their financial responsibilities. The District has no higher unit, except at the Federal level, to help share the costs for state-related services. Its unique status as a "city-state" requires the District to assume full financial responsibility for all state related services, despite its limited municipal boundaries and narrow tax base. Since the District received its charter from Congress-much like states charter cities within their borders-a strong case may be made for the Federal Government to provide "state" financing for the typical state, county, and special district functions now peformed and financed entirely by the city. The absence of any intermediary form of government (county or state) between the District and the Federal Government provides a strong argument for the Federal Government to act as a "State Surrogate" for the Capital City. As cost and service pressures continue to increase, the Federal Government can help alleviate the District's growing fiscal burden in much the same way as states are increasingly coming to the aid of cities as a source of fiscal relief. The chief methodological problems associated with the state surrogate concept are due to the very unique nature of the District. It is extremely difficult to define "normal" levels of municipal vs. nonmunicipal expenditures for each city program or to determine a "normal" level of state assistance in financing such programs. Adding to the complexity of interstate fiscal comparisons is the virtual impossibility of establishing true "comparabililty" between the District and any other municipality since the service demands vary so widely. Nonmunicipal Functions The District's unique government structure requires it to deliver a full range of public services that are typically provided by other units of government. Those services include elementary and secondary education, higher education, public welfare, public health, hospitals, courts, correctional facilities (postadjudication), motor vehicle registration, motor vehicle operator licensing, insurance regulation, public utility regulation, minimum wage enforcement, employment service, and unemployment compensation. An examination of the more significant nonmunicipal service categories follows. Education. The portion of total District expenditures earmarked for education is more than 50% higher than that of comparably-sized cities. The main reason for this difference is that most localities have established special school districts to finance the costs of education, granting these districts the power to levy property taxes to raise required revenue. In fact, in FY 1977 the total amount of revenue raised by school districts exceeded the total amount raised by all the municipalities in the country; the same was true for the overall level of expenditures. The District of Columbia's educational system does not have independent revenue-raising authority, thus local school expenses are financed out of the city's general fund. Of the 46 largest cities in the country, only 7 others have a city-operated school system, and only 4 other cities allocate any funds for higher education. Whether or not cities include school costs as part of the city budget, the general rule throughout the country is that states provide a significant share of the financing for education programs. Among all of the 46 largest cities, for example, about 60 percent of the total educational expenses are made up through state aid. Welfare. The portion of the District budget going to welfare costs is triple that of cities in the District's population range and five times the average of the largest 44 cities. Traditionally, expenses for public welfare programs have been shared by local, state, and Federal governments. In fact, there are only seven other major cities besides the District that make any form of cash assistance payments to welfare recipients. The disproportionate burden on the District can be appreciated by taking a look at the national pattern for financing the non-federal costs for the two main public welfare programs, Medicaid and Aid to Families with Dependent Children (AFDC). 29 states carry the full state/local share of total welfare program costs (50% or more, depending on options). The other 21 states require local governments to pay some fraction of the costs, usually at the county level. In nearly every one of these states, local governments are required to meet only a small portion of Medicaid AFDC costs, with the local matching percentage averaging only 4-6%. • New York City is one of the few cities required to pay a significant share of costs (23% of the total), but this cost is offset by other state aid which covers most of this municipal expense. • In the wake of Proposition 13, the State of California recently approved legislation that shifts local welfare costs to the state budget. In the Medicaid program specifically, all but ten states carry the entire non-Federal share of the cost, passing none of the matching requirement on the local governments. • The District of Columbia pays 50% of total costs for AFDC and Medicaid. Looking at combined state/local matching shares for AFDC and Medicaid is another way to document the heavy burden borne by the District. Under AFDC regulation, the Federal share ranges from 50% to 65% of total costs. For fiscal years 1978 and 1979, however, only 19 states and the District of Columbia received the minimum Federal reimbursement and thus contributed the full 50% matching share. Medicaid matching formulas present an even more diverse picture since the Federal share is set at 50% minimum but 83% maximum. Only 11 states and the District of Columbia contribute as much as 50 % because they receive the minimum Federal allotment. Thus, whether the District's matching shares for AFDC and Medicaid are compared on a city or a combined state/local level, the District contributes the maximum state share-but on a municipal economic base with limited state taxing authority. According to an Advisory Commission on Intergovernmental Relations study published May 1979, the District of Columbia financed a larger percentage, 42.3%, of the public welfare expenditures than any other local government in the nation. In fact, local contributions were less than 5% of total welfare costs in 32 states and less than 20% in 45 states. Over the past decades, the national trend has been for states to assume an increasingly larger share of state-local public welfare costs. Total state contribution for the District of Columbia remains zero. Furthermore, 20 states receive a higher percentage contribution from the Federal Government than the District. Another striking example of the effects of this disparity can be found by comparing the District's welfare burden with that of other local governments in the Washington metropolitan area. Exhibit 17 shows that the number of welfare recipients in the District is more than double the welfare population of all the other local governments in the region combined. Moreover, the District has three times the percentage of its population on welfare than the next closest jurisdiction. This information was taken from a recent study by the D.C. Municipal Research Bureau which concluded, in part: In 1978, some 144,175 persons in the Washington metropolitan area received an estimated $144 million in welfare payments. The District accounts for the bulk of the area's caseload and expenditure, and in fact, has more recipients and larger expenditures for welfare than all other area governments combined. The welfare burden falls disproportionately on the central city because a far higher percentage of the population is enrolled in welfare programs, and because the city alone must bear the full non-federal cost of the programs.. Over the past three years, the number of welfare recipients has decreased and welfare expenditures have stabilized in the Washington area. An improved economy and increased quality controls give cause for Health and Hospitals. In relation to the total budget, District health and hospital expenditures exceed the proportions for cities in the 500,000 to 1,000,000 population range and the 44 city average by 13%. Providing services through personal care and health-related institutions, excluding general hospitals, is not a typical city function; only 8 of the 44 largest cities made any expenditure for such institutions in FY 1977. Furthermore, cities generally do not operate specialized institutions, such as those for the aged, chronically ill, and mentally ill or retarded. Institutions of these types usually are the responsibility of state or county governments, where again the costs may be distributed across a wide geographic and economic base. The District, however, does own and operate such specialized institutions, and in addition, pays for the care provided for District residents at St. Elizabeth's Hospital. It is difficult, and potentially misleading, to equate District expenditures on health and hospitals and those of other municipalities. Lost in the averages are university-affiliated, privately-owned, or county-controlled institutions that receive different amounts of support from local jurisdictions. Further, the figures given are total expenditures and thus do not represent the net cost to the city of providing the service after subtracting out reimbursements received from patients, insurance companies or health plans. |