The Federal government prosecutes most District adult criminal cases.

The District purchases water from the Washington Aqueduct which is operated by the U.S. Corps of Engineers, an agency of the Federal government. The District also pays the costs of the Aqueduct's improvements and new facilities.

The District provides certain services to the Federal government, including water and sewer services ($10 million in 1979) and housing of Federal prisoners ($2 million in 1979). The Federal government also makes an annual payment to the District as described in Note 1.

(10) COMMITMENTS AND CONTINGENT LIABILITIES

Leases

The District leases office space under leases for varying periods through 1996. At September 30, 1979, the District's future lease payments aggregated $30 million, of which $10 million is due in 1980. The District also leases equipment, primarily computer equipment, usually with options to cancel the agreements at the end of each fiscal year. Lease costs during 1979 for office space and equipment totalled $31 million.

Lawsuits

On January 1, 1975, the District began to levy a tax on professional services provided within the District. The validity of the tax was upheld by the trial court but reversed on appeal. The appellate decision has been set aside and the matter heard by the entire court in October 1979. No opinion has been rendered to date. If the District loses this appeal, it may owe approximately $54 million in refunds.

The District has been named as defendant in a variety of other lawsuits. Corporation Counsel, who has the responsibility to review such legal matters, is of the opinion that the amounts claimed in these actions are inflated and are not a fair estimate of the ultimate settlements of these claims.

In management's opinion, based in part on the opinion of Corporation Counsel, adequate reserves for the ultimate settlement of all legal proceedings have been provided.

Bank Overdraft Financing ($26 million)

In order to maximize interest income, all available cash is invested. This policy results in temporary bank overdrafts. At September 30, 1979, overdrafts totalled $26 million while temporary investments totalled $146 million, at interest rates of 10.20 to 11.76%.

(11)

Self-Insurance

The District is not insured for most risks.

Uninsured casualty losses are reflected when a determinable loss has been incurred. No significant losses occurred in 1979.

Urban Renewal Program

The District's urban renewal program began in the 1940's and expenditures have totalled over $500 million through September 30, 1979. Funding has been provided through U.S. Department of Housing and Urban Development grants, program income, land sales proceeds and debt issued in the name of the Redevelopment Land Agency, which is repayable solely from future HUD grants. HUD is in the process of extending final close-out grants for this program on the basis of estimated future costs, less estimated proceeds on sale of District-owned land in the redevelopment areas. Estimated costs to complete the various projects at September 30, 1979, are $45 million, net of estimated land proceeds of $10 million. Development and land disposition are expected to continue through 1985 and the District will assume financial responsibility for completing the development within the cost estimates and disposing of the land for the estimated amounts. Accordingly, any adverse results in this program may require the District to provide future funds.

Grant Disallowances

The District's Federal grants are subject to audit by the Federal government. Such audits could lead to requests for reimbursements for expenditures not meeting grant requirements. In the past, the District has not refunded significant amounts upon audit. As of September 30, 1979, the District has reviewed its open grants for potentially unallowable expenditures, and, in the opinion of management, adequate reserves for potential grant disallowances have been provided.

EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT CASH FLOW

At September 30, 1979, the District's net cash and investments was $138
million. At January 31, 1980, net cash and investments was reduced to
approximately $29 million. District management advises that this reduction
is the result of normal seasonal fluctuations, plus recent refunds required
on the accelerated commercial real estate receipts and decreased grant
reimbursements caused by delays of billing information during implementation
of new systems since September 30, 1979. District management is in process
of implementing procedures and programs to assure that cash flow will be
adequate to meet District needs during fiscal 1980.