Financial Assistance for the District of Columbia No. 303
The District of Columbia is unique in both status and situation. Created by the Constitution of the United States, it is not part of any state and ultimately is controlled by Congress. It is a city, yet it must assume all the responsibilities of a state. Congress has persistently failed to fund these state activities adequately and, instead, has placed restrictions on the District's revenue base under which no other city labors.
Congress has placed federal and state burdens on the District, prohibited the District from taxing major sources of revenue upon which other cities rely, and then refused to fund adequately the local services the Federal government receives. This has led to persistent deficits, a tax structure much higher than that of surrounding jurisdictions, and a deterioration of city services. The Federal government must compensate the city adequately for the unique services which it provides, and for the tax base which Congress has placed off-limits to the District government.
As the capital of the United States of America, the District of Columbia serves as the federal city for the entire country. It assumes numerous expenses to support the federal government's presence. Extra police protection must be given to high level officials, diplomatic personnel and foreign dignitaries who visit the city. People from all over the country come to visit their capital. Large gatherings of people, often in the hundreds of thousands, come to Washington to petition their government to redress their grievances. Counter-terrorism activities consume increasing amounts of city resources. All these activities place a great burden on public safety, sanitation and other city services. These same activities increase the burden on the District's infrastructure, which currently has deferred maintenance needs estimated at $2.5 billion.
Large sections of the District are exempt from any property tax. International agreements prevent the taxation of foreign embassies and international institutions such as the World Bank and the IMF. In addition, Congress has exempted various hospitals, universities, nonprofit associations, and quasi-governmental organizations, such as Fannie Mae, from taxation. Fully 45 percent of the District's land is tax exempt. Two-thirds of this land belongs to the federal government. Most cities receive approximately 60 percent of their revenue from the property tax. This reduction in the District's tax base costs the city approximately $382 million a year.
The District of Columbia also is prevented by Congress from taxing income earned in the city by nonresidents, which is the practice of every State that has an income tax. The District is also prevented from having a city payroll tax, as is common in many large cities, such as Philadelphia and New York. Taxation of commuters compensates cities and states for the strain placed on services and infrastructure by nonresident workers and returns to the jurisdictions a fair share of the regional wealth they create. It is estimated that the District loses approximately $1 billion in tax revenue each year through these prohibitions.
Congress also has prohibited the District from having a residency requirement for city employees. This ban, in addition to the prohibition on a city payroll tax, has led to an absurd situation in which the District is prevented by Congress from taxing the income of some city employees who are paid 100 percent from District tax funds.
Because of its unique Constitutional status, the District of Columbia must pay for state and local activities for which no other city in the country pays. Among these activities are welfare programs, educational assistance, roads and highways, court administration, motor vehicle administration, and corrections. The District of Columbia receives no equivalent state aid from the federal government for funding these functions.
The city must provide basic services, such as police and fire protection, to the extensive properties owned by the Federal Government. These services are estimated to cost between $1.8 and $2.0 billion a year.
There is no question that the District has suffered, and to some degree continues to suffer, from managerial and political problems. Considerable progress has been made in increasing efficiency in the delivery of city services and removing city workers who seek to profit from the system or are not up to the job. A string of balanced budgets and the lifting of control board oversight are evidence of this progress. But, even if the District government could reach 100% efficiency, the financial problems would persist. According to the General Accounting Office, “Addressing management problems would not offset the District’s structural [budgetary] imbalance because this imbalance is determined by factors beyond the District’s direct control.”
As a result of Congressional restrictions, the Federal presence, and high local costs, the District of Columbia government cannot provide needed services with the revenue available. The General Accounting Office estimates this annual “structural deficit” to be between $470 million and over $1.1 billion. The Federal Government must either let the District raise revenue in the same way as other States and cities, or provide sufficient financial support.
The federal government should reimburse the District of Columbia for expenses that it incurs because it is the nation's capital, and for the loss in revenue from the property that it cannot tax. These Payments In Lieu of Tax (PILOT) would total $1.2 billion. This figure should automatically increase annually based on the CPI.
The federal government either should allow the District of Columbia to tax income earned in the city, or should reimburse the District of Columbia for the revenue lost from being prohibited from having such a tax.
The federal government should fund state functions performed by the District at the same level it would for states. The District of Columbia should have complete control, however, over its criminal justice system, particularly with respect to laws and sentencing. Specifically, the federal penal code should not be imposed upon D.C.
ADA strongly supports the enactment of the District of Columbia Fair Federal Compensation Act, which provides for an infrastructure support contribution to D.C. in the amount of $850 million for fiscal year 2007, which amount is to be indexed and increased annually.
Federal assistance should not come at the cost of lost political rights for the citizens of the District of Columbia. As long as the District of Columbia is denied statehood, its residents should have the same rights to self-governance and full representation in Congress as citizens of states.
# # #
Energy, Environment and Economic Commission