Testimony of Mr. Ted Trabue on behalf of The Greater Washington Board of Trade For Presentation to the Senate Appropriations Committee; Subcommittee on the District of Columbia, June 22, 2004
Good morning. My name is Ted Trabue, and I am here today on behalf of the Greater Washington Board of Trade. The Board of Trade consists of 1,200 member companies which, together, employ about 40 percent of our region’s private sector workforce. I would like to thank the Committee for this opportunity to testify on the District of Columbia’s structural imbalance, and applaud each of you for addressing this very important issue.
As a fourth generation Washingtonian, as Regional Vice-President for Pepco, and as Chairman of the Board of Trade’s DC Political Action Committee, I have witnessed the renaissance of the District of Columbia from a most unique vantage point. Indeed, the image of this great city has improved immeasurably in recent years. Much of this change in image—and change in actual conditions—has been made possible by the District’s improved financial health and fiscal stability. The District has balanced its budget in each of the past eight years. Under the leadership of Mayor Williams and with the support of the DC Council, the city has taken dramatic steps to improve the delivery of many public services – from vehicle registration to snow removal to street repairs.
However, the District cannot continue to meet its obligations without a major increase in federal assistance. This is due to what the U.S. General Accounting Office defined as a “permanent imbalance between the District’s revenue-raising capacity and the cost of meeting its public service responsibilities…based on structural conditions that are beyond their ability to control.”
As you know, the GAO was asked to analyze the District’s finances and recently issued a report. It found a structural imbalance that ranges in magnitude from $470 million to $1.1 billion. The GAO cited three reasons for why this imbalance exists and why it is due to circumstances beyond the District’s control:
1. The District Provides State Services without State Income
In addition to the customary responsibilities of a major U.S. city, the District of Columbia must be responsible for services traditionally provided by county and state governments. These include Medicaid services, public education, police and fire protection, mental health services, child support enforcement, and tax collection.
However, the District has no state government to help defray the cost of these state services. The District’s tax base is not sufficient, long term, to sustain the delivery of state functions without federal assistance.
2. The Majority of Property in the District Is Not Taxable
Approximately 60% of District property is owned by the federal government or other nonprofit institutions and is therefore not taxable. This inability to tax a majority of real property in Washington, DC – which has emerged as one of the strongest commercial property markets in the country -- devastates our ability to serve our residents and meet our ongoing commitments.
3. The District is Unable to Tax Income at Its Source
The District is prohibited by both congressional statute and the Constitution -- as interpreted by federal courts -- to tax non-resident income. As this Committee knows, it is routine for other cities, such as New York and Philadelphia, to tax the income of people who come into the city to work. Non-residents comprise approximately 70% of the vehicle traffic coming across District bridges and using District roads and other services. The District cannot use revenue from these commuters to offset the costs of providing these services.
The Board of Trade recognizes that the District of Columbia’s inability to levy a commuter tax impairs its revenue-raising authorities and that many cities have the power to levy such a tax. A commuter tax has strong opposition outside the District and if pursued, would likely prove to be regionally divisive.
To be sure, the analysis provided by the GAO identified what it labeled “significant management inefficiencies” in three key areas: Medicaid, elementary and secondary education, and public safety. The remaining challenges faced in each of these areas have been longstanding concerns for the Board of Trade, and have been well-documented over time. Importantly, however, the report also concluded that “even if the District’s services were managed efficiently, the District would have to impose above-average tax burdens just to provide an average level of services.”
The findings of the report are quite clear: there are clearly areas where the District government can, and should, be doing better. However, management efficiencies alone cannot remedy the structural imbalance between the District’s ability to raise revenues and its need to adequately provide essential public services.
We commend Congresswoman Eleanor Holmes Norton and Congressman Tom Davis of Virginia for their leadership in co-sponsoring legislation l that would alleviate the structural imbalance. The District of Columbia Fair Federal Compensation Act of 2004 would authorize an $800 million contribution to the District. This contribution would represent the median of the District’s estimated structural imbalance.
This contribution—coupled with efforts within the District government to operate in a more efficient and cost-effective manner—would enable the District to meet its core responsibilities without imposing an unacceptable burden on its citizens and businesses.
We believe this is critical to sustaining this District’s impressive renaissance. Accordingly, we urge you to report this legislation favorably to the Senate and to support its prompt consideration and passage. Thank you very much for your time and consideration of these comments.
