Lapas attēli
PDF
ePub

enable the District to compute the Federal payment authorization at the time of its earliest budgetary planning and would make it possible for the District to assess its probable total resources from local sources and the Federal Government so that priorities could be established among competing needs. In this way the District will be able to evaluate and present its recommendations to the Congress regarding the level at which its programs should go forward in a reasonable and orderly fashion.

S. 1218 does not involve any kind of an automatic payment of Federal funds for District purposes. The District government would not be able to spend either local revenues or the Federal payment authorization until they have been appropriated by Congress. The District budget would continue to be reviewed and justified each year before the Appropriations Committees of the House and Senate. Under the bill the Congress can be assured that the Federal payment authorization will increase only as revenues from local taxes increase. Except for the establishment of the property tax rates which has been delegated to the Commissioners, any changes in local taxes must be enacted by Congress.

Throughout much of the history of the District of Columbia, the Federal payment was based upon a percentage of the total appropriation. For several reasons, relating the Federal payment to local revenues is more appropriate. In the first place, it would tend to avoid any criticism that the District might seek to spend more money in an effort to increase the Federal payment. Second, this method provides the District an incentive to keep local taxes at a realistic level since the authorized Federal payment would be tied directly to local tax effort in a ratio of 1 to 4.

Title II of the bill amends existing law so as to establish a new method for determining the maximum amount the District is authorized to borrow from the U.S. Treasury for general fund capital projects.

Under present law, the ceiling of the District's borrowing authority is set at a fixed amount of $290 million ($200 million for general fund public works, $50 million to carry out the purposes of the National Capital Transportation Act of 1965, and $40 million to carry out the purposes of titles I and II of the District of Columbia Public Education Act).

Under the method prescribed by title II, the total annual revenues from local District taxes and the annual Federal payment would serve as the basis for computing the annual borrowing authority for the District of Columbia general fund. The proposal would limit the amount of revenue the District would be authorized to use for long-term debt retirement annually to 6 percent of total estimated annual general fund revenues from local taxes, and the authorized annual Federal payment for the year involved.

The present lump sum debt limit ceiling has no relationship whatsoever to the city's ability to repay or the need for its capital construction items to be funded by its borrowing authority. The District's capital construction requirements are great. This proposed method of paying for such facilities as they are used over a period of years provides for fiscal responsibility that cannot be questioned because of its general nationwide practice. The method would provide for a steady growth in the borrowing authority that would be available to the District on a year-to-year basis. This is illustrated by the following estimated projection for the next 6 years:

[blocks in formation]

Annual revenues from all local sources unquestionably constitute the most reliable and realistic measure of the ability of a government to support long-term debt, especially in the case of jurisdictions like the District of Columbia where

property taxes are only one of a number of tax resources. In the District, property taxes constitute only about one-third of the local general fund tax base. The growth of nonproperty tax sources and the emergence of a number of other problems in connection with the use of assessed values, have caused the Advisory Commission on Intergovernmental Relations and others to recommend that consideration be given to the use of annual revenues rather than assessed values as a measure of debt ceilings. Use of annual revenues also has the advantage of eliminating the problems caused by changes in the assessment level which makes these values subject to manipulation.

Such a change in the method of setting debt limits has been made in several other American juridictions. Puerto Rico, for example, adopted a constitutional amendment in 1961 which limited the maximum annual debt service of its Commonwealth government to 15 percent of the average of the last 2 years' annual revenues. Connecticut also changed its statutory debt limits for local governments in 1963 and now uses multiples of average tax receipts of those governments as the basis for determining their debt ceilings. Two other States which use annual tax revenues for debt limitations are Tennessee and Mississippi. In Tennessee additional bonds may be authorized by the legislature only if tax revenues collected during the preceding year were at least 11⁄2 times the debt service on all outstanding bonds. Mississippi provides that bonded debt may not exceed 11⁄2 times the highest annual tax receipts of the past 4 years.

Limiting the annual debt service of the District for general fund purposes to 6 percent of general fund revenues from local taxes and the Federal payment would permit the District at the current U.S. Treasury interest rate of 4% percent on 30-year bonds to incur an outstanding indebtedness which is slightly less than the estimated revenues from local taxes and the Federal payment for the corresponding years as the borrowing authorization estimates shown above indicate. In comparison with prevailing local government practices generally in the United States, this is a conservative amount of indebtedness in relation to local revenues. A comparison of the outstanding indebtedness for general governmental purposes with revenues in the 21 largest cities in the United States in fiscal 1964, indicates that the ratio of revenue to debt in these cities ranged from a low of slightly less than 1 to 1 to a high of 1 to 4 with a median level of indebtedness that was twice the revenues for the same year.

Of the Nation's 21 largest cities, Washington, D.C., for fiscal year 1964 had the smallest outstanding indebtedness as compared to local revenues.

The objective of all debt limitation provisions is to limit the amount of debt a government may incur to an amount which it can safely repay and to restrict the authority of imprudent administrations. Most governments are unable to finance all their requirements on a current basis and use long-term borrowing to finance capital outlay projects of lasting benefit whose cost is heavy relative to the current financial resources of the community. Between 1952 and 1960, 63 percent of all local government capital outlay work was financed with loans. In many respects the use of long-term loans to finance projects which will serve residents of the community for many years in the future is more equitable than current payment since it places some of the financial burden of these projects on the future users of the facilities. Paying for such capital improvements entirely out of current revenues actually constitutes payment in advance in these

cases.

The proposed change in the District's borrowing authority would relieve Congress of the need to periodically adjust the lump-sum authorization that inevitably becomes inadequate in a relatively short time, since this type of the authority of imprudent administrations. Most governments are unable to to the current financial resources of the community. Between 1952 and 1960, 63 authorization does not reflect repayments or changes in the District's capacity to finance long-term debt. A flexible borrowing authorization is essential to putting financial planning for long-range public works programs on a sound basis in the District. The availability of early estimates of the level of borrowing authorization would permit the District to plan the timing of substantial capial outlay expenditures by providing a more accurate estimate of the city's ability to finance such projects.

The Commissioners note two minor errors in the bill. In line 8 on page 3, the word "expended" should be "expected". In line 14 on page 6, "July 7" should be "July 1".

For the reasons set forth above, the Commissioners strongly recommend the enactment of the bill.

The Commissioners have been advised by the Bureau of the Budget that, from the standpoint of the Administration's program, there is no objection to the submission of this report to the Congress and that enactment of S. 1218 would be in accord with the program of the President.

Sincerely yours,

/8/ WALTER N. TOBRINER,

President, Board of Commissioners, District of Columbia.

JUNE 9, 1967.

Hon. ALAN BIBLE,

Chairman, Committee on the District of Columbia,
U.S. Senate,

Washington, D.C.

MY DEAR SENATOR BIBLE: The Commissioners of the District of Columbia have for report H.R. 8718, a bill "To increase the annual Federal payment to the District of Columbia and to provide a method for computing the annual borrowing authority for the general fund of the District of Columbia", passed by the House of Representatives on June 1, 1967.

Title I of the bill, to be cited as the "District of Columbia Federal Payment Authorization and Borrowing Authority Act of 1967", increases the annual Federal payment authorization for the general fund of the government of the District of Columbia from the amount of $60 million established by section 1 of Article VI of the District of Columbia Revenue Act of 1947, as amended by section 501 of the District of Columbia Revenue Act of 1966 (80 Stat. 855, 857), to the amount of $70 million annually. Title II provides a formula for computing the maximum amount the District is authorized to borrow from the U.S. Treasury for general fund capital projects. Title III provides that in connection with a program of recruitment or hiring of District employees, no officer or employee of the government of the District "shall exclude or give preference to the residents of the District of Columbia or any State of the United States on the basis of residence, religion, race, color, or national origin."

The Congress and the President have consistently recognized the unique responsibility of the Federal government for the District of Columbia as the Federal City, and the Congress has regularly provided payments to help defray the costs of operating the District. Varying amounts of Federal support have been provided to the District of Columbia over the years. During the first 89 years of the Capital City's existence, the Federal Goverment appropriated an average of approximately 40 percent of the cost of local government, though the amounts were not explicitly determined on any consistent basis. Beginning in 1879, the level of Federal participation was set at a flat 50 percent of total expenditures, an arrangement which was maintained for 42 years. Between 1921 and 1924 the Federal share was set at 40 percent of District expenditures. Since then, Congress has enacted lump-sum authorizations which have varied over the years.

On six occasions since World War II, Congress has increased the lump-sum Federal payment authorization, raising it from a wartime level of $6 to $60 million. In each case, within a few years, the level established became inadequate as the needs of the District grew in response to changes in the District's population, greater demands for Government service, and a decline in the real value of the dollar. The Commissioners anticipate that the amount of the Federal payment authorized by title I, as experience has all too often indicated, would, were the bill enacted, soon become inadequate to meet the needs of the District.

For the foregoing reason, the Commissioners are strongly of the view that there is urgently needed for the District an equitable and systematic method of determining annually the relative amounts to be provided by District taxpayers and by the Federal Government. Accordingly, the Commissioners recommend that the Committee, in lieu of title I, give consideration to a Federal payment authorization based on a percentage of District tax revenues, such as is contained in title I of S. 1218, also pending before the Committee, so that there will be provided a constantly updated measure of an equitable Federal payment toward the expenses of the government of the District of Columbia. Such a provision would enable the District to compute the Federal payment authorization at the time of its earliest budgetary planning, and make it possible for the District to assess its probable total resources from local sources and the Federal government, so that priorities can be established among competing needs. In this way, the District will be able to evaluate and present its recommendations to the Con

gress regarding the level at which its programs should go forward in a reasonable and orderly fashion. Such a method of computing the authorized annual Federal payment would provide a steady growth in the payment in proportion to revenue returns, as is illustrated by the following estimated projection for the next six years:

[blocks in formation]

Throughout much of the history of the District of Columbia, the Federal payment was based upon a percentage of the total appropriation. For a number of reasons, relating the Federal payment to local revenues is more appropriate. In the first place, it would tend to avoid any criticism that the District might seek to spend more money in an effort to increase the Federal payment. Second, this method provides the District an incentive to keep local taxes at a realistie level since the authorized Federal payment would be tied directly to local tax effort in a ratio of 1 to 4.

The Commissioners desire to emphasize that a Federal payment authorization based on a percentage of District tax revenues does not involve any kind of automatic payment of Federal funds to the District. The District Government would not be able to spend either local revenues or the Federal payment authorization until they have been appropriated by the Congress. The District budget will continue to be reviewed and justified each year before the Appropriations Committee of the Senate and House. Under such a proposal, the Congress can be assured that the Federal payment authorization will increase only as revenues from local taxes increase. Except for the establishment of the property tax rates, a function delegated by the Congress to the Commissioners, any changes in local taxes must be enacted by Congress.

Title II of the bill amends existing law so as to establish a new method for determining the maximum amount the District is authorized to borrow from the U.S. Treasury for general fund capital projects.

Under present law, the ceiling of the District's borrowing authority is set at a fixed amount of $290 million ($200 million for general fund public works, $50 million to carry out the purposes of the National Capital Transportation Act of 1965, and $40 million to carry out the purposes of titles I and II of the District of Columbia Public Education Act).

Under the method prescribed by title II, the total annual revenues from local District taxes and the annual Federal payment would serve as the basis for computing the annual borrowing authority for the District of Columbia general fund. The proposal would, for a three-year period (Fiscal Years 1968, 1969, and 1970), limit the amount of revenue the District would be authorized to use for long-term retirement annually to 6 percent of total estimated annual general fund revenues from local taxes, and the authorized annual Federal payment for each of such years. After Fiscal Year 1970, the District's debt limit would be fixed at 6 percent of the general revenue of the District credited to the general fund of the District for the fiscal year ending June 30, 1970.

Thus, title II, taking into account the flat $70 million Federal payment authorized by title I, would have the effect of fixing the District's general fund debt limit at $333.8 million for 1968, $363.9 million for 1969, and $392.3 million for 1970 and subsequent fiscal years.

The fixed lump sum debt limit ceiling which under title II would come into effect for fiscal year 1970 and subsequent fiscal years bears no relationship whatsoever to the city's ability to repay or the need for its capital construction items to be funded by its borrowing authority. The better method of fixing the

District's general fund debt limit is that contained in title II of S. 1218, which, taken in conjunction with title I of that bill, provides for fiscal responsibility that cannot be questioned because of its general nationwide practice. This method would provide for a steady growth in the borrowing authority that would be available to the District on a year-to-year basis. This is illustrated by the following estimated projection for the next 6 years:

[blocks in formation]

Annual revenues from all local sources unquestionably constitute the most reliable and realistic measure of the ability of a government to support longterm debt, especially in the case of jurisdictions like the District of Columbia where property taxes are only one of a number of tax resources. In the District, property taxes constitute only about one-third of the local general fund tax base. The growth of nonproperty tax sources and the emergence of a number of other problems in connection with the use of assessed values, have caused the Advisory Commission on Intergovernmental Relations and others to recommend that consideration be given to the use of annual revenues rather than assessed values as a measure of debt ceilings. Use of annual revenues also has the advantage of eliminating the problems caused by changes in the assessment level which makes these values subject to manipulation.

Such a change in the method of setting debt limits has been made in several other American jurisdictions. Puerto Rico, for example, adopted a constitutional amendment in 1961 which limited the maximum annual debt service of its Commonwealth government to 15 percent of the average of the last 2 years' annual revenues. Connecticut also changed its statutory debt limits for local governments in 1963 and now uses multiples of average tax receipts of these governments as the basis for determining their debt ceilings. Two other States which use annual tax revenues for debt limitations are Tennessee and Mississippi. In Tennessee additional bonds may be authorized by the legislature only if tax revenues collected during the preceding year were at least 11⁄2 times the debt service on all outstanding bonds. Mississippi provides that bonded debt may not exceed 11⁄2 times the highest annual tax receipts of the past 4 years.

Limiting the annual debt service of the District for general fund purposes to 6 percent of general fund revenues from local taxes and the Federal payment would permit the District at the current U.S. Treasury interest rate of 44 percent on 30-year bonds to incur an outstanding indebtedness which is slightly less than the estimated revenues from local taxes and the Federal payment for the corresponding years as the borrowing authorization estimates shown above indicate. In comparison with prevailing local government practices generally in the United States, this is a conservative amount of indebtedness in relation to local revenues. A comparison of the outstanding indebtedness for general governmental purposes with revenues in the 21 largest cities in the United States in fiscal 1964, indicates that the ratio of revenue to debt in these cities ranged from a low of slightly less than 1 to 1 to a high of 1 to 4 with a median level of indebtedness that was twice the revenues for the same year.

Of the Nation's 21 largest cities, Washington, D.C., for fiscal year 1964 had the smallest outstanding indebtedness as compared to local revenues. The objective of all debt limitation provisions is to limit the amount of debt a government may incur to an amount which it can safely repay and to restrict the authority of imprudent administrations. Most governments are unable to finance all their requirements on a current basis and use long-term borrowing to finance capital outlay projects of lasting benefit whose cost is heavy relative to the current financial resources of the community. Between

« iepriekšējāTurpināt »