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THE ECONOMIC DEVELOPMENT SECTION OF THE PRESIDENT'S NATIONAL CAPITAL
REVITALIZATION AND SELF-GOVERNMENT IMPROVEMENT PLAN
=======================================================================
HEARING
before the
SUBCOMMITTEE ON THE
DISTRICT OF COLUMBIA
of the
COMMITTEE ON
GOVERNMENT REFORM
AND OVERSIGHT
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
__________
MAY 22, 1997
__________
Serial No. 105-27
__________
Printed for the use of the Committee on Government Reform and Oversight
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42-429 WASHINGTON : 1997
___________________________________________________________________________
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COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, Jr., West Virginia
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
STEVEN H. SCHIFF, New Mexico EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California PAUL E. KANJORSKI, Pennsylvania
ILEANA ROS-LEHTINEN, Florida GARY A. CONDIT, California
JOHN M. McHUGH, New York CAROLYN B. MALONEY, New York
STEPHEN HORN, California THOMAS M. BARRETT, Wisconsin
JOHN L. MICA, Florida ELEANOR HOLMES NORTON, Washington,
THOMAS M. DAVIS, Virginia DC
DAVID M. McINTOSH, Indiana CHAKA FATTAH, Pennsylvania
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
JOE SCARBOROUGH, Florida DENNIS KUCINICH, Ohio
JOHN SHADEGG, Arizona ROD R. BLAGOJEVICH, Illinois
STEVEN C. LaTOURETTE, Ohio DANNY K. DAVIS, Illinois
MARSHALL ``MARK'' SANFORD, South JOHN F. TIERNEY, Massachusetts
Carolina JIM TURNER, Texas
JOHN E. SUNUNU, New Hampshire THOMAS H. ALLEN, Maine
PETE SESSIONS, Texas HAROLD E. FORD, Tennessee
MIKE PAPPAS, New Jersey ------
VINCE SNOWBARGER, Kansas BERNARD SANDERS, Vermont
BOB BARR, Georgia (Independent)
ROB PORTMAN, Ohio
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
Judith McCoy, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on the District of Columbia
THOMAS M. DAVIS, Virginia, Chairman
CONSTANCE A. MORELLA, Maryland ELEANOR HOLMES NORTON, District of
ILEANA ROS-LEHTINEN, Florida Columbia
STEPHEN HORN, California THOMAS H. ALLEN, Maine
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
Ron Hamm, Staff Director
Anne Mack, Professional Staff Member
Roland Gunn, Professional Staff Member
Ellen Brown, Clerk
Cedric Hendricks, Minority Counsel
Ron Stroman, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on May 22, 1997..................................... 1
Statement of:
Barr, Michael S., Deputy Assistant Secretary, Community
Development Policy, U.S. Treasury.......................... 52
Barry, Marion S., Mayor, District of Columbia; Linda Cropp,
chairwoman pro tem, District of Columbia City Council; and
Charlene Drew Jarvis, member, District of Columbia City
Council.................................................... 98
Blunt, Roger, chairman, Greater Washington Board of Trade;
John L. Green, president, DC Chamber of Commerce; and Craig
Schelter, executive vice president, Philadelphia Industrial
Development Corp........................................... 150
Kies, Kenneth, staff director, Joint Committee on Taxation... 69
Letters, statements, etc., submitted for the record by:
Barr, Michael S., Deputy Assistant Secretary, Community
Development Policy, U.S. Treasury, prepared statement of... 55
Barry, Marion S., Mayor, District of Columbia:
Document entitled, ``Creating an Economic Development
Strategy for the District of Columbia''................ 100
Prepared statement of.................................... 123
Blunt, Roger, chairman, Greater Washington Board of Trade,
prepared statement of...................................... 153
Cropp, Linda, chairwoman pro tem, District of Columbia City
Council, prepared statement of............................. 134
Davis, Hon. Thomas M., a Representative in Congress from the
State of Virginia:
Memorandum of Understanding, and Council Resolution 12-
116.................................................... 3
Prepared statement of.................................... 39
Green, John L., president, DC Chamber of Commerce, prepared
statement of............................................... 174
Jarvis, Charlene Drew, member, District of Columbia City
Council, prepared statement of............................. 138
Kies, Kenneth, staff director, Joint Committee on Taxation,
prepared statement of...................................... 72
Moran, Hon. James P., a Representative in Congress from the
State of Virginia, prepared statement of................... 49
Schelter, Craig, executive vice president, Philadelphia
Industrial Development Corp., prepared statement of........ 182
THE ECONOMIC DEVELOPMENT SECTION OF THE PRESIDENT'S NATIONAL CAPITAL
REVITALIZATION AND SELF-GOVERNMENT IMPROVEMENT PLAN
----------
THURSDAY, MAY 22, 1997
House of Representatives,
Subcommittee on the District of Columbia,
Committee on Government Reform and Oversight,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:40 a.m., in
room 2154, Rayburn House Office Building, Hon. Tom Davis
(chairman of the subcommittee) presiding.
Present: Representatives Davis, Morella, Horn, and Norton.
Also present: Representative Moran.
Staff present: Ron Hamm, staff director; Howard Denis,
counsel; Anne Mack and Roland Gunn, professional staff members;
Ellen Brown, clerk; Cedric Hendricks, minority counsel; and Ron
Stroman, minority professional staff member.
Mr. Davis. Good morning and welcome.
This is the sixth hearing of our subcommittee as we
continue to review the administration's National Capital
Revitalization and Self-Government Plan. Now that the
administration and the District government have signed a
Memorandum of Understanding, we can proceed with our
congressional review in an orderly manner.
I am pleased to welcome my friend and colleague from
northern Virginia, Jim Moran, a member of the Appropriations
Subcommittee for the District, to sit with us on the dais and
participate in this hearing. The economic revitalization of the
city is something that I know Representative Moran has had a
strong interest in since he came to Congress.
I know that the signing of the MOU was preceded by hard
negotiating on both sides. All involved should be proud of
their diligence. Any underlying legislative language will not
be rubber-stamped by the Congress. The MOU is essentially the
first step in a process that will hopefully lead to a bill to
be signed by the President. But clearly, you can't get to
second base until you touch first base. With the MOU signed,
this subcommittee and Congress will move forward as rapidly as
possible. But all concerned, we must realize that the window of
opportunity is very narrow, and we have to move ahead promptly
or be overtaken by the congressional calendar.
With that in mind, I ask unanimous consent that the MOU be
made part of the permanent record, along with Council
Resolution 12-116. Hearing no objection, so ordered.
[The information referred to follows:]
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Mr. Davis. Today, we will examine a subject that is
critical to the short-term and long-term health of the District
of Columbia, the creation and retention of jobs and employers.
As is true of any municipality, the ability of the District
of Columbia to fund the ongoing and growing needs of its
community is dependent upon an expanding tax base. It is this
base which can generate the revenues necessary for the city to
fulfill its mission.
As a former local elected official, I am keenly aware of
just how important it is for a community to be in a competitive
position to attract and retain jobs. The tax and regulatory
climate in a jurisdiction is critical to decisionmakers who
continually review the cost-effectiveness and competitiveness
of their business location and its corresponding inventory of
jobs. Access to an educated and trained labor supply is also a
critical factor.
The flight of jobs and residents from the District to other
areas where bottom-line costs can be dramatically improved is
well known. This trend can and must be reversed.
Economies are increasingly influenced by knowledge-based
industries. Communities must be able to respond to the needs
represented by these new and rapidly growing businesses,
including access to capital and a sufficient supply of
qualified labor prospects. Additionally, the presence of the
Federal Government provides enormous opportunities to attract
and retain employers, provided any offsetting disincentives are
not so profound that they force decisionmakers to consider
locations elsewhere.
While I believe that there are measures in the
administration's proposal that merit strong consideration, I
question whether some of the provisions will achieve the stated
goal. Our objective is to provide the District with additional
tools to encourage business investment, both downtown and in
distressed communities. This must be done through coordinated
development that connects the District's businesses and people
to the fast-growing Washington region and enables the District
to be a vibrant participant in the growth.
I remain troubled by approaches that may seek to socially
engineer the outcome. I prefer an approach that identifies
opportunities to promote the assets of the community, an
approach that presents an attractive tax and regulatory
climate. I also prefer an approach that connects the education
system to the needs of the business community by ensuring a
qualified pool of employment prospects and an approach that
stimulates business investment by providing incentives that
result in measurable outcomes.
In that way, we can tell the world about the positive
educational, cultural, recreational, and entertainment assets
that exist in this community and about the community itself.
Today, I look forward to hearing from an outstanding group
of witnesses about their thoughts, ideas, criticisms, and
overall views regarding the proposed Economic Development
Corp., along with the tax and financing measures of the
President's plan. Working together, we have the potential to
provide both short-term and long-term stability to the
District's economy.
I would now yield to Delegate Norton for an opening
statement.
[The prepared statement of Hon. Thomas M. Davis follows:]
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Ms. Norton. Thank you, Mr. Chairman.
My appreciation to Chairman Tom Davis for holding the sixth
hearing today on the President's Revitalization Plan for the
District of Columbia, this time on the economic development
provision. To his credit, Chairman Davis has committed to
holding a hearing on each major section of the President's
plan. There is some concern at the White House, however,
because we must have a bill through both Houses and signed by
September 30.
Consideration of the plan now appears to be back on track,
following the recent signing of the Memorandum of Understanding
by all the parties. The administration is to be commended for
its idea of an MOU to buttress the chances for passage of the
President's plan by demonstrating that the District is
committed to responsible implementation and improved
management. It is now up to the Congress to address the very
legitimate underlying concerns expressed by Mayor Barry and the
Council about the plan itself, as we draw bill language.
The chairman and I share much of that concern. As we have
always indicated, it is our intention to address these concerns
with vigor and determination, while recognizing the challenge
of proceeding so as to assure that we attract the votes
necessary for passage.
An Economic Development Corp., for the District, the
subject of today's hearing, if given ample time, can help in
the work of reviving both the District and its neighborhoods.
Downtown revival has a head start, thanks to private business,
which is putting up most of the money for arena and the
convention center, because the private sector understands the
District's very considerable unused economic potential.
I am pleased that a representative from the Philadelphia
Industrial Development Corp., Philadelphia's Economic
Development Corp., will be testifying today. Philadelphia's
skill at inducing its recovery from insolvency is instructive.
Philadelphia's revival has been rapid, innovative, solid, and
lasting. I look forward not only to hearing about the
Philadelphia experience, but also to hearing from city
officials, business representatives, and our Federal witnesses.
Thank you, Mr. Chairman.
Mr. Davis. Thank you.
Mr. Horn, do you want to make an opening statement?
Mr. Horn. Thank you, Mr. Chairman.
I'm delighted you are holding this series of hearings. It's
tremendously important to talk about the infrastructure, the
fiscal management, and economic development. And I look forward
to hearing how, when that economic development occurs, that it
meets the zoning of this city to preserve and not overshadow
the historic buildings of the Government.
I would also add that all of the good deeds we might do in
authorizing a sound economic development program and bringing
around some fiscal reform will be for nought if we do not have
a professional, talented, incorruptible public service. If we
don't face up to that, all of the rest of this is down a rat
hole, and we'll be back where we started with this city.
So I would hope, Mr. Chairman, we will face up to that
sometime this year, because otherwise we're kidding ourselves.
Mr. Davis. Thank you very much.
Now, I would like to ask our colleague from the
Appropriations Subcommittee, Mr. Moran.
Mr. Moran. Thank you very much, Mr. Chairman.
I share your belief that a strong urban core is essential
to the overall health of the entire region. It is heartening to
see the importance that the White House and individual Members
of Congress have placed on revitalizing the District's economy.
I particularly want to applaud President Clinton for the
bold proposals that he has made to pull the District out of its
financial morass, and Delegate Norton for her numerous and
creative efforts to improve the District. I wanted to make sure
she heard that before I said anything else.
Mr. Chairman, I want you to hear this phrase, because I
thought this was a good encapsulation. I am concerned that a
lot of these proposals, however, may become the fiscal
equivalent of Michael Jackson's moonwalking, giving the
impression of moving forward while, in fact, it's standing
still.
For example, the proposal to reduce Federal taxes for DC
residents to 15 percent, I do applaud Ms. Norton for her work
on this bill, and I know that she has the very best intentions
in mind and is determined to stem the hemorrhaging of DC's
population, but I don't believe that individual residents are
leaving the District solely because they are overtaxed or even
primarily because they are overtaxed.
In fact, the individual tax burden on DC residents is less
than that borne by those living in Prince George's County,
which is the most popular destination of former DC residents.
Reducing the Federal tax burden will make it less expensive to
live in the District, and it may help stem the tide, but it is
certainly not going to reverse the flow of migration out of the
city over the last several decades.
The administration's proposal is also a noble effort to
encourage greater investment in the District and to stimulate
the District's economy, but this plan also appears to be more
suitable for spurring development in a disadvantaged area than
rebuilding the District's economy.
The District is a natural magnet for high-paying jobs. It
is both the center of Government and the core of one of the
wealthiest regions in the country. Rather than trying to create
an artificial attraction, as this plan may be perceived as
doing, we should instead unleash the District's economic
potential by removing the policies that sap its financial
strength.
To do so, we have to address and reform the
incomprehensible and often punitive DC Tax Code. This is the
catalyst that is driving businesses out of the District and
into the suburbs. A recent study found that the total tax
burden for small businesses in the District of Columbia is at
least 25 percent greater than in the next highest jurisdiction
in the region.
The corporate income tax rate in the District is 10
percent--9.975 percent--10 percent compared to 6 percent in
Virginia and 7 percent in Maryland. A typical information
technology company would pay more than $22,000 in income tax in
the District. In Virginia, that same firm would pay $13,280.
They both have the same Federal income taxes, but in the
District they would pay almost twice as much as they would pay
in Virginia. And in Maryland, they would pay $18,500.
The DC corporate property tax rate, the corporate property
tax rate, is an average of $2.15. That is more than twice what
it is in surrounding jurisdictions. Now, the residential rate
is $.96, half of what the corporate rate is. But you can't have
a corporate property tax rate that is twice as much as other
regions and think that businesses are going to act contrary to
their own self-interest and move into a district with that kind
of a tax structure.
It is not a competitive tax structure. It is a tax
structure that penalizes businesses for locating and for
staying in the District of Columbia. If DC is to retain the
businesses that are now located here and attract new
businesses, it has to stop chasing business away.
This will not be done solely through a reduction in Federal
taxes or a package of economic stimulants like the White House
has proposed. It must be done through a fundamental and
complete restructuring of the District's own tax rates.
The Brookings study and all the followup analysis that was
conducted by Carol O'Cleireacain provides good recommendations
for doing that. It proposes eliminating four taxes on
businesses, including the personal property tax rate, the
professional license fee, the corporate franchise income tax,
and the unincorporated franchise income tax. It also recommends
changes to other taxes, including the real property tax.
To make up for the resulting shortfall in revenues, the
study proposes changing the relationship between DC and the
Federal Government, with the District relieved of many of its
current functions that most cities don't have to shoulder
alone, such as Medicaid and welfare. Many of those proposals
are currently part of the Clinton administration's recovery
package, and I would support those.
Carol O'Cleireacain's work has been augmented by Stephen
Fuller's work. Steve Fuller is with the Greater Washington
Research Center. He has been doing a continuing analysis of the
region. Together they make the strongest argument that changes
must be made within the District to revitalize the city and to
provide true economic development.
Those recommendations are promising, and further study and
discussion of them and of others is required if we are to put
the District's economy back on the right track. But we have to
have more than cosmetic changes or experimental proposals,
prized more for their novelty than for their practicality.
With so much local, regional, and national attention now
concentrated on the District, we have to seize this opportunity
to make meaningful changes that will ensure the future health
of America's Capital City.
So I appreciate your having this hearing, Mr. Chairman, and
I know that you don't disagree with a lot of what I've said. I
certainly respect Mr. Horn's judgment. I wouldn't be surprised
if Mr. Horn is not thinking along the same lines.
I would hope that we can put a package together that both
Appropriations and the authorizing committee, the principal
committee of jurisdiction, knows is going to be a truly
constructive and long-term, profound improvement to the
District of Columbia economy.
With that, thanks for letting me participate in this, and
thanks for all your good work on this.
[The prepared statement of Hon. James P. Moran follows:]
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Mr. Davis. Mr. Moran, thank you very much. Let me just add
that you were mayor of Alexandria. You have a great
appreciation for the region and the complexities involved, and
you are going to make a very substantial contribution as we
move forward in the next 3 weeks to getting this bill ready to
go.
I appreciate your comments today and agree with a large
part of them.
Ms. Norton. Since the gentleman chose to attack my tax
bill.
Mr. Moran. You were listening.
Ms. Norton. I was trying to give you a pass.
Mr. Davis. Ms. Norton, we're not having a debate here, but
I will allow you to certainly respond, briefly, before we hear
from Mr. Barr.
Ms. Norton. I thank you, Mr. Chairman.
I'm sorry, I didn't hear most of it. We have a serious
problem or something that might happen with regard to our
supplemental, which is my immediate concern.
I support the President's plan. Let me say that we're quite
aware that people don't move to Virginia because they prefer to
live there. We understand that they move out of the District.
Mr. Moran. All right.
Mr. Davis. Let me just say, I don't know who the ``we'' is.
Maybe that's your understanding.
Ms. Norton. We are aware that they move out of the District
because of its service problems and because it has the problems
of large cities. The purpose of the Federal tax cut is not to
lower taxes, it's to give people an incentive for remaining in
the District.
It is, as well, sir, an alternative to the commuter tax
that you and other Members have unjustly denied the people of
the District of Columbia, who subsidize your much more affluent
constituency with our services. So you have your nerve
attacking us for trying to get what we deserve. We are looking
for alternatives. I am certainly willing to put a commuter tax
bill in, because that is certainly what we deserve.
We have no representation in the Senate of the United
States as you do, and we do not have complete representation
here. And yet the residents of the District of Columbia, sir,
are second per capita in Federal income taxes. We make no
apologies for seeking a reduction in our income taxes,
particularly when four territories which have full Home Rule
pay no taxes whatsoever.
We need your help, that is what we need from the region.
Thank you, Mr. Chairman.
Mr. Davis. Ms. Norton, thank you very much.
Now we are going to hear from Mr. Barr.
Let me just add, I think all of us want to work together on
these issues. We have different ideas as to how to get there.
We are going to hear the administration's ideas. Regardless of
the fact that the administration has a concept, the Federal
City Council has a concept, Dr. O'Cleireacain has one, as does
Ms. Norton, we're going to sit down and work these issues out.
And there is, I think, one goal here, that is, the city's taxes
have to be reduced; the regulatory burden has to be reduced.
Mr. Barr, let me ask you to stand. It is the committee's
tradition to swear in. If you would just stand and raise your
right hand.
[Witness sworn.]
Mr. Davis. I would ask unanimous consent that any written
statement be made part of the permanent record. Please limit
your oral statements to no more than 5 minutes, then we will
get right into the questions.
We appreciate your being here today, and most of all, we
appreciate the administration being proactive, and coming up
with a plan. Anytime you put a plan on the table, somebody's
going to have a difference of opinion, but at least we've got
something to work from and we have the engagement of the
President of the United States. That allows us a lot of
possibilities for people to talk about these, and that's what
we're about.
So thank you for being here. Proceed.
STATEMENT OF MICHAEL S. BARR, DEPUTY ASSISTANT SECRETARY,
COMMUNITY DEVELOPMENT POLICY, U.S. TREASURY
Mr. Barr. Thank you, Mr. Chairman and distinguished
Members.
Thank you for the invitation to discuss the President's
plan to revitalize our Nation's Capital. I will focus today on
one of its key elements, how the President's plan will help
spur economic development in the District.
The plan is a first step, not a panacea. The District's
government and financial authority will have to continue to do
the hard work necessary to create a city where streets are
safe, where children enjoy the quality education they deserve,
and where every resident has a chance to succeed.
The plan is also not a bailout. The plan will require the
District to submit a balanced budget for 1998, and for each
year thereafter, to continue to comply with the requirements of
the financial authority, and to take a number of specific
reform steps in each area of the President's plan.
Last week, the DC City Council and the Mayor took an
important first step in signing a Memorandum of Understanding
with the administration, committing the District government to
fulfill these requirements, including, with respect to economic
development, a requirement to implement timely and effective
zoning, permitting, and licensing processes by the end of the
next fiscal year.
Let me talk briefly about the President's plan overall.
First, the President's plan would take on major financial and
managerial responsibilities that are beyond DC's current
capacity. Second, the Federal Government will invest in the
city's transportation infrastructure. Third, the Federal
Government will provide technical expertise. And fourth, the
plan will spur economic development in the Nation's Capital
through new Federal tax incentives and a new Economic
Development Corp.
I will be focusing the remainder of this testimony on the
economic development component, but I would emphasize that
spurring economic growth in the District is not limited to this
component of the President's plan. All of the plan's elements,
taken as a whole, will help provide the District with a climate
more conducive to economic growth.
In-depth assessments of the economic development efforts of
the District were undertaken by Treasury and OMB, as well as by
private sector organizations, such as the DC Agenda Project.
These assessments came to the same conclusion: A key missing
link in the Capital's ability to advance economically is a
private sector-driven Economic Development Corp. to bring the
city together behind an economic development strategy and to
push that strategy to completion.
This Economic Development Corp. would provide a focal point
for development. Its mission would be to bring together the
private sector, civic leaders, and government to develop,
market, and promote an economic development strategy for the
District; to facilitate longer-term and regional approaches to
economic growth; to help develop major projects to revitalize
the capital; and to link the District, including its distressed
areas, to local and regional growth opportunities.
Under the proposal, the Economic Development Corp. will be
governed by a nine-member board of directors. The President
would appoint five board members in consultation with the
Congress, of which four will be selected from private sector
businesses, and one will be selected from community-based
organizations. The Mayor, with the approval of the City
Council, will appoint an additional member, and there will be
three voting ex officio members, one each selected by the
President, the Mayor, and the City Council.
This corporation will be run by a CEO and served by a
professional staff. The EDC will be given the authority to spur
development with Federal tax credits for loans and investments
in DC businesses, and to issue project revenue bonds, including
tax-exempt private activity bonds. Under the plan, Congress
would authorize the capitalization of the development
corporation, with an initial investment of $50 million in
fiscal year 1998.
The EDC will also have a number of other important powers,
including the power of eminent domain and the ability to seek
expedited consideration by the District government of necessary
permits, requests for land transfers, and the like.
Let me spend a few minutes on the Federal tax incentives.
The President's plan provides for $250 million in Federal tax
incentives to encourage business investment in the District and
to foster job growth for District residents. A DC capital
credit and new private activity bond would flow through the EDC
to businesses. A new DC jobs credit and small business
expensing would be available directly to DC businesses.
Taken together, these Federal incentives are designed to
spur job creation and economic growth across the full range of
sectors, from retail to biomedical, and across the full range
of jobs, from entry level to high tech jobs. Prudently used,
these tax incentives could leverage over $1 billion in private
sector investment in DC businesses.
Let me also say that we are very encouraged that Speaker
Gingrich and Senate Majority Leader Lott have agreed to seek to
include in balanced budget legislation the administration's
proposals for tax incentives designed to spur economic growth
in DC.
Let me tell you a little bit more detail about each of
these four incentives: The DC capital credit. Under the plan,
the EDC would be authorized to allocate $95 million in Federal
tax credits for investors in or lenders to DC businesses; these
tax credits would be worth up to 25 percent of the amount
invested or loaned. This incentive would be available for
businesses located throughout the District.
Private activity bonds. The plan provides for the
development corporation to issue a new category of tax-exempt,
private activity bonds to finance commercial and retail
development projects in areas of the District with poverty
rates of 15 percent or more. Some 45 percent of the District's
population and 37 percent of its land area are included in such
areas.
Third, a DC jobs tax credit. The plan provides for a DC
jobs credit, a 40 percent tax credit on the first $10,000 of
eligible wages in the first year of employment. The credit
would be available to businesses that hire DC residents earning
up to $28,500 a year, who live in the census tracts I have
described, in areas with 15 percent poverty or greater.
Over the next 5 years, 78,000 workers could be expected to
benefit from higher wages or new jobs because of this DC jobs
credit. It will help create jobs for DC residents, increase the
tax base, reduce dependency on public assistance, and lower the
costs of labor to the full range of DC firms.
Finally, additional small business expensing will be made
available. These tax deductions will be able to encourage the
creation or expansion of small businesses in economically
distressed neighborhoods of the District.
Mr. Chairman, that concludes my description of the economic
development component of the President's plan. I would be happy
to take any questions you might have.
[The prepared statement of Mr. Barr follows:]
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Mr. Davis. Mr. Barr, thank you. Thank you very much.
I'm going to start the questioning with my colleague from
California, Mr. Horn.
Mr. Horn. Thank you, Mr. Chairman.
I mentioned in my opening remarks the problems of zoning.
Would the jurisdiction of this corporation intrude in any way
on assuring that the great vistas of this Capital and the great
historic buildings are not intruded upon by a developer that
wants to make a fast buck and suddenly build a 100-story tower
here, or something? How are we handling that?
Mr. Barr. Under the proposal, Mr. Horn, the existing
mechanisms for zoning and for dealing with historic
preservation are kept intact. There's a provision that permits
the corporation to seek expedited review, but that does not
change any of the substantive standards.
Mr. Horn. I'll tell you what worries me. I saw what
happened at L'Enfant Plaza. They had the beautiful HUD building
there, and suddenly everything else is crammed around it. And
it does block access and views of the Capitol from the Virginia
side, depending on where you are. And it just seems to me we
don't need fast buck artists wrecking the historic nature of
this city.
Mr. Barr. I would fully agree.
Mr. Horn. So I hope we have an absolute veto on some of
that, if they get out of hand.
Mr. Barr. The existing mechanisms would all remain in
place.
Mr. Horn. Well, apparently it didn't work at L'Enfant
Plaza, and I worry about that, and we'll pursue that more
later.
I think one of the key questions here is, would it be
useful and appropriate for the EDC to take over the economic
development operations of the District's government and the
RLA? And the point is, obviously, that the District's efforts
have not succeeded, and consideration should therefore be given
to at least including them in the EDC.
It seems to me you would get more bang for the buck by
combining these operations or getting rid of the other
operations. You certainly don't want these agencies competing
with each other and not cooperating. So let's have your
thinking in that area.
Mr. Barr. Our thinking is, we did take a look at existing
development organizations in the course of coming up with a
plan for the Economic Development Corp. What we found is that,
in most areas of the country where Economic Development Corp.'s
are successful, there's a division of labor between that entity
and other entities operating in the area. We would expect a
similar type of division of labor in this instance.
I think the development corporation is going to have a lot
on its hands as it begins to perform its five core missions. So
one might be cautious about giving it other duties, as well.
Mr. Horn. I happened to, in a past incarnation, be one of
the several founders of the Long Beach, CA, Economic
Development Corp. What we ran into with that corporation--and,
granted, this is much more of a government one than that one
was--was that we were sued right and left by people that didn't
want us to change, run over, clean up what was, in essence, a
slum landlord situation, where small, little firms did exist
and violated every single city zoning code I could think of.
And we were tied up in court forever. And finally, we
folded the whole works into the city government. Unfortunately,
the city agreed that they wouldn't do anything by eminent
domain; they would simply wait them out. Well, that could take
80 years in some of those. When you look at what has not even
been turned around since the riots of the late 1960's, you can
see some of the problems that are here, obviously, under our
nose.
How do you suggest we deal with that?
Mr. Barr. I think that you are correct, that is an
important area of concern. The way that that is treated in the
proposal is that there are limitations on the time in which
suit may be brought against this entity, which is somewhat of a
check against the kind of problems you have described.
Mr. Horn. So you are saying it is not a complete ``Tort
Lawyers Relief Act of 1997.''
Mr. Barr. I do not believe so, sir, no.
Mr. Horn. It seems to me we have to think through just how
much do we permit that kind of nonsense from going on, where
they are trying to blackmail the city, blackmail the people,
and all the rest of it. So I think we need to ask a few more
questions on that.
Thank you, Mr. Chairman. Those are my main concerns.
Mr. Davis. Thank you.
I now recognize our ranking member, Ms. Norton.
Ms. Norton. Thank you, Mr. Chairman.
When the administration released its document, March 11,
included in the package along with all the other items was a
one-time, $50-million investment. We looked at the recently
signed MOU, and this language is found there: ``The
administration will seek an authorization of appropriations in
fiscal year 1998 to carry out economic development in the
District of Columbia.''
Why is there no mention of the $50-million investment which
was supposed to already be in the package? Is it in the
package? Is the $50 million in the package or not?
Mr. Barr. Yes, it is.
Ms. Norton. What is the authorization about? That means
when the package is authorized, it ought to be authorized?
Mr. Barr. That's correct. I don't have the precise MOU
language in front of me, but in the legislative bill that we
would propose, there is a $50-million authorization for the
development corporation in fiscal year 1998. And that is what
we would be seeking.
Ms. Norton. Now, the major part of this package consists of
tax credits. Virtually all of it is tax credits, $250 million.
Mr. Barr. Right.
Ms. Norton. The experience of the District in the use of
tax credits has produced only limited results. And that's kind.
That's a kind way to state what has happened. How does what you
are offering differ, and why do you believe it will produce
better results than has been the case with such tax credits in
the past, in the city?
Mr. Barr. We believe that there are two main reasons. One
is that the tax credits that we have developed are part of a
broader plan to revitalize the District. I think the evidence
is that tax credits, on their own, without a broader plan
around them, are usually not enough. And the broader plan is
really one reason why we are more confident in that.
The second is that, in developing these incentives, we've
really tried to learn the lessons of other tax incentives, both
at the Federal level and at the State and local level around
the country, that have been used. And the DC capital credit
that we have proposed is a quite flexible tool that we think we
will be able to use much more rapidly, for instance, than bond
financing generally is. And the labor incentive really builds
on the lessons learned from prior incentives and from the work
opportunity tax credit.
Ms. Norton. The District got the least favored treatment
from the administration when it came forward with its
empowerment zones. I think we were 1 of 66 things called
``enterprise communities,'' which was consolation prizes to
people who essentially got no money, like Baltimore and
Detroit, who got $100 million.
I wish you would compare what was in the empowerment zone,
what our neighboring city, Baltimore, what Detroit, what a
number of other cities got, I wish you would compare the
elements of those empowerment zone packages to this package.
Mr. Barr. The incentives that are on the table in this
package are quite robust. I would have to go city by city to
compare how they are used, because there is flexibility in the
empowerment zone situation. But here $250 million in tax
incentives and $50 million in grants are put on the table for
the city. Depending on how those are used, those would be
significant leverage in comparison with similar tax incentives
offered in the empowerment zone program.
Ms. Norton. My question was to compare them.
Mr. Barr. Under the empowerment zone proposal, there is a
tax-exempt bond finance provision, with certain limitations on
the use of tax-exempt bond financing that are not present here.
So in the bond finance area, this is a more flexible package.
In the area of wage incentives, the empowerment zone wage
incentives are available not just for hiring but for existing
jobs. This, in the DC context, is a hiring incentive. In the
empowerment zone context, that wage incentive is limited to a
small area, whereas here it covers 37 percent of the District.
The additional allocated tax credit for capital investment
is not available in the empowerment zones but is available in
the District.
Ms. Norton. Mr. Barr, just let me say, I want to say once
again how well thought out I think the administration's plan
was. And I say that as someone who has some clear disagreements
with sections of it. But I do want to say for the record that
the District didn't expect anything like the President's plan.
And for all of the fuss that was heard, which kind of
megaphoned some of the problems that all of us had with it--and
I must say, not to the great benefit of our being able to get
it through here--the fact is, the District did not expect an
empowerment zone, and I'm not sure the District expected much
beyond trying to do something with pensions.
Not that that would have begun to do it, but the fact is
that what the administration deserves credit for is trying to
think through ahead of time what it would take,
comprehensively, for a total revival of the District.
It's the only thing that I have seen from the District or
from the Congress that is truly visionary, that says, what
would you need? And then they go through the big ones:
Medicaid, no city can pay that. Pensions, ours not theirs,
can't possibly revive without that. Prisons, no city would be
left standing. Those were on the wish list. And then, of
course, there are four or five other elements of this plan.
I do not know that all of the elements of this plan will
survive, very frankly, particularly since we are pressing, as
well, for the Federal payment. I do know this, there is no free
lunch up here. The District may get some Federal payment, but
we're going to have a hard time piling on, as we would like to.
And the kind of criticism you heard from Mr. Moran, much of
which was valid, you will find all across the Congress.
The Economic Development Corp. was perhaps the least
expected. It is a very creative, good way to try to move the
District. We have problems with it, because it does not have,
even as the Council has been able to move the numbers forward,
a majority of appointments from DC.
I have to tell you that I do not know what the fate of the
Economic Development Corp. is over here. It has been subject to
a lot of criticism in the House and in the Senate, even though
these corporations generally enjoy support from Republicans and
Democrats. I do not know what the fate is. I do not know
whether this is the highest and best use for economic
development in the District.
Now, I do know that, if it done right, at least over a
period of years you would begin to see some improvement. And
the reason I think it has particular potential is because the
private sector has already begun to do what is necessary. They
are the leaders. And when you have an Economic Development
Corp. coming in behind a private sector willing to take its own
risks, it seems to me you do have something going for you.
So I'm going to certainly try my best, not only because I
think it is a good idea, but because, for all of the whipping
that the administration took over something that had almost
nothing to do with this bill--which is, was the District
prepared to do what it's supposed to do, essentially--for all
it took, the fact is that the bill does look at every part of
the District where there is weakness, sits down and tries to
figure it out.
It does not always come up with something all of us can
agree upon, but I really want to commend the approach that the
administration took, the big picture, then saying, what is
doable, what can pass, what can we do to buttress what can
pass, which is what the MOU is about. It wasn't supposed to
start a big fight. It was simply to wave a piece of paper at
the bulls up here and say, that's all right, we've got
something.
The approach is to be commended, and I hope you all will
forgive me and the chairman as we go at parts of this plan
which we think must be revised. And I hope that we will see the
kind of flexibility, on the part of the administration, that we
saw when we began.
The rigidity that got built in when you were negotiating
with the Council was very unfortunate. Some of what they did is
what elected officials do. The response of the administration
to suddenly become very inflexible did harm to the bill up
here, got people who wouldn't have been for us anyway, being
more against us.
So I hope that the kind of flexibility that you all have
always showed, except for that period, and the visionary way
you have approached this, and the very pragmatic approach that
is also built into the way you have gone at this, and all of
that, will come again on the table, so that we can get this
through in short order. We recognize that the time is passing
very quickly.
Mr. Davis. Thank you. The gentlelady's time has expired.
Let me just ask a few questions. Mr. Barr, this is a
philosophical question: If you are going to use money for
breaks in taxation for the city, it looks like the
administration's proposal is--you've got an Economic
Development Corp--we're going to use these and sprinkle these
to certain companies that meet a certain criteria.
Aren't you better off reducing the regulatory burden on
everybody, tax and regulatory burden on everybody, and letting
the market pick winners and losers, as opposed to letting
Government pick winners and losers, which is basically what
you're doing when you allow one group to get a tax break and
maybe another group that's here won't qualify?
Mr. Barr. That's an excellent question. I think our belief
is that the private sector is the engine of growth in any
community.
Yes, it's important to reduce regulatory and other burdens.
What we really tried to focus on was, what additional targeted
tools could the Federal Government bring to the table to
address particular aspects of economic development that were
necessary for the District, that were missing in the District,
and to focus on, for example, parts of the labor market that do
not function as well. The low end of the labor market is much
less efficient right now than the other end of the labor
market.
So we really believed, given the limited resources
available, that we should focus in a targeted way on the
additional elements that the Federal Government could bring to
the table. The other elements, I think you're right, the DC
government really needs to look at its current regulatory and
tax structures.
Mr. Davis. Do you agree that those structures need to be
reduced, in addition to what you are providing?
Mr. Barr. I agree that the District should take a careful
look at its existing regulatory and tax structures. We would be
happy to provide any technical assistance to you or to them in
doing so.
Mr. Davis. I mean, it seems evident to me, in talking to
people who do and used to do business in the city, that it's
expensive to do business in the District. Rents and parking are
higher. When you add to that a tax and regulatory burden in the
city that you don't find in surrounding areas, you have to ask
why would anybody want to be in the city.
If you can bring those tax and regulatory burdens down, it
makes it a little more palatable for everybody. Then you could
fashion special tax breaks, as Maryland and Virginia employ.
I'm not a great fan of them but everybody's doing it, so it's
the kind of issue where to stay competitive tax breaks become
bidding wars for individual industries.
So I think I want to look at it in that vein. Unless you
reduce the tax and regulatory burden for everybody across the
board, I think that the sprinkling of these special benefits to
a given company are just not going to be as successful as they
might in combination with bringing taxes and regulatory burdens
down. We will be working with you as we draft this, to try to
allow the city's tax base to expand.
What about the residential tax base? What's the vision for
having that expand at this point? Ms. Norton's bill at least
focuses on the fact that it's a high tax burden for residents.
You can argue, well, it's a city; the Federal tax burden is
even across the lot, and the city has an artificially high
burden.
But coupled with poor service levels, that high tax burden
helps to move the middle class out of the city. This proposal
doesn't really address the residential component, except in
trying to focus on service levels by relieving the city of some
services they are currently providing, which would free up
funds to others. Is that fair?
Mr. Barr. Representative Davis, I think you have the last
point exactly on, which is that the plan really does try and
improve the District government's ability to provide the basic
services that will make the city attractive for the middle
class. The city needs to improve its provision of public
services, improve public safety, better the schools. And I
think, until it does that, the middle class will continue to
leave.
Mr. Davis. I really appreciate the administration coming up
with a plan, and having the guts to put it on the table. I
mean, people have been talking about these things for years in
a theoretical sense. A lot of pieces make a lot of sense.
I think we want to add some value to that along the lines
I've talked about and Mr. Moran has talked about, Ms. Norton,
Mr. Horn, and others. But we look forward to the dialog and
working with you and just appreciate the attitude that we're
getting from the President in addressing these issues.
Hopefully, in short order, we can move this at least through
the House, and move on from there.
I am going to now yield--we have three other panels--to my
friend from Virginia, Mr. Moran.
Mr. Moran. Thank you very much, friend and chairman.
First of all, let me make--I am not surprised. I am very
glad to see that we are thinking exactly along the same lines
here. It will help to have both authorizing and appropriations
thinking in the same direction.
Mr. Horn, let me make a comment about the very important
point that you made with regard to zoning. All of us want to
protect both the visual clearance of all of our national
monuments and the physical, immediate surroundings of them, as
well.
But, you know, we don't do that to any other city. And if
we're going to do it to DC, then we've got to somehow
compensate them for that kind of additional aesthetic
imposition upon their economic development capacity. Again,
this is another point that can be raised legitimately in
justifying a Federal payment.
I should mention, though, that it is not the private
developers who are trying to make a killing off a high-rise
building that make some parts of the District look like
schlock, it's the Federal Government. If we want to find the
problem, we can look right in the mirror, in the larger sense.
I don't mean you.
But, I mean, GSA has built some of the schlockiest looking
buildings that most private developers never would have thought
of. When you look at DOT and HUD, and you go down Independence
Avenue, that stuff is junk. The developers and the architects,
particularly, ought to be ashamed of themselves. Then you see
some of the beautiful buildings.
Mr. Davis. Why don't you tell it the way it is here.
Mr. Moran. I'm going to try. It's a shame. You know, when
you look at what the Federal Government is capable of doing,
the Old Executive Office Building, and there are a few
buildings that are just gorgeous, but recently, in the last 30,
35 years, everything they put up is just so mundane and
uncreative. There are some exceptions.
I feel very strongly, Mr. Barr, as does Mr. Davis and Ms.
Norton, and I know Mr. Horn, as well, that the White House
deserves a lot of credit.
Mr. Barr. Thank you.
Mr. Moran. You gave us a good plan, and you led with it.
You know, you showed some leadership. That's terrific. But it
is inadequate. If we want to do it right, we're going to have
to do more than that, more than the Economic Development Corp.,
more than taking over a number of obvious functions that are
State-oriented.
We can't expect any municipality, particularly a
municipality like DC that has lost so much of its tax base, to
maintain not only the local share but the State share of
Medicaid, AFDC, and the like. Medicaid, we may even want to
think about the rate that New York State provides, which,
combined with the Federal payment, is 75 percent.
Given those State functions, which we agree on, given the
Economic Development Corp. initiatives, which, for the most
part, I think we agree on, although some of them are more
geared toward a city with very little growth capacity, so that
you're trying to subsidize employment, and so on, I'm not
sure--this is what Mr. Davis was saying--that we really need to
do that.
If we bring in the businesses, we don't need to pick and
choose which businesses. They will provide the jobs. And if we
bring in the right businesses, we don't need to supplement them
with $4,000 per employee, as long as those employees have a
basic education and some skills with them.
But in addition to that, we're not going to be able to drop
the Federal payment, I don't think. I think we're going to have
to have a Federal payment that is exactly in lieu of taxes,
which comes to about $382 million today, and it would go up
with the increased value of property.
And we have to reform these local taxes and fee structures
that are mitigating so strongly against local economic
development within the District. If you pull in a number of the
employers that Tom and I represent and ask them, why wouldn't
you move to the District, they might at first say, well, it's
so obvious.
But then you pin them down, and they will start talking
about a commercial property tax rate that is more than twice
what it is in Virginia, $2.15; ours is about $1.07. So it's
exactly twice. Your residential base is 96 cents. We don't
split the residential from the commercial base. They are going
to talk about these workmen's comp. laws that are unbelievable,
to think you have to pay three times as much for workmen's
comp. That kind of thing has to be reformed.
One of the things they are going to say is, the labor
structure is impossible to work with in some of these
industries. That's going to have to be addressed. It's vastly
different in the suburbs, obviously. They are going to talk
about some of the fees and permits and the responsiveness of
the Government to even getting those fees and permits. A whole
long list of things.
Those are things I think are the first things they are
going to talk about. I never hear them talking about, well, you
know, if I could get a $4,000 rebate on my low-income
employees, that would convince me to move to the District. It
might convince a few construction firms. I doubt it. They don't
mention any of the subsidies, the incentives that you're
talking about. They mention basic, profound, structural
problems. So I think we need to look at those in addition to
what you have suggested.
What you have suggested is kind of the traditional
Government response, to subsidize lower income workers. Well, I
won't argue whether it's traditional government, but I think,
in many ways, it's assuming that we're starting from a pretty
low base here and somehow we've got to subsidize businesses for
coming into the District.
I'm not sure we need to subsidize businesses. I think we
just need to create an equal playing field with the suburbs in
order to entice them, and particularly to entice the businesses
that are growing, that have high profit margins, that are
employing those 50,000 unfilled jobs that you can see in the
classified pages every single Sunday, 19,000 high-tech jobs.
Those are the jobs that are growing. Those are the jobs
that will pick it up and carry the economic ball without the
need for any subsidies. I'm not sure that this directly
addresses that.
I thank the chairman. I've used up my time. I thank him for
giving me the time.
Mr. Davis. Thank you, Mr. Moran.
Mrs. Morella, do you want to ask any questions?
Mrs. Morella. No.
Mr. Davis. Mr. Barr, thank you for being here. We will have
some followup questions we might want to send you on a written
basis, but more importantly, we just look forward to sitting
with you across the table as we try to construct something that
will work for the city.
You have heard a wide variety of views here, and I'm not
sure that any of us are disagreeing with anybody's views. It's
a question of how do we best use them with limited priorities
and tax incentives? We're going to have to sit down and try to
hopefully come up with something that works.
We appreciate, again, your being here today, your
testimony, and look forward to working with you. Thank you.
Mr. Barr. Thank you very much, Mr. Chairman.
Mr. Davis. I call our next witness, Mr. Kenneth Kies, the
staff director of the Joint Committee on Taxation.
Ken, as you know, it's the policy of this committee that
all witnesses be sworn before they testify. Would you just
raise your right hand with me?
[Witness sworn.]
Mr. Davis. Thank you very much. You may be seated.
The subcommittee will carefully review any written
statements you care to submit, and I ask unanimous consent that
any such statement be made part of the permanent record.
As I requested of the previous witness, I would ask you to
limit your oral testimony to 5 minutes so that we may have
sufficient time for questions and subsequent panels.
Thank you.
STATEMENT OF KENNETH KIES, STAFF DIRECTOR, JOINT COMMITTEE ON
TAXATION
Mr. Kies. Thank you, Mr. Chairman.
My name is Ken Kies. I'm the chief of staff of the Joint
Committee. It is my pleasure to present the testimony of the
Joint Committee at this hearing, concerning the
administration's proposals for the District of Columbia.
The administration has proposed a package of tax and nontax
initiatives to revitalize the District's economy. I will
briefly describe the administration's proposals, which your
prior witness already summarized.
The first proposal would establish a new District of
Columbia Economic Development Corp. to develop and oversee a
comprehensive economic development strategy for the District.
Second, the proposal would provide four new tax incentives
for businesses conducting business activities in the District:
a new employment credit; extension of the proposed ``welfare-
to-work'' credit; additional expensing under section 179 and
expanded tax-exempt development bonds; and finally, tax credits
for certain equity investment in or loans to District of
Columbia businesses.
It is acknowledged that the District faces two key
problems: residents migrating from the District and
insufficient economic development activity. The
administration's proposals directly address the second of these
problems but would not have a direct effect on stemming
migration of District residents.
In any event, the efficacy of tax incentives to address one
or both problems is severely limited, absent fundamental
structural reform of the District's government and economy.
Many of these issues would be addressed by other aspects of the
administration's proposals.
Let me just address some of the compliance and
administrative issues that will be raised by the proposed tax
incentives. These issues arise primarily because of slightly
differing residency and work location tests applied to
determine a taxpayer's eligibility for each tax incentive.
For example, for an employer to claim the proposed
employment credit with respect to an employee, three tests must
be satisfied: the residence test, the work location test, and
an income test. To satisfy the residence test, the employee
must live in the District throughout the entire first year of
employment. If the employee moves out of the District at any
point during the year, they become ineligible for the entire
credit.
To satisfy the income test, the employee must either be a
member of a targeted group for purposes of the work opportunity
tax credit, or the employee must live in a census tract in the
District that has a poverty rate of 15 percent or more, and
reasonably expect to be paid less than $28,500 for the year.
Finally, to satisfy the work location test, substantially
all the services provided by the employee must be in the
District, or the employer's principal place of business must be
located in the District.
Each of these tests requires extensive recordkeeping and
verification procedures throughout the period the credit is
earned. The difficulties inherent in collecting and maintaining
necessary information to ascertain credit eligibility mean that
there is a high probability of noncompliance, intentional as
well as unintentional.
Similar complexity in compliance issues arise with respect
to each of the other proposed tax incentives, all of which
incorporate slightly different requirements with respect to
employee residency or the location of business activities.
In addition, because the complex eligibility tests are not
based on one-time determinations, but rather must be satisfied
on a year-long basis, business owners would have to speculate
at the time of employment or when an investment decision is
made as to whether they would be able to claim the special tax
incentives at the end of the year. Thus, the incentive effect
of the proposals would be limited.
My written testimony does raise one constitutional issue
which the committee and the Congress will have to consider as
they act on this legislation. It specifically relates to the
uniformity clause. In particular, as this legislation is
developed, a more detailed record as to the basis for the
classifications chosen would be highly recommended in order to
avoid a potential uniformity clause problem.
Finally, the staff of the Joint Committee estimates that
the proposals would reduce Federal budget receipts by just over
$300 million in the 10-year budget period from fiscal 1998 to
fiscal year 2007. The proposed tax incentives attempt to
encourage the startup and retention of business in the District
and the hiring of lower income District residents.
In general, the proposed incentives are sufficiently modest
in scope so that it is not anticipated that they will result in
any major increase in the growth of the economy of the District
metropolitan area as a whole. However, concentrated allocation
of the capital incentives by the Economic Development Corp.
could result in significant revitalization of targeted areas
within the District.
In addition, the removal of current obstacles that inhibit
the District's ability to issue debt and the creation of a new
category of private activity bonds should enable the District
to make substantial use of its private activity bond volume cap
within 4 or 5 years. These private activity bonds will provide
a cheaper source of funds for both startup businesses and
business expansions within the District, as will the startup
capital generated by the tax credits.
Finally, the revenue estimate also assumes that there is
likely to be some confusion about the exact boundaries of
eligible areas and the residency of particular employees that
will result in some ineligible businesses claiming the
expensing and or wage credits.
The issues I have touched on this morning are discussed in
more detail in my written testimony. I will be happy to answer
any questions that you have, Mr. Chairman, or members of the
committee.
[The prepared statement of Mr. Kies follows:]
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Mr. Davis. Ken, thank you very much.
What has been the experience with enterprise zones, in your
judgment, around the country? Are they showing more success? I
mean, a couple of years ago, I looked at it, when I was head of
the county government in Fairfax, and really there was very
limited success because, generally, the areas that were
targeted had so many other problems that tax incentives alone
couldn't make up, if you will, the investment deficit that
would cause people to put private capital into them.
Mr. Kies. Mr. Chairman, the recent experience with the
empowerment zones, which provide the most significant tax
benefits, and in particular the key tax benefit that is
provided in the case of empowerment zones is a permanent wage
credit that goes to all employees located within the
empowerment zone--and it does not only go to the first year of
wages, but rather it applies to each year that the business
employs people within the empowerment zone area--has proven, at
least in recent experience, to be rather effective at getting
new investment.
For example, in the city of Detroit, in the empowerment
zone created there, Chrysler chose to build a plant in that
empowerment zone, and that decision was largely a consequence
of the wage credit.
Mr. Davis. A wage credit, basically, to a company means
you're paying less dollars in wages than you would have to pay
otherwise.
Mr. Kies. That's exactly correct. And the distinction
between the wage credit in the empowerment zone proposals
versus the one in the proposal of the administration for the
District is that that wage credit applies each year, to each
employee, as compared to the District proposal, which would
only apply to an employee for the first year of employment. And
that's a significant distinction.
Mr. Davis. When you're making a long-term capital
investment, it doesn't really help.
Mr. Kies. Exactly.
Mr. Davis. I appreciate it. Let me ask you this: For the
amount of money that is called for in the administration's
package for economic development, do you think there are better
ways--and I gather from your testimony that you think it can be
done more efficiently and that there is a way you can get more
economic bang for the dollar.
Mr. Kies. Well, Mr. Chairman, I would say that the $95
million of credits that the development corporation will have
the ability to distribute, those credits, assuming that the
development corporation exercises good judgment in how those
are allocated, could produce some fairly significant results,
because they could be targeted and given to entities that are
going to put other capital in.
So that probably offers the greatest potential for a good
return, in terms of the tax dollars invested.
Mr. Davis. But the key is, how is that allocated; is it
done on a favored basis?
Mr. Kies. The Economic Development Corp. has a series of
criteria that they are supposed to take into account in
exercising that judgment.
The wage credit is the one that we probably would identify
as raising probably some serious problems, in terms of its
efficacy, because of the fact that, for example, it's only for
1 year, but in addition, the employer, when they hire the
individuals, will not know whether any of the wages paid will
qualify for the credit until the entire first year of
employment is completed.
Mr. Davis. So how would you make a decision?
Mr. Kies. That's the problem. Because if the individual
violates the residency test at any time during the year, they
lose the entire credit. That's, I think, a problem that really
needs to be looked at carefully.
Mr. Davis. Have you looked at the Southeast Federal Center
or the area around the Navy Yard at all? Are you familiar with
that at all?
Mr. Kies. I'm familiar, generally, with the area.
Mr. Davis. It would seem to me, with the additional
governmental expenditure that will be going there, with new
offices and so on, that some creative urban planners could look
at that and provide appropriate incentives, to make that
attractive. It seems to me, if there was ever the opportunity
for an empowerment zone to work, it's right there where you
have a critical mass to begin with. Any thoughts on that?
Mr. Kies. Well, that's certainly correct, Mr. Chairman. The
Economic Development Corp., in choosing how to allocate its tax
credits, should probably take those kinds of criteria into
account. The probability of success is certainly going to be
related to what is already there, in terms of the investments
that they help to incentivize through how they hand out the tax
credits.
Mr. Davis. Finally, on a philosophical basis, are you
better off with empowerment zones, or are you just better off
essentially picking areas, picking business winners and losers
ahead of time by who qualifies for a special tax credit; in
other words, Government picking winners?
Or are you better off letting the marketplace pick them and
using those dollars to lower the economic, tax, and regulatory
burden for everybody?
Mr. Kies. Mr. Chairman, I think you have correctly
identified it as a philosophical question on which there is
great debate. The tradeoffs are that the more targeted the
delivery of the incentive, the greater the ability to try and
pick the projects that have the greatest probability of
success. On the other hand, that is picking winners and losers.
Mr. Davis. It's also assuming that Government somehow knows
more than the marketplace in picking those, and the track
record is very mixed on that, I would submit.
Mr. Kies. That is clearly one of the concerns that people
try and wrestle with in choosing which of these two directions
to go in.
Mr. Davis. I understand. And I think there is merit on both
sides. With the economy in this region as complex as it is,
government-driven in some cases, building and development-
driven in others, technology-driven, and telecommunications-
driven, particularly in the suburbs, where the city's niche is
with its employment base, it's more complex. What the tourism
business can bring, international business; what is the mix?
What is the city's role in that?
There is, I think, an honest debate over what is the best
way to go. I have studied this and talked to experts. If we
bring down the regulatory burden, allowing the market to pick
that, sometimes we learn things that we wouldn't know just
trying to analyze the data.
Mr. Kies. Mr. Chairman, I would just say that one of the
points we made in our written testimony is that these tax
incentives alone, on their own, would probably not do much,
that it has to really be part of a much bigger picture,
including many of the things the administration already has in
their proposal. I think the regulatory burden is a very
significant component of that.
Mr. Davis. Well, thank you. I would just say, as with Mr.
Barr, we look forward to working with you. We appreciate your
being here. I know of the Speaker's interest. I know of
Chairman Archer's interest in this. We know that there is a
reservation in the budget agreement for some tax incentives. We
just want to make sure since these are taxpayer dollars,
essentially, and it has an impact on the budget that we're
getting the most bang for the dollar that we can for it.
Thank you very much.
I now recognize my vice chairman of this subcommittee, Mrs.
Morella.
Mrs. Morella. Thank you.
Thank you for your analysis, too. I may want to get back to
you at some point later, after I digest more of the
ramifications with regard to questioning.
One of the serious disincentives that appears in the
District of Columbia to business is the regulatory nightmare
that has been put in place over the last 20 years, and the fact
that many of the personnel in these agencies appear to be
undertrained or simply not qualified for the job in some way.
I just wonder, do you see a role for Congress in trying to
remedy both the regulatory nightmare and to make sure that
there is training which brings about efficiency and
streamlining?
Mr. Kies. Well, as I understand part of the overall project
to do a complete revitalization project for the District, one
of the areas that will be focused on is how do these regulatory
burdens get eased so businesses can more efficiently operate in
the District.
I would think that, particularly your committee, as you
would put together your overall plan, that's a key area that
Congress ought to try and see what can be done to try and ease
that, because that apparently is a substantial concern of
businesses trying to come into the District.
Mrs. Morella. Would it be considered micromanaging if we
looked at, like, performance measures or standards? Is that the
role of Congress, as you see it, in terms of bringing about
this desirable result?
Mr. Kies. Well, I mean, I think those are the kinds of
tradeoffs you're going to have to think about. The bottom line
is that I think you're going to want to ensure as much
regulatory flexibility as possible so businesses have a better
environment.
Mrs. Morella. At any rate, even though you say this is not
really your jurisdiction, you do see this as a major problem?
Mr. Kies. I see it as a major problem, because tax
incentives won't work if there are these regulatory burdens.
Mrs. Morella. Absolutely. Absolutely. And if we're not
using people power, you know, adequately.
You had a brief discussion about the enterprise zone and
the EDC. The enterprise zone is something that is spotty. I
mean, an area is chosen for that. The EDC would cover
everything and would set up a board for that.
Mr. Kies. Correct. And that's why the EDC perhaps offers
the greatest potential for producing some significant economic
development in the District, because they do have the
flexibility as to how they use these tax credits.
And one of the requirements is that, for every dollar of
tax credit that is provided to an investor in the District,
there has to be a substantial amount of money also being put up
by the investor. So it has a multiple effect to it, in terms of
the potential for economic investment, almost as much as $400
million worth that could occur through the use of these
credits.
Mrs. Morella. From your point of view and perspective, and
as an expert, do you think that these tax benefits in the
President's plan can enhance the District's competitive
position in retaining and attracting jobs across the economic
spectrum?
Mr. Kies. I think we believe that the credits that the
development corporation has offer a good potential there. I
think the wage credit has some significant problems associated
with it because of its temporary nature and some of the
complexities associated with qualifying for it. So I think
that's an area where the Congress is going to want to look
carefully in maybe trying to shape that, if that's going to be
part of the tax package that is provided to the District.
Mrs. Morella. I want to thank you very much, Mr. Kies.
Thank you, Mr. Chairman. I yield back.
Mr. Davis. Mr. Kies, thank you very much. We look forward
to working with you.
Mr. Kies. Thank you, Mr. Chairman.
Mr. Davis. I now call our next panel which will consist of
Mayor Marion Barry, Council Chair Pro Tem Linda Cropp, and
Councilmember Charlene Drew Jarvis.
As you know, it's the policy of the committee that all
witnesses be sworn before they may testify.
Linda, congratulations on your new position.
Charlene, good to have you back again.
If you would all just join with me and raise your right
hands.
[Witnesses sworn.]
Mr. Davis. I am going to ask unanimous consent that any
written statements be made part of the permanent record. As I
have requested of the previous witnesses, if you would limit
your oral statements to no more than 5 minutes, in order to
leave time for questions.
I am going to ask the Mayor to testify first, followed by
Council Chair Pro Tem Cropp, and then Councilmember Jarvis.
Mayor, thank you, and welcome.
Mr. Barry. Good morning, Mr. Chairman and Mrs. Morella.
Mr. Davis. Let me just announce that we have visiting
second and third-grade students from the Owl School, a private
school, here in the District of Columbia, studying citizenship.
We welcome you all today. As you look around here you will see
the city leadership, the Mayor, the Council Chairman, and
Charlene Drew Jarvis, a member of the District of Columbia City
Council. We welcome your being with us today.
Mrs. Morella. And as you know, Mr. Chairman, the owls are
wise young people.
Mr. Davis. And they give a hoot; right? OK. [Laughter.]
Mr. Barry. Everybody is sharp this morning.
STATEMENTS OF MARION S. BARRY, MAYOR, DISTRICT OF COLUMBIA;
LINDA CROPP, CHAIRWOMAN PRO TEM, DISTRICT OF COLUMBIA CITY
COUNCIL; AND CHARLENE DREW JARVIS, MEMBER, DISTRICT OF COLUMBIA
CITY COUNCIL
Mr. Barry. Thank you, Mr. Chairman.
I was talking with some of the young people. One young man
asked me, ``What are you all doing in here?'' I said, ``We're
discussing President Clinton's plan to help the District.'' He
said, ``Oh. Will it work?''
Mr. Chairman, let me express, I am pleased to appear before
you today to offer comments on the Economic Development Section
of President Clinton's National Capital Revitalization Plan. I
would like to ask that my entire statement be entered into the
record. I have some other documents I want to enter at the
proper time.
Mr. Chairman, in early 1995, when we were wrestling with
the financial crisis of our city, it was generally agreed that
we ought to take a three-pronged approach, that we ought to
drastically restructure and downsize the city government, make
the government more efficient, more effective, more responsive
to our citizens, our visitors, and to our business people.
The second leg of that was that we should seek to transfer
certain State functions to the Federal Government.
Additionally, we also talked about increased Federal payment.
The third part of that was to improve the District's services,
but that we would figure out ways to assist in economic growth
for the District.
Quite frankly, what has happened over the last 2\1/2\ years
has been an obsession with just the first area: How do you
reduce the size of the DC government? How do you make it more
responsive, et cetera? Until President Clinton submitted his
plan to transfer certain State functions, there was no
discussion about that by the Congress or by the control board.
And there was virtually nothing done in the third area. The
District's budget didn't reflect any extra money for economic
growth, in terms of job training, or business retention, or
business attraction, et cetera. So I am glad that we finally
have decided to discuss the second point and the third, and
President Clinton's proposal deals with the second.
Also, Mr. Chairman, I think we have done our share of
trying to restructure the DC government, reducing expenditures,
reducing the size of the work force. Anytime a municipality or
a State or county can reduce its work force by almost 20, 25
percent in a year and a half, it's phenomenal. From 47,000 FTEs
down to 33,000 in a year and a half is phenomenal.
In fact, I was talking to Mayor Rendell, he couldn't
believe it. He thought it was just incredible that we have been
able to do that, and restructure our government, and establish
a privatization plan which has saved us money in our
correctional facilities, Oak Hill, et cetera.
If you look at my statement, we could go right on down the
line as to the kinds of sacrifices and the kinds of commitments
the DC government has made, its Council and its Mayor, to make
the government more efficient, to make it more effective.
And we have suffered--I have suffered the political
consequences of that, because I've had to make some very
unpopular decisions, which means that people not only didn't
like the message, they didn't like the messenger. But we've
done that in order to take the first part of this. I would urge
you to look at all the kinds of things that we have done.
And then we know what the other parts of the President's
plan are; they have been discussed. But let me discuss, Mr.
Chairman, a little bit about the District of Columbia,
economically.
I would like to enter into the record a document which
says, ``Creating an Economic Development Strategy for the
District of Columbia.'' This was done by McKinsey and Co. for
the DC Agenda. I would like to ask that this be entered into
the record.
Mr. Davis. Without objection, that will be entered in the
record.
[The information referred to follows:]
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Mr. Barry. Let's talk about our city. We are landlocked.
Unlike Charlotte, unlike Nashville and Memphis, we cannot annex
property, which means that, in some cities, when people flee
from the city into the suburbs, the cities merely annex that
part of the suburbs and therefore equalize the situation. But
Baltimore and Philadelphia and New York, and other cities, are
suffering the same plight, losing population. We're not unique
in that regard, but we cannot annex.
Second, we have a situation where 56 percent of the land is
owned by someone else besides the DC taxpayers; 41 percent by
the Federal Government, the other by nonprofit organizations
and parks, et cetera, which means, from a taxing perspective,
we can only tax, either through residents or businesses, 41
percent of the land. Now, that's a disadvantage.
Third, the District is noncompetitive with our neighbors.
We're not competitive because our commercial property taxes are
higher than the neighbors. Our unemployment insurance, our
Workers' Compensation, our utilities, and our business
corporation taxes are higher.
Why are they higher? They are higher for several reasons.
First of all, because we can't tax income at its source, we're
subsidizing Maryland and Virginia by $700 million.
We also don't have a fair Federal payment. Even though the
Federal Government owns 41 percent of the land, we get about
one-third of what we ought to get in lieu of taxes. If we could
get our fair share of Federal payment, about $2 billion, and
get our share of income tax here, we would have the lowest
commercial tax rate in the region. So part of the plan has to
be a continued Federal payment.
My own view is that, if we pass the dollar amount of the
President's plan--it may have a different structure,
particularly in criminal justice--and give us at least almost
$400 million of Federal payment, the city government could
begin to drastically reduce our commercial property taxes,
reduce our business taxes, and other related activities that
would make us more competitive.
The Council and the Mayor are in the process now of getting
legislation through the Council that will lower the
unemployment compensation tax, that will lower the Workers'
Comp. comparable to the surrounding areas.
Then there is the area of business reform and regulatory
reform. We talk about that, but when you look at the reality,
if you look at the MCI Center, it was easy to move in here, to
get the necessary permits, and to build this in record time.
The only basic requirement of a business coming into
Washington is to file your corporation tax, give a business
tax, and that's it. If you talk to developers, they will tell
you that it is easier to develop a building in Washington than
it is in the suburbs, in terms of regulations.
Now, we need to look at it again, but I don't think
regulatory reform is a major impediment when you really talk to
people, Congressman Davis, one-on-one, about, what do you mean
by that? They are not responsible for a certificate of
occupancy. Now, lawyers have to get a business license. Doctors
have to get a business license, and others, but that's not true
all over.
So I think we need to focus on the Federal payment. We need
to focus on the Economic Development Corp. You know what it's
all about. I'm not going to spend a lot of time doing that. But
that's not enough.
If you look at the McKinsey study, the McKinsey study says
that we ought to have a five-pronged approach: We should
attract and retain businesses through government action; that
is, taxes, lowering taxes, streamlining the regulatory
processes, review land use.
Work force development. We need to put more money into
skills development, because our schools have not done a good
job, and therefore we have to make up for what they did.
Neighborhood revitalization. We put very little money in
neighborhood revitalization, either through the Council's
budget, the Mayor's budget, or the controller's budget. We have
not promoted industry.
The other one is, how do you attract and retain residents?
You have to reduce taxes on those of us who are taxed to death
in Washington. And we are taxed at the high rate that we are
because we are subsidizing the Federal Government and Maryland
and Virginia. I support Ms. Norton's approach, the 15 percent
flat tax. That's one way you begin to do that.
Also, improve services. Let me say that we are working
every day to make our services more efficient, make our
government more responsive, and you're seeing results. This
time last year, because of our budget problem, our trash trucks
were broken down, and we couldn't pick up trash on time. We
need 40 trucks every day; we had 29 or 30. We now have 45
trucks every day. Trash is being picked up on time, and our
city is looking cleaner and looking better.
We have put police officers on the streets, some 400 of
those. We have seen a reduction in crime, 30 percent; in March,
the lowest homicide rate in 10 years, for the first quarter.
And so we are improving services. Things are getting better, in
terms of delivery of services.
The other one is to engage the business leadership. If you
go to Baltimore or Fairfax County or other places, you find the
business community more involved with the local government than
here. Somehow or another, it's been very difficult to get the
business community fully engaged. They have been engaged, but
not ``fully engaged.'' The Washington Board of Trade has been
engaged but not fully engaged. The Chamber of Commerce has been
more engaged, because it is more of a local operation.
So I think, with all of that, with the President's plan,
Ms. Norton's flat tax, with the DC government improving its
delivery of services, which we are doing every day, with
neighborhood development being financed and funded, both
through the President's plan and the DC government, through
work force development training--and finally, Mr. Chairman, one
thing that the Federal Government can do and the private sector
can do that will give us an immediate shot in the arm, in terms
of economic growth, and that is to hire DC residents.
The McKinsey study indicates here that for every 100 DC
residents that are hired in existing jobs, as they become
vacant, in both Washington and the suburbs, the District
government receives about $350,000 of revenue, which means, out
of those 60,000 unemployed DC residents, if for next year we
could convince the Federal Government--190,000 jobs here--and
convince the private sector to put focus on qualified DC
residents and hire up to 10,000 residents, that's $35 million
of new tax revenue for the District government.
The other part of what makes our taxes so high is that we
have a disproportionate share of the region's poor. We are 8
percent of the population; 44 percent of the poor, eating up
Medicaid, AFDC, food stamps, $800 million in Medicaid.
So my formula for success is to focus on the second part of
the President's plan, transferring State functions, and
economic development, Ms. Norton's plan, neighborhood
revitalization, and hiring DC residents. The Congress can
contribute, starting tomorrow, by asking the architect of the
Capitol, whoever makes decisions about hiring around here, to
start hiring DC residents. That's a good shot right there.
[The prepared statement of Mr. Barry follows:]
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Mr. Davis. Well, Mr. Mayor, I will address that in the
question and answer period. I think we want to hire qualified
people that can get the job done.
Mr. Barry. I said qualified DC residents, ``qualified.''
Mr. Davis. Exactly.
Ms. Norton. That includes DC residents.
Mr. Davis. Of course it does. Of course it does.
Mr. Barry. Qualified, Mr. Chairman. We have some very, very
qualified DC residents who are out of work.
Mr. Davis. Well, we'll talk about that, Mr. Mayor.
Ms. Cropp, thank you very much. Thanks for being here
today.
Ms. Cropp. Thank you very much.
Mr. Davis, Ms. Norton, Mrs. Morella, good afternoon. I am
very pleased to be with you today to discuss the economic
development component of the President's plan to revitalize
Washington, DC.
Few cities across the Nation would have survived if they
performed the State functions that we do in the District of
Columbia. As you may know, the Council feels strongly that a
Federal payment should remain as part of the budget. Mr.
Chairman, we look forward to working with you to keep the
Federal payment as a part of the budget.
We have the resolve to correct the management problems. we
need your help to correct the structural problems within the
District of Columbia. A successful economic development program
could be the cornerstone on which to recast Washington as a
vibrant and flourishing urban center.
The District of Columbia Economic Development Corp., as
proposed in the President's plan, would be substantially
capitalized and substantially empowered to help revitalize the
District's economy. We thank the President for recognizing a
need with regard to the economic development in the District,
and we look forward to working with Congress to craft the final
details of enacting the legislation.
With me today is Councilmember Charlene Drew Jarvis, who is
the chair of the Committee on Economic Development of the
Council of the District of Columbia, and she will be presenting
the Council's position on the President's economic plan.
[The prepared statement of Ms. Cropp follows:]
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Mr. Davis. Thank you very much.
Charlene, welcome.
Ms. Jarvis. Thank you very much, Congressman Davis. I am
delighted to join my chair and the Mayor this morning, and to
say good morning to Ms. Norton and to Mrs. Morella.
On behalf of the District of Columbia, I am very pleased to
have this opportunity to testify at today's hearing on the
President's National Capital Revitalization and Self-Government
Improvement Plan.
The elected officials who represent the residents of the
District continue to embrace this historic opportunity to
address the city's financial condition and the fundamental
inequities that have long existed in the relationship between
the District and the Federal Government.
We have done this by signing the Memorandum of
Understanding with the Office of Management and Budget and the
District Executive. And now we welcome the opportunity to
engage members of this subcommittee and other Members of
Congress in a continuing dialog about various aspects of
municipal partnership.
I have been asked to testify today on the portion of the
plan in which the President proposes a federally funded
commitment to help capitalize a new, non-Federal public-private
partnership called the District of Columbia Economic
Development Corp.
The Council supports the establishment of what I will refer
to as the EDC, which would have broad authority to spur private
development, including the use of Federal tax credits, both for
hiring District residents and business loans and investments.
The EDC would be able to use tax-exempt private activity and
revenue bonds and use limited authority to acquire property by
eminent domain in furtherance of its statutory objectives.
The Council requests that the Economic Development Corp.
provide for considerable local participation and input, in
order to guide and direct development opportunities throughout
the city. This would be accomplished through increased local
representation on the board of directors.
In order to leverage private sector development projects
throughout the city, the corporation would be capitalized, in
part, with Federal and District funds, land grants, and
property development rights.
I believe that economic turnaround in the District depends
upon the private sector, and that government can provide the
catalyst for this development. Examples of the recently
successful public-private partnership include the MCI Center,
the Opera, and the planned convention center.
An Economic Development Corp. operating citywide would
address both community development and business improvement
needs. An Economic Development Corp. would provide the District
with necessary tools and resources to improve the prospects for
Home Rule to succeed, while concurrently addressing the
concerns respecting DC's unique position and additional
responsibilities as the capital city.
An EDC with the mission of promoting investment in the
District would be created, in partnership with the Federal
Government and the private community. The challenge will be to
responsibly undertake useful economic development projects and
assist the District in all aspects of revitalization.
Likewise, the Council also strongly supports the Memorandum
of Understanding's endorsement of amendments to the Home Rule
Act which would help improve the institutional and fiscal
capacity of our government by providing for the same legal
capacity to finance economic development projects as in other
jurisdictions.
Thus, the District would no longer be competitively
disadvantaged, because the amendments would clarify the
District's authority to use taxable and tax-exempt bonds for
business development and job creation purposes, to the same
extent permitted other State and local governments. We would be
able to promote quick, 60-day settlement through expedited
approval of revenue bond transactions that do not involve the
pledge of District revenues or assets.
These transactions would assist in financing public and
private, nonprofit, elementary, secondary, vocational, and
charter schools, and other private and governmental capital
projects that enhance economic and employment opportunities in
the District.
We would also be able to pledge special fund revenues,
including tax increments, fees, and payments in lieu of taxes,
to secure the costs of municipal parking facilities and public
infrastructure redevelopment for utilities, streetscape
improvements, and park enhancement projects cosponsored by
neighborhood associations, including business improvement
districts. These measures are as critical to ensuring the
financial success of major revitalization projects as is the
EDC to the success of project implementation.
Toward this end, the Council requests Federal assistance to
complete the financing of the planned new convention center. We
ask this particularly because the Council recognizes the
substantial economic benefit to the District and the region of
a new and larger convention center in the Nation's Capital.
History has proven that most of the Nation's convention
centers have needed external support to develop these
facilities. We want to be proud of our new national convention
center and attract people with a world-class facility design
and the ability to market to groups of all sizes.
Mr. Chairman, may I also, if you would permit me, indicate
that I think that one of the most important reasons for the
establishment of the Economic Development Corp. is to have a
single, focused activity and a push for the kind of creative
development that is critical in the District. The economic
development structure within the government has its people and
its resources spread so thinly as not to be able to focus on
the issue of economic growth and economic development to the
extent that ought to occur.
The Business Services and Economic Development Agency has,
as a part of its responsibility, the Department of Consumer and
Regulatory Affairs. Those issues are critical to business
development, and they must be focused on, as well. But if the
same people are to do the business regulatory reform as are to
do the development, then we have what we have had in the past,
which is without that single, major focus on the activity that
produces jobs in the District of Columbia.
The Business Regulatory Commission, Mrs. Morella, will be
making its report within 60 days, and that goes to your
question of the District's ability to regulatory reform.
The Tax Revision Commission will be reporting within 60
days, and a tax incentive package is going to be produced
through legislation which the Mayor is sending to the Council,
as a result of having had an outside firm do a study of such
tax incentives. And that is in response to repeated concerns
that I hear this morning about restructuring of the tax system
for the District.
Thank you.
[The prepared statement of Ms. Jarvis follows:]
[GRAPHIC] [TIFF OMITTED] 42429.103
[GRAPHIC] [TIFF OMITTED] 42429.104
Mr. Davis. Thank you very much.
Let me start the questioning. I am going to address the
issue you brought up about the hiring of residents. What it
tells me, Mr. Mayor, is that you still don't understand and
don't get what's happening in the economy in this region. That
you don't understand why you have an outflow of jobs from the
city to the suburbs.
It is taxes, and you mentioned taxes. I'm going to do
everything I can to reduce the tax burden, whether it's through
Ms. Norton's bill or Mr. Moran's requirements or whoever's,
because I think the tax burden has to come down. But you've got
to reduce regulation, as well.
And every time you pass a bill that may get points out
there with some constituency group, but you hinder the market
process, you, in essence, are putting more regulation on
business, requirements on business that lead people not only to
not want to invest but who end up voting with their feet by
leaving to go elsewhere, creating greater inefficiencies.
Take for example, your proposal, that your contractors for
the city have to hire city residents. One of the leading
procurement people we had in Fairfax County was a District
resident who was a very capable person. I wouldn't have
required him to move. He headed up our computer operations in
the county. He was the best qualified person we could have. We
felt, when the taxpayers are paying dollars, they ought to get
the best people, wherever they live.
For people coming in, whether they are experts or the
lowest ranking jobs, you certainly want to make sure that that
District labor pool is included in that, and that you can find
as many jobs. But that kind of requirement is rebuffed by
people who have to invest the money and put their capital at
stake.
So many decisions the city has made, however well-
intentioned and well-sounding they may be, have the effect of
chasing capital out of the city instead of attracting capital
and investment into the city.
I just want to read one of the local comments about your
plan. ``The Mayor said that he didn't talk with business people
before he sent the legislation to the council, and it was
immediately rebuffed by the Board of Trade and other business
organizations.'' You need to work and form a partnership with
the business community.
The way Cleveland came out of their doldrums was, the
leadership in that city worked with the business community. The
way that Philadelphia and Mayor Ed Rendell have moved ahead is,
the city formed a partnership with the business community. The
way New York City came out of the doldrums is, they formed
partnerships with the business community, not constantly
putting a stick in their eye and talking about other things.
That's what the city needs to do, and they need to reduce
the regulatory burdens and form a partnership working with it.
And frankly, in the plan here, I don't see that. In fact, I see
this as another indication of not trying to understand the
marketplace, or trying to work with the marketplace.
The plan sounds so 1960's to me, and it's not really where
you need to go to move in the 21st century. This city has so
many great opportunities ahead of it over the next decade. The
high technology boom in the suburbs right now, 18,000 jobs we
can't fill in northern Virginia.
I know the consortium of universities has come up with a
proposal--I'm going to ask you how you have responded to that,
but I understand it hasn't been as proactive as they would have
liked--to start training people and have UDC move their
curriculum to train people for some of the jobs available now
in the region. We'd love to have them out in the suburbs.
We'll take anybody we can find right now, because these
jobs are going to India, they are going to the Pacific Rim, or
offshore, and to other parts of the country, because we can't
find qualified people here. We have systems where the city
ought to be able to add value to those equations.
The Southeast Development Center, the Navy Yard where we're
going to have a huge Federal presence, hopefully, in the very
near future, is a great opportunity for the city. I know Ms.
Jarvis has been active in trying to make sure that we have a
zoning envelope and maybe a regulatory envelope down there that
can be attractive to private sector investment around there,
and do the kinds of things that Crystal City and Rosslyn and
other areas have done, in northern Virginia, to attract private
capital.
But to rely on government to manipulate this and move it is
not what the city needs. It needs to be more entrepreneurial,
in my judgment. If you take a look at the models of cities that
have succeeded, that's what they have done. Unfortunately, I
don't think this proposal passes that test, and I think it's a
step backward.
I will give you a chance to respond. I would be happy to
hear Ms. Jarvis. Otherwise, let's work together. We can reduce
the tax and regulatory burden in this city, and we can continue
to make this a great city. We have a great opportunity ahead of
us.
The economy in this region is very healthy, and the growth
in some of these segments is such that the city can grow with
some proactive movement on the tax and regulatory front, and
some targets that the Economic Development Corp. can bring.
Also, the MCI Center, if we can ever get the city to get
its act together--and it is a city problem at this point, not a
Federal problem--in terms of moving the convention center
forward, offers job opportunities to people in the hospitality
industry, downtown, who don't have to even have a high school
education. We can increase tourism and get that going.
So we have some great possibilities ahead of us. All we
need is the right blend of leadership and vision to move
forward. We are ready here to add to the equation. But I don't
think this proposal, frankly, passes the laugh test.
Mr. Barry. What proposal are you talking about, Mr.
Chairman?
Mr. Davis. This is the one about contractors just hiring
city residents and all.
Mr. Barry. Mr. Chairman, let me say that no other city in
America is burdened with the inability to tax income. Our
income tax in the District of Columbia, and in the Federal
Government, and in State governments, is our largest single
source of income.
New York City has regulations and requirements that when
you do business in New York City, you have to, first of all, in
some instances, have your corporation located in the city.
And second, there are 24,000 businesses in the District of
Columbia. The DC government does business with less than 2,000
businesses. We have not found any road construction contractor
who said, ``I don't want to hire qualified DC residents.'' This
law has been on the books since 1984. A number of companies are
using that law. They use it at the Department of Employment
Services.
If you were to give us the authority to tax income in
Washington, at its source, I would withdraw that proposal,
because there would be no need for it. Wherever you lived, if
you worked in the District of Columbia, you would then be able
to get that income. You can't downplay that.
Second, in terms of hiring DC residents, you imply that we
don't have qualified people in Washington.
Mr. Davis. Well, that is absolutely wrong.
Mr. Barry. I said you implied it.
Mr. Davis. I started my statement by talking about the head
of the computer systems in Fairfax, who is a DC resident, and
how talented he was. I don't think that talent has any
residential bounds. So I will just--don't turn that around on
me. I didn't say that. I didn't imply it, and I don't mean it.
Mr. Barry. Well, Eleanor leaned over and told you something
about that. Anyway, that's another story.
Mr. Davis. No, she didn't lean over. She said it publicly,
and I agree with her.
My time is up. I'm going to pass the baton now to Ms.
Norton. If she wants to get up and defend you, I'll allow her,
under her 5 minutes.
Ms. Norton.
Ms. Norton. Well, the chairman clarified that he did not
mean to say that there weren't qualified people in the
District, so I accept that. I know that that's what he meant.
But the Mayor's frustration is well placed. You know, you
hear Jim Moran sit up here and say, ``Don't lower their income
taxes,'' and also, ``Don't tax commuters from my
jurisdiction.'' You will see frustration on the part of the
District residents, who, after all, are Stateless and have very
limited places from which to get new revenue.
I believe it was Ms. Jarvis who testified that the Tax
Revision Commission report would be coming forward; is that 60
days from today?
Ms. Jarvis. Yes. Sorry, it's the Business Regulatory
Commission that will be within 60 days. It's the Tax Revision
Commission in December.
Ms. Norton. I applauded when the Tax Revision Commission
was appointed. I know how difficult it is to get through taxes
and to come up with--this is very complicated stuff. The same
should be said of the Regulatory Commission.
But I believe that the city may be overtaken on taxes, in
one way or the other, if we are waiting until December. I may
want, as we get close to finality on this bill--remember, we're
aiming--if we're going to get it, we've got to get it through
before September 30.
I may have to ask you all to come in and talk with me,
because some of the proposals go to lowering business taxes,
certainly, and there is some talk here, frankly, about putting
things in the bill that we pass that would have an effect on
regulations in the District. You know what I say on that stuff,
that I oppose anything happening from up here.
One of the things I would like each of you to think about
is, if we have to go on a fast track, how we might do so. One
of the ways I'm usually able to get people up here from
sticking things into bills is to indicate that action will be
taken in the District. I do not believe I will be able, if this
talk continues, to do so on the basis of a study that is
underway.
So, to the extent that you have a sense of what the major
features are, it would help me to keep people up here from
deciding that the President's plan is a vehicle for doing that.
I will continue to oppose that.
I want to commend you for having gotten ahead of the game
on this, because I know that the studies that you have underway
do require time. Under ordinary circumstances, I don't think it
would be a question, and I don't think it should be one now.
And I think we can do it. I think we can work together, but
I want you to begin to think about what major changes in taxes
and regulations you, yourself, desire, because you know this as
none of the rest of us know it.
Mr. Davis. Would the gentlelady yield just on that point,
briefly?
I think we're going to have to move quickly on legislation.
As Ms. Norton indicated, we may not have time for you to do it,
so we'll have you at the table advising us, and have you
provide as much information as you can. We clearly are going to
need your great assistance and support as we write this
legislation, but it may come faster than time allows. It's not
under our control; it has to do with the whole budget
reconciliation process.
So just stay on call. We need you.
Ms. Cropp. Mr. Chairman, we would encourage you to keep us
informed. And we would love to work, Ms. Norton, with you on
it. We would like to be an active participant and at the table
with regard to any discussion on the District, any changes.
Mr. Barry. Plus, Ms. Norton, most of this tax reform will
probably not be revenue-neutral; it would be a loss of revenue.
So if we're going to get money above what the President's plan
is, if it's $300 million or $400 million, I think we could very
quickly figure out what category of taxes we want to reduce.
Ms. Norton. You say, if we get what? I'm sorry.
Mr. Barry. I'm saying that most of this tax reform is not
revenue-neutral; it's a loss of revenue. And if we knew whether
a pot of money was available, say, if the Federal payment was
$400 million, giving us $400 million above what the President's
plan is, we could very quickly put together a series of options
as to what taxes we would reduce.
The Business Regulatory Commission has done some
preliminary work already. Most of that does not require
additional moneys; they require different laws and changes that
would make it easier for people to do business here.
Ms. Norton. Well, one of the reasons that this is being
discussed now is precisely what you have pointed to, that there
would be some adjustments within the President's plan.
I have encouraged everybody to understand that I'm going to
have a hard time keeping what we've got in here. I do that in
order to encourage you all to begin thinking, in case they slip
something away from us in this plan, what your preferences are
for keeping. Because the notion of, you know, $400 million on
top of that is less likely than I would like.
There is a separate tax package that the District is in. It
is not configured at the moment, and there are lots of
differences over what it should say. There are some people who
are for elements of my package. There are some people for
lowering taxes in the District. You are perfectly right, Mr.
Mayor, that would mean you would have to make up for it in
revenue.
None of that will be done without complete and total
consultation with the District. I regard that matter, as I do
anything affecting the District, as a Home Rule matter. But
what I want to encourage you to do is to think dynamically
about what happens if something gets pushed off the table, and
where your preference would lie.
I certainly am not asking you to do that now, but I want to
encourage it, because I think I would do a disservice if I
said, ``Now let's talk about what we want on top of what the
President's package is.''
You had a concern about eminent domain powers that are in
the Economic Development Corp. I can certainly understand it.
The interesting thing is, when I was initially briefed by the
administration, the eminent domain powers were not in there.
They were put in there at the request of the business
community.
They wanted land in there. They wanted to make sure that
they did not have to go through, I guess, the hurdles that one
would have to go through in the District. On the other hand,
your concern is perfectly understandable, as well.
Were you able to clarify that with the administration, and
could I know where you now stand on the issue?
Mr. Barry. It's still--it's barely clarified, Congresswoman
Norton. It has ``limited eminent domain,'' and we still are
discussing with them, even to this morning, as to what means,
more specifically. I think they have conceded that, obviously,
any eminent domain has to comply with the local District zoning
laws, but it's still not quite as clear as it needs to be.
Ms. Norton. I think that that probably could be assisted by
some understanding with them about a streamlined way to get
eminent domain. I mean, since they were people who obviously
are your allies who wanted the eminent domain, they weren't
trying to undercut Home Rule, but obviously, if they could just
go in and do whatever they wanted to, they have.
I think the reason they came forward is they thought it
would take them a long time to get access to land to complete
their plan. I guess my question is, is there a way to
streamline that, whether for everybody or not, at least for
them, so that we could straighten out--and that part wouldn't
be a matter of contention.
Mr. Barry. Someone suggested that--I'm not saying that this
is a solution--that any proposed taking of land that was in the
private sector would have to be approved by resolution of the
city council. Someone suggested that may be one way of check
and balance.
Ms. Jarvis. We did not actually include that proposal in
the recommended language. What we did say is that there ought
to be limited eminent domain powers consistent with the scope
of the corporation's mission and consistent with local zoning
and regulatory provisions.
The term ``limited eminent domain'' was incorporated in the
MOU, ``limited eminent domain authority,'' with the hope that
there could be some further structuring of the language within
the act itself over here on the Hill. So that is something that
we desire to do and are continuing to try to do.
The important point about eminent domain authority and
about the Economic Development Corp. itself, Ms. Norton, I
think, is that the corporation becomes a singular focus for an
entity which does not now exist; that is, there is not a
single-minded focus on economic development in the District
because of the many levels of responsibility of the person who
sits as the head of that agency. And that is really the
predicament that we face.
Ms. Norton. I think you have described exactly why they
piled these powers in this one entity, were trying to do that.
They weren't trying to undercut your authority. In the process,
they have done so.
You would help me a lot if you would begin to think about,
the three of you would being to think about bill language that
fed off of what you just said, Ms. Jarvis, but allowed for the
fact of the existing independent jurisdiction. And in order for
it to be effective, for me to be able to sell it up here, it
would have to bypass a lot of the regulatory points.
Something like the Mayor said just now, or if you wanted to
have more steps, so few steps that you're talking a kind of 30-
day thing as opposed to the longer kind of period, it would
help.
Mr. Barry. Ms. Norton, another approach would be possibly
requiring a simple majority. That would give local officials a
greater say in this. This process works with the airport
authority where the budget has to be approved by a simple
majority. The District only has three votes, which means that
one vote could make the simple majority, which gives you a
chance to negotiate any differences by either locally appointed
officials or people appointed by local people.
I think that ought to be looked at.
Ms. Cropp. Ms. Norton, that's what I was just getting ready
to say. The simple majority is one way in which it could be
handled. There is another possibility, and that is that
anything dealing with the eminent domain issue would have to
have the approval of the Mayor and the chair, who would be
members of that.
Then, in doing that, it would also protect the interests of
the District of Columbia citizens as a whole. And I think there
are precedents established for that type of provision, also.
Ms. Norton. So it does look like there are shortcuts here
that you are already thinking about.
Thank you very much.
Mr. Davis. Thank you.
Mrs. Morella.
Mrs. Morella. Thank you. I appreciate your being willing to
testify again before this subcommittee.
I want to look at the education point of view and issue.
The District, no doubt, has many well-educated residents, but
also a very high number of undereducated persons, who are
untrained, unskilled, and unable to meet the expanding needs of
the technological workplace.
I know the chairman has alluded to that. I just think that
it's important that we look ahead, in terms of what we're going
to do about that. Is there anything in the President's plan
that you feel will address this problem?
I would address it to all of you.
Mr. Barry. In terms of the President's plan, in the
Economic Development Corp. there is $20 million that would be
set aside for nonprofit organizations to train people in skill
development, as well as just lifestyles, you know, how you come
to work on time.
Unfortunately, the DC public school system is suffering
from some of the same needs of other major cities. How do you
reform this system? How do you make it work for the great
majority of our students? That's General Becton's greatest
challenge, I think, outside of getting books on time, et
cetera. How do you get a larger number of young people
graduating from our high schools with skills in the workplace?
I'm in the process of developing a proposal which I'm going
to send to the schools; that is, that the DC school system
ought to establish a specialized school of science and
technology, similar to our Duke Ellington School for the Arts
or Banneker Academic School.
There again, that's not going to give us any short-term
solutions, but it seems to me that if we had a school that was
in tune and in touch with the reality of technology
development, we could train young people in the District who
could take a number of those jobs that are vacant in Fairfax
County and in Montgomery County.
But our schools need great reform. I don't have much
control over that except to make commentary about it and urge
them to do it, because the Control Board has set up this super
board of trustees that has absolute control over the schools.
But that's a serious problem, Congresswoman. It is tragic
that too many of our young people are not graduating from our
high schools, 40 percent not graduating, and then even some of
those who graduate don't have the skills to go to northern
Virginia and other places to get these high-tech jobs that are
out there.
Ms. Jarvis. Mrs. Morella, the Economic Development Corp.'s
criteria for projects could include, as do our local criteria,
that there be a training component of the development project.
For example, when we've done industrial revenue bond
financing, the financing requirement is that there be a
training program; when we did NPR, for example, that young
people be trained in the area of audio technology; when we
financed the AAAS, American Association for the Advancement of
Science, a requirement that there be an internship program that
would give young people access to science and science training.
It would be my recommendation that the corporation
incorporate those kinds of training components in their
criteria when evaluating the projects. The President's proposal
does not specifically speak to that, but it certainly would be
an authority of the corporation to make sure that that happens.
Ms. Cropp. Mrs. Morella, as we look at the President's
plan, we have to also be careful that we don't look at it in
isolation of everything else that we need to do in the District
of Columbia.
When you talk about education and economy, we probably need
to say the two E's. If we want a strong economy, then it means
also that we must have a strong educational program, and they
must go together, and it must be an integration of the two.
When you look at the reasons why businesses locate in
certain jurisdictions, they look at who is graduating from the
school system. And what that means is that there has to be a
marriage of the two: economy and education. We need to have our
business group, our economic group, to play a more integral
part with our school system, to make sure that we are
graduating students who will meet the needs of the work force,
so that we can supply graduates to fill that particular work
force.
So, while the President's plan has one component, as Ms.
Jarvis was saying, with the training part of it, we must not
take it in isolation of what we do with the rest of the city
with education, we must start merging the two together, if we
truly want to be successful, not only for the short term, but
in the long term also.
Mrs. Morella. I couldn't agree with you more. I do agree a
training component is critically important, but I also agree
with the concept of a partnership, and maybe we will hear this
from the Board of Trade in the next panel. You've got to pull
your business community in to help you make these decisions, in
terms of what they need, how they can help, and other community
groups, too.
It isn't that we need rocket scientists, we need an awful
lot of technicians, just plain technicians, to be trained and
to know that this is a job that's going to have promise in the
future.
Mr. Barry. Mrs. Morella, we have a larger problem, and that
is, our experience, or my experience, has been, it is difficult
to get a significant number of DC residents to apply for and
take these jobs in the suburbs. I don't know whether it's
transportation that's a problem or whether it's just a cultural
difference.
I don't know what it is, but we've found that, even when we
have gotten people trained in some areas and have gotten them
potential jobs in northern Virginia or in Montgomery County,
they don't make it very long. They can do the work, but they
just decide that, for some reason or other, it's--we've got to
figure out how to deal with that.
Mrs. Morella. Well, we want to do both things. We want to
demonstrate that we continue to support the Metro and it
reaches out to the high-tech community, but we also want to
make sure that there are jobs in the District of Columbia, too.
And there are, I mean, there are, where these skills are
needed. So they don't have to exit the District of Columbia for
employment, they should be able to also find it in the
District.
Could I ask just more question?
Mr. Davis. Sure. Let me just add to that.
Mrs. Morella. Yes.
Mr. Davis. We have a group of business leaders in northern
Virginia prepared to step up any way they can to work, if
transportation is the issue, to get qualified workers. It is a
lot cheaper to worry about getting people out there than it is
to have to move those jobs somewhere else. We can work through
that as we go through.
A lot of these high technology businesses aren't on Metro
lines at all. As you know, Mr. Bursoff of the Board of Trade,
and others, have been working with you to try to get you a high
technology school. I think you need more magnets to keep
qualified people in the public school system and attract them
back in. I think that is needed. So we will work with you.
Mr. Barry. We'd like to get the names of the people,
Congressman, so we can get busy, today, working on putting that
coalition together and figuring out how to solve this problem.
Mr. Davis. Sure. We'll put it together. I'm meeting with
the group.
Mrs. Morella. Listen, there's just no way you should leave
out Montgomery County. We have a Suburban Maryland High
Technology Council that is exquisite. But I also wanted to
point out simply that we're not talking about people leaving
the District of Columbia. We hope there will also be a
presence--we know there is--where there are some of these jobs.
Mr. Barry. We would welcome the same kind of information,
Mrs. Morella. We will work diligently to get these groups
together and begin to try to get something done.
Ms. Cropp. Mrs. Morella, I think it begs the question,
also, that with over half of the District's children living
below the poverty level, there's a great need for us to have
early childhood development programs, and we encourage the
Federal Government to continue funding the early childhood
development programs. We have found that when our children
start at an early age learning the outcome, it's so much more
positive, and I think we will also see that impact the economy.
Mrs. Morella. Just no doubt about it. No doubt about it.
Just one brief question. Actually, the Council passed the
Business Improvement District legislation, and I just wondered
what this legislation does and how it can be utilized with the
President's plan.
Ms. Jarvis. Mrs. Morella, the Business Improvement District
legislation authorizes the establishment of self-taxing
business districts. Those districts create a pool of money
which then stays within the confines of that geographical
business improvement district, and those dollars are used to
create an additional security force, or they are used to create
an additional cleaning force for the area.
They are remarkably effective because they do what is
critical in commercial areas, which is to create an environment
which is clean and safe. People in brightly colored jackets are
seen sweeping the streets. People in brightly colored jackets,
with two-way walkie-talkies are seen communicating with one
another and with the Police Department. They are walking
customers to their cars or to the parking lot, and creating a
sense of safety and cleanliness.
There are 1,000 business improvement districts in 700
cities throughout the United States, which have been remarkable
in their ability to attract a customer base. We are very
fortunate in the District that Bob Peck, at GSA, has now
indicated a willingness for GSA to participate in the business
improvement districts, at least for those buildings where GSA
has tenants. They can then pass through the taxes that are
imposed on those tenants, through to the business improvement
district, and that will really augment the ability of downtown
business districts to thrive.
We are expecting to see the first such bid just before the
opening of the arena, so that when 20,000 people come to
Washington or come from other places within the city to see
those games, they will see those brightly colored security
forces and cleanup crews, and there will be a sense of safety
and cleanliness that will be, in fact, occurring.
Mrs. Morella. Thank you. Thank you very much.
Mr. Davis. I would just add, that with the area around the
Navy Yard, you could have a critical mass down there, because
of the Federal Government. You know what Virginia has done to
Crystal City when they had that kind of mass there.
Appropriate planning and zoning will be critical because
there's going to be a lot of neighborhood complaints. People
are not going to understand the changes coming in, or they may
sometimes resent the changes, but from a citywide perspective,
if you're talking about an information technology private
sector base, you have a great opportunity there.
Ms. Jarvis. And you put your finger, Mr. Chairman, on the
real reason that this corporation is so vital, because the
corporation then can assemble the property, get through all the
regulatory hurdles, and keep a singular focus on getting that
kind of assembly going.
And you mention a very important area of the city, because,
first of all, there's water, and the waterfront can be
developed. Second of all, that area of the city has been
identified by NCPC as a focus for its monumental core plan, and
would be one of the first steps in getting the monumental core
plan off of the ground.
It would be a wonderful first step for this corporation to
focus just on that area, because there is opportunity for
commercial, retail, housing, and entertainment complexes in
that area, which would bring a whole new destination for
visitors and for our own regional visitors to go to that
center. So it would create a whole new destination for us.
Mr. Davis. And a new destiny for that area.
Mr. Barry. Mr. Chairman, David Watts, who is the deputy
city administrator, chairs an action task force now that is
looking at the Navy Yard, the Federal Southeast Center, from
North Capitol over to 11th Street, and from M Street down to
the waterfront.
I am going to ask him to extend their work from the freeway
on over to M Street, because if you go down in Southeast from
South Capitol to 11th Street, you find a lot of abandoned
buildings there. So we ought to do area planning, not just for
the Federal portion of that.
Mr. Davis. I agree. I agree.
Mr. Barry. This task force would have both Federal, private
sector, and government people on it, to come up with a
comprehensive plan and direction.
Mr. Davis. But talk is cheap. I mean, these are hard
decisions, and there is going to be opposition to it, because
people are going to see their neighborhoods changing. We've
been through this. These are royal battles in the suburbs. But
this is a great test for the city, because it's a great
economic development opportunity for the city to open up a
whole new quarter for quality economic development, job growth,
tax base, all the things that go with it.
Charlene, I know you're on top of this. I've heard good
things about some of the work you all are doing there, but we
need to stay with it. This corporation, like you know, can give
it the appropriate focus. So it's up to all of us.
Ms. Jarvis. And it gives the insulation. Mr. Chairman, you
recognize the problems in development.
Mr. Davis. I've been there.
Ms. Jarvis. There has to be a good balance between
insulation and input from the public, in order to get
development done. And it's a hard thing to do.
Mr. Davis. I understand.
Well, I thank all of you. I appreciate you all being here.
Mr. Barry. Also, Mr. Chairman, I would like to share, when
we get the reports for the Business Regulatory Commission,
share that with you, so you can see exactly.
Mr. Davis. I would be happy to do that. And we're going to
sit down, Mr. Mayor, you and me, over some of this legislation,
as we talked about yesterday, over the next few days.
Mr. Barry. I'm sorry we got into this tiff about residents.
Mr. Davis. Well, we don't agree on everything. At least we
can talk about it, and we keep talking. Right?
Mr. Barry. All right.
Mr. Davis. We'll work it out. We want the same end, and I
think that's important.
We have a vote on the floor.
Mrs. Morella, if you want to go over and vote now, I can
keep the hearing going. And then you can come right back, and
then I will go. Do you want to try that?
Let's hold our next panel. We call up Roger Blunt, chairman
of the Greater Washington Board of Trade; John Green, the
president of the District of Columbia Chamber of Commerce; and
Craig Schelter, the executive vice president of the
Philadelphia Industrial Development Corp. We appreciate
everybody being here.
If you would rise with me, I have to swear you in.
[Witnesses sworn.]
Mr. Davis. Thank you very much.
I ask unanimous consent that any written statements be made
part of the permanent record. As I have requested of the
previous witnesses, please limit your oral statements to no
more than 5 minutes in order to leave time for questions.
At this time, I would ask Mr. Blunt to testify, followed by
Mr. Green, and then Mr. Schelter. We appreciate you all being
here.
Roger.
STATEMENTS OF ROGER BLUNT, CHAIRMAN, GREATER WASHINGTON BOARD
OF TRADE; JOHN L. GREEN, PRESIDENT, DC CHAMBER OF COMMERCE; AND
CRAIG SCHELTER, EXECUTIVE VICE PRESIDENT, PHILADELPHIA
INDUSTRIAL DEVELOPMENT CORP.
Mr. Blunt. Thank you.
Chairman Davis and members of the subcommittee, thank you
for convening today's hearing on the President's proposals to
promote economic development in the Nation's Capital and for
the opportunity to testify before you.
For the record, my name is Roger Blunt, and I am chairman
and CEO of Essex Construction Corp. I am here today in my
capacity as co-chair of the National Capital Task Force of the
Greater Washington Board of Trade.
Today, you have asked us to comment on the potential
effectiveness of the President's proposals to promote economic
development in the District, placing special emphasis on the
proposal to create an Economic Development Corp. I will base my
comments today on the plan as it has been articulated in the
final Memorandum of Understanding.
When I last appeared before the subcommittee, I testified
that the Board of Trade believes there must be three
fundamental elements in place if we are to restore the city.
The first was a functioning, accountable, and efficient local
government; the second, a clearly defined partnership between
the Federal and local governments; and third, an emphasis on
economic development and the availability of adequate
resources.
The Board of Trade believes the economic development
portions of the President's plan to help revitalize the
Nation's Capital are critical to the overall effort to restore
financial stability and economic viability. Let me start by
painting a picture of the landscape as we see it.
There are several efforts to address economic development
already underway. Some efforts are being led by the District
government and some by the private sector, but there is no
overall coordination of these initiatives. With this background
in mind, we have three concerns about the establishment of an
Economic Development Corp.
First, the mission of the Economic Development Corp. must
be clearly defined, so as to maximize its effectiveness by
appropriately collaborating with current efforts to address
economic development needs within the local government.
The Economic Development Corp. will come into existence
while several other groups are already at work. Its mission in
relation to the other groups is not clear. Will it be
responsible for physical development? Will it develop the plans
and then let a contract for the actual development? Or will the
Economic Development Corp. be the catalyst for projects of
scale, projects which are outside of the traditional
capabilities of the District government or other locally based
organizations?
Second, the composition of the board of directors of the
Economic Development Corp. should represent neighborhood
businesses as well as larger corporate interests, and it should
not preclude the inclusion of local talent and resources.
We recommend that some thought should be given to having
representation from a wide array of businesses as they relate
to the size of the corporation, the industry, and that all
members have citywide interests.
Further, we feel that, by definition, some good people may
not be eligible to serve on this board, and that the Economic
Development Corp. would miss an opportunity to benefit from
regional talent and resources. Here we would hope that owners
of non-District businesses, who may not be District residents,
could be considered for appointment to the board.
As an aside, I would point out that, while it's stated on
occasion that private enterprises are not fully engaged in the
District, I would point out that for several years we've been
absolutely engaged. In fact, we have several initiatives
already underway.
The 1,100 businesses in the private sector, members of the
Board of Trade, come from Virginia and Maryland, principally.
And I would point out that they are very concerned that the
core of this region has to be healthy if we as a region are to
survive.
Third, the authority to exercise the power of eminent
domain must be clearly defined, providing appropriate checks
and balances to prevent the arbitrary use of this tool in
establishing procedural timelines for the decisionmaking
process. Conscious as we are of the Economic Development
Corp.'s need to be able to exercise the powers of eminent
domain, we generally support the concept, with some caveats.
First, the process for exercising this power must be
clearly defined. Second, there must be some checks and
balances.
Ms. Norton. Mr. Chairman. Mr. Chairman.
Could I beg your indulgence?
Mr. Blunt. Surely.
Ms. Norton. I am due someplace by car that I can't possibly
get to by 12 noon. I wanted to apologize to this panel, which I
had so looked forward to hearing, because I think their part in
the Economic Development Corp. is absolutely critical. I want
to personally apologize to the three of you that there is no
way for me to wait any longer. That has nothing to do with you;
it has to do with us and our questions.
I want to ask leave of the chairman if I may submit
questions beyond what may already be clarified in the
testimony.
So ordered. [Laughter.]
Mr. Davis. If she says it, it must be.
So ordered.
Mr. Blunt. Knowing that the testimony is in the record,
this concludes my remarks.
[The prepared statement of Mr. Blunt follows:]
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Mr. Davis. Roger, thank you very much.
Mr. Green.
I'm going to leave in 5 minutes to go over to vote, and
Mrs. Morella will come back. And then I will be back after
that. That's how we rotate the voting back and forth.
Everything is in the record, and we appreciate your being
here.
Mr. Schelter, we appreciate your coming down from
Philadelphia.
Mr. Green. Well, I will be very brief.
Good morning, Congressman Davis and members of the House
District of Columbia Subcommittee. My name is John L. Green. I
am executive vice president of the Medlantic Health Care Group,
and I am here today in my role as president of the DC Chamber
of Commerce.
Before I begin, I would like to thank you for inviting me
to testify on what we believe is an opportunity for the
District of Columbia to realize its potential to be a world
class capital for government, for business, and hopefully, for
residential life.
Since we testified before you in February, we understand
that there have been well over 100 hours of meetings and
negotiations between representatives of the executive branch,
the Council, the DC Control Board, the Mayor, and the Congress
in developing the MOU.
While we do not completely agree with the MOU, we
understand its value as a foundation upon which we can build.
We want to underscore our earlier testimony and emphasize that
we believe that the District of Columbia must be a good value
in order to attract residents and businesses. It's the core of
the region.
However, in addition to commenting on the economic
development portion of the President's plan, I would like to
take a couple minutes and just comment on what we believe to be
important as an environment and a context for economic
development. The President's plan does not address some of
these areas.
For example, there is no revenue strategy, tax relief, or a
Federal payment, and we think that they are going to be
important in terms of creating an environment for economic
development. The DC Chamber supports tax relief for businesses
and individuals, such as that offered by Congresswoman Norton's
DC Economic Recovery Act. That would jump-start the DC economy
and rebuild our tax base.
The President's plan, as I said earlier, does not contain a
reference to a Federal payment. The DC Chamber of Commerce
believes that this is a shortcoming that the Congress can and
should address. We do not believe that the Economic Development
Corp. will move forward fast enough in order to accommodate
that period of time in which the District would be without a
sound revenue source.
The DC Chamber of Commerce fully supports the creation of
the Economic Development Corp., the core of the city's economic
recovery. The EDC provides an infrastructure to support
businesses that might otherwise leave the city and a mechanism
to attract new businesses to the city.
We are pleased that the six appointed board members of the
EDC will either be persons who maintain a primary residence or
have a primary place of business in the District.
I am going to short-circuit my testimony--it is in the
record--and indicate that we are supportive of the concept of
the Economic Development Corp. There are questions that must be
answered. However, we also believe that there is a need for a
comprehensive plan for the District. Economic development
alone, without the right regulatory environment, tax relief,
and ease of doing business in the District, all of those are
needed along with some form or shape of the Federal payment.
[The prepared statement of Mr. Green follows:]
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Mr. Davis. Thank you.
Mr. Schelter, before you testify, I am going to recess.
Mrs. Morella is on her way back, and she can start it when she
comes. I want to hear you, because I've got some questions to
ask you. And I appreciate your being here.
Mr. Schelter. OK. That's fine.
Mr. Davis. So what I'm going to do is recess the meeting
for no more than 10 minutes, and we'll hear your testimony,
then take questions.
The committee is in recess.
[Recess.]
Mrs. Morella [presiding]. I think I'm going to take the
prerogative to take the Chair and see if we can pick up until
Tom Davis, the chairman, comes back, which should be soon.
Was it Mr. Green, was he involved in his testimony at that
time?
I tell you, may we go on to Mr. Schelter, who is the
executive vice president of the Philadelphia Industrial
Development Corp?
I appreciate your being here. Thank you very much. I would
love to have you proceed with your testimony. Any written
testimony will, in its entirety, be included in the record.
Mr. Schelter. Thank you. Good afternoon, Madam Chairman.
My name is Craig Schelter. I am executive vice president
and chief operating officer of the Philadelphia Industrial
Development Corp., called PIDC, the designated economic
development agency of the city of Philadelphia. I have been
with PIDC since 1983. Prior to that time, I spent 15 years at
the City Planning Commission, including 4 years as executive
director.
I am honored to be invited to testify here this morning. My
comments will focus on just one aspect of the President's plan,
and that is the creation of a new Economic Development Corp.
for the city of Washington.
While I have not been privy to the discussions on how you
propose to structure the new entity in DC, I can perhaps
provide some historic perspective and observations about those
common elements which are integral to a local Economic
Development Corp., if it is to be enduring, successful, and
responsive to the local area.
Just a word of history about PIDC. Over the years, the
Philadelphia Industrial Development Corp., a private, nonprofit
corporation chartered under State law, has been an outstanding
example of how an Economic Development Corp. evolves, changes,
and innovates, based on the needs of community and on market
forces.
Next year, we will celebrate 40 years of a unique public-
private partnership between local government and the business
community of Philadelphia. PIDC was founded in 1958, a joint
creation of the city of Philadelphia and the Greater
Philadelphia Chamber of Commerce. We have a dedicated
professional staff of 65 people and an operating budget of $6
million.
Since 1958 through the first quarter of this year, we have
completed more than 3,300 transactions, totaling almost $4.4
billion. In the process, we have retained 166,000 existing jobs
and created 126,000 new jobs, for a total job impact of 292,000
jobs in the city of Philadelphia, and that's against a total
payroll of about 676,000 jobs.
I point out on the last page of my testimony, which I can
go to later, I included how transactions have increased over
those 40 years, mainly with an eye toward pointing out that you
have to look at a long-term perspective. If you look at how
that $4.3 billion is made up, in the first 10 years, we did
about $200 million; in the next 10 years, about $800 million;
and then, in the 1980's, we exploded with $2.4 billion; and in
the 1990's, we're getting close to $1 billion.
A number of factors are worth considering to create a long-
term, viable economic development entity. One, make the
organization a true public-private partnership. This must be
true at the board and policymaking level. In our case, a
governing board of 30 members approves the budget and sets
broad policy for the corporation, in close coordination with
city government.
The regular business of the corporation is conducted by a
15-member executive committee, 8 of whom are named directly by
the president of the Chamber of Commerce. The other 7 are the 7
highest elected and appointed officials in the city government.
They are the mayor, the president of the city council, the
members of the mayor's cabinet, the commerce director, finance
director, managing director, city solicitor, and chairman of
the city planning commission.
The remaining 15 members are jointly appointed by the
president of the Chamber of Commerce and the city commerce
director. This structure has ensured a strong business
continuity within the context of changing mayoralty
administrations. Furthermore, it has brought broad expertise in
finance, law, labor, business, community development, design,
and real estate development to the board.
Two, maintain close relationships with existing executive
and legislative branches of local government. The importance of
a clear, consistent economic development agenda is critical to
the business perception of a metropolitan area that things can
and do get done.
Key to this effort, in the last 6 years in Philadelphia,
has been the city's participating directly in the lending
business, using city tax-supported dollars. This initiative was
developed under the inspired leadership of Mayor Edward G.
Rendell and his administration, working closely with City
Council President John Street. This initiative provides
flexibility and speed without the encumbrance of certain other
Federal and State programs.
We also manage the assets and transact all the business of
the Philadelphia Authority for Industrial Development, where we
do all manner of real estate, land transfer transactions,
including tax-exempt financing. Here again, it is a five-member
board that serves at the pleasure of the mayor.
Whether the concern is neighborhood development, loan
guarantees for hotel and convention facilities, expanding
industrial parks, providing tax-exempt financing, or providing
the ability to negotiate directly a development transaction
using city assets, a key relationship must exist between the
local development corporation and the city administration.
Three, create a professional culture that generates and
manages programs that are based on sound planning and financing
guidelines. We have created a loan committee from among private
sector members of our board of directors. The committee is a
key component, which not only ensures that appropriate credit
underwriting standards are used, but provides an institutional
memory and continuity critical to success.
The results speak for themselves. We have managed to
nurture a financial base of the corporation currently
consisting of 500 outstanding loans, and we have a default rate
of only 2 percent, comparable to the rate of a solid private
lending institution.
We are currently marketing nationwide a portfolio
management system that provides greater loan portfolio
oversight, allows local Economic Development Corp.'s to manage
assets more effectively, and increases productivity, especially
with regard to tracking requirements associated with Federal
dollars.
Four, be entrepreneurial in development of new programs. In
the early 1980's, when the first signs of limits on tax-exempt
financing appeared, we developed direct lending programs using
revolved Federal dollars. This foresight enabled us to stay in
business when other IDCs around the country folded. Also, in
the 1980's, it became clear that venture capital was lacking in
Philadelphia, so we started a small venture fund. The PIDC/Penn
Venture Fund was the first municipal venture fund in the
country.
In 1992, we expanded our lending capacity to a new market,
and we created a nationally recognized $100-million HUD 108
lending program. Half of the fund is available for major hotel
development. The other half is a loan pool which is available
for manufacturing and other transactions, citywide.
The innovative aspect is that HUD accepted our process and
lending criteria for a loan pool, such that each project did
not have to be approved individually, thereby creating a
flexible pool of Federal money to be used at the local level.
Just this past year, to expand available capital, we
successfully securitized an additional portion of our loan
portfolio, adding $5 million to assist new business. We also
pioneered, in Philadelphia, the use of a novel, if complex,
financing tool, tax increment financing. TIFs, as they are
called, enable us to close financing gaps, providing access to
capital for projects that otherwise would not happen.
Five, be prepared to mix and match the best elements of
Federal, State, and local programs. Currently, we have 23
different lending programs. The most successful are those that
provide long-term consistency of approach. Taking 1995 and 1996
as an example, we used 19 different programs: 21 percent local,
24 percent State, and 36 percent Federal.
The public dollars funnelled through these programs totaled
$237 million, which, in turn, leveraged $100 million in outside
financing and $63 million in owner equity, for $400 million in
total project costs. I would also point out that one of the
programs, the use of Federal dollars, the leverage factor, is
about seven to one.
Focus on core businesses. In our case, our emphasis is on
financing small businesses, developing the city's industrial
land resources in six industrial parks, providing development
management services on major projects, and facilitating defense
conversion.
Developing an overall mission statement and strategic plan
for your core businesses will be critical. Also, the management
of certain high-profile projects can bring added credibility to
the new corporation. In our case, having leadership roles in
the development of our convention center, professional sports
facilities, major medical complexes, and our central waterfront
afforded us that opportunity.
Seven, attract and maintain a professional staff. There is
a need for an entrepreneurial spirit grounded with a sound
public policy core. The breadth of issues facing Economic
Development Corp.'s requires extensive knowledge of all private
development skills, skills born of extensive experience and
substantial practical knowledge in specialized areas of
planning, private and public finance, and real estate
development.
Eight, do not underestimate the value of developer services
and expedited permit processing. PIDC innovated and now manages
a developer services process on most projects with major job or
construction aspects in the city. As part of the process,
representatives of every city department that is involved in
the permitting process, as well as the public utilities, meet
to discuss a project's needs and mesh them with permitting and
other public requirements.
I would add, parenthetically, to date we have processed
about $4-million worth of projects through this program.
This effectively puts every project on a department radar
screen for approval. While no substitute for detailed review by
individual departments, it does highlight issues in a timely
way, as well as give face-to-face contact to the individuals
responsible for ultimate permit approvals.
What I have given you here, briefly, is a snapshot. I would
be happy to answer any questions you would have. In the end, I
think you need to assume a long-term commitment. As the chart I
have included illustrates and my comments support, things do
not happen overnight. We have learned a lot over 40 years.
I believe successful urban economic development comes down
to local initiative and control, with appropriate Federal
resources. It comes down to balancing public and private
resources that, in turn, creates business trust. It comes down
to a solid, business-like approach, without losing the focus
for making economic activity happen across the community.
Without getting into a public policy debate about the
adequacy of the funds for this new corporation, it is clear to
us that innovation and authority must focus on the local level
and be paramount. This can be shared by the government and by
the business community, and creates the most hope in balanced
strategy in the long run.
Thank you.
[The prepared statement of Mr. Schelter follows:]
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Mr. Davis [presiding]. Thank you very much.
Ted Trabue, is Ted here?
Ted, let me swear you in and you can answer some questions.
[Witness sworn.]
Mr. Davis. Mr. Schelter, let me ask you, does the city of
Philadelphia have a requirement in its contracting out of
having city residents?
Mr. Schelter. No, we do not.
Mr. Davis. OK. The city of Philadelphia I think has been a
model, in many cases. You have a lot of the tough problems that
just don't go away, given demographics, aging infrastructure,
and the like. Yet, under Mayor Rendell--and I just single him
out--he has been very proactive in, instead of complaining
about it, dealing with it, dealing with the unions, dealing
with some legislative structures that aren't necessarily
conducive to economic development.
But would you agree that one of the key components is
working in partnership with the business community? Isn't that
what you've really done here?
Mr. Schelter. Yes, he has been an unbelievable cheerleader
for the city and for the business community. At the drop of a
hat, he will get on a plane and fly to the West Coast for a
potential investor or developer in the city. And he has done
this largely in concert with our corporation, and has turned to
us, then, to implement a lot of his initiatives.
Mr. Davis. Leadership can make a big difference. You know,
I will tell you, in Fairfax, we literally brought companies
in--because when I was the head of the county government, we
were proactive and went out and recruited them, and we made
commitments.
You made a note about timing, getting the permits and
plans, and how quickly it can happen. That is critical. And if
you make a commitment, you've got to adhere to it. But to do
that, you have to have a team of inspectors that work well.
You've got to have information technology and logistics work
out. How have you been able to deliver on those kinds of
things?
Mr. Schelter. Well, the Developer Services Committee, which
I mentioned in my testimony, is convened on behalf of the
city's commerce director, who is one of the mayor's cabinet. We
staff that function. We have a former head of the Department of
Licenses and Inspections in the city that is a consultant to
us. And we have our Special Projects Division staff that.
On every project, whether it's a major job component or
major capital investment, at the time the schematic plans are
set, we convene a group of about 18 people around a table. It's
at a deputy commissioner level among the Departments of
Planning, Streets, Water, Fire, managing director, LNI, and we
go over those plans.
Everybody gets a chance, one, to raise what their issues
are. And that developer or that business leaves with not only
the business card of the person, they have met them face-to-
face, they know what the issues are, they know what the timing
is on the permit. And the Commerce Department then rides herd
to make sure that comments get back to the developer in a
timely manner.
And that has been a very successful thing. Again, it's more
the predictability of the way business is done. It doesn't
substitute for individual departments doing their thing and
doing their review, but it puts them on notice that this is a
project that is supported by the administration at the highest
level and where there is an expectation of a timely review
process.
Mr. Davis. It's focus. Just a lot of it is focus and
follow-through, which is tough, day-to-day, when you are
bombarded with so many things and limited staff.
Mr. Schelter. May I go back?
Mr. Davis. Yes.
Mr. Schelter. I answered your first question too quickly,
I'm afraid. You asked if there was a focus on hiring locally.
While we do not have a specific requirement of the businesses
that we lend to to do that, we clearly do encourage them in
that regard.
Mr. Davis. Absolutely.
Mr. Schelter. And also, among the consultants that we hire,
generally, our board, the first question they are going to ask,
if they see it's a consultant from outside of the city, is why
it was necessary to go to a consultant from outside the city,
given the fact that we've got lots of talent in the city.
So while we will never back off from hiring someone from
outside if they have a particular expertise, we try to keep
business local.
Mr. Davis. Absolutely. And I don't know a jurisdiction in
the country that doesn't do that. That's just good home-grown,
hometown bias that we ought to have. If you can't get it in
your hometown, where can you get it? But it's the difference
between a requirement, where you start actually, in some cases,
lowering the bar, and then that raises a whole host of other
issues that I think don't recognize the changing dynamics of
the marketplace.
Let me just ask my friends from the Chamber and the Board
of Trade. Do you agree that an Economic Development Corp. would
give the kind of focus that is needed to the city?
Mr. Green. I think it's extremely important. We support it
strongly. But, again, Mr. Chairman, I go back to what I have
said consistently and I think I've heard you all say, and that
is that there have to be some other things, as well, expediting
permitting, all those other things.
Mr. Davis. Absolutely. And let me just say, I think, as
part of what we do here, I hope we can do that. And I think we
could all sit around, but those make such great sense and there
is such a consensus on those kinds of things.
Mr. Green. We at the Chamber have been very involved with
the Department of Consumer and Regulatory Affairs on a
permitting project that is nearing fruition and is up and
running. And that has been initiated out of the DC Chamber of
Commerce.
Mr. Davis. Also, bringing down taxes and regulation, in
general. You've got to lower the burden structure. I've talked
to a lot of my businesses. Why aren't you in DC anymore? Why
are you doing this? And they just say it got so bad, you know.
The question is, it got so expensive. And that doesn't help
anybody. So people vote with their feet. And a lot of people
would like to be in the city.
Mr. Green. The emphasis I keep coming back to is, the
Economic Development Corp. plus those other programs and
services around the corporation will create the right kind of
environment. One of the bills that we are pushing is the
reduction in Workers' Compensation taxes.
Mr. Davis. I even heard the mayor say good things. But, you
know, talking about it and getting it done are two different
things.
Mr. Green. Or the Council. And we're pushing it very hard.
Mr. Davis. Exactly. And we want these decisions to be made
at the local level, to the extent they can. I think it's
instructive for the local level to understand what it takes to
build and maintain a tax base. These are not automatic. You
can't bully businesses into staying and giving things anymore.
Business wants to give. I mean, they are the employer. They
are the contributors to the charities. They drive the tax base
that has you pay for education and human service and all these
other things. But the bottom line is, they have to answer to a
group of shareholders, and if they can't substantiate a profit,
they are going to move on.
Unfortunately, over the last decade and a half, we have
seen a marked exodus from the city. Now we're stuck where,
despite the best intentions of some of the rules that were
passed, they end up being very anticompetitive and burdensome.
We all want the same things.
Mr. Trabue, do you want to say anything? I got you up here,
and I want to put you on the record here. Is this your first
congressional hearing?
Mr. Trabue. Yes, it is. Thank you very much, Mr. Chairman.
Mr. Davis. Well, I want you to say something.
Mr. Trabue. Thank you for inviting me to appear before you
today. I would agree with Mr. Green's comments. We believe, at
the Board of Trade, that the regulatory environment in town and
the taxing climate must be coordinated and must be improved.
The Economic Development Corp. is a primary source of an
area where we can bring some focus to these efforts and really
realize some true economic development in our region.
Mr. Davis. Thank you. Thank you very much.
Were you here for Mr. Moran's comments earlier in the day?
Mr. Trabue. Yes, we were.
Mr. Davis. I've got to believe you liked them. Jim, I
think, is right on target. And I'm not trying to put him
against Ms. Norton's plan. You have to look at, with a given
amount of dollars, what's the best thing we can do. But
bringing down those local business taxes is just absolutely
critical.
Mr. Trabue. I support that wholeheartedly. The only issue I
raise is that, as we bring them down, we've got to be sure that
the city is stable and has some revenue stream during that
period of time that the economic engine begins to be energized.
So that's the only issue, how do you get that revenue stream at
the same time that you're bringing down the taxes?
Mr. Moran. We're going to have to close up anyway, but the
idea would be that we would have to substitute the loss of DC
revenue. Because, presumably, when you fix it, there is some
reduction of revenue. I'm not sure how much. I'm not sure
anybody knows how much.
Mr. Davis. Short-term anyway.
Mr. Trabue. That's what I'm saying, short-term.
Mr. Moran. In the long run, it's going to bring a lot more
revenue in, and it's going to be private revenue.
And I can understand why the business community prefers the
15 percent flat tax, because that's a loss of Federal revenue;
it's not a loss of local revenue. Presumably, we can better
afford it than DC.
Having talked with Tom and from what he is saying now, I
don't think there is any disagreement, and apparently there's
no disagreement with you. And this is the best opportunity.
Let's fix the local tax structure and make it sensible, but
also make it competitive with the metropolitan region.
And then we've got to figure out a way to replace any lost
revenue. Maybe that's from an exact pilot, an exact payment in
lieu of taxes, which Brookings estimates at about $382 million.
But, anyway, Mr. Chairman, thanks for having the hearing.
Thanks for doing all that you're doing. And thanks for getting
good people like this as witnesses. We will look forward to
working with you.
Thanks.
Mr. Davis. Thank you very much.
Mr. Trabue. Thank you very much.
Mr. Davis. Mr. Green, thank you for being here.
Mr. Trabue, thank you, on your debut here. Probably the
first of many hearings, but we appreciate having you here.
And Mr. Schelter, special thanks to you for coming down
from Philadelphia.
Mr. Schelter. My pleasure.
Mr. Davis. You have been, in many ways--when you do
something right--not everything you've done right--but, I mean,
by and large, you've done it right, and you can be a model for
other places to copy, to look after, to emulate. Again, our
congratulations to your mayor, who I think is really one of the
outstanding mayors in the United States. Give him our best.
Mr. Schelter. Thank you. I'll tell him.
Mr. Davis. Thank you very much.
Without objection, the record will remain open for 10 days.
Without objection, I ask that any written statements from
witnesses or Members be made part of the permanent record.
The subcommittee will continue to work with all interested
parties in an ongoing effort to continue the progress that has
been made.
These proceedings are closed.
[Whereupon, at 12:30 p.m., the subcommittee was adjourned.]
[Additional information submitted for the hearing record
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