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[DOCID: f:43839.wais]
D.C. RETIREMENT SYSTEM--COPING WITH UNFUNDED LIABILITIES
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HEARING
before the
SUBCOMMITTEE ON THE CIVIL SERVICE
of the
COMMITTEE ON
GOVERNMENT REFORM
AND OVERSIGHT
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
__________
APRIL 29, 1997
__________
Serial No. 105-42
__________
Printed for the use of the Committee on Government Reform and Oversight
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43-839 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 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 J. KUCINICH, Ohio
JOHN B. 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, Jr., Tennessee
MICHAEL 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 Civil Service
JOHN L. MICA, Florida, Chairman
MICHAEL PAPPAS, New Jersey ELIJAH E. CUMMINGS, Maryland
CONSTANCE A. MORELLA, Maryland ELEANOR HOLMES NORTON, Washington,
CHRISTOPHER COX, California DC
PETE SESSIONS, Texas HAROLD E. FORD, Jr., Tennessee
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
George Nesterczuk, Staff Director
Ned Lynch, Professional Staff Member
Caroline Fiel, Clerk
Cedric Hendricks, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on April 29, 1997................................... 1
Statement of:
DeSeve, G. Edward, Comptroller, Office of Management and
Budget; Anthony Williams, chief financial officer, District
of Columbia government; and James Blum, Deputy Director,
Congressional Budget Office................................ 14
Kane, Betty Ann, chairman, Legislative Committee and trustee,
District of Columbia Retirement Board; Ron Robertson,
chairman, Metropolitan Police Labor Committee, Fraternal
Order of Police; Thomas N. Tippett, chairman, Pension
Committee, Fire Fighters Association of the District of
Columbia; and James Baxter, treasurer, Washington Teachers
Union...................................................... 79
Letters, statements, etc., submitted for the record by:
Baxter, James, treasurer, Washington Teachers Union, prepared
statement of............................................... 117
Blum, James, Deputy Director, Congressional Budget Office:
Information concerning unfunded liability................ 61
Prepared statement of.................................... 34
DeSeve, G. Edward, Comptroller, Office of Management and
Budget, prepared statement of.............................. 17
Kane, Betty Ann, chairman, Legislative Committee and trustee,
District of Columbia Retirement Board, prepared statement
of......................................................... 84
Mica, Hon. John L., a Representative in Congress from the
State of Florida, prepared statement of.................... 5
Norton, Hon. Eleanor Holmes, a Representative in Congress
from the District of Columbia, prepared statement of....... 11
Robertson, Ron, chairman, Metropolitan Police Labor
Committee, Fraternal Order of Police, prepared statement of 97
Tippett, Thomas N., chairman, Pension Committee, Fire
Fighters Association of the District of Columbia, prepared
statement of............................................... 103
Williams, Anthony, chief financial officer, District of
Columbia government, prepared statement of................. 28
D.C. RETIREMENT SYSTEM--COPING WITH UNFUNDED LIABILITIES
----------
TUESDAY, APRIl 29, 1997
House of Representatives,
Subcommittee on the Civil Service,
Committee on Government Reform and Oversight,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:10 p.m., in
room 2154, Rayburn House Office Building, Hon. John L. Mica
(chairman of the subcommittee) presiding.
Present: Representatives Mica, Morella, Cummings, Norton,
and Ford.
Staff present: George Nesterczuk, staff director; Caroline
Fiel, clerk; Ned Lynch, professional staff member; and Cedric
Hendricks, minority counsel.
Mr. Mica. Good afternoon. I would like to call this meeting
of the House Civil Service Subcommittee to order.
Today the subcommittee will be holding a hearing on the
D.C. retirement system. The title of it is, ``Coping With
Unfunded Liabilities.'' This hearing is at the request of one
of our Members, the Delegate from the District of Columbia, Ms.
Norton, and also due to my interest in this topic and the
administration's proposal for making dramatic changes in the
D.C. retirement system.
I would also like to announce, for those who were
interested in the markup that was to take place immediately
following this hearing, that the markup will be postponed, and
hopefully we will have an opportunity to announce that it will
be held at some near future date, but it will not be this
afternoon.
I would like to start this afternoon's hearing on the D.C.
retirement pension changes with my opening statement, then
yield to our members.
Ladies and gentlemen, my colleagues, from the moment that I
accepted responsibility as Chair of this subcommittee, I have
always emphasized my concern and my commitment that we
adequately fund retirement systems for our public employees,
particularly our Federal employees.
Today's hearing will review the proposal by the
administration to dramatically alter the District's employee
pension fund. The proposal that has been made has been reviewed
by several of our oversight agencies, and today we will have an
opportunity for the subcommittee to understand the consequences
of alternatives currently being considered.
For most of its employees, the District of Columbia
provides a defined contribution retirement plan. With a defined
contribution plan, Government provides funds for future
pensions from current expenses. Therefore, it has no unfunded
future obligation, and pensions earned by today's employees are
not vulnerable to future fiscal anxieties. More important,
future taxpayers are protected from potential fiscal time bombs
in their Governments' accounts.
Defined benefit retirement plans often promise more
generous benefits but are rarely funded by dedicated revenues.
Instead, future payments are promised from the ``full faith and
credit'' of the Government that, in fact, owes the pensions.
As the Congressional Budget Office described this process
in a March 27 memorandum, it is the equivalent of saving for
your children's college education by sticking IOUs in a cookie
jar. They used this analogy, and I will refer to it today. When
the tuition comes due, somebody will have to redeem the IOUs.
Again today, CBO illustrates the problem very well:
nonmarketable Treasury securities that make up the assets of
Federal pension funds are nothing more, in fact, than IOUs. In
CBO's words, and I quote, ``Those Federal securities are merely
the promise of the Federal Government to itself, the left
pocket owes the right pocket, but the combined trouser assets
are exactly zero.'' As CBO describes the results of this fiscal
charade, ``From the perspective of the Federal Government as a
whole, none of the $1.5 trillion in promised annuities is
funded.'' That's not what I said; that's what CBO said. ``None
of the $1.5 trillion in promised annuities is funded.''
When Congress established home rule for the District, it
selected a different option to fund the future benefits of its
police, firefighters, and teachers. The District's Retirement
Board manages investments that earn revenues rather than IOUs.
These accounts now hold about $4.2 billion in real assets to
provide for future pensions. Even with that investment success,
the District's future obligations are still only 44 percent
funded.
For fiscal year 1998, the cost of redeeming the IOUs in the
District's ``full faith and credit'' cookie jar amounts to $307
million. The District, however, cannot easily raise taxes to
fund this obligation. The District's need to borrow restricts
its ability to provide current services and increases its need
to tax current residents. The District's high tax rates tend to
reduce its potential for attracting business, investments, and
an expanded resident population.
Clearly, the District needs relief from this vicious fiscal
cycle. The administration and the District government set an
arbitrary target for an annual retirement payment of $60
million. Over the next 10 years, they also plan to spend more
than $3 billion of the District retirement fund's assets to pay
the benefits that the President has described as being assumed
by the Federal Government.
This plan, unfortunately, has two major flaws: First, the
plan allows the Federal Government to raid the hard assets of
the District retirement fund. This provides the appearance of
establishing a balanced budget or working toward a balanced
budget, while the administration continues to increase domestic
spending within the 5-year budget window that we've been
talking about here.
Rather than reduce spending to pay for the District's
recovery, the administration plans to raid the retirement fund
of the District's police, firefighters, and teachers. This
potential fiscal fiasco will not erase these obligations.
Instead, what will happen is, they will be transferred into the
budgetary so-called ``out years.'' In the year 2010, the assets
raided from the District retirement fund will have been
depleted. Tomorrow's taxpayers will be left holding the bag, a
pretty sizable one, too.
With their real funds expended, District employees will
join our current Federal employees and retirees in an annual
raid on the U.S. Treasury just to survive. Unfortunately, there
will be nothing but IOUs in the Federal cookie jar. Where the
District's unfunded liability is a mere $4.8 billion--I say
that ``mere,'' because the Federal retirement system is now
$540 billion--the unfunded liability that we are going to
combine this with, is over a half trillion dollars.
Where the District each year must raise more than $300
million to fund its obligations, the Civil Service Retirement
and Disability Fund needs to tap current taxpayers for about
$30 billion to cover this year's shortfall. In this year's
budget analysis provided by Chairman Kasich, I think we rank
about third or fourth in obligations tapping the general
treasury. I think first is Social Security and Medicare and
Medicaid, and then this $30-billion shortfall to cover our
Federal retirees' benefits.
Within 20 years, in 2016, the annual cost of paying for
funds raided from the Federal cookie jar will exceed $100
billion. By 2041, OPM has forecasted that the annual shortfall
for Federal pensions will amount to $221 billion that year.
With recurrent shortfalls facing future Congresses each
year, pressures will inevitably increase to reduce the future
benefits authorized by current law for present employees.
Federal employees' pensions, therefore, will become more
vulnerable in the future, unless we devise measures to fund
them adequately, and fund the pensions for which Congress has
made promises to our Federal employees.
The second major flaw in this proposal is that it would
establish a precedent that would give deep concern to every
Federal employee with a nickel in the Thrift Savings Plan. We
saw last year, during the dispute over the extension of the
debt ceiling, that the Treasury was willing to raid the G Fund
to extend the Government's borrowing ability. Now the
administration is willing to raid the District's retirement
fund to meet short-term pension obligations.
If not rejected, this rationale might prove a precedent for
future raids on the Thrift Savings Plan's stock or bond funds.
We must establish firmly the principle that, when Federal
retirement funds are set aside in trust, they are, in fact, off
limits for any other purposes.
It is my hope today that we can accomplish two objectives
in this hearing: First, I want everyone involved to leave this
room with a clear understanding that the proposal that the
administration has put on the table is an unacceptable solution
for the future of the District and the future of taxpayers.
It's a bad deal for the police. It's a bad deal for the
firefighters. It's a bad deal for the teachers and other
employees, because it exceeds the fiscal capacity of the
governments making the deal. Most of all, it is a future
albatross that will only compound challenges that future
Congresses and the District of Columbia will face in attempting
to redeem the IOUs in the empty Federal cookie jar.
Finally, I want everyone to recognize that we have reached
the ``out years'' of earlier reforms. We are here. We do not
need to add to the explosive power of the fiscal time bomb that
has already been created. We do need to work together to
develop a solution that will protect the hard assets of the
District's retirement fund and begin to restore the retirement
fund's assets for future retirees and current employees.
Those are my opening comments, and I yield now to the
ranking member, the distinguished gentleman from Maryland, Mr.
Cummings.
[The prepared statement of Hon. John L. Mica follows:]
[GRAPHIC] [TIFF OMITTED] 43839.001
[GRAPHIC] [TIFF OMITTED] 43839.002
Mr. Cummings. Thank you very much, Mr. Chairman.
Mr. Chairman, the issue of how best to resolve the problems
caused by the District of Columbia's unfunded pension
liabilities for police, firefighters, teachers, and judges has
been under the consideration of the District of Columbia
Subcommittee for some time. I must say that I was surprised to
see it come up on our agenda. I recognize, however, that your
own interest in the Civil Service Retirement System's unfunded
liability is what draws you to an examination of the District's
situation.
Having said that, Mr. Chairman, my focus today will likely
be the same as yours, to determine whether or not there are
lessons to be learned from the District's experience that can
guide the administration and perhaps the reform of our
retirement system.
I must say, at the outset, that I see more differences than
similarities, which leaves me uncertain as to just what this
exercise will accomplish. Nonetheless, I look forward to the
testimony of each of the scheduled witnesses and to whatever
recommendations they care to make concerning the Civil Service
Retirement System.
We currently have in place two retirement systems serving
our workforce: the Civil Service Retirement System and the
Federal Employees Retirement System. Both appear to be
functioning just the way Congress intended. The unfunded
liability that has been incurred was expected. Those who earn
benefits can still reasonably expect to be paid them.
But we will hear from the Congressional Budget Office today
that current Federal fiscal policies are creating some risks
that our future pension benefit will not be paid in full. I
believe that our pensions can be secured without necessarily
imposing further cuts on Federal and Postal employees and
retirees.
In contrast, the District's present pension system for
police, firefighters, teachers, and judges is not secure, but
this is not the District's fault. The system was designed not
by the District but by the Congress, primarily to serve the
Federal Government's own economic self-interest.
This system and a $2 billion unfunded liability were
imposed on the District by the Congress in 1979. The District
was not given the ability to control its growing costs, either
by changing the funding formula or by reducing the generosity
of benefits. This was surely a recipe for disaster. That is
just what it has wrought.
Today, the District's initial unfunded pension liability
has grown to nearly $5 billion due to the accrual of interest,
which Federal law did not require to be paid. As a result, the
District has made payments to the system's retirement fund far
in excess of what it should have. Now, nearly an insolvent
District lacks the capacity to further carry or pay off this
liability. It should no longer be made to carry the burden of a
debt of this magnitude which is not its own.
Our distinguished colleague, Congresswoman Norton, has
introduced legislation addressing the problem of this unfunded
pension liability during each of the past two Congresses. One
of her bills received a hearing back in June 1994. While they
have not received any further legislative action, these bills
nonetheless have served to keep a sharp focus on the inequity
of this situation.
Her efforts, no doubt, paved the way for the Clinton
administration to come forward in January of this year with its
own proposal to relieve the District of this obligation as part
of its National Capital Revitalization and Self-Government
Improvement Plan.
Mr. Chairman, I believe that what ought to be the subject
of some immediate attention here on Capitol Hill is the
relative merit of the Congresswoman's plan, the President's
plan, or any other serious plan to address the District's
unfunded pension liability. That undertaking, however, should
be handled by the District of Columbia Subcommittee, with those
of our members having time and expertise to contribute being
free to do so.
Thank you very much.
Mr. Mica. Thank you.
I would like to recognize now the gentlelady from Maryland,
Mrs. Morella.
Mrs. Morella. Thanks, Mr. Chairman.
Mr. Chairman, as a member of both this subcommittee and the
Subcommittee on the District of Columbia, I am pleased to have
this opportunity to explore ways in which to address the
District of Columbia's growing unfunded liability for the
pension plans for police, firefighters, teachers, and judges.
Congress first authorized funding for pension plans for
police, firefighters, teachers, and judges during the early
part of the century. At the time, the Federal Government
instituted a pay-as-you-go method to fund D.C. pensions,
failing to put aside enough money each year to make sure that
funds would be available to meet future obligations. It is my
understanding that, during these early years, the District made
contributions to the Federal Government that went into the
Federal Treasury and not into a separate fund.
In 1979, when the Congress passed the Home Rule Act, the
total unfunded liability was $2.6 billion. Under this home rule
legislation, the Federal Government assumed responsibility for
only $646 million. The remainder of the unfunded liability, $2
billion, was transferred to the District of Columbia. Since
home rule was established, the District has contributed far
more than the normal costs of these plans, placing a tremendous
burden on its operating budget.
In 1995, the District spent $291 million for retirement for
police, firefighters, and teachers. In Baltimore, the
retirement cost for these same employees was $85 million, $206
million less than in the District of Columbia. This year the
District will pay $321 million, and in 2007, when the District
will assume full responsibility for this unfunded pension
liability, the city will be required to pay $640 million.
The unfunded pension liability of $2 billion in 1979 is
now, in 1997, estimated to be $4.8 billion, and it threatens to
grow to $6 billion by 2004. So unless we resolve this unfunded
pension liability issue, the District will never achieve
financial recovery and stability.
I firmly believe that we owe a pension system that does
offer security and stability to our police, firefighters,
teachers, and judges. So, Mr. Chairman, I look forward to
hearing from our expert witnesses today, so that we can look to
this challenge and arrive at a resolution that will be
appropriate.
Thank you.
Mr. Mica. I thank the gentlelady and now recognize the
gentlelady from the District, who has great interest in this
topic. We appreciate her leadership, and we are also trying to
honor her request to look into this matter.
Thank you. You are recognized.
Ms. Norton. Thank you very much, Mr. Chairman.
May I thank you for your interest in the complicated
District pension liability problem and for your generous
courtesy in postponing this hearing when I had an unavoidable
conflict.
Few would disagree with the claim that the most important
part of the President's plan is the proposed pension relief.
There are four reasons: First, the unfunded pension liability
was a principal reason for the District's insolvency.
Second, this problem must be resolved before 2004, when the
meager Federal contribution disappears and the District's
annual outlay escalates to an amount that, in and of itself,
would destroy the city.
Third, the unfunded pension liability is entirely
congressionally accrued.
Fourth, the Congressional Budget Office has made a set of
findings concerning serious additional harm to the District,
directly traceable to the liability: that the unfunded
liability reduces the District's bond rating, thus raising the
city's borrowing cost; lowers property values; and requires the
city to pay a premium to hire and retain employees.
At a time when there is rationing of resources and
continuous cuts in vital services in the city, it is worth
noting that the District has been overfunding these plans since
they were turned over in 1979. These plans for firefighters,
police, teachers, and judges were handed over to the District
with an unfunded liability totaling approximately $2 billion.
Today, almost entirely as a function of interest on the
congressional liability amount, that liability has grown to
over $5 billion.
Designing suitable pension relief that fits the District's
needs, as well as Federal budget constraints, is unusually
difficult. The major reason for the difficulty is not the
drawing of the new pension plan itself. The primary reason this
task is so hard lies with the congressional commitment to
deficit reduction.
I do not envy Mr. Raines and Mr. DeSeve and other members
of the administration as they tackle the thankless task of
trying to eliminate billions of dollars of congressionally
accumulated pension liability without adding to the deficit.
Any awkwardness in the administration's proposal is due
primarily to this problem.
Yet Chairman Mica has additional concerns. His concerns
include what these pension programs would add to the Federal
liability, although the District's liability, in this case is
and always has been Federal liability. The chairman is also
attracted to the investment strategy used by State and local
pension boards and would like to retain it.
With difficult problems already on the table, however, the
pension proposal is fraught with more hurdles than any other
section of the bill. That is a dangerous posture for an
indispensable provision. Yet I have no doubt that, if the deep
problem-solving talent of OMB and the committee is applied to
this provision, we will be able to handle the complexity.
The administration has the special gratitude of the
District for proposing to remove entirely this liability. I
want to express my appreciation again to Chairman Mica for his
attention to this issue. I welcome today's witnesses and look
forward to their testimony.
Thank you again, Mr. Chairman.
[The prepared statement of Hon. Eleanor Holmes Norton
follows:]
[GRAPHIC] [TIFF OMITTED] 43839.003
[GRAPHIC] [TIFF OMITTED] 43839.004
Mr. Mica. I thank you.
I would now like to recognize our newest member of the
panel, Mr. Ford.
Mr. Ford. Thank you, Mr. Chairman.
Let me thank Congresswoman Norton for her leadership on
this issue, and the other committee members, and, of course,
the panelists for being here today.
I don't really have a lengthy opening statement. It is
really more of a comment and a question. I apologize, I have a
group of students from my district here who have come up
specifically to sing to their young Congressman on the other
side of the Capitol steps, so I will have to leave early. I do
hope you do excuse my having to leave early.
Although the focus of the hearing is on retirement, I think
the ramifications of this issue have much broader
ramifications, and perhaps repercussions, for all of the
District residents. In human terms, as you all know, and all of
us on this committee know, we are talking about hard-working
police persons, firefighters, judges, and our hard-working
teachers. But the District's ability to meet the most essential
needs of its young people is also in jeopardy here, as well.
All of us probably saw this morning's paper, as it said 11
D.C. schools to be closed, 5 others spared. At least part of
the reason these schools were forced to shut down is because
the District does not have the financial resources necessary to
keep them alive and well.
Addressing the issue of unfunded liabilities will not solve
all of the District's financial woes, as I realize, but I
cannot help but believe that, if the District had an additional
$136 million in its budget, the amount of savings that would be
generated by Congresswoman Norton's budget in the first year,
at least some of these schools would have been able to remain
open.
I guess what I would like the panel to address--and I look
forward to reading or at least hearing some of the testimony--
is that by confronting and resolving some of the issues related
to unfunded liabilities, will this enable the District to
better direct its limited resources toward some of the other
pressing problems it faces, particularly schools and some of
the public services?
Again, I thank the panelists, and I thank Congresswoman
Norton for her leadership, and our chairman, as well.
Mr. Mica. Thank you, Mr. Ford.
We have completed our opening statements, and I would like
to welcome our panel this afternoon. We have three witnesses:
The first witness is Ed DeSeve, who is the Comptroller of the
Office of Management and Budget; we have Anthony Williams,
chief financial officer of the District of Columbia government;
and James Blum, who is Deputy Director of the Congressional
Budget Office.
Since this panel is investigation and oversight, and within
the purview of Government Reform and Oversight, we do swear in
our witnesses.
Gentlemen, if you would stand and raise your right hands.
[Witnesses sworn.]
Mr. Mica. Thank you.
I would like to welcome you. We will hear first from the
Comptroller in the Office of Management and Budget, Mr. DeSeve.
You are recognized, sir.
If you would like to, as those of you who have been here
before know, you can summarize. We like to have your statements
limited to 5 minutes, and you are free to submit any additional
testimony for the record.
Thank you.
STATEMENTS OF G. EDWARD DeSEVE, COMPTROLLER, OFFICE OF
MANAGEMENT AND BUDGET; ANTHONY WILLIAMS, CHIEF FINANCIAL
OFFICER, DISTRICT OF COLUMBIA GOVERNMENT; AND JAMES BLUM,
DEPUTY DIRECTOR, CONGRESSIONAL BUDGET OFFICE
Mr. DeSeve. Thank you very much, Mr. Chairman, members of
the committee, for the chance to discuss the President's plan
to have the Federal Government assume the great majority of the
estimated $8.5 billion of actuarial liability for the pension
programs of the District's teachers, firefighters, police, and
judges. This proposal is a key element of the President's plan
to revitalize the District of Columbia and strengthen home
rule.
I would like to begin by summarizing the National Capital
Revitalization and Self-Government Improvement Plan. I will
then touch upon what the pension proposal is intended to do and
what the District will have to do to make the proposal work.
As Franklin D. Raines, the Director of the Office of
Management and Budget, stated during his February 20th
testimony before the District of Columbia Subcommittee, the
current relationship between the District and the Federal
Government is broken. Our Nation's Capital faces not only
structural financial problems, but even serious obstacles to
providing the most basic services to its residents.
The President has presented a plan to reorder that
relationship, putting our capital city on firmer financial
ground and improving home rule's prospects for success. The
plan is not a panacea. The District government and financial
authority will have to continue to do the hard work necessary
to create a city where the streets are safe, where the children
enjoy the quality education they deserve, where every resident
has a chance to make the most of his or her own life, and where
the city government spends within its means.
I want, parenthetically, to applaud the City Council today
as they go through the very difficult budget negotiations to
find the last $45 million in balance. It is a tough problem,
and they are taking it on very, very responsibly, a year
earlier than the Financial Responsibility Act would have
required.
Through the plan, the Federal Government will assume a
significant and growing share of the District's operating costs
over the next 5 years, in the areas of Medicaid, prisons, and
criminal justice. Beyond providing relief to the city's
operating budget, the Federal Government will also invest
heavily in the Nation's Capital over the next 5 years, in the
areas of economic development, transportation, criminal justice
improvement, and tax collection.
Why should the Federal Government assume the District's
pension liability? In 1979, the District of Columbia Retirement
Act required the District to assume liability for the pensions
of teachers, police, firefighters, and judges. The act
authorized a Federal payment to the District's retirement
system of $52 million a year for 25 years, a stream of payment
with a discounted present value of $646 million in 1979
dollars.
However, the act also transferred a $2.65-billion unfunded
liability to the District retirement system. This left the
District with more than $2 billion in anticipated future
payments that were unfunded. From 1979 to the present,
contributions by the District government and employees to the
retirement system, along with earnings, have more than covered
the cost of benefits paid out annually. But these payments have
not stopped the unfunded liability from growing.
As of October 1, 1996, the District's actuary certified
that the present value of future benefits for the retirement
plan is $10.5 billion. The accrued actuarial liability sat at
about $8.5 billion. While accumulated assets of the retirement
plan are valued at $3.7 billion, the net unfunded liability has
grown since 1979 to about $4.8 billion, net accrued unfunded
liability. This obligation is the District's largest liability.
Meeting this liability will consume an increasing share of the
city's budget if the President's pension proposal is not
enacted.
Beginning in fiscal year 1998, the Federal Government
proposes to assume both financial and administrative
responsibility for the major share of the benefits payable
under the District's retirement program for police and fire and
teachers. Because the President's plan will make the Federal
Government responsible for financing but not administering the
District's courts, the Federal Government will also assume all
liabilities and benefits associated with the plan for judges.
Legislation will provide for transfer of assets and
liabilities to the Federal Government. The Federal Government
will be responsible for nearly all pension benefits accrued
under the plan for all active and retired employees. Most of
the assets of the retirement plan will be transferred to the
Federal Government. The Federal Government will pledge its full
faith and credit to meet its responsibilities to these
beneficiaries. These assets will be used only to pay benefits
to these beneficiaries.
The precise parameters of the assumption of liability and
distribution of assets is still being discussed with the
District financial authority and the District's pension board,
based on figures generated by the District's actuaries.
The Federal Government will make full benefit payments to
current retirees and beneficiaries, and it will pay the vast
majority of benefits for current employees. Benefits payable to
current employees will be ``frozen,'' based on service earned
as of the date the legislation is introduced. The Federal
Government will pay retirement, death, and some of their
disability benefits to the extent they are earned based on
frozen service.
Active employees will be able to count on future service
with the District toward vesting and eligibility for retirement
benefits but not for the amount of the benefits, so that, as
additional years of service are earned, those will be under a
new plan. Active employees, however, will get the benefit of
subsequent pay increases and the cost that the Federal
Government will be bearing.
The District government will agree to put in place a new
retirement program for current active teachers, police, and
firefighters for future benefits, as well as for employees
hired after the date the current retirement programs are
frozen. The District will also maintain responsibility for
those employees, other than teachers, police, firefighters, and
judges, hired after October 1, 1997.
The market value of the accumulated pension assets, as of
October 1, 1996, was $3.75 billion. Most, if not all, of these
assets will be transferred to the Federal Government. The
Federal Government will appoint a third-party trustee to
administer the plan and manage these assets, which will be
liquidated as needed to make payments to beneficiaries.
Therefore, there will be no increase in Federal outlays
until after the existing assets are exhausted, which is not
estimated to occur until well into the next decade. A trustee
will act as a fiduciary, because the Federal Government
typically does not hold private assets to fund pension
obligations that are its direct responsibility.
As with the other aspects of the President's plan, Federal
assistance will be conditioned on the District's taking
specific steps outlined in a Memorandum of Understanding
between the District and the Federal Government.
Our engagement with the District's pension concern is
nothing new. The administration has previously worked with D.C.
stakeholders to consider various proposals, including the
President's fiscal year 1997 budget proposal to provide an
additional $52 million toward its unfunded liability and
growing this stream in future years.
The administration has reviewed the proposal put forward by
District Delegate Eleanor Holmes Norton. It has also assessed
the recommendations of the D.C. Appleseed Foundation to have
the Federal Government assume the assets and liabilities
associated with the pension system.
As with other elements of the President's plan, we are
working with the District government, the financial authority,
and Congress to use common actuarial and budget numbers, based
on an analysis by the District actuary, to finalize cost
savings, liability, and cash-flow associated with the pension
proposal. We will be happy to share these final figures and
resulting analysis with the committee, as we have done in the
past, as they become available.
That concludes my testimony, Mr. Chairman. Thank you very
much.
[The prepared statement of Mr. DeSeve follows:]
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Mr. Mica. Thank you. We will reserve questions until we
finish all the panelists.
I next recognize Mr. Anthony Williams, the chief financial
officer of the District of Columbia.
Welcome. You are recognized, sir.
Mr. Williams. Mr. Chairman and members of the committee,
thank you for the opportunity to testify on the President's
plan for addressing the District's retirement dilemma, as part
of its overall economic recovery. I applaud you, Mr. Chairman,
for your interest in this matter, and, of course, Mrs. Norton,
for her longstanding interest in addressing this important
issue.
I think all of the different plans before us and all the
discussion about the District's financial recovery have focused
on three essential components: Obviously, one component,
improving management and bringing cost efficiencies to the
District; a second component, improving our economy and needed
revenue; and a third component, bringing needed investment, and
that needed investment in the form of the Federal Government
stepping forward and playing its proper role in the District's
opportunity and destiny.
I mention these three components because the President's
plan, we believe, in addressing the retirement problem, this
unfunded liability, is essential for us proceeding through this
recovery. Without this plan--I've likened it, to basically
turning the lights off on the Titanic to achieve better energy
efficiency, when we still know, without addressing this
unfunded liability, we're going to hit this iceberg. This is a
major issue before us, and I applaud the President for his
commitment to solving it.
Just some of the impacts, Mr. Chairman, very, very briefly.
I think Congresswoman Morella mentioned the impact on our
credit rating, and this is, I think, a big factor. Over the
years, if you talk to the rating agencies, you talk to the
investment bankers, an overall cloud over our opportunities in
the public financial markets has been this unfunded liability.
We have, above and beyond that, the contributions we have
made in excess of the full, normal costs that we are paying
into this plan. All these contributions are made out of our
cash resources available to us, and I can tell you that, as we
operate day-by-day, this is a major burden.
Finally, there is the aspect--the President's plan
addresses this in terms of investment for economic recovery and
the Economic Development Corporation, a number of plans have
addressed this in terms of tax incentives, all this to bring
much needed investment into the District. I think there have
been a number of studies.
There has been a range of discussion about the reluctance
of investors to come to the District when there is this
overarching cloud over our ability to meet our obligations and
to make needed investments in public safety, streets, and other
improvements in the future, when we know that, in the year
2005, essentially, our obligations year by year are going to
double.
So, for all those reasons, I applaud the commitment of the
President in shouldering the burden and addressing our unfunded
pension liability. I, as others, would point out that the plan
is not a perfect plan, but I think, for just those reasons--the
plan bumps up against these issues over the kind of retirement
system the Federal Government wants to have--I think, for just
these reasons, I have reason to applaud the ingenuity of the
OMB and the President in crafting it in a very, very difficult
operating environment.
I guess what I'm saying, Mr. Chairman, is that an imperfect
environment will often result in imperfect results. But however
imperfect those results, I applaud those results and look
forward to working with the OMB and the Congress as we fashion
an ultimate plan for the District's recovery.
I thank you.
[The prepared statement of Mr. Williams follows:]
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Mr. Mica. Thank you for your testimony. I'll have some
comments on the Titanic a little bit later.
I, right now, recognize Mr. Blum, Deputy Director of the
Congressional Budget Office.
You are recognized, sir.
Mr. Blum. Thank you, Mr. Chairman and members of the
subcommittee.
I appreciate the opportunity to discuss the President's
proposal for the District of Columbia's pension plan. My
statement, which I will submit for the record, assesses the
consequences of the administration's approach for beneficiaries
and taxpayers, compares the President's proposal with
alternative forms of assistance, and discusses some of the
implications for the Federal pension system.
Mr. Mica. Without objection, we are going to put the whole
report into the record. Thank you.
Mr. Blum. Excellent.
I think there are four major points that I would like to
draw from that prepared statement this afternoon. The first is
that the administration's proposal takes advantage of the cash-
based Federal budgetary accounting system to delay recognition
of the Federal assumption of the District's unfunded pension
liabilities.
Under cash-based accounting, the benefit payments to
District annuitants would be financed by selling the pension
plan's assets, which would be accounted for as an offsetting
receipt in the Federal budget. Thus, the administration's
proposal would have no effect on net Federal outlays or the
deficit for at least 10 years. After the assets are exhausted,
annual Federal outlays for District annuitants would initially
amount to between $700 million and $800 million.
If the budget were on an accrual basis, conversely, the
assumption of the unfunded liabilities would be recognized
immediately as a Federal expense. Now, the same effect could be
had in a cash-based budget by simply making a lump-sum payment
to the District to cover the amount of the unfunded
liabilities. Obviously, in a situation where we are trying to
reduce the Federal budget, a payment of that size all a one
time is a very large pill to swallow.
The second point is, the administration's proposal would
probably enhance the longer term security of District plan
benefits, but it would subject, as the chairman pointed out,
the District annuitants to the same political risk faced by
Federal employees under their own retirement system. Earned
benefits under the District plan are currently at substantial
risk, as we have heard, because of the unfunded liability and
the inability of the District to finance that burden.
While the long-term projected cash outlays for Federal
retirement benefits are unlikely to impose a heavy burden on
future taxpayers--projections in my statement show that the
Federal outlays for retirement benefits would actually fall as
a percentage of gross domestic product, the total size of the
economy, after 2015. Nonetheless, when you look at the overall
fiscal situation facing the Federal Government, our long-term
projections saw Government spending increasing rather
significantly after 2010, as a result of the retirement of the
baby boom generation, and continued expansion in the use of
federally financed health care expenditures.
That is shown in the second table in my statement that
projects out the long-term budgetary pressures that the Federal
Government is facing, and they were explained in some detail in
a report that we just issued last month, entitled ``Long-Term
Budgetary Pressures and Policy Options.''
The projected fiscal stress confronting the Federal
Government leaves retired Federal workers exposed to the
political risk that their earned benefits would not be paid in
full, in the face of unrelenting downward pressures on Federal
spending that we think is going to happen, under current
policies, in the long-term.
The third point, an alternative approach to the
administration's proposal that would also recognize the Federal
responsibility for the District's unfunded pension liability
but would retain the current pension system, would be to simply
increase and extend the current Federal annual payment to the
District pension plan, as recommended last year, for example,
by Delegate Eleanor Holmes Norton.
This alternative approach would avoid the cost of setting
up a new retirement plan to fund future earned benefits for
District employees, retain the independent retirement board and
its sound funding policies, and also provide fiscal relief to
the District. One disadvantage of amortizing the unfunded
liability over the next 30 years or so is that the future
Federal payments would not be certain, as the Federal
Government grapples with the unsustainability of its own fiscal
problems.
The fourth and final point, improving the Federal
Government's long-term fiscal condition would increase the
security of the current system of Federal employee benefits. If
we were able to solve, in the next several years, this long-
term problem facing us, then I don't think, Mr. Chairman, we
would be concerned about the security of the Federal Employees
Retirement System.
But the pressures on the budget which emanate from the
commitments to the elderly, through our Social Security system,
and the Medicare system, and the Medicaid system, do impose
very strong and forceful pressures on the Federal budget. If
those problems or those pressures can be relieved, then I think
the Federal Employees Retirement System would not be subject to
the same political risk that it is currently.
Fully funding current plans could contribute to this
difficult process of improving the fiscal condition, but only--
only--if it affected congressional behavior to act sooner
rather than later, in terms of reducing spending or increasing
taxes.
Alternatively, the Congress could switch the Federal
retirement system to a defined contribution basis. Such a
change does entail some risk, in terms of the vulnerability of
the funds for the beneficiaries, in terms of investment risk,
but it certainly reduce the political risk that would be
involved.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Blum follows:]
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Mr. Mica. I thank each of our panelists.
Mr. Blum, is there a precedent for raiding trust funds in
this fashion?
Mr. Blum. An analogy might be drawn--I don't know if I
would call this a precedent--but an analogy might be drawn to
what happens with private sector defined benefit plans where
companies terminate these plans. They go out of business. The
Federal Government, in fact, has an insurance program. The
Pension Benefit Guarantee Corporation, does provide insurance
for those plans.
And, in effect, what happens when that occurs is that the
corporation takes over the assets of the terminated plans, and
the Federal Government is committed to paying the benefits that
have been earned under those plans, up to a limit, in terms of
the amount of the benefits that can be paid.
Actually, the way that this shows up in the Federal budget
is quite similar to what the administration has proposed here
for the District, in the sense that the assets in those
privately terminated plans are drawn down as needed and to help
finance the Federal benefit payments that go to the
beneficiaries. The budgetary treatment turns out to be
essentially the same, and I think one could say that there is a
similar situation going on here with the administration's
proposal.
Mr. Mica. Well, I think you also testified that, while
there is some short-term gain in this plan--it does relieve the
District, I think initially, of about a quarter of a billion, I
guess, initial payment, and then that comes down--what is the
pitfall in the long-term? Are we just adding to this already
massive unfunded liability that the feds have in their own
system?
Mr. Blum. Well, the Federal Government would be taking over
the unfunded liability of $4.8 billion, as it stands now, and
that would be added to, as you pointed out, our essentially
unfunded liability of $1.5 trillion.
Mr. Mica. Did you calculate what that would be, like when
we run out of funds, the $4.8 current?
Mr. Blum. Well, we think that that would last, assuming the
remaining--the assets would be drawn down only as needed each
year, and therefore they would continue to have earnings. We
think that this would last for about 10 years.
Mr. Mica. What would the unfunded liability be in 10 years,
the same?
Mr. Blum. No, I assume that would grow.
Mr. Mica. To how much?
Mr. Blum. I haven't done the calculation for that, but we
could do that.
[The information referred to follows:]
In the Administration's proposal, the unfunded liability of
$4.75 billion would grow by the assumed actuarial interest rate
of 7.25 percent. After 10 years, it would total $9.6 billion.
Mr. Mica. So, as we are drawing down the asset, the
unfunded liability is increasing, and in 10 years--if you could
provide the subcommittee, I would like to know what kind of an
obligation we are inheriting.
Does the Federal Government have this inherent
responsibility anyway, since the financial arrangement of the
District is so closely intertwined with Federal finances? Would
that be a fair assumption, or do we truly have an independent
pension fund, as has been termed in some of these documents,
and that's presenting kind of a firewall, or is there just an
obligation we're going to have to meet anyway?
Mr. Blum. Well, I think, as Congresswoman Morella pointed
out, and also Mrs. Norton, under home rule and with that
District Retirement Act of 1979--up to then what we had was
essentially a Federal retirement system for these District
employees that was on a pay-as-you-go basis. There was no real
funding of the plan.
In 1979, in effect, that plan was then shifted to the
District, to become the responsibility of the District, and the
Federal Government opted only to pay for 25 percent of the
unfunded liability that existed at that time. I think what the
administration has recognized is that the Federal Government
was responsible perhaps for all or almost all of that initial
unfunded liability that was passed to the District.
Mr. Mica. You heard the calculations, and I think we got
that, those figures from OPM, as far as the out-of-pocket
expenditures from the general treasury to pay current benefits,
it grows pretty dramatically. In 10 years, it's up close to
$100 billion a year, I believe, somewhere in that range.
So this unfunded liability, and then that general
obligation would kick in--at some point, I guess after 10
years, somebody is paying the difference between the premiums
coming in and the payments going out; is that correct?
Mr. Blum. That's the nature of a pay-as-you-go financing
system.
Mr. Mica. Right. But the pay-as-you-go, the new payer will
the Federal Government. How much will that add to the--I guess
we will be up around $100 billion a year, and this will just
be, what, another quarter of a billion? Is it $700 million?
Mr. Blum. Our calculation is, after the assets have been
exhausted, the Federal annual payment will be somewhere between
$700 million and $800 million a year. That, I suppose, could be
considered a drop in the bucket compared with the actual.
Mr. Mica. Let's see. I'm 54. When can I start drawing? I
want to calculate this so I get out just in time, when all this
crashes. So it's about three-quarters of a billion at that
point.
Mr. Blum. That's true. For example, in table 1 of my
prepared statement.
Mr. Mica. That's equal to the entire subsidy I think we did
last year, or fairly recently, isn't it, to the District? What
is the District's biggest shortfall; $660 million? Oh, OK.
Well, it's right in that range. And in 10 years we would need
that just to meet the shortfall for pension.
Mr. Blum. Well, I might comment on the use of the word
``shortfall.''
Mr. Mica. Money coming in versus money going out.
Mr. Blum. Well, that's true, that difference. But that is
the nature of the pay-as-you-go financing system for the
Federal retirement system, which is a common way of financing
retirement benefits for central governments worldwide.
Essentially, it's drawing upon the entire financial resources
of the country, simply because the Federal Government enjoys a
taxing power that reaches nationwide, as opposed to something
like the District which can only tax its own citizens.
Now, in the year 2005, according to the estimates in table
1, our projection is that the total Federal, civilian, and
military retirement payments will amount to $100 billion. So
adding $700 million or $800 million is adding less than 1
percent to the total that the Federal Government will be
expending less than 10 years from now.
Mr. Mica. I thank you.
I yield to our ranking member now.
Mr. Cummings. Thank you very much, Mr. Chairman.
Mr. Blum, back in June 1995, you testified before this
subcommittee that the Civil Service Retirement fund does not
face a financial crisis. Is that still your opinion?
Mr. Blum. Yes, it is, and it's drawn from, essentially, the
numbers that are presented in table 1 of my statement today.
Two years ago, we made the same point, looking in terms of what
the cost of these annual retirement benefits would be in
constant dollars. We were saying that, after 2015, in constant
dollar terms, those payments would actually diminish.
What I've done today is give a different kind of measure.
Here we're looking at the projected cash outlays as a
percentage of the total economy, the gross domestic product.
It's a typical way of measuring what the burden will be on
taxpayers in the future. There it shows that the total civilian
and military retirement benefits will remain constant at about
nine-tenths of a percent of GDP through 2015, and then begin to
decline. So, in that sense, the burden will be reduced over the
longer term, on current taxpayers.
Now, as my statement goes on to explain, looking at just
the retirement plans does not give you a complete picture of
what the fiscal situation will be for the Federal Government as
a whole. That was provided in table 2 in my prepared statement
and discussed in more detail in this report that we issued last
month.
Looking down the road, we can see that, while we're in a
relatively benign period, in terms of the Federal deficit
coming down--last year it was only 1.4 percent of GDP--the
long-term projections over the next 10 years, it doesn't rise
all that much under the current policies.
But after the retirement of the baby boom generation, in
the year 2010, then the picture changes. We're getting an aging
population, and with the commitments that the Federal
Government has made to pay Social Security benefits to retired
people, to finance health care expenditures under Medicare and,
to a growing extent, under Medicaid, it will add a considerable
burden, considerable pressure to the overall fiscal picture for
the Federal Government.
Unless taxes were raised, the deficit would begin to mount
rather seriously, and after a period of time, the debt that the
Federal Government would have would have serious economic
consequences.
Mr. Cummings. At that same hearing, you testified that,
``The projected cash-flow benefits of the retirement fund
appear to be manageable under the current pay-as-you-go
policy.'' I take it that your position is still accurate.
Mr. Blum. Yes, sir.
Mr. Cummings. Finally, you testified that, ``The efforts to
reduce the cost of the system should weigh the effects of such
actions on hiring and retaining employees on the credibility of
the government as an employer.'' I take it that that is still
your position, also.
Mr. Blum. That's clearly the picture for Federal retirement
benefits. It is part of the overall compensation package that
the Federal Government offers to its employees.
Mr. Cummings. Mr. DeSeve, we all know that the unfunded
liabilities of the District pension plans are a direct result
of the Federal Government's not having funded those plans
before home rule, when it was responsible for establishing
pension funding policies.
The nearly $5 billion in unfunded liabilities that exist
today were in no way caused by the government of the District
of Columbia. That is why I think it only fair that the Federal
Government step up to the financial responsibilities that were
incurred on its watch, and I commend the administration for
acknowledging this responsibility.
Could you explain to us how much of the current unfunded
pension liability the President's plan would transfer to the
Federal Government and how much would be left with the
District?
Mr. DeSeve. Yes, sir, I will. The only element to be left
of the unfunded liability with the District is the disability
pay portion of a retiree who becomes disabled. We will be
taking everything else except that portion. We want to have the
District continue to administer that benefit for its employees
because we think its an important thing.
Congress, in fact, has recognized and has capped the amount
of disability that is available. We would like to see the
Congress continue to have oversight and the District to
continue to manage that aspect of its workforce. So everything
else--and if I could give you an absolute number, I would--but
everything else will be the Federal Government's responsibility
going forward, as far as the accrued unfunded liability is
concerned.
Mr. Cummings. Now, the President's plan appears to include
very complicated accounting requirements for dividing, between
the Federal and District governments, responsibilities for the
cost of benefits to workers who retire, become disabled, or die
after the Federal Government takes over the current plans.
I would think that a clearer, simpler approach would be to
do what we did in the mid-1980's, when the Federal Government
converted from the CSRS to the Federal Employees Retirement
System, which was to close the CSRS to new entrants, but allow
enrolled workers to remain in that plan throughout the
remainder of their careers and retirement.
Could you explain your plan and comment on the simpler
approach that I just stated?
Mr. DeSeve. Yes, sir, I will. We believe that the longevity
of the employee going forward, that policeman, fireman,
teacher, should be the responsibility of the District; that is,
they should continue to pay for that individual's accumulating
years of service. That's how we've made our division.
You might argue that it's an arbitrary division and the
division that you had is a better way to do it. What we're
trying to say is, if we clean up the problems of the past for
the District, that, going forward, the District should decide
under what system their existing employees and their new
employees would continue to accrue benefits. That's how we
divide the costs.
We do want to try to find an administrative way so that an
individual will get a single check. We believe that the
individual getting a single check is certainly something that
we and the District can figure out a way to do.
Mr. Cummings. Just one other question. Under the
administration's proposal, the District would be required to
establish and administer a new plan for current and future
teachers, police officer, and firefighters. Would the District
immediately be faced with an unfunded liability for those
plans, and how much would those plans cost the District each
year?
Mr. DeSeve. No, there would be no unfunded liability for
those plans, because they are starting new, and they would have
to be funded each year, incrementally, according to the precise
cost. I don't have the actuarial number for the cost of the new
plan. In fact, the District has to decide what benefit levels
that it wants within the new plan.
We have based our assumptions on the continuation of the
old plan. That's a question that the District and its employees
will have to negotiate.
Mr. Cummings. Mr. Williams.
Mr. Williams. Yes, sir. Paying the full cost, as Mr. DeSeve
is saying, I think we're estimating an order of magnitude of
around $55 million to $60 million per year. That's a number I
just got a few minutes ago.
Mr. DeSeve. That would be a net cost, because we leave all
employee contributions, which is about 7 percent of payroll,
with the District. The Federal Government doesn't take those.
So there's about $35 million a year, in addition to the
District contribution, to make those payments.
Mr. Cummings. So, Mr. Williams, I take it that the Control
Board feels comfortable with this plan, the President's plan.
I mean, if you can't speak for them, I understand, but I'm
just curious.
Mr. Williams. I cannot speak for the Control Board, but I
can observe. I have observed a consensus in the District, among
all the decisionmakers, that certainly this component of the
President's plan is a worthy component that we all applaud and
salute.
Mr. Cummings. Thank you very much.
Mr. Mica. I thank the gentleman and yield now to the lady
from Maryland, Mrs. Morella.
Mrs. Morella. Thanks, Mr. Chairman.
Thanks, gentlemen, for your statements on this very
important issue. I was looking over the actual President's bill
that I think had been circulated among various agencies and
departments for their responses, and I noticed that there's a
section that would establish a third-party trustee. As I
understand it, it would be to manage the assets and make the
payments, as necessary.
These are functions that are currently performed by the
Retirement Board. I thought the Retirement Board--and you know
more than I do--was doing a very capable job. If it appears to
be working well, then why would we eliminate it? Would you just
elucidate that whole concept of the third-party trustee?
Mr. DeSeve. We would be happy to. The President's plan is
to take on the liabilities, the entire liability of the plan,
with the reservation that I spoke of, of disability, and to
take the assets and use the assets to directly pay
beneficiaries over time, to liquidate the assets over time.
The Secretary of the Treasury would have the responsibility
for making payments, and we want to be very clear that that
responsibility is one that rests with the Federal Government
from the time at which the statute is passed. The trustee is an
agent of the Secretary of the Treasury who acts on behalf of
the beneficiaries.
The Pension Board will still have remaining assets and
remaining responsibilities for the individuals who are still
employees of the District. They will be receiving, for example,
the employee contributions every month. We believe it will be
necessary to leave some assets behind to make sure that all of
the liabilities of the District are covered. We've been talking
to them about that.
So they will still be in place, but we would like a clean
separation between those liabilities and assets that we're
taking over, and the payment for those, and those where the
Pension Board acts as a fiduciary for other District employees.
That's why we've set it up that way.
Mrs. Morella. This is something that you approve of. What
is it going to demonstrate? You're trying to show a clarity of
division?
Mr. DeSeve. Yes, we are. We're trying to say that it's our
liability, and we're going to use the assets that come forth to
make payments to the beneficiaries.
Mrs. Morella. Does it enhance the trust that should always
have been there, anyway?
Mr. DeSeve. We certainly hope so. That line has never been
drawn before. That line of the Federal Government assuming the
liabilities and using the assets to pay beneficiaries has never
been established before.
Mrs. Morella. Very interesting. Didn't the Council meet
today?
Mr. DeSeve. Yes, they did. I spent most of the morning with
the Council, and we had a very good exchange of views on the
memorandum of understanding.
Mrs. Morella. I was just going to ask. Can you shed any
light on whether they signed it?
Mr. DeSeve. I can't. And I don't think that today is
necessarily definitive. Today is a day on which they could act,
but I believe that we made a lot of progress this morning in
our conversations. They may, in fact, choose to act today. They
may have more information that they need.
It's a fairly complicated document. We tried to make it
simple, but like everything else in Government, somehow it
grows on it. They had some very good questions that we're
getting them the answers to.
Mrs. Morella. The other day there seemed to be the feeling
that they might well be voting on it today, and I guess that's
what's needed to kind of push this whole issue into more
activity.
I'm going to be going over to the floor, Mr. Chairman, and
so I leave it back in your trusty hands and hope to return.
Thank you very much.
Mr. Mica. I thank the gentlelady.
I wanted to state, too, that it looks like Ms. Norton will
not be able to join us. She is introducing someone in the
Senate, but if she doesn't get back before I ask a few more
questions, we will submit written questions to the panelists.
We were trying to accommodate her, but this went a little bit
faster than we thought.
I heard you respond, Mr. Blum, to Mr. Cummings' comment
about your comments that were made in previous testimony, that
there wasn't any immediate financial problem to the retirement
system. In the first part of your response, you did indicate
that in the years when some of this obligation comes due, 2010,
that we face some very serious potential problems with funding
some of these obligations.
Is that correct? Did I hear that correctly?
Mr. Blum. Yes, that's correct, Mr. Chairman.
Mr. Mica. So, in the short term, we're fairly sound in
meeting our obligations. In the long term is where we could
expect some problems, probably about 2010 would be a
particularly difficult time.
Mr. Blum. That's when the difficulty begins to mount rather
severely.
Mr. Mica. I read the last page, in your conclusions it
said, ``Overall Federal fiscal policies are unsustainable over
the long run. Federal pension benefits, which are backed solely
by the ability of the Federal Government to finance payments
when they come due in the future, are thus subject to some risk
that they will not be paid in full.''
Now, somebody has got to make a choice between making those
payments in the form of benefits or raising taxes. The last
estimate I saw showed that if we continue spending the way we
have been in order to meet the benefits that we're also paying
out at a current rate our tax rate will be up in the 75- to 80-
cent range when we get to 2010. There are going to be some
tough choices then, unfortunately, it appears.
Mr. Blum. That's one way of characterizing what this longer
term fiscal problem is. There are others, which is what--the
one that we would prefer is table 2 in my prepared statement
which shows what that pressure looks like over time.
Mr. Mica. I wanted to ask a question. We should all
acknowledge that the issue isn't whether or not we're going to
address the District's unfunded liability. The question is how
we meet that obligation and how we best protect any hard assets
that we've put into these funds, and then how we get to a point
where someone looks back and says, ``Hey, they really goofed up
in 1997. When they had a chance to do things right, they
ignored it.'' I've heard a lot of that in the history of this
panel and this Congress.
You've got, on page 15, table 3, a couple of choices there.
Could you comment? If you were going to pick one of these, why
would you pick it as a solution? The administration's proposal
you don't carry out to where the impact really hits. You only
go to 2002, I guess it is. I don't want to get into that. If we
were going to take something other than the administration's
proposal, which of these would you pick and why?
Mr. Blum. Well, I think the lump-sum payment and the 30-
year amortization are essentially the same, in the sense of
leaving the pension plan in the District's hands, but
recognizing the Federal responsibility for the unfunded
liability and paying the District for that.
That could be done either in a lump sum payment, all at
once which, in fact, is the equivalent--if we were on an
accrual budgeting system, when we're taking over an unfunded
liability of $4.8 billion, how you would recognize that in your
balance sheet would be an increase in your liabilities of that
amount, and that would also show up in that year's expense
statement, as well.
But you don't have to pay it all at once. You could spread
it over time. This third line in table 3 is just, simply, if
you were to amortize this over a 30-year period, this would
require a string of payments from the Federal Government. The
Federal Government, as we know, has already been making
payments for that share of the unfunded liability that it was
willing to assume in 1979. The problem is that that string of
payments will come to an end after 2004.
The administration's proposal last year is a variant of
this same theme, which was, increase the Federal payment by
another $52 billion and let that grow over time. That has the
advantage of leaving the pension plan in the District's hands,
leaving the Retirement Board to administer it. It leaves the
chances that the Retirement Board will get greater than
actuarially expected benefits by its investments in private
securities, and so forth.
This last option is just a different way of doing what the
administration has, in fact, proposed, which is taking over all
the liabilities as well as the assets, but instead of
offsetting completely all of the annuity payments that will be
due over the next 10 years or so, only draw down the assets to
the extent that the assets represent the total actuarial
liability, which is a little under 50 percent. So that ends up
with the numbers that are presented in the fourth line.
The problem with either lump-sum payment or any of these
amortizations or even the pro rata Federalization is, it goes
to the point that Mrs. Norton observed, that in a time when the
budget negotiators are trying to reach agreement on balancing
the budget, reducing the deficit, these all go in the opposite
direction of increasing Federal spending. So that's the
attractiveness of the administration's proposal, and I dare say
that was the prime motivating factor for its submission.
Mr. Mica. A couple of quick questions. I think Mr. Williams
said they inherited a $2.6 billion unfunded liability.
Mr. Williams. $2 billion, approximately.
Mr. Mica. Is it $2 billion in, was that, 1979, 1980? So the
unfunded liability is now $4.8 billion. Where did the other
$2.8 billion come from? Was that just accumulated from that
original amount?
Mr. Blum. Well, it's from the failure to, essentially, pay
the interest on that debt.
Mr. Mica. So some of that is the District's responsibility,
or whose responsibility?
Mr. Blum. I think it's arguable as to whose responsibility
it was. I mean, one case that can be made is that the Federal
Government had responsibility for all of the unfunded
liability, because it was running these pension plans before
home rule. It was making all the decisions on what the benefits
would be.
Mr. Mica. But $2.8 billion--was it 1980 when they
converted?
Mr. Blum. Yes, as a result of the act of 1979.
Mr. Mica. So there is some culpability on the District's
part or the Pension Board? No?
Mr. Blum. Well, there may be some.
Mr. Mica. Some responsibility.
Mr. Blum. Some, but I think it's arguable.
Mr. Mica. Well, I just heard that it was the Federal
Government's fault that we got into this situation. Well, we
didn't do much better for the Federal Employees Retirement
System, from CSRS to FERS, because we inherited quite a--well,
I should take that back, because the unfunded liability is only
$2 billion, isn't it, in that? And $538 billion since 1985, so
we have done better. Somebody goofed up on the District.
Mr. Blum. Well, we've done better.
Mr. Mica. The District's unfunded liability has grown to
$2.8 billion, while FERS grew, in a little bit different
timeframe, but $2 billion.
Mr. Blum. It's really an entirely different situation. I
mean, the Federal plan does recognize the accrued costs of the
earned benefits as they are earned under FERS and under the
military retirement system, since it was reformed. But these
are recognized, essentially, as intragovernmental budgetary
transactions. There is no funding in private assets, or private
securities, or what not, as you observed in your opening
statement, Mr. Chairman. Essentially, these are IOUs that are
placed in the cookie jar.
Mr. Mica. But somehow, in the District's scheme, when they
revised things, they did manage to get some hard assets which
are up--well, you're proposing to take $3.7 billion; is that
right?
Mr. DeSeve. That's what the number was in October, yes.
Mr. Mica. Except for some disability payments. So we're
going to draw those down and eliminate all but a half billion,
or somewhere in that range, $1.2 billion.
Mr. DeSeve. We will make payments to the beneficiaries out
of that pool, except for probably about $1.2 billion, at this
point is our best calculation, that will be left with the
Pension Board to meet the District's liabilities and provide
financial relief for the District over time.
Mr. Mica. I yield to the ranking member.
Thank you.
Mr. Cummings. Mr. Blum, I take it, just from your
statements, that, if we were able to fix the Social Security,
Medicare, and Medicaid, we would not have a problem with this
whole situation.
Mr. Blum. You would not have the same concern or the same
pressure that would be brought to bear on these retirement
benefits. The kind of pressure I'm talking about is the kind
that you have been subjected to over the last couple of years
in the way of proposals for deferring the cost-of-living
adjustments, increasing employee contributions, other changes
that might be made in the Federal Government's defined benefit
portion for both FERS and the CSRS.
Mr. Cummings. Mr. DeSeve, let me go back to something that
I'm sure a number of the unions are concerned about and I'm
just wondering about. How would your plan ensure that the
future benefits of current workers would not be reduced, if the
current plans in which they are enrolled are ended? I mean, how
would that be assured, if at all?
Mr. DeSeve. Yes. I think Mr. Blum has testified to it
himself, that the assurance is the same assurance we give other
Federal workers. It's Mr. Mica's point. They would have the
same ``full faith and credit'' pledge of the United States that
other workers in the Federal Government who have a defined
benefit plan have.
Mr. Cummings. I yield to Ms. Norton.
Ms. Norton. Thank you very much, Mr. Chairman. I thank you
for your indulgence. I have not mastered the art of cloning
yet.
Mr. Mica. Ms. Norton, you can have the balance of his time
plus your time.
Ms. Norton. Plus my own?
Mr. Mica. Yes.
Ms. Norton. Well, I'm sure that much of what I would have
covered has already been covered. I just want to clarify why
we're in this spot.
I have tried more than one approach in introducing bills to
conquer the unfunded liability. An earlier approach I used, to
get away from the complications of it, essentially required the
Federal Government to pay 5 percent per year of the remaining
amount, and the District was capped at an amount.
My most recent bill settled on another approach altogether,
and it came, in part, out of my own study of the GAO study of
possible approaches. Essentially, it settled on a flat amount
that the Government would pay, and for very good reason, if
you're looking to save the Government money over the long haul,
and this is a long-haul proposition.
So, essentially, what it did is to say, you're going to pay
what looks like a large amount, but it's going to be smaller
and smaller and smaller, because it's going to be the same
amount over 40 years. So you come out ahead, because you're
paying the same amount.
And behold, that's essentially what the Federal Government
is doing now. It's paying $52 million every year and $52
million every year. The difference is, it's an amount that
doesn't leave the District carrying the disproportionate share
of the burden.
Now, in a real sense, the administration is caught in the
same problem I was caught in when I was doing my 5 percent
bills. It looked good in the short term, but in the long term
the Federal Government was going to end up paying more money.
Now, the administration has not chosen a different, but at
the same time similar, approach because it prefers that
approach. Essentially, the approach the administration has
chosen leans in the direction of saving the Government money
now, when the pressure is on to save the Government money now.
And I really don't think the administration had any other
choice, unless we can find some sensible choice around the
problem. I think they did the very best they can, and we have
really forced them to jump through all kinds of hoops. It's a
very complicated plan.
I want to congratulate Mr. DeSeve, in particular, because
when you consider how many land mines there were out, and every
time you ran into one, you would have to figure your way out of
that one, and then there was another one there.
I really think this is a question for Mr. Blum. What do you
think, given what I'm sure you know, about the approach that
has been forced on the administration and the approach that
saves the Government money over 40 years? Is there a way,
consistent with deficit reduction, to solve this problem
without engaging in a charade which costs the Government more
money because of the way it has chosen to go at deficit
reduction and the timeframe that it is using to go at that
problem?
I mean, is there a better way to do it, in your judgment,
given all the constraints? Given all the constraints, is there
a way out of this that you would suggest that the
administration can take, recognizing, as I'm sure you do, why
the administration has chosen the path it has chosen, which is
ultimately going to cost the taxpayers more money?
Mr. Blum. Well, as I observed earlier, the administration
did propose an alternative approach a year ago that was not
unlike what you yourself had proposed. A year ago, the
administration proposed to increase its annual payment to the
District pension plan, now at $52 million, and that was going
to grow over time.
Your latest proposal was simply a variant of that, in the
sense of amortizing the unfunded liability over a longer period
of time, for a constant payment. That example is illustrated in
table 3 of my prepared statement, of a 30-year amortization.
The numbers aren't magic. I mean, it could be any length
period, but it was just to illustrate that there is this
alternative approach, which you had recommended.
The advantage of that approach is that it would retain the
District's pension system with the District. It would retain
the Retirement Board and its sound investment policies, which
have been earning more than 7 percent, the actuarial
assumption, on its investments. And the District would not have
to go through the process of creating a new pension plan. So,
there are advantages with that approach.
But as you are acutely aware, the disadvantage of it is
that, on the Federal budget, it shows up as an increase in
Federal expenditures. It also shows up as an increase in
Federal expenditures in the so-called discretionary spending
pool, which Congress has set limits on, and which budget
planners like to write down very restrictive limits on in the
future. So it runs up against that hurdle, which is a major
problem.
Now, as you have observed, the administration has gotten
around that by simply adopting a process similar to what we do
with terminated private pension plans under the responsibility
of the Pension Benefit Guarantee Corporation, where the Federal
Government takes over the assets from the terminated plans and
uses those assets to help pay the promised benefits to the
beneficiaries of those plans.
The effect on the budget is zero in terms of the deficit.
The actual outlay of the payments is offset by essentially
selling off or liquidating the assets in the plan. So it avoids
that problem for 10 years, then it shows up in the Federal
budget 10 years from now as a $700-million to $800-million
increase in spending.
Ms. Norton. Well, I understand how it works, Mr. Blum.
Look, the daily mantra, indeed sermon, on why we have to go at
cutting this deficit in 5 years, goes as follows: It's because
we are bankrupting our children. Now, what we have here is an
instance where we are forcing our children, according to who
you talk to, to pay, I don't know, twice as much, maybe three
times as much, because of what I can only call a fiction which
is 5 years, in which we say it's got to look like it's
balanced.
At some point, I guess, I'm trying to break through at the
commonsense level and at the level that the Congress says
deficit reduction is, in fact, concerned with, that we're
supposed to save money for our grandchildren. Well, we are
guaranteeing that our grandchildren are going to pay more than
we ourselves could pay.
Let me just ask you straightaway: In light of the
underlying rationale of deficit reduction, which is to save
others from having to pay our debt, is there any kind of
commonsense exception to the deficit reduction fiction that you
know of or that you think might be recommended to take care of
this perversion, frankly?
Mr. Mica. I'm sorry. The gentlelady is out of order. She's
injecting common sense in this discussion. That's totally out
of place. [Laughter.]
Ms. Norton. Strike that from the record.
It's very hard to keep walking ahead against the very
philosophy and the very rationale that the Congress is
operating under.
So I'm really asking, since we all understand what the
problem is, since we understand why the administration has
broken its neck and many pencils in order to get here, do you
know of any device existing under law, or can you recommend one
that we might use in order to solve this problem within the
President's plan and in keeping with deficit reduction, without
increasing the deficit in a very serious fashion in the out
years, that you, yourself, have said was about $700 million?
Is there something you can recommend that would help us get
around this hurdle, recognizing that this is not the District's
liability, that we're talking about congressional liability? If
it had done what this administration is trying to do now, 20
years ago, then this problem wouldn't be here. So it's here for
this Congress because the Congress in 1979 didn't do it, and
now we are forcing ourselves into a crucible not of our own
making.
The question is, since we know this must be dealt with,
since we know 2004 is coming, since we know the District blows
up in that year, is there a way that we can--a commonsense
way--excuse me, Mr. Chairman--that we can find our way around
this dilemma?
Given your own considerable knowledge and talent, and I'm
sure your allegiance to saving the Government money in the long
run, can you recommend either a waiver or some other way around
a problem which is going to, one way or the other, cost the
Federal Government more money? The only question is, how much,
is it greater or is it less?
Mr. Blum. Well, I think you've put your finger on it, Ms.
Norton. This is going to cost the Government money, either now
or in the long run. The most straightforward way is to
recognize that liability now and to pay for it now. It doesn't
necessarily have to be done all at once. It can be done, as you
have suggested, over a period of time.
In effect, what the administration's proposal has done,
though, is to deny recognizing or recording that cost in the
budget in the short run, for short-term budgetary
considerations.
Ms. Norton. Not at their preference. They didn't start out
trying to do that. They are just trying to conform to what the
Congress is doing.
Mr. Blum. But the net result of that could well be to
increase the burden on future taxpayers more than otherwise
would be necessary.
Ms. Norton. Mr. Blum, can't you just see it? At some point,
let's say it's 2003, somebody is going to come up with a bill--
if I'm here, it's likely to be me--to say, at that point, let's
change what we did in 1997 so that the Government's expense
won't be $700 million, but we would have made it in 1997, if we
could have made it that.
I mean, wouldn't the responsible thing, for anybody sitting
here, then, at least at that point, be to come forward to try
to reduce the Government's expense to the far smaller figure
that is possible here, even now?
Mr. Blum. I think you give me more credit than I deserve. I
cannot think of a solution along the lines that you're seeking.
Ms. Norton. You can't think of a way to get around the
deficit reduction problem?
Mr. Blum. No.
Ms. Norton. On the other hand, you would agree, I take it,
that after the strictures are over with, that the logical thing
is to try to come forward to reduce the Government's expenses
from the $700 million to something closer to the amount in my
bill.
Mr. Blum. Well, at that time, when we've exhausted all the
assets, essentially the $700 million to $800 million is just
the annual payment that's due to the District annuitants at
that time.
Ms. Norton. Well, they won't all be exhausted in 5 years.
There will be some of them left.
Mr. Blum. No, I'm talking after it is exhausted, so about
10 years.
Ms. Norton. OK.
Mr. Blum. When that time comes, the $700 million to $800
million a year is simply the annual cash benefits that will be
owed to the District annuitants, unless, for example, the
Congress changes what those defined benefits will be, cuts back
the amount of benefits.
Now, there's no property right in those benefits. The
benefits are statutorily determined.
Ms. Norton. Are you suggesting that, at that point, the way
in which to proceed would be to cut back the benefits rather
than reduce the Government's cost?
Mr. Blum. That's the only way you can do it. If you don't
want to bear the cost of the $700 million to $800 million a
year, that means cutting back the benefits.
Ms. Norton. Or, in fact, redesigning the plan so that it
costs less, in a way not unlike the original bill I offered. I
mean, as you say, you can do anything you want to do, you're
the Congress.
Mr. Blum. Yes.
Ms. Norton. At that point, there is an alternative to
cutting back benefits. I mean, I'm sure that if retirees hear
that what may happen at the point we get to $700 million--you
couldn't cut back benefits enough to deal with that kind of
problem.
Mr. Blum. Exactly.
Ms. Norton. Mr. Blum, I wish you would think hard about
this. I know you sit where you cannot advise us to get around
deficit reduction, but you also sit where you might advise the
Congress that it is countermanding its own stricture that we
should not raise the costs for future generations.
Could I ask about the disability figure? Mr. DeSeve, you
have a concern that disability payments be left with the
District. Would you explain that, please?
Mr. DeSeve. Yes, Ms. Norton. When someone retires on
disability, there actually are two actuarial calculations that
cause them to get their retirement benefits: One is the normal
pension they would have gotten at their normal retirement age;
the second is the extra benefit that has to be paid for as a
result of retiring early or having additional years of service,
in a sense, imputed to you.
We want the District to continue to manage its relationship
with its workforce; that is, to continue, rather than having
the Federal Government conduct health examinations for District
employees and decide whether Mary or Harry happen to be
disabled, to have the District continue to do that, and make
decisions about the disability of their employees, subject to
the congressional strictures that are currently in place,
rather than having the Federal Government make that decision.
In order to fund that, we will leave behind some assets, so
the District's liability in that regard is covered by the
assets that are left behind.
Ms. Norton. How much would you leave behind?
Mr. DeSeve. I want to ask that we get back to you with the
precise answer to that. We use the calculations that Milliman &
Robertson does, and I don't have those with me today. I don't
have those numbers with me today.
Ms. Norton. Are you certain that that would cover? Suppose
it didn't cover the real cost and we were left where we are
now, paying for unfunded liability?
Mr. DeSeve. The best I can do is get all the parties to
agree: the District, the Pension Board, the actuaries. We have
our friends at the PBGC helping us. We will all sit down and
agree and come up with a number, and that's the amount that
will be left behind.
Ms. Norton. Mr. Williams, do you have any idea? Could you
tell me what disability, in some proportions, or with some
figure, is costing the District now?
Mr. Williams. I could get that figure for you, Ms. Norton.
Ms. Norton. It's very important to get that figure.
Mr. Williams. And I would echo what Mr. DeSeve has said. We
would work closely with the OMB in agreeing on all the numbers,
and look forward to agreeing on these actuarial numbers and the
asset issues, as well.
Ms. Norton. We certainly need to have this be more than a
guesstimate. And I don't know what the District intends to do
about disability, what plans you are making. In fact, I suppose
I should ask you. Is the District considering any changes in
its disability policies?
Mr. Williams. I think one of the overarching issues, and
we've talked about this with the District, is how we set up
this new plan, what the policies are going to be in this new
plan, related to a number of other human resources issues and
how we deal with disability. I think the Council has talked
about this. No conclusions have been reached, but this is an
issue.
Ms. Norton. We have a disability problem still left over
here from last year that wasn't dealt with in the
appropriation, which I hope we will deal with.
One final question. Obviously, with changes like this, Mr.
DeSeve, employees must wonder where they will end up. Does your
plan ensure that the future benefits of current workers would
not be reduced, if the current plans in which they were
enrolled were ended?
Mr. DeSeve. Yes.
Ms. Norton. Would you elaborate?
Mr. DeSeve. Certainly. What the Federal Government is
saying is, an individual who currently has X years of service--
first of all, for the retirees, all of their benefits are
guaranteed by the Federal Government because they are already
on retirement. They get the entire amount.
Ms. Norton. That's right. That's why I said ``current
employees.''
Mr. DeSeve. With the current employees, if you're an
individual who has a particular number of years of service, we
agree to pay for the number of years of service times whatever
your formula is--there are different formulas--whatever your
formula is, and we will pay the increase, over time, of the
pay.
So if today you're making $30,000 a year and you have 10
years of service, and in the future you're making $40,000 a
year, we will pay on the basis of your high years of service at
40 years. So you will get the increase in your pay. You will
get the number of years of service you currently earned, paid
for by the Federal Government.
If you stay with the District another 10 years, the
District will be responsible for those going forward years from
today, put a new plan in place. We've always, in our
calculation, used a mirror image plan, one that had identical
terms and conditions. That's up to the District.
Ms. Norton. Did you consider the FERS approach, where we
ended our one plan and simply started another? And it was much
simpler. It seemed to offer a simpler approach than what you've
been forced to do.
Mr. DeSeve. It's simpler. The difference is that, in FERS,
we weren't really worried about who was sharing cost. What
we're saying is, the District, going forward, should bear the
pension cost of its employees. We will take care of the past.
We will take care of the sins of the past. And they should make
a decision under home rule and a judgment as to how they want
to handle those going forward costs. So FERS didn't have a
cost-sharing element to it.
Ms. Norton. So you really see this as a continuum. It's
just a different party who does the payout.
Mr. DeSeve. That's correct. And what I testified earlier
is, we will figure out a way between us to solve a two-check
problem. Is it going to be one check or two checks? We will
solve that problem.
Ms. Norton. I'm sure employees wouldn't mind if there were
two checks, if somehow they added up to--if one and one added
up to more than two.
Thank you very much, Mr. Chairman.
Mr. Mica. I thank the gentlelady.
Just a couple of quick points. Maybe you're familiar with
the administration's proposal for Federal employees, but it's
to increase employee contributions to the retirement system.
Are you familiar with that? That came to us in the Congress.
And they also proposed delaying COLAs for Federal retirees for
3 months.
Has there been any proposal by the District to change any
of the employee contribution, to have some additional revenue
coming into this? I see in the audience an affirmative nod. Can
anybody confirm that? Is there anything that makes a proposal
similar to what we're doing for Federal employees, to meet our
shortfall or our obligation?
Mr. Williams. I think the District has made some changes
over the last couple of years to reduce its burden, in terms of
retirement benefits.
Mr. Mica. But the employees are still paying 7 percent.
Mr. Williams. Right.
Mr. Mica. There's no proposal for increasing that?
Mr. Williams. No, but I think there is, though, speaking
next, a representative from the Retirement Board who can speak
to that point.
Mr. Blum. Mr. Chairman, if I may, I would just point out
that Ms. Norton's bill last year proposed just that for the
District plan.
Mr. Mica. Right.
Ms. Norton. Would the gentleman yield for a second?
Mr. Mica. Yes.
Ms. Norton. I'll make a deal with you, Mr. Blum. I'll bet
the employees would accept my change, because that had been
negotiated, if you will accept my bill and advise the chairman
that it is the better approach.
Mr. Mica. Looking awfully good.
Mr. Williams. If I could say, Mr. Chairman, though, among
all the things in the District, I think the way the District
has handled its retirement responsibilities has been
commendable, because, by our calculation, the District has put
in $1.7 billion above and beyond paying the full cost, normal
cost, you called it, of beneficiaries from the inception of the
program in 1980 on. I think it's been very, very responsible.
Mr. Mica. Mr. Williams, I get to oversee some dozens of
Federal pension plans and observe what's going on in others.
Sir, to have $4.2 billion in assets for the District of
Columbia, someone should get--last week I gave a veteran a
purple heart--we should have a special medal coined when your
unfunded liabilities are $4.8 billion and you have $4.2
billion. If I had that in just the Federal retirement system,
employees' system, I'd be doing a dance with Ms. Norton down at
one of these pubs downtown.
Ms. Norton. Is that an offer, Mr. Chairman? [Laughter.]
Mr. Mica. If we could keep some of that cash. It just
dismays me no end to see this one little bit of cash left and
the one thing the District has done semi-right, and their
employees have these assets, to have it drained off. And then,
because of some CBO scoring thing, and because of the lack of
some common sense to get out here, when we're going to be hard-
pressed to meet obligations and be in a more difficult
situation, and then to have blown the money.
I don't mind participating in rearranging the deck chairs
on the Titanic, but I don't want to raid the passengers' safety
deposit boxes just before the ship goes down. So we're looking
for some alternative here to do this in as positive a fashion,
retain and protect as much of the hard assets as we can.
Now, it may also require some of the components that the
gentlelady has proposed before. So we're willing to work with
you all to come out with some solution that does resolve this
in a satisfactory manner and as painless as possible.
Did you want me to yield?
Ms. Norton. Thank you very much, Mr. Chairman, because you
made a point that I think is very important to followup on.
First, let me say that I do support the administration's
proposal, and I support it because I believe I don't have any
choice. I think that they have done what they had to do. They
said, ``What are the rules of the game?'' And instead of
screaming and hollering that they want new rules and that it
was, you know, congressional liability, so they deserve new
rules, they have jumped through hoops to come up and play the
rules of the game. And I admire you for doing it, even though I
think it is very tortured, and I know what you must have gone
through to do it.
But I would like to ask all three of you, given your
backgrounds in these affairs, perhaps not always in pensions,
although Mr. DeSeve has a long pension background, but when the
Congress gave the District this, it didn't say just fund it, in
essence, the Congress has made the District overfund this
pension liability. That's what the $1.7 billion, or whatever,
that Mr. Williams was talking about is.
I really have to ask you, in light of what you know about
pension funds, and in light of what you know about the
institution we're talking about, the city, and may I also add,
in light of what you know about people going into pension funds
these days--the good Governor of New Jersey--where people are
really saying, ``Do we really want to lay away all that much
cash, when we have pressing needs?''
Just for my edification, recognizing that it will not
affect directly the remedy to this bill, was it a wise decision
to make the District not only fund but overfund, when one
considers what it has done to the credit rating of the city, to
the very stability of the city? Was this the best way to do it,
or would it have been better to have had, even with the
unfunded pension liability, to have had the District pay less
over time and end up a stronger mechanism than it is?
You would still have had a lot of unfunded liability, but
looking at it in a kind of costbenefit way, was it wise of
Congress to, in fact, extract this much in unfunded pension
liability from the District of Columbia?
Mr. DeSeve. The executive branch is never allowed to
criticize the wisdom of Congress, certainly in public,
certainly in this committee.
But I think, if we had had a system in which the same
treatment had been given to these employees as was given to
other Federal employees, if their pension fund had been, in
essence, Federalized, with the continuing costs--Mr. Mica
mentioned earlier the liabilities associated with that--so that
it wasn't a District burden, but it remained for these
employees a Federal burden, it certainly would have imposed a
significantly lesser cost on the District of Columbia.
It's always nice to have hindsight. It's 2020 hindsight.
But if they had been treated as other Federal employees.
Ms. Norton. Would the Federal Government have made itself
overfund these?
Mr. DeSeve. No, I'm agreeing with you that, in 1979, if
these employees had been transferred to a Federal defined
benefit plan, as some other employees, I understand, were, that
would have a lesser cost implication for the District as they
made payments over time. So it's easy in hindsight to say it
probably would have been better to have done it that way.
Ms. Norton. Mr. Williams.
Mr. Williams. Ms. Norton, I would agree with Mr. DeSeve.
One of the key principles in the President's plan, that isn't
often talked about, is the alignment of authority and
accountability in the plan.
Let's take expenditures. Don't hold the District
accountable for expenditures, if it doesn't have the authority
and resources, really, to manage them well. Don't hold us
accountable, for example, in managing of our budget, if we
really don't have ultimate authority to manage it well. Don't
hold us accountable for managing a good retirement plan and
system, if the lines of accountability are murky and blurred.
I think that's what happened in 1979. That's what I think,
commendably, the President is hoping and attempting to correct
in this plan. So I would definitely not have done it the way it
was done in 1979.
Ms. Norton. But to the credit of the Congress, the
Congress, in fact, tried to give a formal, balanced
apportionment, as between the Federal Government, and it was
President Jimmy Carter who vetoed that bill. What was left,
though, was that the Congress required of the District of
Columbia what it has never required of itself, in terms of
funding these plans, far weaker mechanism that we are.
In essence, look what has happened. Funding these plans
wrecked the city without insuring the pensions. So we got the
worst of both worlds. The liability puts the pensions in
jeopardy, because if we don't do something by 2004, everything
is going to go down the tube. And in the process, Mr. Mica's
point about seeing this $4 billion, this amount of cash here,
in the process, we put some money beyond our reach and wrecked
the city, which is responsible for continuing to add to that
fund.
I hope we can correct this. I don't think it is all
hindsight. I think this was perfectly predictable. Once
President Carter vetoed that bill, everybody knew how those
amounts would go up each year until we got to the point where
next year we're over $300 million, and the Federal Government
is still at $52 million. Everybody understood that. The
District should have come forward sooner for a remedy, and the
Federal Government should have recognized that the city itself
was being sacrificed.
Thank you very much, Mr. Chairman.
Mr. Mica. Thank you.
When they read the record of this hearing 10 years from
now, we foresee it will be $700 million a year. I'm not sure if
we're making progress, Ms. Norton.
I would like to thank our panelists for their testimony. We
may have some additional questions, and we're working with the
D.C. Subcommittee to help resolve this issue. We appreciate
your being with us today. Thank you.
I would like to call our second panel this afternoon. We
have Jeanna Cullins, executive director of the District of
Columbia Retirement Board. We have Ron Robertson, chairman of
the Metropolitan Police Labor Committee; Thomas N. Tippett,
chairman of the Pension Committee of the Fire Fighters
Association of the District of Columbia; and Mr. James Baxter,
treasurer of the Washington Teachers Union.
I'm sorry, we have a change. Betty Ann Kane, will be
testifying instead of Jeanna Cullins for the District of
Columbia Retirement Board.
As I mentioned to the first panel, this is an oversight and
investigation subcommittee. If you would stand, please, and be
sworn in.
[Witnesses sworn.]
Mr. Mica. The witnesses responded in the affirmative.
We would like to welcome you to our panel. Thank you for
waiting patiently. As I mentioned to our first panel, if you
have a lengthy statement or additional information you would
like submitted for the record, we would be glad to do that by
unanimous consent.
We will recognize first Betty Ann Kane.
You are recognized.
STATEMENTS OF BETTY ANN KANE, CHAIRMAN, LEGISLATIVE COMMITTEE
AND TRUSTEE, DISTRICT OF COLUMBIA RETIREMENT BOARD; RON
ROBERTSON, CHAIRMAN, METROPOLITAN POLICE LABOR COMMITTEE,
FRATERNAL ORDER OF POLICE; THOMAS N. TIPPETT, CHAIRMAN, PENSION
COMMITTEE, FIRE FIGHTERS ASSOCIATION OF THE DISTRICT OF
COLUMBIA; AND JAMES BAXTER, TREASURER, WASHINGTON TEACHERS
UNION
Ms. Kane. Thank you very much, Mr. Chairman, and committee.
I am the chairman of the Legislative Committee for the D.C.
Retirement Board, a trustee of the Retirement Board, a 12-year
former member of the Council of the District of Columbia, where
I chaired the Council's Government Operations Committee, with
oversight for the Retirement Board, among other things, and
also served 4 years on the Board of Education. I had
responsibility and concern for teachers' pensions there.
I do have a written statement I will put in the record and
briefly summarize.
Mr. Mica. Without objection, your full statement will be
made part of the record.
Ms. Kane. Thank you, Mr. Chairman.
As you know, the Retirement Board, just by way of
background, was established by Congress in 1979. The
legislation establishing it gave us exclusive authority and
discretion to manage the pension funds for the District's
police officers, firefighters, teachers, and judges.
The Retirement Act passed by Congress, to which we've had
many references here today, sets up the board's structure,
authority, and legal responsibilities. There has been some
change in the structure due to Council legislation, in terms of
adding some additional representatives, but, basically, it has
remained the same.
Mr. Chairman, it is very important for us to clarify, at
the outset, that as fiduciaries of the funds, the board members
are statutorily and equitably bound to act solely and
exclusively in the best interest of the beneficiaries and the
participants in the fund. So, accordingly, the comments and the
views expressed in my statement, on behalf of the Retirement
Board before this committee, are tempered and reflective of
this overriding obligation of the trustees.
As was said, we invest the funds. We do not make benefit
determinations or calculations. We do not maintain benefit
records. We do not process payments to the beneficiaries, at
least under the current setup. These noninvestment
administrative duties are shared among several agencies of the
District of Columbia government, including personnel, pay, and
retirement, et cetera.
Our management of the funds, as has been referred to here
today, has been reviewed, scrutinized, and analyzed by many
proponents and critics alike, including Congress, CBO, the D.C.
City Council. Most all of these, including Ms. Norton's task
force that was set up and issued its report in April 1994, have
basically concluded that the funds are well managed.
The Bear Stearns report, which the Congress required in the
1995 Appropriations Act be undertaken, was submitted. Their
report was submitted in May 1995 to Congress. They concluded
that the board's operations were well run. Its investment
performance was in the top quartile of public pension funds for
the period examined. Our costs were found to fall within a
reasonable level. Our asset allocation and procedures were
determined to be ``well documented, thorough, and effectuated
by the board in a prudent and deliberate manner.''
And the most recent report was a March 1997 report from the
Congressional Budget Office, which again analyzed our policies
and performance, and concluded that the funds were
professionally managed, that they meet fiduciary standards, and
that our performance has been consistent with other large
public employee funds.
I was a member of the City Council in 1979, a new member,
when the legislation was passed by Congress transferring
responsibility for the pension funds to the District. We have
come a long way since 1979. We are very proud of the
accomplishments of the board and its staff. As has been
mentioned, we now have $4.2 billion in assets. We are 44
percent funded.
We started, essentially, from zero. There were some small
amounts of money in the teachers' pension fund. They had them
in Treasury bonds, making about 3 percent. There was, I think,
$100 million or $150 million. Our funding level has increased
almost 20 percent since 1991. In 1991, we were 25 percent
funded, had gone from 1979 to 1991, from zero to 25, and from
1991 to date, have gone to 44 percent funded.
At the conclusion of calendar year 1996, we have exceeded
our performance objectives, which is a 7 percent rate of return
on all investments, 14.1 percent. Not only did the board
outperform the actuarial assumption rate of 7.5 percent, we
outperformed our target total benchmark, which was 12.6
percent. I might add that we have exceeded our target, exceeded
that actuarial assumption in 11 of the last 14 years, and as a
result of that performance, have $1.1 billion in net assets to
the fund.
Mr. Chairman, as a practical matter, a retirement program
is part of an employee's compensation. It is designed to
attract and retain the employee. The employer who, in the
public sector, is the taxpayer, the District taxpayer, receives
the benefit of the employee's service when they are active, not
when they are retired.
We believe that the liabilities of and contributions to a
retirement program, therefore, should be related to the period
in which the benefits are earned rather than the period in
which the benefits are paid. During the period before enactment
of the D.C. Retirement Reform Act of 1979, of course, this
principle of funding was not followed by the Federal
Government.
Let me summarize. The act which created the board 17 years
ago specifically acknowledged that the police and
firefighters', teachers' and judges' retirement funds were not
being maintained on an actuarially sound basis. It's in the
report; it's in the findings. Congress determined at that time
that the net pay-as-you-go method was unsound and that the fund
should be maintained on an actuarially sound basis. Therefore,
the trust was created for the three funds, requiring that the
assets be invested to provide for the retirement security of
these employees.
I might mention, because we had some questions previously
about new systems created by the District. The D.C. Council, in
the fall of 1996, took exactly the same action that the
Congress had taken in 1979. It has created, Mr. Chairman, a new
fund for new hires. All police, all firefighters, all teachers
who have been hired on and after October 1, 1996, the beginning
of the current fiscal year, are in a third tier, a new fund, a
new program.
I know Mr. Tippett, in his testimony, will talk more about
the details of that fund. That is a defined benefit fund, but
it is starting from ground zero, starting from scratch, and it
will be fully funded from day one.
The Council looked, and worked with us and our actuaries,
at that versus a defined contribution plan, and determined that
actually, in the long run, it was more economical for the
District, particularly dealing with public safety employees, as
well as better for the beneficiaries, to do a defined benefit
plan. If you started from zero, started from day one, and
funded it, it would work. So that's been taken care of for
everybody from October 1, 1996, on.
As I said, an unfunded liability in an employee retirement
system presents many problems. The beneficiaries have less
security. An employee, a retiree really only feels assured that
they are going to receive their benefit if there is money
already set aside to pay that benefit.
Second, the burden with an unfunded liability is shifted to
future generations of taxpayers. Because contribution have not
been paid in the past, future taxpayers will have to make up
the difference. And, most important, investment earnings
potential is lost because there is no money in the fund.
A cash infusion of $2.6 billion in 1979 would have solved
the entire problem. Today, it would require $4.8 billion. Under
the President's plan, which I want to finally address in the
summary of our testimony, the absence of a funding mechanism is
estimated to cost over $30 billion in future taxpayer dollars.
With regard to the President's plan, let me say that the
board of trustees of the retirement system applauds the
President for his vision and for his administration in
recognizing that the unfunded liability is a Federal creation
and is, therefore, a Federal responsibility. We favor the
Federal Government's assumption of that liability.
However, unfortunately, we still don't have specific
details of the President's plan, and we are not able to totally
evaluate and comment on its limitations, but we know that it
has inherent, very significant limitations. I don't need to
describe this but to say that the President's plan would have
the retirement funds revert back to the very funding method
that Congress found in 1979 was unsound.
The President's plan does not propose to fund the unfunded
liability. Rather, it proposes to terminate the current
retirement system, take all or at least the majority--and we go
back and forth in hearing whether it's some, all, most--of the
current trust assets, and transfer them to a third-party
trustee appointed by the Federal Government.
Those assets would be then used to pay the beneficiaries
until the assets are depleted, which we estimate would be in
about 10 years, the Federal Government would be responsible for
annually allocating future benefits payments. Our actuarial
firm, Milliman & Robertson, estimates that the Federal annual
payments, once the assets have been depleted, will average over
$700 million a year for over at least 20 years.
So the President's plan would take the funds from 44
percent funding, which they currently are, back to zero percent
funded within about 10 years. Those payments would be
scheduled, that is, the Federal payment, then, of $700 million
would be scheduled to begin at about the same time as the first
wave of baby boomers would begin to move into retirement,
forcing Congress to address the Social Security crisis at the
same time.
We find the uncertainty surrounding the retirement security
of the beneficiaries and the participants in the D.C.
retirement system, under this scenario, very, very troubling.
As fiduciaries of the funds, it is the board's view that it is
in the best interest of the beneficiaries and the participants
to fund the unfunded liability and not defer action for another
10 years, for another Congress that may or may not be
supportive of the major annual capital outlay called for under
this plan.
These employees will still be District employees; they will
not be Federal employees. We do question--we have seen the
payment proposed going from $52 million to $104 million last
year. That was not approved by Congress. So we do have a doubt
and a concern, as fiduciaries, that if there is not a
willingness to go from $52 million to $104 million, where will
there be some guarantee there would be a willingness to from
zero to $800 million?
Alternatives: Congressman Norton offered an excellent piece
of legislation during the last Congress which would have
provided an equitable method of amortizing over a number of
years the unfunded liability. In our view, this kind of
approach that directly addressing the unfunded liability issue,
provides greater security for the beneficiaries and the
participants than a plan that leaves the unfunded liability
unsolved.
We find no comfort in the argument that Social Security,
Civil Service, and military personnel benefits are handled in
the pay-as-you-go manner and that, therefore, it is acceptable
to place the District's police officers, firefighters,
teachers, and judges in the same tenuous position. We must
endeavor to safeguard their retirement security, not to weaken
it.
Mr. Chairman, let me reiterate that we have to have more
detail to carefully consider and comment on the President's
plan. The board needs to know precisely what our beneficiaries
and participants would be receiving, what they are giving up,
before we could support the proposal. We have to have these
details demonstrated to protect the retirement security of our
beneficiaries and participants.
Thank you, Mr. Chairman, for giving us the opportunity to
share the board's views and observations. That concludes my
statement. I would be happy to answer any questions.
[The prepared statement of Ms. Kane follows:]
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Mr. Mica. I thank you, Ms. Kane, for your testimony. We
will defer questions till we have finished all the panelists.
I recognize now Ron Robertson, chairman of the Metropolitan
Police Labor Committee, and offer my condolences on the tragic
death of another officer this past weekend.
Welcome. You are recognized, sir.
Mr. Robertson. Thank you, Mr. Chairman, Congresswoman
Norton.
Thank you for the opportunity to testify before you
regarding President Clinton's proposal to relieve the District
government of the unfunded pension liability attached to the
retirement programs for its police officers, firefighters, and
teachers.
The pension plan enjoyed by police officers and others
covered under the program is the result of congressional
action. I and my fellow officers who are already retired or
still working came to work for the District of Columbia under
an agreement which included these benefits as part of our
employment contract.
The plans recognize the special nature of law enforcement.
It is an undeniable fact of our professional lives that we
place ourselves in harm's way while serving this community each
and every day. Unfortunately, not a year goes by that my fellow
officers are not assaulted. Scores of us are injured and
hospitalized every year.
We are on the front lines of a never-ending war on crime
every day. We face a deadly enemy who wears no uniform and
nearly always strikes without warning. No other Government
employee faces such unending danger. Even our military enjoys
years of peaceful duty between wars.
A memorial for fallen law enforcement officers stands
blocks from here. It contains more than 12,000 names, and more
are being added as this hearing is progressing. I have attended
too many funerals for those among the ranks of the Metropolitan
Police Department who have their lives savagely taken.
I am proud to be a police officer. I know that we save
lives every day. We serve and protect without consideration of
time or place. Where we see criminal activity, it is our
unrelenting duty to act. We arrest those who prey on our honest
citizens and work very hard to remove them from the streets.
The dangers and difficulties we face come with the oath and
duties of our office.
The retirement plan which I and others qualify for is
underfunded and the subject of this committee's hearing today.
The retirement plan reflects one quantitative recognition of
the special hazards and duties I have just described. It is a
promise made by the District of Columbia and the Congress to
those of us who have served and continue to serve this
community.
Our side of this promise is to perform our duty and to be
prepared to make the ultimate sacrifice while doing it. We are
keeping our side of the contract. I urge you to move to ensure
that the benefits promised become the benefits delivered.
President's plan provides for full protection of the benefits
contained in the program as it currently exists. The Fraternal
Order of Police wholeheartedly endorses that preservation of
existing benefits without reduction.
Our members' duties under the employment contract
containing the retirement benefits have not been diminished. In
fact, they have been expanding and made more dangerous than
ever before. I urge this Congress to affirm the President's
commitment to those of us behind the badge here. It is the
right thing to do.
While I support the preservation of our existing benefits
and their assumption by the Federal Government, as of the date
of introduction of this plan, I do question the wisdom of the
funding method chosen to secure them. I am no actuary or public
accountant, but what I have read from those who are qualified
to make financial assessments leads me to believe that the
proposal to spend down the money currently contained in the
retirement plan is not a good one.
According to the projections completed by Milliman &
Robertson, Inc., for the D.C. Retirement Board in January, the
President's plan would cost American taxpayers more than $24
billion by the time the last expected survivors or participants
are deceased. But if a decision was made to more fully fund the
retirement plan by obligating the Federal Government to a flat
rate of $295 million annually over the next 40 years, the cost
would be cut in half, to about $12 billion.
The Fraternal Order of Police urges you to adopt this type
of funding strategy. I understand that the Congress and the
administration are under significant pressure to reduce the
Federal spending in order to balance the budget, but I am
deeply concerned that a decision to avoid immediate expense
will result in a future obligation which may not be honored
because it will come due at the same moment in time when Social
Security and other entitlements are making tremendous demands
on the treasury.
I hope that people of honor will keep the promise made to
me and other Metropolitan Police officers, but I am very
concerned about the temptation of putting off until tomorrow
what should be resolved today, especially when tomorrow's price
tag is twice what timely action today would cost.
I conclude by urging you to take the difficult immediate
steps necessary to protect those who serve and protect you.
Please pass legislation which will begin funding our retirement
plan at a level which will provide for all of its current and
future annuitants on an actuarially sound basis.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Robertson follows:]
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Mr. Mica. Thank you for your testimony.
I will turn now to Mr. Thomas Tippett, chairman of the
Pension Committee of the Fire Fighters Association of the
District.
Welcome, and you are recognized, sir.
Mr. Tippett. Thank you, Mr. Chairman.
I also have a statement I would like to submit--it's rather
lengthy--and then try to summarize.
Mr. Mica. Without objection, that will be made part of the
record. Thank you.
Mr. Tippett. Thank you, Mr. Chairman, members of the
committee and staff.
I am Thomas Tippett, chairman of the Pension Committee of
the D.C. Fire Fighters Association. I am a 29-year veteran of
the D.C. Fire Department and have served as president of the
Fire Fighters Association for 12 years. Presently, I am serving
as the active firefighter representative on the D.C. Retirement
Board.
In my capacity as president of the Fire Fighters over the
years, I have served on numerous pension task forces, work
groups, mayoral pension transition teams, and have testified
before the House and Senate committees many times, the subject
matter always being the same as it is today: How do we address
the unfunded pension liability?
Mr. Chairman, we do believe that the administration's plan
is a bad deal for the firefighters, but I believe also that it
is vital, as we discuss the proposed legislation dealing with
the unfunded liability, that we don't forget or overlook the
past legislative history that has brought us to this point.
I have laid out a history of that in my testimony, but
specifically, in 1976, legislation was passed to address the
unfunded liability, in the Congress, and OMB voiced strong
opposition to the bill. In 1978, Representative Mazzoli
introduced the same bill, and it was amended in subcommittee
and further during conference. It was passed by the House and
Senate and sent to the White House, and President Carter vetoed
that bill. At the time, the budget director was Bert Lance, and
a staffer working at OMB was Franklin Raines, ironically.
In 1979, President Carter signed our current legislation,
96-122, the D.C. Pension Reform Act, but it was not at the
time, and we all knew at the time, enough to fund the pension
system. So we knew, and I plead guilty. Having been involved
back then in the pension legislation, we knew at that time that
there was a shortfall. And I don't want to see that happen
again, Mr. Chairman. I think it needs to be addressed and
addressed in its entirety this time, not put off for another 5,
6, 10 years, where it surfaces again.
At that time, there were major changes made to the pension
system for police officers and firefighters. All those hired
after 1980 are under an entirely different system. The age
requirement was added, 50 years of age; 25 years of service was
required to retire. The annuity was then changed to be based on
your high three instead of your salary at your date of
retirement.
We eliminated a major provision for disability retirement,
called the ``aggravation claus.'' Disability retirement for
those after 1980 is based on a percentage of impairment instead
of two-thirds salary, it could be a minimum of 40 percent of
salary. There were restrictive earnings placed on disability
retirees. One COLA is now in effect for those retirees hired
after 1980.
The D.C. Retirement Board was established under that
legislative act. And we have had a new system that has been put
in place for employees hired after October 1996. So we actually
have a three-tiered system for police officers and firefighters
in the District today. Under that new system, employees pay 8
percent of salary, as opposed to the 7 percent for pre-1986
employees. And those employees, post-1996 employees, have their
COLAs capped at 3 percent.
So, again, there have been two instances where there have
been major reductions in benefits for public safety employees,
since 1978 when this issue really surfaced and was addressed by
the Congress.
Now, the D.C. Fire Fighters Association has supported, in
testimony before the Congress, the elimination of the twice a
year COLA replaced by a single COLA. We have supported the
elimination of the equalization clause, which gives members who
retired prior to 1980 the same salary increases as active
members. This would be replaced by providing retirees with a
single COLA, and this would serve to stabilize the actuaries'
assumption and prohibit the Mayor from adding to future
liabilities. We have also supported the increase in all
employee contributions from 7 percent to 8 percent.
The plan that is being discussed today, Mr. Chairman, was
an outline to us until a meeting April 9 at the White House, at
which time the staff of OMB gave a more descriptive analysis of
what the President's plan would entail and how it would impact
on current employees and current retirees.
In our opinion, the Clinton administration committed a
great injustice to the active and retired members of the public
safety family, particularly our elderly retired members and
their widows, by prematurely announcing a plan that had the
potential to adversely impact their monthly annuity but offered
no specifics.
Again, it wasn't until the April 9 meeting that the White
House acknowledged in a handout that, for employees already
retired as of the freeze date, the Federal Government would be
responsible for paying all future retirement benefits, and that
these benefits would remain unchanged under the proposal.
They also stated that they would assume responsibility for
the District's existing pension plans for law enforcement
officer, firefighters, teachers, and judges. Mr. Chairman, the
key word in the press release is ``assume.'' We believe that
the word should be ``fund,'' that they should fund the existing
plans.
It appears that the folks at 1600 Pennsylvania Avenue don't
get it. They still haven't learned from past mistakes. Had the
Carter administration properly addressed the unfunded
liability, as Congress wanted them to do, we wouldn't be having
this hearing today. Instead, they are requesting you to approve
the transfer of the board's assets, now approximately $4
billion, to a third-party trustee who will use the assets to
pay benefits to the beneficiaries until the assets are gone. We
believe this is sheer folly.
I support your statement of February 15, when you said,
``At a time when we need to be looking for ways to infuse real
cash into our pension system, Social Security, as well as Civil
Service, the D.C. proposal appears headed in the wrong
direction.''
It appears that the administration is proposing to raid the
current assets to pay for short-term annuity obligations. The
firefighters respectfully suggest that the third-party trustee
be mandated to invest the approximately $4 billion in assets
for maximum return, and that a payment formula be designed by
the Congress that would finally recognize the Federal
obligation, as well as the city's responsibility to the police
officers and firefighters hired prior to home rule.
Mr. Chairman, one other point that is very disturbing is
the impact that this proposal is having on the current
workforce. There is a great fear out here among the senior
staff of the Police and Fire Departments that there will be a
major change in their level of benefits once the District has
to come up with a plan that will be implemented after the so-
called ``freeze date,'' a date that has changed three different
times.
Because of that fear, because of that concern, there are
over 200 firefighters, top-level, senior people, and I believe
well over 600 police officers, who are anxiously awaiting
September 30 of this year, as sort of a date certain to retire
by. I think it would be certainly devastating to public safety
in the city if that large a number of police officers and
firefighters were to retire because of the fear of the unknown;
they cannot be given any certainty as to their level of
benefits.
Unfortunately, there is no one here from the city today to
address that issue. All the President's plan calls for is the
city to, within 12 months, come up with a new plan for current
and future employees. Well, we are current employees, going
back to 1968 in my case. And I know there are many, many
similarly situated in the Fire Department who are looking at
this unknown and making a determination that they very well may
have to retire before the implementation of this plan, if, in
fact, it does become legislation.
So I think it is certainly a concern that needs to be
brought to the attention of the committee. I think it is an
impact that no one thought of, quite frankly, at the White
House and OMB, and that's another example of what has been
disturbing about this whole process, is that it seems like it
was an outline thrown out there and filling in the details
later.
The actuaries have done an analysis of the plan, and it
appears that it will cost the Federal taxpayers upwards of $24
billion to go with the administration's plan, as opposed to
roughly $12 billion under Ms. Norton's plan. And we find it
very, very difficult to embrace that kind of a concept, to
delay the payment of the bill and increase it in the out years,
and, in effect, cost the Federal taxpayers double what is
necessary.
So we would hope that you would look at the comments that
have been made here today toward looking at addressing the
unfunded liability, because it certainly is a serious problem
facing the District, and it is an issue that is now affecting
the employees, not
only the retired employees, but the current active. It could
have, unless addressed properly, I believe, a devastating
impact on public safety here in the District.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Tippett follows:]
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Mr. Mica. Thank you for your testimony.
I will now recognize Mr. James Baxter, who is the treasurer
of the Washington Teachers Union.
Welcome, sir. You are recognized.
Mr. Baxter. Thank you, Mr. Chairman and members of the
committee.
My name is James Baxter, and I am the treasurer and the
chair of the Pension Committee for the Washington Teachers
Union. I am pleased to be here today on behalf of the WTU and
the president, Barbara Bullock.
The Washington Teachers Union appreciates the invitation to
address President Clinton's Capital Revitalization and Self-
Government Improvement Plan; specifically, that portion of the
plan that relates to the pension systems which provide
retirement benefits for teachers, judges, police, and
firefighters.
We are especially pleased that the President has proposed
this bold venture, and we sincerely hope that the Congress
will, at the very least, adopt his recommendations as a
beginning step in the resolution of a very serious problem.
Clearly and simply, the current situation regarding these
pension plans cannot be allowed to continue. These pension
plans established by Congress--the police and fire in 1916; the
teachers in 1920; and the judges in 1970--were victimized by
the Congress' failure to fully fund.
When the District achieved home rule in 1975, as we have
heard in former testimony, these plans were turned over to the
District along with $2 billion in unfunded pension liability.
By 1980, that unfunded pension liability had grown to $2.8
billion.
When the Congress passed the Retirement Reform Act of 1979,
two things happened: One, a plan was put into effect that began
the Federal Government's attempt to deal with the debt it had
passed on to the District; and two, it created a complex
formula by which the District would make annual pension
payments into the plans.
The District held up its end, contributing through
September 1996, $1.9 billion in excess of the actual retirement
costs for the period, but still less than the actuarially
determined cost to fully fund the system. The Federal revenue
stream continues to the tune of $52 million per year. Yet, what
has happened? What has happened is that the unfunded liability,
the debt, has grown from $2.8 billion in 1980 to $4.4 billion
in 1996. It is estimated to reach in excess of $6 billion by
2004.
What is clear is that the District has done the very best
it could, even to the point of making its contributions in
excess of these costs. What is also clear is that the Federal
Government's failure to fund what it promised has saddled the
District with a debt it can never overcome and caused our
members to question whether or not there will be a pension
system when they reach retirement age.
It is against this factual background that we are pleased
to receive the President's plan and recommend its acceptance to
you. At this point, we are attempting to inform ourselves about
the various options which have been suggested to implement this
plan.
We are not prepared today to recommend one over the other.
However, we can pledge to you and to this committee our intent
to work closely with you, with our friends on the City Council,
and with all other parties to find and support the plan that
best meets the needs of our members and serves the public
interest.
I said at the beginning that I hoped you would view the
President's plan as the beginning step in the resolution of
this issue of pensions. As helpful as the President's plan may
be, we are concerned that it may not go far enough. Here is
why.
On February 25, 1997, the D.C. City Council received
testimony on the President's plan. In addition to OMB director,
Franklin Raines, many others offered comment on the plan. One
of those groups was the prestigious and respected Greater
Washington Society of CPAs. Their chairman, Bert Edwards, put
forth a sound analysis of the plan. One aspect of his analysis
is of concern.
I quote from his testimony: ``The President's plan
unequivocally recognizes the funding in the Retirement Reform
Act of 1979 was simply too little. Pursuant to the above
studies and others, the plan accepts responsibility for much of
the unfunded liability. However, based on the Greater
Washington Society of CPAs' current understanding, the plan may
leave the District with an unfunded liability estimated at $1.2
billion.''
Mr. Edwards goes on to point out that the Retirement
Board's actuary, Milliman & Robertson, Inc., believes that the
projected $4.3 billion unfunded liability, at September 30,
1998, is actually only about 78 percent of what they believe
the real unfunded liability may be. They project an actual
unfunded liability of $5.5 billion.
What that says to us is that, even should the Congress pass
the President's plan as is, we feel the District will be left
with an unfunded liability estimated at $1.2 billion. Were that
to be the case, the District and our members would find
ourselves right back in the situation we faced at the beginning
of this crisis. We cannot be expected to create and maintain a
fiscally sound system, a fully funded pension plan, if we face
the prospect of another billion-dollar-plus unfunded liability.
Therefore, Mr. Chairman, while we continue to explore the
options as to how the President's plan may be implemented, I do
make the strongest of recommendations. I strongly urge you to
agree that this reassumption by the Federal Government can only
cure the existing pension crisis by including the entire
unfunded liability.
To pass any plan which would result in another unfunded
liability would be to fail in the resolution of the original
problems created by the Congress in 1975. I urge you to commit
now to full resolution and not to defer until later problems we
can anticipate today.
In that regard, I would like to state that Congresswoman
Norton's proposal has strong financial attributes that must be
considered as we forge forward with an interest in trying to
reconcile the differences in the pension plan, in particular,
the notion of having costs which would be amortized and that
would, for two major reasons, have dual benefits.
One is current funding and an increased amount of the
liability, over a 40-year period, and, of course, if it were in
a shorter period, that's all the better to those persons that
are now annuitants or annuitants to be, that face the anxiety
of not knowing the outcome; and two, the reduction of future
payments to the Federal Government, which would be, from that
aspect, somewhat self-serving. And as was spoken earlier, the
costs would be potentially twice--or at least less by two times
the amount that it would be without such a proposal.
Thank you for the opportunity to address the committee. The
Washington Teachers Union looks forward to working closely with
you in the resolution of this difficult issue.
Thank you.
[The prepared statement of Mr. Baxter follows:]
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Mr. Mica. Thank you for your testimony.
Ms. Kane, it sounds like you put half your lifetime into
trying to get this pension fund in order. Wouldn't it break
your heart to regress to 1979, as far as spending out any of
the assets?
Ms. Kane. Very definitely, sir. We agree that, with the
finding of Congress in 1979 that having an unfunded pension
system is unsound, and that it's not sound Government practice,
and it's not good for the beneficiaries and the participants.
Mr. Mica. The problem we face is trying to come up with the
difference to meet some of the annual operating shortfalls for
the District, and this obligation to meet benefit requirements
is just--I mean, it's doing the same thing at the Federal
level. What did we put in, a shortfall of $30 billion? $30
billion, which is now getting up there.
Let's see. I was encouraged to hear Mr. Tippett say that
their employee group had offered some concessions to try to put
things in financial order. And I think you clarified the point
that the new hires are now paying 8 percent, and they have a
cap of 3 percent for their COLAs, and that was proposed, also,
for all of the old employees.
Is that correct? Did you say that you also had offered
that?
Mr. Tippett. For the older employees, what we proposed was
a single COLA.
Mr. Mica. Right.
Mr. Tippett. Currently, they are entitled to a twice a year
COLA.
Mr. Mica. And going from 7 to 8.
Mr. Tippett. Seven to eight. And also elimination of what's
called the ``equalization clause,'' which gives some actuaries
grief in that it allows the Mayor to have control over a large
number of retired employees by tying their annuity to active
employees' salary increases. So by eliminating the equalization
clause, you would put everyone under a single COLA, and it
would be much easier to cost out.
Mr. Mica. If we did that--maybe Ms. Kane or Ms. Norton or
you, Mr. Tippett, have run the figures on that--what kind of
funds does that inject?
Ms. Kane. Mr. Chairman, going from the twice a year to a
once a year, we did have the figures run last year. Eliminating
the twice a year COLA would have decreased the unfunded
actuarial liability, as of October 1, 1995--of course, it has
increased a little since then--from $5.15 billion to $5.09
billion. That's a $60-million difference.
Mr. Mica. Is that annualized?
Ms. Kane. No, that's absolute.
Mr. Mica. Absolute.
Ms. Kane. That's absolute. The annualized difference would
have been about $2 million a year.
Mr. Mica. That's all?
Ms. Kane. The difference, yes. It is perhaps one of those
issues that is more a lightning rod than an actual dollar cost.
But, as Mr. Tippett said, the Council has taken the action
for all the new hires. The Council has taken the action for
anyone who was hired from 1980 on. The Council could not take
action for anyone hired prior to 1980, to change that, because
the home rule charter, also passed by Congress, prohibited the
Council, and continues to prohibit the D.C. Council, from
changing the benefits, including retirement benefits, for
anyone who was hired prior to December 31, 1979.
So, in order to make a change in that area, the Council had
asked the Congress to do it, tied to the passage of legislation
similar to Ms. Norton's, which would be part of the solution to
the whole problem.
Mr. Mica. And what would the 7 to 8 do, if included in
legislation, on those that are not now covered but could be
covered?
Ms. Kane. The dollar amount--I don't know if we have what
the change would be, going from 7 percent to 8 percent for
current employees who are not in the new hires program. I do
know, when the Council ran the numbers, that the difference
between 7 percent and 8 percent, and being able to fund the new
hires program, did make a difference.
Mr. Mica. You might be getting a whisper in your ear.
Ms. Kane. The difference, I'm told, is about $5 million a
year, to go from 7 percent to 8 percent.
Mr. Mica. That's only 7. Anything else that could be done?
Mr. Tippett. Well, Mr. Chairman, the equalization.
Mr. Mica. Equalization, what's that worth?
Mr. Tippett. That I don't know, but I think there is
certainly a dollar figure to be attached to it. What it is we
can provide for the committee, but we haven't run that number.
Mr. Mica. Well, I believe the Federal Government probably
has some liability here. I don't know if it's $4.8 billion.
But, to me, it would be a travesty for any of the employee
groups to participate and see the $4.2 billion drawn down. I
mean, that, to me--you all ought to be out in the streets
yelling and screaming.
I just can't believe it's even under consideration. Now, I
know the constraints that put it under consideration, but
that's not a justification. I'd encourage you--and, I mean,
endorsing the plan and the merit to the plan, and all this, and
now Mr. Baxter tells me his calculation is that they are off
$1.2 billion. I hadn't heard that figure before, $1.2 billion.
So not only are they going to spend what took 17 years to
get some cash in, they are going to end up giving you twice the
obligation, $24 billion, even if we took the Norton plan, and
you end up with more unfunded liability than they are
projecting. It's just a horrible situation.
I will pledge to work with any of the groups, with the
board, with Ms. Norton. This is sort of like the last stand.
We're out there, and they have killed off all the rest of the
Indians, and this is Custer, the last stand. But, in the
private sector, I could never accept anything like this, and it
would be a travesty to accept it for public employees, be they
District of Columbia employees or Federal employees.
For the most part, we have already done it for the Federal
employees, but letting things progress further would be a
horrible mistake. So we will work with you.
I've learned a lot from the hearing. It's been helpful. We
will work with Mr. Davis.
Ms. Norton, I yield now to you.
Ms. Norton. Thank you, Mr. Chairman.
First, I want to, Ms. Kane, congratulate the board on the
performance of the assets. There has been, over time,
considerable improvement in the performance, and you are at the
top, another indication that the District is more than doing
its part, and the board is more than doing its part.
I think I should add, for the record, that Frank Raines was
very helpful to the board and to me when there were very
harmful articles run by the Washington Post about the board.
And I immediately asked Frank Raines, who was then at Fannie
Mae, if he would help me, at no cost to the District, to make
recommendations to the board, and he did.
We did not find that the fund was poorly managed at all.
What we did find is that there were things that the board could
do here and there that would improve the performance, and the
board was already beginning to do many of those things. Now the
board has put into effect fully, so far as I understand, all of
Mr. Raines' recommendations.
Mr. Tippett, my good friend, I thought I heard in your
testimony some guilt by association. Since Frank Raines was
there when Jimmy Carter vetoed the bill, Frank Raines vetoed
the bill. I would bet the other way around. Frank Raines had
been a Washingtonian who had worked with the District and
probably knows more about District finances than any human
being, and I bet--I've never asked him--that he recommended the
opposite and lost to the President, particularly given where he
has stood, generally, on our issues.
I do want to say that you are taking the position that I
believe is the only position that fiduciaries can take, and I
respect the position you are taking. At the same time, I also
want to say that Mr. Raines and the administration have not set
out to make a ``raid'' on the assets. They didn't say, ``Here's
some money. Let's go get it.'' They were absolutely forced into
this position by this Congress, and nobody should forget that.
They have got to pay for this entire bill, and they saw the
assets there, and they recognized that there was no way to get
there from here while leaving those assets there, unless the
Congress was going to step up to the mat and do something
different. Now, you haven't heard the chairman today indicate
that he's prepared to do that, even though he commiserates with
you about the raiding of your assets.
Ladies and gentlemen, this is a puzzle. This is like a
crossword puzzle, and I invite your participation in the
puzzle. Is there a way that anyone, including your experts, can
think of to help us get through this puzzle: deficit reduction,
on the one hand, but funding this proposal on the other. I
mean, that's why I say things like, in 2002, if I'm here, I
would revisit this. I recognize that, if this plan went
through, part of the assets would be gone.
One of the reasons I would revisit it is not just to save
the Government money, but you just watch out, the same Congress
that put you in this bind now will try to get that out of, I
bet, will try to get that out of benefit reductions, except you
can't get here from there either. By benefit reductions, you
can't get from where we will be in 2002 with $700 million by
taking it from the workers. Nothing would be left. So either
we're in an impossible position now, or we're in an impossible
position then.
The retirees have my respect, because, as Mr. Tippett
indicated, when we were in a bind here trying to come up with a
plan somewhat like mine, and we said, well, everybody is going
to have to make a little bit of a sacrifice in order to get
there, well, the retirees stepped right up, and the employees
stepped up, did their part. The District took that and ran with
it, and now we're still left with unfunded liability.
I have only one question. By the way, in this puzzle, put
these two things. The administration was not only trying to
deal with the pension plan, which, in my estimation, is No. 1;
No. 2 is Medicaid. Either one of them, left unsolved, takes us
over the side, or leaves us in the water, whatever is your
metaphor. So they had to find a way to deal with pensions and
Medicaid.
They take back the Federal payment, we get much more in the
long run, but they still couldn't do it by taking back the
Federal payment. After putting the Federal payment on the table
to help pay for the bill, they went through hundreds of
accounts--hundreds--taking a little bit here and there until
they had paid for this plan in the first 5 years. It is a
puzzle, and I invite all the best thinking of your experts.
I am concerned with something. Ms. Kane, it's in your
testimony. In the prepared testimony, you say that the cost of
administering the retirement fund now is about $16 million a
year and that it would go to $22 million a year with a third-
party trustee. I wonder if you could elaborate on how you get
to that expanded or increased cost.
Ms. Kane. That is the number that's in the President's
budget submission. We don't know how they got to that, but that
is in the pending appropriation.
Ms. Norton. I see. That's where you got it from.
Ms. Kane. We underspend the $16 million, most of which goes
for management fees now. The fund is aggressively managed. The
actual operations of the board, the staff, and all this, is a
very, very small expense, but most of it goes for management
fees. A lot of our assets are aggressively--actively managed, I
should say, so there are fees associated with that.
We understand that Treasury management or even a trustee
might be more passive, so we would assume the cost for
custodial fees would go down. But that is a question. We don't
know where that number came from.
Ms. Norton. I wonder if they have startup for a third-party
trustee to get going, or what. I will ask.
Ms. Kane. We don't know. If the funds are transferred,
there will have to be a lot of thought. There will be costs
associated with the liquidation of assets. When you are selling
them and you are not buying them, there are always transaction
costs there, if that's where it comes from. We are invested for
the long term, and so there will be additional costs, also
losses, if the assets are sold in the short term.
Ms. Norton. Mr. Baxter's testimony, and I take it the rest
of you agree, as well, that the District would be left with
unfunded liability, under the President's plan, of $1.2
billion.
How do you arrive at that figure? What's the basis for that
figure?
Mr. Baxter. This is information that was provided by the
Washington Society of CPAs.
Ms. Norton. Does the board have any information comparable?
Oh, I'm sorry, Mr. Baxter.
Mr. Baxter. I was going to say, initially, at least in some
of the meetings--the most recent meeting, I did not redact any
information from the most recent one that we had. Mr. Tippett
did speak to that, and things were fairly indecisive at the
conclusion of that.
But, from the onset, at first blush of the proposal, there
was not, at least on the table at the time, vocalized an intent
to take all the unfunded liability. Maybe my colleagues here
will concur with me. And the thought is that there would have
been a $1-plus billion unfunded liability that would remain
with the District, that being only one derivation, in kind, of
the plan.
Now, there have been other alternatives that have been
presented since then that speak to all of the unfunded
liability being taken by the Federal Government, as well as
what was talked about earlier in regard to some of the assets
remaining with the District.
Ms. Norton. So assets and liability remain. I mean, I know
there's talk about assets remaining, but your testimony says
unfunded liability remaining. That's what I'm trying to
clarify.
Mr. Tippett. Madam Chair, Mr. DeSeve indicated at the last
meeting that they intended to leave approximately $1.2 billion
with the District, to take care of future liabilities
associated with disability retirements and any other
transactions that may occur, leaving the District with no
unfunded liability. At least that's the impression that was
left with us when we left that day. However, it's a very fluid
plan, I should say.
Mr. Baxter. Mr. Tippett speaks to the most recent meeting.
Ms. Kane. We have not seen the legislation. Nobody has seen
it.
Ms. Norton. We haven't either.
Ms. Kane. So it has been unclear, and there have been
various interpretations and various representations. At the
time that Bert Edwards testified, the information available was
that the Federal Government would take all liabilities up to
what's called the ``freeze date,'' whether that's October 1,
1997--that's a movable date, too--or whether it's June 30, or
whatever, that they would take all the liabilities up to that
point, and they would take 100 percent of the assets.
If that had happened, and if that does, indeed, turn out to
be the case--and it does not appear, at the moment, it may be
the case--the District would be left with the liability for
anything earned by current employees from that date forward,
until the day they retire, for those new benefits. Someone who
is on board, a firefighter who has been on board for 12 years,
they might then be 33 years old, because you start as a
firefighter at age 21. They would have 20-some-odd more years
to work for the District.
The Federal Government would take responsibility and
liability for everything they earned up to that age 33, and the
effect that any future earnings would have on those benefits,
but we understand they are still not planning to take any
liability or any responsibility for anything that that
firefighter earned from age 33 forward until retirement, except
insofar as it affected, through seniority, et cetera, the value
of current benefits.
So the question is, how is the District going to pay for
those? Because the amount of money that the firefighter would
contribute and what it might earn would not add up to what it
would be worth.
Ms. Norton. But they were leaving assets.
Ms. Kane. Well, this afternoon I heard Mr. DeSeve say most,
if not all, of the assets would go to the Federal Government,
which is different than saying some would. We don't know. But
if they are to accept liability for the benefits earned up to a
freeze date--and let's assume that's October 1, 1997--and leave
with the District liability for what's earned then forward, and
disability, approximately $1.2 billion would be the cost of
that. And it either has to be funded or it's unfunded.
Ms. Norton. My impression is that the administration,
working with all of these strictures, its approach has
continued to be a work in progress.
Ms. Kane. Yes. My understanding is that the latest version
of the memorandum of understanding, which the Council, at least
as of 1:30, had not voted on, and I do not believe was actually
planning to vote on it today, did call for most of the assets
to go to the Federal Government, but not all of them. But there
was no dollar amount.
Ms. Norton. Mr. DeSeve informed me, before the hearing,
that he had had a very productive meeting with the Council, and
they might even get to the point where they could vote on it
today. I think they are ironing out some of their differences.
Mr. Chairman, I appreciate the way in which you have
highlighted the difficulties of this plan, and I very much
respect the considerable expertise of this committee, and would
welcome the help of this committee in helping the District and
this member to solve this puzzle.
Thank you very much.
Mr. Mica. I thank the gentlelady, and certainly will work
with you, the District Committee, and others.
We thank you for your testimony, and I guess I don't have
to encourage you to stay active on the issue. I hope that we
can find a satisfactory resolution, and I know, if we all work
together, we can do a good job for those folks out there who
put their lives on the line daily to serve the District. We
thank you again for your testimony and your participation
today.
There being no further business to come before the
subcommittee, this meeting is adjourned.
[Whereupon, at 5:10 p.m., the subcommittee was adjourned.]
[Additional information submitted for the hearing record
follows:]
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