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DURING THIS AND THE LAST CONGRESS, WE HAVE CONDUCTED A SERIES OF HEARINGS

IN AN EFFORT TO EXHAUSTIVELY ADDRESS THE ISSUE OF STATEHOOD FOR THE DISTRICT

OF COLUMBIA.

WE HAVE HEARD FROM MEMBERS OF THE HOUSE AND SENATE, INCLUDING SENATORS

KENNEDY, SPECTER AND INOUYE, AND CONGRESSMEN RODINO, UDALL, GRAY AND DON

EDWARDS, I SHOULD NOTE THAT CONGRESSMAN RODINO IS THE CHAIRMAN OF THE HOUSE

JUDICIARY COMMITTEE, WHILE CONGRESSMAN UDALL IS CHAIRMAN OF THE HOUSE

INTERIOR AND INSULAR AFFAIRS COMMITTEE, THOSE TWO COMMITTEES ARE

ORDINARILY THE COMMITTEES OF JURISDICTION ON STATEHOOD MEASURES, AND I

CONSIDER THE SUPPORT OF CONGRESSMEN RODINO AND UDALL VERY IMPORTANT,

TOGETHER WITH ORAL AND WRITTEN COMMENTS WE RECEIVED FROM OTHER MEMBERS OF

CONGRESS, AS WELL AS FROM OFFICIALS IN THE EXECUTIVE AND JUDICIAL BRANCHES OF

THE FEDERAL AND DISTRICT GOVERNMENTS, THE TESTIMONY OF THE SENATORS AND

CONGRESSMEN FORMED THE BASIS FOR WORK PERFORMED BY AN INFORMAL TASK FORCE TO

PERFECT THE PROPOSED CONSTITUTION FOR THE STATE OF NEW COLUMBIA. THE TASK

FORCE WORKED FOR A FULL YEAR, AND THE RESULTS OF THEIR LABOR CAN BE FOUND IN

D.C. COMMITTEE PRINT S-2.

THE WORK OF THE TASK FORCE FORMED THE BASIS FOR ANOTHER HEARING AT WHICH WE

HEARD FROM THE MAYOR OF THE DISTRICT, THE COUNCIL CHAIRMAN, AND THE DISTRICT'S

STATEHOOD PARTY REPRESENTATIVE ON THE D.C. COUNCIL. WE ALSO HEARD FROM A

PANEL OF PERSONS WHO HAD SERVED ON THE TASK FORCE, INCLUDING MR. CHARLES

CASSELL, THE PRESIDENT OF THE D.C. STATEHOOD CONSTITUTIONAL CONVENTION AND MS,

JOSEPHINE BUTLER, CHAIRPERSON OF THE D.C. STATEHOOD COMMISSION, AMONG OTHERS. THE RECORD OF THAT HEARING CAN BE FOUND IN D.C. COMMITTEE PRINT 99-3.

IN MAY OF THIS YEAR, WE HEARD FROM SEVERAL DISTINGUISHED PRACTICIONERS AND

ACADEMICIANS FROM THE LEGAL PROFESSION. LAWYERS AND LAW PROFESSORS WERE

ASKED TO RESPOND TO SEVERAL KEY LEGAL AND CONSTITUTIONAL ISSUES THAT HAVE

EMERGED IN CONNECTION WITH D.C. STATEHOOD. TESTIMONY WAS ALSO RECEIVED ON

THE PROPOSED CONSTITUTION.

TODAY WE - TURN OUR ATTENTION TO THE QUESTION OF "WHAT FINANCIAL GAINS AND/OR
LOSSES WILL THE DISTRICT OF COLUMBIA EXPERIENCE IF IT BECOMES A STATE?"

SPECIFICALLY, WE HAVE ASKED OUR DISTINGUISHED PANEL OF WITNESSES TO RESPOND

TO THE FOLLOWING ISSUES;

WHAT EFFECT, IF ANY, WILL STATEHOOD HAVE ON THE FEDERAL PAYMENT?
HOW WILL THE DISTRICT'S TAXING AUTHORITY BE AFFECTED BY STATEHOOD?

WILL THE DISTRICT AS A STATE BE TREATED ANY DIFFERENTLY THAN THE

:

CURRENT GOVERNMENT FOR PURPOSES OF FEDERAL GRANTS AND LOANS? AND
WHAT ARE THE EXPECTED TRANSITION COSTS OF STATEHOOD?

THERE ARE THOSE WHO HAVE ARGUED THAT WE CAN NOT AFFORD TO BE A STATE. STILL

OTHERS HAVE ASSERTED THAT WE CAN NO LONGER AFFORD NOT TO BE A STATE. I

BELIEVE THAT WHILE THE PRICE OF FREEDOM MAY BE COSTLY, IT IS FAR LESS COSTLY

THAN THE PRICE OF BONDAGE.

TODAY, WE EXPECT TO LEARN WHAT THE PRICE OF STATEHOOD FOR THE PEOPLE LIVING

IN THE RESIDENTIAL PARTS OF THE DISTRICT OF COLUMBIA MIGHT BE. TODAY, WE

TAKE ONE MORE IMPORTANT STEP FORWARD IN OUR QUEST FOR FULL SELF DETERMINATION.

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STATEMENT OF ANDREW F. BRIMMER, PRESIDENT, BRIMMER &

CO., INC. . Dr. BRIMMER. Thank you very much, Mr. Chairman, and good morning

At the request of the District of Columbia Statehood/Compact Commissions, Brimmer & Co., my enterprise, did undertake an examination of the economics and fiscal prospects if the District were to become the State of New Columbia. I am pleased to share with the committee the main conclusions of that study. My testimony will consist primarily of a summary of the findings from the study which we conducted over the last couple of months.

In general, the study concluded that statehood for the District of Columbia would bring about significant changes in political status and the manner of operation of its government. However, advantages associated with this new status as a State and changes in its jurisdictional responsibilities may not greatly alter the basic economic conditions, nor affect its claim for Federal support.

The assignment had the following objectives: We set out to review the recent trends and assessed the prospect for the District compared with its neighbors. We looked particularly at the triState area of the District, Virginia, and Maryland, and we gave particular attention to the District's place in the metropolitan area. We also looked at the sources of revenue and the prospects for revenue in the future, and here we gave particular attention to the possibility that the new State of New Columbia would have the authority and would exercise that authority to impose a commuter tax on the income earned in the District or, in the future, in the State of New Columbia, by persons who work here but who live beyond the new State's boundaries.

We also looked at the basis for the Federal payment and concluded that statehood would not remove the claims of the area on the Federal Government for revenue to offset some of the disadvantages of being the host for the Federal Government. And finally, we looked at the way in which statehood might alter the access of the area to the traditional Federal programs.

Our analysis led us to conclude that the economy of the District continues and is likely to continue to be heavily dependent upon Federal Government operations. In recent years, however, the emphasis on curtailing Federal employment has had a moderating effect on the growth of the District's economy. At the same time, the private sector has been expanding rapidly with major growth occurring in the service sector. To a considerable extent, this shift has bolstered the new Federal policy favoring contracting for professional and business services from the local private sector.

The shift toward dependence on the service sector placed Washington in a relatively favorable position vis-a-vis the last recession. Because this area was not so heavily dependent on manufacturing, it did not lose so many jobs. And it has benefited, of course, from the growth in the service sector.

The District has had a favorable recovery from the 1982 recession. However, its growth is running behind the growth rate for the area and for the Nation at large. Since 1982, personal income in the District has been running about two percentage points lower

than the national average. The neighboring State of Maryland has generally kept pace with the Nation, while Virginia's growth has exceded the national average.

We also prepared a forecast for the District in looking at a varie ty of variables such as employment income and so on, and we concluded that the District will continue to experience slower growth in the next 5 years than is anticipated for either of its two neighboring States or for the Nation at large. The basic conditions that limit economic growth in the District of Columbia will not be significantly affected or altered by statehood.

In addition to having to live with a slower rate of economic growth, District of Columbia residents regularly receive less than one-half of the total earnings generated within the District. A large share of District net earnings accrues to persons working in the District but residing in suburban Maryland or Virginia.

Federal law does not allow the District of Columbia to impose an income tax on nonresidents' earnings in the District. In contrast, all other States and some cities which tax income originating within their jurisdictions also tax the earnings of out-of-State residents. If the District of Columbia were to become a State, it, too, could adopt a commuter tax. Such a move would generate significant amounts of revenue. We estimate that to be on the order of about $300 million or so. The figures are spelled out in detail in the report.

The District of Columbia relies heavily with respect to revenue from taxes, fees, and grants under Federal programs and other miscellaneous sources of income. Yet its position differs from that of other jurisdictions because it receives a Federal payment regularly in compensation for costs associated with the presence of the Federal Government, and it is subject to special Federal restrictions on its taxing authority, as I have just mentioned. Also, there are restrictions on its budgetary discretion. The District of Columbia is prohibited from taxing earnings of workers residing outside of the District and properties within the District owned by the Federal Government. In addition, the properties of certain organizations located within the District's boundaries are also exempt from District taxes. This large endowment of tax-exempt properties imposes a real burden on the District.

Now, income and property taxes are, nevertheless, the leading sources of District revenue, followed closely by sales taxes. These three major sources provided over 65 percent of total general fund revenues in fiscal year 1986. Taxes from all other sources have been providing over 70 percent of total revenues in recent years. In other words, the District raises most of its own money and spends most of its own money.

The remaining revenue sources include the regular Federal payment, which had been about 20 percent of total revenues in 1982 and 1983, but has been a steadily declining share since then. Miscellaneous nontax revenues--including charges, fines and fees, et cetera-provided about 5 percent of the revenues in 1986. The D.C. Lottery is now providing about 2 percent of the revenue total.

Total tax revenues increased at an average annual rate of about 9 percent from 1982 through 1986. Those are fiscal years. Over the same 4 years, the regular Federal payment to the District in

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