Mr. FAUNTROY. I had to get that out. And I want to thank each and every one who has harbored this dream of statehood for the District of Columbia.

Over the years we have seen the chair of the constitution convention, Mr. Cassell, come in-I see Josephine Butler, who chairs the Statehood Commission and, as I have already mentioned, the chair of the compact commission. I thank all of you.

Now, you didn't answer all the questions, so may I ask you just a few just to clarify and help us prepare for that day when Members of the House and Senate will "We agree. say

You pointed out in your testimony that the Federal payment is currently about 20 percent of our revenues, and you indicate that the percentage is going to steadily decline to about 14.3 percent. Do you view this as a strength or a positive sign that the District's economy is apparently growing less dependent on the Federal Government?

Dr. BRIMMER. I do view the fact that the private sector is expanding rapidly here as a good sign. The decline in the ratio of the Federal payment to total revenue for the District, from about 20 percent down to about 14 percent, reflects both the stagnation of the Federal payment, which in the city's forecast is not projected to increase at all. So that if it remains at $425 million over the next 5 years, the real purchasing power, of course, would decline. But since the District's revenues would be growing anyway, you get an additional decline in any case. So in real terms, the District will be even less dependent on the Federal Government.

I think that is wise for the District to assume that the Federal Government's contribution will lag, because I believe that the competition for resources in the Federal budget, which the District would have to face, would assure that the Federal contribution's growth will continue to be restrained. So yes, I find the growth of the private sector as a source of revenue much more encouraging. Mr. FAUNTROY. Typically across the country in State and local governments, the largest source of income is the real property tax. As you know, the District has about 55 percent of its real property taken off the tax rolls, both because of the Federal presence physically and the tax-exempt status rendered to a number of institutions by the Congress.

Does the fact that the District's economy functions without this major revenue source indicate again a special strength in the District relative to other States?

Dr. BRIMMER. Well, it might be interpreted as strength, but it does mean that the District has had to impose higher tax rates on a much more restricted tax base, given the other sources. It means that the sales tax has to be higher, the rate has to be higher. It also means the other excise taxes, license fees and so on, would have to be higher, and the income tax rate has to be higher, probably because it makes up such a large fraction of the total tax base and also because well over half of the income generated here is beyond the tax reach of the District. So, Mr. Chairman, while it might be considered a source of strength, given the fact that half the property cannot be taxed, half the income cannot be taxed, the District is able to carry on by reliance on other sources.

I do not look upon that as a source of great joy. It would be my preference to have a much broader tax base, including particularly income.

Now, the exemption of Federal Government property, foreign property-we have a great deal of foreign-owned property here, the embassies and so on-that is also beyond the tax rolls and, of course, the property owned by tax-exempt national organizations and so on. I am delighted they're here, but it does mean the District's tax base is restricted.

Mr. FAUNTROY. In light of that, how important is the formula Federal payment to which you made reference?

Dr. BRIMMER. I think it is very important. I believe that the Federal Government does impose burdens on the District, not simply because it has so much property here and police protection must be provided for it and so on, but because of the presence of the Federal Government it attracts a substantial volume of traffic to the District, not just tourists but other kinds of traffic, that always puts burdens on the District. Now, those travelers do bring revenue to the District, but I believe that the cost is substantial as well. So the Federal Government's obligations are clear.

How should that be resolved? I believe that tying the Federal payment-which is a source of revenue for the District-to the growth rate of the District's revenue generated from its own sources, would be the best thing to do. There may be other formulas that could be devised, but in my judgment, a clear prescription relating the Federal payment to the District's revenue on some reasonably fixed ratio would be the wisest thing to do.

Mr. FAUNTROY. You point out, for example, that in calendar year 1986, if the District had full authority to tax income at its source, including both private employees and Federal employees, that we would probably raise about $500 million.

Dr. BRIMMER. Yes.

Mr. FAUNTROY. Which would easily be more than the Federal payment.

Is that estimate a liberal or conservative one?

Dr. BRIMMER. Oh, I think it's sort of a middle-of-the-road estimate. Our assumptions were fairly conservative. We assumed that the relative shares, Federal versus private employment, wouldn't change, whereas we do know that the private is growing more rapidly and, thus, the income generated would be more rapid. If any errors are involved-and there probably is an error-it may very well be toward a conservative estimate rather than a generous estimate.

Mr. FAUNTROY. One of the things that did surprise me about your testimony, and really shocked me, was the fact that you indicated that a commuter tax would be applicable only to nonresidents in the private sector, and you indicated there was some basis for that.

I wonder if you would care to elaborate on the basis for that assumption.

Dr. BRIMMER. Well, again, I was reading the bill as it is introduced in the Congress. That definition says that the State of New Columbia would consist of the present District minus the Federal enclave. The Federal enclave would consist of, as I understand the

description, the Congress' complex and the areas we usually think of as Fed, and the bill would define that geography. It would include Walter Reed, the National Zoo, and some other areas. It is clearly defined Federal land that would not be a part of the State of New Columbia.

We assumed that the new State's taxing authority would be limited to its own boundaries, and since the Federal enclave would be beyond its boundaries, it could no more tax income generated in the Federal enclave than it could tax income generated in Maryland or Virginia, unless it is by District residents. Thus, they would have the reciprocity problem.

Now, since the Congress has now prohibited the District from taxing commuters in any case, we just assumed that the Congress would not tolerate the State of New Columbia taxing foreign residents. The foreign residents would be Virginia and Maryland residents who work not in New Columbia but in the Federal enclave, which for all practical purposes would continue to be a Federal district beyond the reach of the new local government.

Mr. FAUNTROY. I know you have heard this many times in your life, but you're so smart. I think we had better look at this bill to see whether we can get a Federal law passed, that anybody living in the Federal district ought to pay taxes to the State that provides it services.

Thank you for enlightening us on that point. Don't leave yet. That was just on the one question.

Dr. BRIMMER. All right.

Mr. FAUNTROY. It does help us to understand your point.

You point out that we will retain our access to a number of Federal programs, the community development block grants, the Job Training Partnership Act funds, the vocational and educational programs, AFDC and the like. As a State, however, the District will not be subject to the 18-month delay from budget formulation to implementation, which we now enjoy.

I wonder if, in your judgment, the streamlining of the budget process that would come to us as a result of statehood would not improve our ability to plan and carry out local programs in a more efficient and expeditious manner?

Dr. BRIMMER. Yes, it would, Mr. Chairman. The inefficiencies involved in the two- or three-level, maybe even four-level, review of revenue and expenditures that now exist is extremely inefficient, time consuming and wasteful. Even today, in my judgment, there is no reason why the District expenditures from its own funds must be reviewed not only by the Mayor and council but also by the Office of Management and Budget and then by the District committees of the House and Senate, and then of the four bodies themselves. I repeat, even from the District's own revenue sources. That degree of budgetary authority which the Congress retains strikes me as unnecessary and unwise.

If the District were to become the State of New Columbia, it would then have control over its own budgetary procedures and could clearly expedite the review and planning and assessment of requirements and, thus, government would be much more efficient. It stands to reason it would be so clearly more efficient that the contrast would be quite striking.

Mr. FAUNTROY. Finally, Dr. Brimmer, I am going to ask you three questions that will be tendered to every witness here today relating to the worst-case scenario that might develop around our achieving statehood.

The first of those three questions is, what would happen should the Congress decide to eliminate the Federal payment following the transition to statehood?

Dr. BRIMMER. Well, it would mean that the District would have a shortfall-if expenditures remained the same-would have a shortfall of some $425 million, or roughly, today, almost a fifth of the total and, in the future, a sixth of the total.

However, that presumes that the Federal Government would continue to pay for the services it gets directly, water and sewer and so on, that it would buy those, but the contribution would disappear. So the city would either have to find alternative revenue sources, meaning higher taxes, or it would have to pare the level of spending or some combination of the two. Where it would come out among those choices, I cannot predict. But my hunch is it would probably end up with higher taxes to make up the larger proportion of the shortfall.

Mr. FAUNTROY. All right, the second worst-case scenario. Suppose the Congress said that you will have statehood but not the ability to impose a commuter tax, a tax on nonresident income; to what other sources of revenue would we have to look to provide income, in such a case?

Dr. BRIMMER. Well, I am intrigued. Are you saying that Congress would grant the District statehood with the rights of States, except for the right to impose taxes, which would make it different from any other State?

Mr. FAUNTROY. Well, we did have that debate, in this very room, back in 1973. To my amazement, pursuant to a motion by my good friend, Gil Gude of Maryland, the committee voted to tell the District residents that they could have partial home rule and that under no circumstances could the locally elected government impose a commuter tax. I am just saying it could happen.

Dr. BRIMMER. Well, I agree that the possibility exists. But then I'm saying that definition of statehood would mean that the District would not be equal to other States. If you grant that, then you are saying, given the limited statehood-and that's what it would be-then that would be possible.

If that were the case, then the District would again have to respond along the lines I outlined in response to your earlier question. Since here again it would be losing something in the neighborhood of $300 million to $400 million, it would have to forego $300 million or $400 million of revenue. It would have to either raise existing taxes or cut expenditures or some combination of the two.

Mr. FAUNTROY. I am almost afraid to ask about the last possibility. Suppose that the Congress said you will neither have the right to impose a commuter tax, nor have access to the Federal payment; what would you advise?

Dr. BRIMMER. That you close up shop. [Laughter.]

That would mean, then, you not only forego $300 million or $400 million of potential revenue from the imposition of the commuter

income tax, but you also lose at least $425 million of current Federal payment and projected Federal payment. So that means you have at least three-quarters of a billion dollars, making up something like at least 30 percent of the total budget.

The jurisdiction would be faced with an excruciating choice: How do you cut 30 or 35 percent of programs, or how do you essentially increase other tax rates-because the base wouldn't increase very much-other tax rates by substantial proportions. So that the real tax burden in the District would have to rise to a ratio well beyond what you would expect to find in any other State. I would find that probably not a viable situation.

Mr. FAUNTROY. In other words, we would not want the reservation without the buffalo?

Dr. BRIMMER. Yes.

Mr. FAUNTROY. Dr. Brimmer, let me again thank you for your testimony. I am sincere in indicating that it is really like music to my ears, and I'm sure to the ears of many people in the District. I am really serious about your joining us when you hear that a vote is going to be taken on the House floor and on the Senate floor for statehood for the District of Columbia. It will be a tribute to your contribution to this effort. I was sincere about impossible dreams becoming living realities.

Dr. BRIMMER. Very good.

Mr. FAUNTROY. They told us 25 years ago that we were dreaming when we said the "For Whites Only" signs would come down. But I lived to sit in the East Room of the White House on July 2, 1964, when Lyndon Johnson signed a piece of paper that said take them down. I recall my first sitting down at this desk-I was way over on the end. They said you're dreaming if you think that John L. McMillen and this committee are going to vote home rule for the District of Columbia. They said you're dreaming. But you know one thing? I lived until October 10, 1972, when Mr. McMillen heard the word that Johnny Mack is not coming back to this seat.

I lived to hear them say you're dreaming if you think that this Nation cares anything about South Africa, going up there on Thanksgiving eve at the South African Embassy and getting arrested, 2 hours before prime time, on an evening when ABC, NBC, CBS, UPI, and API had nothing to report but turkeys. You're dreaming, they said, if you think you're going to influence that.

But don't you know, yesterday, Dr. Brimmer, there were conservative members of the Republican Party standing up on the floor of the House, saying I love my President, but he is wrong. And don't you know what is going to happen next Thursday? I can't wait, Dr. Brimmer, until I look up in the gallery and see you all on that day. Thank you for your contribution to this effort.

Dr. BRIMMER. Thank you, Mr. Chairman.

[The report submitted by Brimmer & Co. may be found on P. 575.] Mr. FAUNTROY. May I call another "long distance runner" in the struggle for full self-determination for the District of Columbia, Attorney Matthew Watson. He is a practicing attorney in the District of Columbia and presently serves as general legal counsel to corporations and nonprofit organizations.

Attorney Watson was appointed auditor for the District of Columbia in the maiden voyage of this community on limited self-determination. He served from 1975 to 1981. He also served as the