« AnteriorContinuar »
grant exceptions, the Congress can also grant such exemptions even if the District
government chooses not to grant the exemption.
The District would, however, upon statehood, lose
one benefit which it
presently enjoys, not in terms of its own taxing authority, but in the District's
exemption from taxation.
Since the District's current bonds are issued pursuant to
the authority of Congress to legislate for the District, the interest paid on District
bonds is currently exempt from taxation by the other 50 states.
the District's obligations would have no greater status than those of other state
obligations and would be taxable by other states.
The effect on the saleability of
District bonds would, I believe, be minimal.
It is clear that the District will not lose any authority to levy taxes upon
It will, however, gain the ability to
tax certain income and real
property from which it is now prohibited from utilizing. It should also be noted
a unitary government, the District has and will continue to have with
statehood all of the taxing authority normally divided amoung state, county and
The District may or may not decide to levy such taxes,
just as the various state legislatures chose from their own
competitive positions what taxes to levy. As I have stated, it is possible that the
Congress would chose to terminate the Federal payment whether or not statehood
is achieved. The Congressional decision on this matter would certainly be relevent
to the fiscal needs of the new state.
But either way there should be no question
of viability of the new state, since the current Federal payment represents only
approximately 20% of total resources.
What are the expected transition costs of statehood?
Transition costs, of themselves, are likely to be minimal, and should be of
activities which would be required to perform as a state, several programs which
the state would be required to take over from the Federal Government would have
cost implications which are not merely transition costs, but which would continue
Three of these Federally performed functions are involved in the criminal
Currently the District Government does not have authority to
criminally prosecute other than traffic and petty misdemeanor offenses. The local
criminal prosecution function is conducted by the United States Attorney for the
District of Columbia. Upon admission to statehood, the new state would have full
criminal prosecution authority and responsibility. The new state would not take
over the entire function of the United State Attorney's office. That office would
still exist, as it does in all other states, to prosecute Federal offenses and to
represent the United States civilly, but in a considerably smaller form. That part
of the U.S. Attorney's office which prosecutes local
cases in Superior Court
currently has approximately 110 lawyers who are paid by the Federal Department
expenditure of approximately $10 million per year to perform these functions. The
District should properly bear this cost, together with the authority to choose the
Similarly, the United States Marshall also performs various functions in
of the Superior Court, including courthouse security and prisoner
as service of process and execution of eviction orders.
These functions, currently financed by the Federal Government, would become the
responsibility of the new state, with cost implications of several million dollars per
Although all sentenced District prisoners are technically charged to the care and custody of the U.S. Attorney General, most actually serve their sentences in
services. Upon, the District's, achieving statehood, it is likely that this privilege
It is difficult to determine whether it would be
expensive for the District to provide these services on its own.
The District government has also benefited over the years from its ability to
participate in Federal employee benefit programs.
Currently, District employees
are eligible to participate in Federal health benefit plans. In addition, permanent
employees, other than police, firefighters, teachers and judges, are covered by the
Civil Service Retirement System. State governments do not have the right to
participate in these Federal programs.
In fact, regardless of statehood, the Office
of Management and Budget has recently informed the District that it will not be
permitted to enroll new employees in the programs after October 1, 1987. It is
likely that the District will be able to obtain group health coverage which is
reasonably competitive to current costs.
The potential retirement costs are much more threatening.
With regard to the Civil Service Retirement System, the
District is treated as
a Federal agency.
The employee contributes 7% of wages,
which is matched by the District. The District's contribution is now approximately
$50 million per year. Although the Civil Service actuaries estimate that the cost
above the employee contribution is at least double the agency share, the District,
like any Federal agency, has no further obligation other than the initial 7% which
it contributes. When District employees retire, any deficiencies in the funding are made up by the Federal Government. Statehood could cause even existing District
employees to be dropped from the Federal retirement system.
Even without having
to cover all District employees in a new retirement system, it is likely that the
benefits will have to be considerably reduced to be affordable to the District. If
all District employees were to be dropped from the Federal system, the District
might face increased annual
costs of $50 to $100 million
benefits. Even under the existing Home Rule government, the District will begin
covering new employees in its own retirement system starting in FY 1988. The
OMB requirement of only covering new
employees, however, will make the
transition gradual. Statehood might trigger a much quicker change with attendant
significant increases in costs.
Would there be costs associated with the transfer of agency
The costs associated with the transfer of agency funds should be minimal.
The District is already independent of the Federal Government for its budgeting,
accounting and cash management.
With the exception of those activities discussed
above which are
now financed with District, there would be
difference in the financial system after admission to statehood.
It is my opinion that the financial effects of statehood are less than one
There is no reason to believe that there would be any significant
change in the Federal payment to the District. Nor would the payment be any less
and reliable with statehood than without.
conclude that the
Congress would fail to meet its reasonable obligations to the District. In addition,
the absence of the Congress in the budget approval process would make that
process more efficient,
The most substantial impacts would be assuming those responsibilities which
the Federal Government not financing
local prosecution and courtroom security,
the unavailability of overflow prison facüities and health and retirement benefits.
Assuming the worst case, these costs could be range between $100 and $150 million
per year. Although that is a sizable absolute amount, it is only approximately 5%
of the Districts total expenditures. That percentage is certainly within the range
of changes which could be accommodated, particularly since
revenues will be available with the advent of statehood.
In any event, the value of full citizenship cannot be measured in dollars and
Thank you for the opportunity of testifying this morning.