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energy. The funding level in PY 1986 was $7.2 million, with $6.2 million proposed for FY 1987. All states and

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same level proposed for FY 1987. This is a project grant

program

available to state and local governments. Here,

also, statehood would have no likely impact.

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FINANCIAL RESEARCH ASSOCIATES, INC.
Suite 413 • 1341 G Street N.W. • Washington, D.C. 20005

(202) 626-5600

John A. Colo, Ph.D.

Lucy J. Reuben, Ph.D.

FINANCIAL IMPLICATIONS OF STATEHOOD FOR THE DISTRICT OF COLUMBIA:

SELECTED ISSUES

by

FINANCIAL RESEARCH ASSOCIATES, INC.

Submitted To

THE DISTRICT OF COLUMBIA STATEHOOD COMMISSION

and

THE DISTRICT OF COLUMBIA STATEHOOD COMPACT COMMISSION

September 1986

SUMMARY AND OVERVIEW

The objective of this study is to provide an analysis of

certain issues concerning the econonic and financial inplications

of statehood for the District of Columbia.

There issues are

directly related to the potential effects of statehood upon the sources of revenues that may be available to the District of

Columbia.

These issues, also, address the potential incremental

costs of statehood.

The primary topic of this study is the role of the federal

payment in the fiscal integrity of the proposed state of New

Columbia.

The study, also addresses the taxing authority and

responsibility under statehood and the increnental costs of

statehood.

In each case, the analysis focuses upon the economic

and financial inplications of the issue.

This exanination of the issues concludes that there will

continue to be a significant role for the federal payment under

statehood for the District of Columbia.

There will continue to

exist conceptual rationale for such a payment, and there will

continue to be a need for such a payment.

Further, there needs

to be nore predictability in the amount of any such payment.

Either a formula determination or a tie to a constant dollar

anount would provide such predictability.

However, if the state of New Columbia is granted the full

fiscal and taxing authority of other states, the federal payment

may not have to grow a. large as night otherwise be the case.

Furthermore, u most of the mechanisms of statehood are already

in place, the transition costs, which are one tine costs, may be

adequately borne by the residents.

The only significant

additional aspect of the overall administrative and regulatory

structure is an anticiapated judicial and prosecutorial division.

In general, the government of the District of Columbia already

successfully assumes several of the functions of municipalities

and states.

N

THE FEDERAL PAYMENT

Currently, the District of Columbia rocoivos from Congross an annuel lunp sun appropriation known as "the federal payment."

The primary objective of the federal payment is to defray certain

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place otherwise uncompensated denands or limitations upon the State of New Columbia, there will continue to be econonic and

financial justifications for an annual federal payment.

Conceptually, the foderal payment began when the District of

Columbia was established as the nation's capital in 1800.1

This

paynent was designed to nitigate many of the otherwise unfunded

expenses of the District in its unique role as the capital city.

The federal paynent has been the subject of numerous studies and

roports, beginning with a report issued by the House District of

Colunbia Connittee in 1830.

According to a conpilation of these

studies, The Federal Paynent to the District of Columbia 1790

1980

(1) All recognize and discuss elements of the federal presence that restrict local development and revenue raising capacity, such as those factors stenning ron the planned, grand design of the Nation's Capital (extensive parks, and open spaces, broad avenues and streets, land unavailable for development, height limitations) and the expanding taxexenpt property in the District of Columbia.

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