senior attorney for the U.S. General Accounting Office from 1974 to 1975, and he is a member of the District of Columbia and the New York bar associations.

Attorney Watson has made many notable contributions to the D.C. area, and I truly regret that time will not permit me to elaborate on his many achievements and to the fine contributions he has made to the future by being the father of very fine children, whom I just love.

I ask the distinguished gentleman to present his testimony in whatever manner he chooses.

STATEMENT OF MATTHEW S. WATSON, ESQ., FORMER AUDITOR FOR THE DISTRICT OF COLUMBIA

Mr. WATSON. Thank you, Chairman Fauntroy.

I have submitted a prepared statement, which I would also like to summarize, and look at the prospects in a somewhat different way than Dr. Brimmer has. His testimony dealt very much with prospective aspects of the D.C. economy and of the government functioning.

I think we should also look to how the government has functioned over the past 10 years in terms of looking at are we any different than a State now. Very often we have a tendency to consider ourselves as a totally unique animal that doesn't exist anywhere else and that_we then look to major changes with statehood. It is unfortunate, I think, when Congress gave us home rule initially, our limited home rule, what they basically gave us were the detriments of statehood and not very many of the benefits of statehood. In terms of the budget for the District of Columbia government, we basically have all the drawbacks of a State and we basically have shown, within the past 10 years, that we could economically function as a State government because we have been. Although you in Congress—and with deference to you as chairman-I think inappropriately consider our District budgets and do delay in the timing of the budget. We don't get a Federal appropriation for our budget. We get a very different thing than a Federal appropriation. A Federal appropriation appropriates money from the general fund of the Treasury to a Federal agency. That's a cashier's check that says you can go out and spend this money.

The District appropriation changes just a couple of words, but the entire effect of it is that it appropriates from the general fund of the District of Columbia. Unfortunately, like State governments, we can't coin money, we can't go out and unlimitedly borrow, as the Federal Government does. What we basically have received from the Federal Government when our budgets are passed is a hunting license that says this is the budget we're going to approve; you can spend no more than that, but you can only spend that if you raise the funds substantially yourself.

In that regard, the District of Columbia has for more than 10 years had basically a State budget. If we were to tomorrow convert ourselves to statehood, the only changes would be that we would not have the congressional limitations put on to our budget, but we would have no different situation than we have now. If the city has been-and I think it has been viable for the past 10 years-in the

limited home rule, it remains in the budget process viable continuing in the home rule.

The only aspect that we receive which is somewhat different than other jurisdictions-but again, I don't think substantially different-is in terms of the Federal payment. The Federal payment, as has been discussed, is about 20 percent of the total District appropriation. If one looks at it the other way, 80 percent is by the District's own revenue sources and sources it receives as though it were a State. If we looked at it in the private context, at best, the Federal Government is a minority shareholder of this operation and is no where near the driving force of the economics of our city. We, like any State, are not able to tax the Federal presence. And that doesn't differ us from anyone else. The State of Virginia does not have a property tax on the Pentagon building, it doesn't tax the CIA. The State of Maryland does not tax the large Aberdeen Proving Ground or the National Institutes of Health.

We, on the other hand, do receive a Federal payment recognizing the presence, but that doesn't differ from other States, either. In fact, there are numerous programs around the country of others receiving these Federal payments. There I think we should look at what the nature of the payment is now and what the nature would be under the statehood form.

Right now, the payment is gratuitous. Congress can, if it chooses to, cut it off in the next budget, or increase it in the next budget. In fact, in the first several years of home rule, we received about $100 million less than was authorized for the Federal payment because the Congress determined to cut it.

Although we cannot tax the Federal Government-and in my statement I go through the legal chain of cases, starting with John Marshall's opinions as to taxation of the Federal Government in McCulloch v. Maryland-that doesn't say that the Federal Government can't still meet its obligation.

Our Constitution is an interesting document, in that it prohibits the Government from doing things, but it doesn't prohibit, on the other side, consent to them. The Government can't quarter troops in my house. That doesn't mean I can't invite a soldier in. The Government can't force me to testify against myself or can't establish a religion for me. But that doesn't mean I can't make whatever statement I want to, and that doesn't mean I can't voluntarily have my own religion.

The same is true with regard to Federal payments. The District, in its current state—I shouldn't use that term-in its current mode, or as a State, would not be able to tax the Federal Government, but the Federal Government could meet that obligation and does meet that obligation all over the country. It meets that obligation in other parts of the country where national parks are by providing funds for roads, by providing funds for firefighting activities and various things. It meets that requirement in other places. I believe that the Federal Government would continue to provide that, the same way it has done for other States.

Second, large parts of our Federal payment are for direct goods and services. We certainly could, were we a State, cut off the water to the Federal presence here, were they not to pay equivalent rates to other water users. It is also to the Federal Government's inter

est that they have the quality environment for a capital, and probably the most important capital in the world. I do not expect that we would see the Federal Government cutting off its nose to spite its face by severely impoverishing the State of New Columbia, so that we were back in the situation where the Government was, at the very founding of this Federal District, with unpaved roads, with poor quality of services.

But even there I think we have to look at the question, what would happen in the District of Columbia, as has happened in States, if there were an economic decline that cut 20 percent of the budget of that State. Yes, it would be serious; yes, we would have to tighten our belts, draw in on services, and probably increase some taxes. But that would not be a catastrophic blow. It would not be something that says that the District could not function at all as a State, because many States have gone through exactly this prob lem. It is my contention that, were we a State, without the Federal payment entirely, we still are an economically viable entity.

The other question comes with regard to a commuter tax, that all of this analysis is based on not having any sort of nonresident income tax, because we are today functioning without a nonresident income tax and we are functioning reasonably successfully. That is not to say that I don't believe a nonresident income tax is not proper, because I think it is, because I think every person making use of the services should pay their fair share. But at the present time, we raise 80 percent of the total expenditures without relying on a nonresident income tax.

The aspects that would change, however, with statehood I think are positive and should change even without statehood, because in a number of areas they are totally improper. The only area that I believe is substantial, where the District of Columbia does not bear its fair share of costs and the Federal Government does, is within the criminal justice system. The Federal Government pays the U.S. attorney, and appoints the U.S. attorney; the Federal Government pays and appoints the U.S. marshals. I would state that, with our limited home rule, this is improper, too. The District of Columbia should be appointing the U.S. attorney and, like any other jurisdiction, we should be paying the cost of prosecution. Like any other jurisdiction, we should be paying the cost of the security for our courthouses. We do, for instance, pay the salaries of our judges who sit in the courthouses with the U.S. marshal there. That is, though, the only area at the present time that the Federal Government is making a very substantial contribution to what would be our normal, local, Štate expenditures.

With regard to that, I have made estimates that we are probably talking in the order of a total of about $25 million, about $15 million on a prosecution and about $10 million in the U.S. marshal service. But that, as I say, is an expense that we should bear, regardless of statehood, and we should have the appointing authority, regardless of statehood. That number, too, is really an insignificant part of our total $2 billion budget.

The other aspect which would change slightly is we get one benefit from our Federal status that other States don't get. I don't think it has made much difference, but it is there. That is, our local bonds, because they are issued by authority of the U.S. Govern

ment through the Home Rule Act, are tax exempt from all 50-State taxes. An individual in the State of Montana owning a District of Columbia bond not only pays no Federal tax on the interest because of the specific legislative position, but also pays no Montana tax because for that purpose it's a Federal instrumentality.

That would change. Again, that is something we should undertake. There is no reason that our bonds should be treated any differently than in the other State bonds, and I think it would only have a minuscule effect on our viability as a State.

For these reasons, I think that our past record over 10 years shows that we have met all the burdens of statehood. The question shouldn't even really be asked by others in this Congress as it is-is the District capable of having statehood—because there is virtually nothing that hasn't been imposed on the District government up to now that wouldn't be imposed on us as a State. On the other hand, we would have considerable efficiencies not coming through Congress, as well as other tax sources which would be proper.

Last, I wanted to comment on the question of the Federal enclave――

Mr. FAUNTROY. Before you do that, I just think your last two sentences were pristine and tremendously helpful in explaining both to District residents and to Members of Congress what we're dealing with here. Thank you for that.

You can move on now.

Mr. WATSON. I think there is a question to look at that Dr. Brimmer raises with regard to the Federal enclave, but I would like to comment that if we follow the precedent in the surrounding areas even, it would be perfectly proper to tax employees working in the Federal enclave.

We have a number of instances of this. One is the National Institutes of Health compound just across the line in Maryland, which has residents living there. Interestingly, the State of Maryland a number of years ago took the position that they had the right to tax the residents because they lived on the NIH compound, but the residents didn't have the right to vote in Maryland because they lived on Federal property.

That case went to the U.S. Supreme Court and the State of Maryland lost. It made it very clear that, yes, the State of Maryland has the right to tax residents on the Federal enclave there, and they also have the right to vote in Maryland as Maryland residents. I think we would have a similar thing.

Similarly, the Federal Government has had this problem with States taxing, which does show something about the States' taxing authority with regard to military forces. It is now approximately 50 years ago that we passed the Soldiers and Sailors Relief Act, which says that active duty military personnel cannot be taxed in the State where they are on military orders and assigned, because what was happening before then was that States were taxing military personnel on military reservations. Now, that I think makes sense in not taxing because military personnel are ordered to go to particular locations, which is very different. But that clearly recognized the rights of States to be taxing the civilian personnel working on Federal reservations, which for many purposes are exempt from the normal State laws. In fact, we have that again in this

area, that individuals at the Pentagon parking lot who violate parking restrictions go before a U.S. magistrate and not before a local Arlington County magistrate. Nevertheless, the State of Virginia does tax personnel working there.

Similarly, in other jurisdictions-which I should say is the American way. I always look at us as not having a nonresident tax as being somehow un-American because a majority of the areas of this country have it. You take cities like Philadelphia and New York, which have nonresident taxes, which tax the very large establishments in their jurisdictions, and an individual living in New Jersey working at the Philadelphia Navy Yard, for instance, will pay Philadelphia taxes. Similarly, in New York City, the same is true. So I think the precedent would be totally on the basis of being able to tax those in the Federal enclaves, though it is something that should be made clear so we don't go through years of litigation after statehood.

I thank you.

[The prepared statement of Matthew Watson follows:]