COMMUTER TAX Senator CHILES. I understand the feeling of people in the District, and of the Council, that you do have these commuters that work and derive their income in the city, and whether they are paying their fair share or not, and also, the problem of the large Federal presence, with the Federal buildings not being on the tax rolls. Many of us in our States are concerned about that, but I note that according to the Bureau of Census, the District of Columbia had the highest level of per capita income in 1973, at $6,337 in per capita income. My State has a per capita income of $4,923, while Virginia and Maryland were $4,886 and $5,489, respectively, so it is not all a burden of being a resident here, when it does have the highest per capita income of any area. Mr. COPPIE. It is important to observe in this, Mr. Chairman, that there is a correlation between personal income and urban density, and since we are completely urban dense, then, our income is going to be high, so the comparison with a State is not as valid as a comparison with another city, or other cities. Senator CHILES. When were the revenue estimates in the budget prepared? Mr. COPPIE. Mr. Chairman, they were prepared in the late summer, and our commitment has always been to have a valid revenue estimate to you, at the time of the markup. MEMORANDUM OF DISTRICT OF COLUMBIA MUNICIPAL RESEARCH BUREAU, INC. Recently, the District of Columbia's Municipal Research Bureau, Inc., published a memorandum that analyzed the District's financial operations for fiscal 1975. This memorandum is only four pages long, and I will insert it in the record at this point. [The information follows:] THE DISTRICT OF COLUMBIA MUNICIPAL RESEARCH BUREAU, INC. RESEARCH MEMORANDUM NUMBER 1 This memorandum initiates a new form of Research Bureau report. "Research Memorandums" will contain several pages of information about a specific subject of current interest to city officials and to the public. These memorandums will be in addition to regular research and technical reports issued by the Bureau. SUBJECT: Analysis of City Financial Operations for Fiscal 1975 DATE : November 1975 The City spent more from appropriated operating funds than it received during fiscal year 1975, based on the Annual Financial Report of the District, which was released on October 31. To illustrate how this occurred and how the 1975 experience compared to fiscal 1974, the City's cash receipts, its obligations, and its actual cash disbursements for each of the two years are summarized in the attached Table I. The District is required to stay within the Congressionally approved operating appropriation, which was $919.9 million in 1975. In 1975 the City obligated itself to spend a total of $918.2 million. The operating revenues received to finance these expenditures were $872.7 million, resulting in an excess of obligations compared to revenues of $45.5 million for the year. By contrast, in fiscal 1974 the underfunding was $3.5 million. On a cash basis, the City had disbursements of $942.0 million, which exceeded the $872.7 million receipts by $69.3 million. The 1975 cash disbursements exceeded total appropriations by $22.1 million because they included both expenditures from the 1975 appropriation, and payment of unfunded obligations from prior years' appropriations. The payment of past obligations in 1975 was greater than the amount of 1975 obligations deferred into future years. The cash shortfall was offset in fiscal 1975 by using the cash balances at the beginning of the year, and by borrowing the maximum $40 million cash advance permitted by law in one year from the U. S. Treasury. This $40 million advance was in addition to outstanding advances of $25 million borrowed in prior years. During fiscal 1975 the City converted the outstanding $25 million operating advance to a long-term Treasury loan to be repaid over 30 years. This was justified by City officials on the basis that capital expenditures of $25 million in past years had been paid from current revenues and not from loans. If the conversion had not been done, the total Treasury advances on June 30 would have been $65 million. In addition to the problem with appropriated funds, the City also spent $33.3 million more out of Federal grant funds than it received during the year. Provided these disbursements are eligible for Federal funding, the City should receive reimbursement in subsequent years for this cash shortfall. Cash available in other fund accounts was used on a temporary basis to offset the deficiency. The District does not release a balance sheet in conformity with accepted standards, showing the overall position of the City's appropriated operating funds or of Federal grant funds. Although it is not feasible to prepare a balance sheet showing the position of Federal grant funds, it is possible to prepare such a report for operating funds on a pro-forma basis using information that is available in the City's financial report (see Table II). On this basis the combined appropriated operating funds deficit is an estimated $98.4 million. The fund deficit, in municipal accounting, is defined as the amount that will have to be paid from future appropriations. Why was fiscal 1975 such a relatively bad year for the District? The primary reason appears to have been a $51.2 million supplemental appropriation, which was required mainly to pay for unbudgeted pay increases. This supplemental appropriation was never funded with additional revenues, except for a $5 million increase in the Federal payment. Spending limitations of $18 million and cash balances were supposed to offset the remainder. A one year imbalance between revenues and expenditures, and a fund deficit occur with some frequency in other major cities; when promptly diagnosed and corrected, these fund imbalances or deficits cause no serious problems. Because of the current concern over New York, comparisons of the District's financial operations with New York's are probably inevitable. Therefore, it is important to point out differences between the two cities' finances. The District has experienced a one year cash imbalance of about 7%, compared with repeated New York imbalances of greater amounts. The District's accumulated fund deficit is less than 10% of the current operating budget, compared to at least 25% for New York. And finally, the Mayor and City Council have approved a $53 million new tax package for fiscal 1976. Nevertheless, the City is under substantial financial strain at the present time because of the need to offset the 1975 imbalance, because of inflation and the need to fund employee pay increases, and because of increasing costs for the Metro deficit, debt service, retirement costs, Medicaid and other program demands. It will require stringent measures and close attention to the balance between revenues and expenditures to insure there is no repeat of the fiscal 1975 experience. Philip M. Dearborn |