GOP Offers Rescue Plan To Reinvent Capital City

BUT of crisis, opportunity.

That is the positive spin the District of Columbia is putting on its pending insolvency, even as Congress rejects Mayor Marion Barry's request for a bailout.

For Congress's new GOP majority, the crisis presents an opportunity to showcase a Republican brand of urban revitalization. House leaders are drafting proposals to set up enterprise zones, distribute school vouchers, end rent control, and cut federal taxes for those in poor neighborhoods.

Republicans also have a chance to demonstrate that they care about poor blacks - Washington is 68 percent African-American, with pockets of deep poverty - and possibly to woo blacks to the GOP.

Meetings this week between the district's leaders, who are Democrats, and Republican leaders, including House Speaker Newt Gingrich (R) of Georgia, to discuss the crisis were constructive, participants say.

``They're treating Marion with respect,'' says urban planner James Gibson, co-author of a private report on the district's finances.

But the bad news could hardly be worse: The district faces a $722 million deficit, equal to 20 percent of its $3.2 billion budget. By comparison, during New York City's fiscal crisis in the 1970s, the deficit reached about 15 percent of its budget.

The stark fact is that the district's finances have become unworkable, according to testimony by the General Accounting Office (GAO), Congress's investigative agency. The only reason that it has operating money today is that it owes creditors millions of dollars. Many city services, especially those helping the poor - such as homeless shelters - are on the verge of closure.

``Given the continued spending at current levels, it is now clear that the district will run out of cash as early as this summer,'' said GAO official John Hill Jr. in congressional testimony Wednesday. ``In fact, the district could be considered insolvent since it does not have enough cash to pay all of its bills.''

The House subcommittee chairmen who deal with district affairs are working on urgent legislation establishing a financial control board to oversee the city's finances, as New York had in the 1970s.

But how did Washington, a congressionally supervised enclave carved out of Maryland and Virginia, get into this predicament? Bad management certainly takes part of the blame, say members of Congress and experts on D.C.'s finances.

The city bureaucracy is bloated and inefficient. During the 1980s, the city ran budget surpluses. There was little incentive to restructure government. By the late '80s when budget storm clouds began to gather, Mayor Barry had developed a substance-abuse problem and, he now admits, was unable to govern.

Lax spending and accounting practices continued under the administration of recently departed Mayor Sharon Pratt Kelly. Only since Barry reassumed the mayor's seat last month has the full extent of the crisis been revealed. Barry has been chastised by some for being too reluctant to lay off city workers. ``Asking Barry to fire people is like asking someone who's pro-life to have an abortion,'' says a former elected city official. ``He believes it's the job of government to create jobs, not take them away.''

But the charismatic mayor can take only part of the blame, say analysts of the city's problems. The district shares many problems of other American cities - middle-class flight to the suburbs, a shrinking tax base, high crime, and deteriorating schools.

D.C. is also unique. When a district taxpayer moves to the suburbs, he takes his income with him. And his tax dollars are out of the district's reach, unlike a suburban dweller in, say, California, whose state tax payments still benefit California cities. District officials have long wanted to impose a commuter tax on people who work in the city but live in the suburbs, but Congress has always vetoed the idea.

When Congress granted D.C. limited ``home rule'' in 1974, it handed responsibility to the district for the pensions of retired district employees, such as police and teachers, payments that Barry believes should not come out of District funds. Barry also cites $279 million in bills ``that should have been paid by the federal government prior to home rule.''

Every year, Congress appropriates money - the district's ``federal payment'' - to compensate for the services the city provides on behalf of the federal government and for the sizable portion of nontaxable activity that takes place in D.C. But the flip side is that Congress also has veto power over the district budget and laws, leading some to dub D.C. as America's ``last plantation.''

With Congress unwilling simply to appropriate more money for D.C., the only alternative, say Congress leaders, is to reinvent the federal city from the ground up.

``I'm optimistic we'll wind up better off,'' says Gibson, the urban planner.

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