Uncle Sam to Manage D.C.'s Money

Financial mismanagement in capital prompts presidential appointment of city oversight panel

DEPENDING upon how you look at it, today marks either a new beginning for the District of Columbia or one of its saddest moments.

At the White House today, President Clinton will sign legislation establishing a control board to oversee the city's finances -- ending a fight over mounting debt and who is responsible for fixing it brewing since the late 1980s.

This eight-year panel, to be appointed by the president, will ensure that Washington's elected officials properly redress the city's projected budget shortfall of $722 million -- 20 percent of its revenues.

Optimists cheer the measure as a chance to correct years of civic mismanagement. They see it as an opportunity to reexamine congressional mandates that limit the city's political power and prevent it from taxing commuters and nonprofit institutions that work within its borders.

Skeptics, however, say the arrival of the control board represents the city's failure at self-governance, and the beginning of the end of Congress's 21-year-old experiment of allowing the district to rule itself.

Whatever spin predominates, Washington's challenges are massive. The city's deficit has reached a level that not only marks the worst fiscal crisis in its history, but one of the worst of any American city.

When the books are finally balanced, Washington may provide an example of whether America's troubled cities can be both financially solid and hospitable enough to stem the flow of businesses and homeowners to the suburbs.

City savior

''This bill quite literally saves the city,'' says Eleanor Holmes Norton, Washington's nonvoting congressional delegate and the co-sponsor of the bill. By allowing the city to borrow from the US Treasury, she says, the city can avoid payless paydays for workers and cuts in essential services. Meanwhile, she says, the bill allows the mayor and the city council to retain their policymaking functions.

But as much as she praises the bill, Ms. Norton remains wary of suggestions by some in Congress that home rule be curtailed or revoked. Already, she argues, Washington is ''the only jurisdiction flying the American flag that does not have full democratic self-governing powers.''

When Congress established control boards to straighten out financial messes in Philadelphia, Cleveland, and New York, she notes, it was never implied that their autonomy would be permanently restricted. ''To presume otherwise about the district is to further insult our capacity for self-government,'' she says. ''The residents of Washington pay some of the highest taxes and receive the least representation in return.''

While the city's payroll is bloated, efforts to shrink it in recent weeks have been stymied by squabbles between the city council and Mayor Marion Barry. Last week, the council rejected an agreement reached between Mr. Barry and the city's labor unions. If a new deal is not struck soon, the council plans to impose a 12-percent pay reduction for all city workers.

''Some people believe that if you just fire 10,000 workers, everything will be all right,'' Barry said in a press conference Friday. ''There are structural problems in the relationship between the federal government and the district government that have nothing to do with work.'' Washington, he argues, ''has fewer employees per capita than Baltimore.''

Yet Barry, whose first tenure as mayor ended after he served time for drug use, has been dogged in the last two weeks by allegations of money laundering brought by a former housekeeper and reports that Barry accepted gifts from a contractor who does business with the city. By all accounts, the allegations have further chipped away at congressional confidence in home rule and kept the city far from Barry's stated goal of becoming ''the best-run city in the nation.''

Federal government's fault?

But before blaming Washington's leaders entirely, some analysts say the seeds of the city's current financial chaos were planted by the federal government.

James Gibson, a senior associate at the Urban Institute in Washington, says the federal government dumped home rule on the district without providing a level of staffing and budgeting that would have been appropriate. The books were such a mess, he says, it took five years for the city's first audit to be completed.

In the immediate future, Mr. Gibson says, the city will have to endure budget reductions, staff reductions, and service shortages that will further erode the city's tax and service base and cause widespread economic distress, especially among the city's poor.

Already, Republicans in Congress are drafting proposals ranging from setting up enterprise zones to offering school vouchers, eliminating rent control, and cutting taxes for residents of the city's poorest neighborhoods.

Mark Plotkin, a political commentator at WAMU radio in Washington and a longtime advocate of D.C. statehood, says he is concerned that the control board, prompted by the Republican Congress, could become a ''junta,'' and that the power of the mayor and the city council could be ''eviscerated.''

Yet he also sees opportunity. The control board, he says, could wind up recommending the changes in tax and governmental structure city leaders have advocated for years. If so, he says, Congress would be far more likely ''to listen to a creature it created'' than to Washington's home government.

In addition, Mr. Plotkin says, the board might make more people aware of Washington's bizarre civic structure. ''I don't think the majority of Americans know that we can't tax commuters at the source like other cities, that nonprofits like the Red Cross and the National Geographic Society don't pay taxes, and that we have no congressional representation,'' he says. ''I think if that got out, people's attitudes about the city would change.''

And the city's image could use the help. Its murder rate has consistently hovered among the highest of American cities and a generation of middle-class home- owners has flocked to the mostly white suburbs, eroding the tax base. The city is now 68 percent black and poorer than ever before.

But despite its troubles, Norton says, this city of cherry blossoms and bone-white monuments has a lot going for it. Among the nations' largest 25 cities, Washington is third per capita in residents with college or post-college degrees, she says, and fifth in per capita income. A new arena and convention center are in the works.

''With help from the Congress, but under its own initiative and by its own hand,'' Norton says, ''this shall soon be a city on the rise like the sun on a clear morning.''

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