ery little power in this new government. The only elected officers were the embers of the lower body of a two chamber legislature. The members of the ipper body were appointed by the President of the United States, as were the Governor and the members of the Board of Public Works. These latter officers xercised the real powers. They embarked upon an extensive program of municial improvements, the cost of which was out of all proportion to the possibilities of revenue from local taxation. Only a small part of these expenditures was authorized by the Territorial legislature. It was hoped that Congress would ecognize the fact that Washington is the Capital City of the Nation and would issume at least a fair proportion of the cost. Congress did not do so, with the esult that excessive taxes were levied and the debt was further increased to $23,360,700. The Territorial government became bankrupt and Congress abolshed it in 1874, making provision for the appointment of a commission to iquidate its affairs.

During the ensuing 4 years Congress investigated the affairs of the Territorial government and considered what form the future government of the District should take. It found no evidence of graft or corruption, but it did find that the appointed officers of that government had been injudicious in entering into con. tracts involving large expenditures of money with no assurance of where the money was coming from. The investigating committee conceded that Congress had been derelict in its obligation to make adequate payments for municipal services received by United States properties, and recommended, as a similar committee had recommended in 1835, that at least 50 percent of the municipal budget be paid from United States funds. Meanwhile, from 1870 to 1878 Congress appropriated $18,600,000 toward the expenses of the District, or about 381⁄2 percent of the total expenditures of $48,100,000 during this period.

The demand for payment by the United States of 50 percent of the municipal budget was met with the not unreasonable counter demand that if Congress appropriated such a large proportion of the funds it should have some control over the municipal budget. The need for such participation was so desperate that many citizens, particularly those with large financial and property interests, were willing to exchange their supposedly inalienable right of local self-government for a guaranty of a 50-percent participation. As a result, Congress, in 1878, passed the so-called organic act which provided for a government by appointed commissioners with limited administrative powers, and final action by Congress upon all but minor details of the affairs of the municipality. This act further provided that the Commissioners should annually submit to the Secretary of the Treasury, for his examination and approval, an estimate of municipal costs for the ensuing fiscal year, that the Secretary should "carefully consider" such estimates, "approve, disapprove, or suggest such changes in the same, or in any item thereof, as he may think the public interest demands," and deliver his statement of the amounts approved by him to the Commissioners, who should transmit the same, together with their own estimate, to Congress. The act then provided that "to the extent to which Congress shall approve the said estimates, Congress shall appropriate the amount of 50 percent thereof, and the remaining 50 percent of such approved estimates shall be levied and assessed upon the taxable property and privileges in said District other than the property of the United States and of the District of Columbia." It also placed limits on the rates of taxation of real estate "not exempted by law" and on personal property "not taxable elsewhere."

This 50-percent participation continued until 1921, and under it the District made steady progress. Largely because the United States was paying this large proportion of the costs, Congress from time to time included in the local budget items of a national character, no part of the cost of which ought to have been imposed upon the local taxpayers. The taxpayers, however, had no say in the matter. The budget was made up by the appointed Commissioners, was modified by the Secretary of the Treasury, a Federal official, and final action was bad by Congress, in which the local citizens were not represented. Toward the end of this period, Congress developed the practice of paring down the estimates so that the total amount of the budget was less than twice the anticipated revenues. Many of these cuts were made at the expense of adequate municipal services or necessary capital improvements, but the local citizens were powerless to do more than make ineffective protests. A surplus was thus accumulated. Because of this surplus, there arose in Congress a sentiment that the 50-percent partici

crises in the local government have been due to the failure of Congress to authorize adequate payments in lieu of taxes for municipal services received by the United States. The brief is appended hereto.

FEDERATION OF CITIZENS' ASSOCIATIONS,
CLIFFORD H. NEWELL, President.

Attest:

DAVID BABP, Secretary.

BRIEF IN SUPPORT OF A LARGER PARTICIPATION BY THE UNITED STATES IN THE EXPENSES OF THE GOVERNMENT OF THE DISTRICT OF COLUMBIA

STATEMENT OF FACTS

The District of Columbia was ceded by the States of Maryland and Virginia to become "the seat of the Government of the United States," under a provision of the Constitution which empowers Congress to "exercise exclusive legislation" over such a district. When the United States Government was moved here in 1800 the population of the entire District was less than 15,000, and there was very little to be taxed, outside of the self governing cities of Alexandria and Georgetown, which levied their own taxes and expended their own tax revenues. Since none of its property was then within the boundaries of these two cities, the United States of necessity provided whatever municipal services it desired at its own expense.

Scon, however, a new city grew up around the new government buildings. In 1802 Congress chartered the city of Washington as a self-governing municipality with the ordinary municipal powers, including the power to levy taxes and expend tax revenues. This new city government furnished municipal services to its citizens and also to the tax-free properties of the United States. Congress made direct payments for some of these services; for others it "contributed" lump sums to the municipal budget from time to time, but these sums were inadequate. During the entire period from 1790, when the District of Columbia was originally laid out, to 1835 the municipality expended a total of $5,500 000, a large sum for those days, of which Congress "contributed" about $1,400,000, or approximately 26 percent. The city incurred a large indebtedness, and by 1835 was practically bankrupt. Congress investigated, and its investigating committee found that the United States ought to pay more than one-half of the municipal expenses as its fair share. No specific action was taken, however, but during the next 35 years Congress was more liberal in its "contributions," which aggregated $9,000,000, or about 34 percent of the total of $26,700,000 expended for municipal purposes during that period.

In 1873, the United States, through the War Department, installed a water supply system for the Federal buildings at a cost of $3,385,000. This water was not made available to private consumers until 20 years later, but since that time the entire costs of maintenance, operation, and extensions to the system have been paid out of rents charged the private consumers, and the United States has received all of its water free of charge.

Owing to the inadequate "contributions" by Congress toward the expenses of the municipality during the period from 1835 to 1870 the local government was unable to provide the improvements and services required to keep pace with the growth of the city. In 1860 the population of the District had increased to 75,000, not including the area south of the Potomac River, which was ceded back to Virginia in 18'6. Most of this increase was within the limits of the city of Washington. The Civil War brought about a relatively large increase in population, which further emphasized this neglect. The close of the war found Washington an overcrowded city, lacking many of the facilities which a city of its size should have. Its streets were largely ungraded and unpaved. It had no water-supply system, except for the Federal bui'dings, and no adequate sewerage system. It had more the appearance of a frontier town than the seat of the Government of a great nation. Despite the inadequate expenditures during previous years, it had accumulated a debt of $4,350.000.

In 1871 Congress tock the matter in hand and reorganized the local government. It abolished the city governments of Washington and Georgetown and set up a new government for the entire District, modeled on the plan of the Territorial governments. Unlike the Territorial governments, however, the people had

very little power in this new government. The only elected officers were the members of the lower body of a two chamber legislature. The members of the upper body were appointed by the President of the United States, as were the Governor and the members of the Board of Public Works. These latter officers exercised the real powers. They embarked upon an extensive program of municipal improvements, the cost of which was out of all proportion to the possibilities of revenue from local taxation. Only a small part of these expenditures was authorized by the Territorial legislature. It was hoped that Congress would recognize the fact that Washington is the Capital City of the Nation and would assume at least a fair proportion of the cost. Congress did not do so, with the result that excessive taxes were levied and the debt was further increased to $23,360,700. The Territorial government became bankrupt and Congress abolished it in 1874, making provision for the appointment of a commission to liquidate its affairs.

During the ensuing 4 years Congress investigated the affairs of the Territorial government and considered what form the future government of the District should take. It found no evidence of graft or corruption, but it did find that the appointed officers of that government had been injudicious in entering into con tracts involving large expenditures of money with no assurance of where the money was coming from. The investigating committee conceded that Congress had been derelict in its obligation to make adequate payments for municipal services received by United States properties, and recommended, as a similar committee had recommended in 1835, that at least 50 percent of the municipal budget be paid from United States funds. Meanwhile, from 1870 to 1878 Congress appropriated $18,600,000 toward the expenses of the District, or about 381⁄2 percent of the total expenditures of $48,100,000 during this period.

The demand for payment by the United States of 50 percent of the municipal budget was met with the not unreasonable counter demand that if Congress appropriated such a large proportion of the funds it should have some control over the municipal budget. The need for such participation was so desperate that many citizens, particularly those with large financial and property interests, were willing to exchange their supposedly inalienable right of local self-government for a guaranty of a 50-percent participation. As a result, Congress, in 1878, passed the so-called organic act which provided for a government by appointed commissioners with limited administrative powers, and final action by Congress upon all but minor details of the affairs of the municipality. This act further provided that the Commissioners should annually submit to the Secretary of the Treasury, for his examination and approval, an estimate of municipal costs for the ensuing fiscal year, that the Secretary should "carefully consider" such estimates, "approve, disapprove, or suggest such changes in the same, or in any item thereof, as he may think the public interest demands," and deliver his statement of the amounts approved by him to the Commissioners, who should transmit the same, together with their own estimate, to Congress. The act then provided that “to the extent to which Congress shall approve the said estimates, Congress shall appropriate the amount of 50 percent thereof, and the remaining 50 percent of such approved estimates shall be levied and assessed upon the taxable property and privileges in said District other than the property of the United States and of the District of Columbia." It also placed limits on the rates of taxation of real estate "not exempted by law" and on personal property "not taxable elsewhere."

This 50-percent participation continued until 1921, and under it the District made steady progress. Largely because the United States was paying this large proportion of the costs, Congress from time to time included in the local budget items of a national character, no part of the cost of which ought to have been imposed upon the local taxpayers. The taxpayers, however, had no say in the matter. The budget was made up by the appointed Commissioners, was modified by the Secretary of the Treasury, a Federal official, and final action was bad by Congress, in which the local citizens were not represented. Toward the end of this period, Congress developed the practice of paring down the estimates so that the total amount of the budget was less than twice the anticipated revenues. Many of these cuts were made at the expense of adequate municipal services or necessary capital improvements, but the local citizens were powerless to lo more than make ineffective protests. A surplus was thus accumulated. Because of this surplus, there arose in Congress a sentiment that the 50-percent partici

pation should be reduced on the premise that the District had become wealthy enough to assume a larger share of the costs. This resulted in, first, a provision in the appropriation act for the fiscal year 1922 which reduced the Federal participation from 50 percent to 40 percent, and, subsequently, disregard by Congress of the basic law and the appropriation of lump sums which at first approximated 40 percent, but became steadily less by reason both of increases in the total expenditures and reductions in the lump-sum appropriations.

Meanwhile, the Budget and Accounting Act of 1921 transferred the revisory power of the Secretary of the Treasury to the Bureau of the Budget, which exercised this power in detail until 1940. Congress also continued its practice of revising the budget items, though the Organic Act of 1878 merely stated that it should appropriate 50 percent of such items of the budget as it approved. This made for poor budgeting. Members of Congress are in no position to evaluate properly the relative importance of items in the budget of a city in which they reside but temporarily, and toward the citizens of which they have no responsibility. The opportunity was thus afforded for undue influence by special interests and pressure groups to the detriment of the citizens and taxpayers as a whole. Moreover, since there was no way of ascertaining in advance what items Congress would eventually approve, there was a strong tendency for each municipal department to request appropriations for everything that it believed might be necessary or desirable, without regard to available funds, or to the relative importance of its own items and items requested by other departments.. Until 1940 this situation was further aggravated by the necessity of convincing the Bureau of the Budget of the importance of each requested item, and the practice of that Bureau of adding items not recommended by the Commissioners, but desired by special interests or pressure groups, or of more concern to the United States than to the local taxpayers.

When the late Harold D. Smith became Director of the Budget he took the sensible stand that the duly constituted authorities of the municipality should have full responsibility for municipal administration, within general budgeting and legislative policies established by the Budget Bureau and Congress. He so advised the Commissioners in August 1940, and they accepted the responsibility. Since then the Budget Bureau has confined its review to over-all limits of expenditure and sources of revenue, and to seeing that the Federal interests are properly protected. Congress, however, continues to act upon the budget in detail, eliminating some items, modifying others, and adding new items, as well as frequently adding legislative riders which impair the proper exercise of administrative authority by the Commissioners.

ARGUMENT

From ths review of the history of the District of Columbia it appears that each financial crisis in which the local government has found itself was the direct result of the failure of Congress to make adequate payments for the municipal services rendered to the United States Government's properties over a period of several years preceding. It also appears that these crises were resolved by the adoption by Congress of a more generous policy, though this was obtained in 1878 at the cost of the loss of self-government.

The present financial crisis is due to the same cause, aggravated by the policies of the Budget Bureau and Congress, hereinbefore cited. The District of Columbia is now faced with the necessity of raising additional revenue to meet the increased cost of maintaining adequate municipal services, not only for its own citizens but also for the tax-free properties of the United States, foreign governments, and private institutions of a national or international character which are exempt from taxation by congressional action. Increased prices and increased population due to the recent war are only partly the cause of this necessity. In a much larger measure it is due to the neglect of Congress during the past 20 years or more to compensate the local government adequately for the municipal services rendered to these tax-exempt properties. The proper solution is the same as previously-increased Federal payments in lieu of taxes. The problem is to find a fair measurement of such increased payment.

Though Congress, both in 1835 and 1878, concluded that the United States ought to pay 50 percent of the costs of the District of Columbia government, and did pay this percentage for 43 years, we do not endorse the unconscionable deal

that was made in 1878 whereby the citizens sold their birthright of local selfgovernment for a mess of pottage in the form of a 50-percent contribution. We believe with the Supreme Court of the United States, as expressed in Stoutenburgh v. Hennick (129 U. S. 141), that "It is a cardinal principle of our system of government that local affairs shall be managed by local authorities, and general affairs by the central authority," and that "the creation of municipalities exercising local self-government" does not infringe upon the power of the Central Government, which is the sovereign. We believe that by the use of the words "exercise exclusive legislation" it is the intent of the Constitution that Congress be our legislative body and not our city council. Consequently we urge as a first essential to the solution of our problems that Congress follow the recommendation of its Committee on Reorganization and turn the municipal government of the District of Columbia back to its citizens under a charter of local self-government.

At the same time we believe that the fiscal relations between our municipal government and the Government of the United States should be settled in some equitable manner. Until this is done there will be recurring controversies and crises, and the development of the Nation's Capital will be impeded. It is unfair that the citizens of this municipality should shoulder the whole burden of developing it on the scale required by its status at the Capital City of the Nationeven of the world. The constitutional provision of "exclusive legislation" should not be construed to permit the degradation of these citizens to the status of colonial peoples whose sole function is to support a government in which they have no part.

At no time during the past 146 years have the taxpayers of the District of Columbia failed to bear their fair share of municipal costs. Often they have borne more than their fair share. Not only are they required to pay the costs of municipal services rendered to the tax-free holdings of the United States, foreign governments, and private property exempted by acts of Congress, but they have been required to assume a constantly increasing burden of supporting, er partially supporting, institutions of a national character like the National Zoological Park, St. Elizabeths Hospital, etc., and are required to furnish free water to the Federal buildings and free schooling to nonresident children. In addition, because it is the National Capital, the District is laid out on a grand scale; its streets are wider, its parks are more extensive, in every way it is more costly to operate than any other municipality of comparable size. Moreover, unlike other municipalities, the District of Columbia does not contain large industries upon which taxes may be levied in addition to the taxes paid on real estate. Its largest industry, the United States Government, is tax exempt.

It is sometimes argued that the United States Government contributes its share to the economy of the municipality by reason of its employment of large numbers of residents of the city. It is also argued that the monumental buildings of the United States Government add to the value of privately owned property adjacent or near to these buildings. All of this is true, but any argument that the United States should not pay its fair share of municipal costs because of these considerations has no more weight than an argument that a large industry which dominates the economy of some other city should pay no taxes because it employs large numbers of the citizens, and without it the city could not exist.

The purpose of municipal taxation is to provide funds to pay the costs of municipal government, which consists essentially of the costs of supplying municipal services. All who receive the benefit of such services should, in some manner, pay a fair proportion of these costs. It is a simple moral proposition that everyone, even a sovereign government, should pay for what he receives. Pending a permanent equitable solution of this problem, which might reasonably be incorporated in a charter of local self-government as was the 50percent provision in the Organic Act of 1878, we believe that the formula devised by Senators O'Mahoney and Overton, and embodied in S. 215, which is now before you for consideration, should be adopted. This formula would base the Federal payment upon the ratio of the area of land owned by the United States, exclusive of highways and parks, to the entire land area of the District of Columbia. It does not take into consideration the value of the land nor the value of the improvements thereon. Neither does it include the properties of foreign governments or privately owned property exempted from taxation by Congress for particular reasons. Moreover, it does not take into considera.