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  •   The Man Who Tamed D.C.'s Fiscal Mess

    By Vernon Loeb and David A. Vise
    Washington Post Staff Writers
    Monday, February 9, 1998; Page A01

    Natwar M. Gandhi happened upon the basement file room a year ago and remembers feeling an overriding sense of "shock." Thousands of District tax returns were heaped in loose piles from floor to ceiling, looking like the jagged peaks of a mountain range.

    Gandhi knew that his boss, Chief Financial Officer Anthony A. Williams, had just promised to resign if the District didn't receive a clean, unqualified annual audit in one year's time. And he knew it was up to him to clean up this mountainous mess, thoroughly checking each return for accuracy.

    Gandhi pondered the obstacles and finally told Williams that it couldn't be done. Opening the door to the file room full of business tax returns, he said, "was like looking at the Himalayas."

    But Williams and company, alone among the District's congressionally mandated reformers, will plant their flag on the mountaintop today as they unveil a clean annual audit for fiscal 1997 that shows Williams's team conquered hundreds of financial deficiencies -- and produced a stunning budget surplus of $185.9 million along the way.

    "He is the one guy who you can say ain't part of the problem," Rep. Thomas M. Davis III (R-Va.), chairman of the House Government Oversight subcommittee on the District, said of Williams. "He has not only met expectations but surpassed them."

    How Williams in two years has taken the city's finances from fiscal collapse to nascent recovery is a tale of nerve, vision and leadership. Though he's generated more than a little controversy and plenty of pointed criticism, his record of success sets him distinctly apart from management reform efforts undertaken by the D.C. financial control board, its handpicked team running the D.C. public schools and a succession of officials occupying the inspector general's office.

    It is also a tale that could help guide the newest reformer on the scene, Chief Management Officer Camille C. Barnett, as she attempts to do for nine major operating departments what Williams has done in the realm of financial management.

    "His reputation is well-known," said Abdusalam Omer, Williams's deputy for budget and planning. "He's a fiscal hawk; he's got integrity; and he is fixing the District."

    Why were the business tax returns piled high on the floor of the basement file room? Because that was the city's filing system: Open the returns, send the checks to the bank (an initial step that often took weeks), enter the data into the computer records (typically replete with errors), and then throw the returns on the floor in the "file room."

    When auditors from KPMG Peat Marwick began work on the annual financial review of the city's books for fiscal 1996, they made a seemingly simple request. They asked the city to produce the paperwork on a sampling of 279 business tax returns. But D.C. officials couldn't find 80 percent of them -- they were buried somewhere in those piles.

    "You can imagine the shock I felt when I walked through this room and said, 'What is this?' " recalled Gandhi, who at that time had been with the office for about a month. "The most charitable explanation is, over the last 20 years, state and local tax administration has gone through a revolution, and it bypassed us."

    And the least charitable? "Managers just had no idea what they were doing," he said.

    The piles of files, the KPMG auditors concluded, made it impossible to verify $39.3 million in business tax receivables, so they issued a "qualified" opinion rather than a clean audit.

    Stretching as far as the eye could see, the paper peaks beautifully symbolized the state of the financial system that Williams inherited in the fall of 1995, when he left a gray post as chief financial officer at the U.S. Department of Agriculture and brought a keen wit, his signature bow tie and an arsenal of colorful, military metaphors across town to One Judiciary Square.

    "We had a $300 million cash deficit; a huge accumulated deficit; vendors were waiting to get paid; our tax operation was basically in collapse; internal controls were nonexistent in many places; and we were at a point of crisis," Williams recalled in an interview last week.

    "And I think those extraordinary conditions required extraordinary action."

    Most extraordinary was Williams's decision to fire more than 300 managers and employees who handled financial matters in various agencies for which he had responsibility, employing the vast powers with which Congress endowed his office. Indeed, his willingness to clean house sets him distinctly apart from his brethren reformers.

    So, too, did his use of consultants.

    Unlike the control board, which paid outside analysts to produce recommendations for reforms, Williams used consultants as a kind of "rent-a-government" to pay vendors, develop a budget and clean up tax records while he worked to shape capable staff of his own.

    Most of the people he hired as top deputies required little on-the-job training. Gandhi came from the General Accounting Office, where he had spent 20 years auditing the IRS. Earl Cabbell, Williams's controller, arrived from Detroit, where he had produced the first clean annual audit in that city's history.

    Thomas F. Huestis left Public Financial Management Inc., a national heavyweight in municipal finance, to become treasurer. And Omer returned to lead the budget office, where he first had worked under then-Mayor Sharon Pratt Kelly, seeing firsthand the kind of bogus budgeting that had imperiled city finances.

    "We have a no-whining environment," Williams said. "You say to your managers, 'If you've got a problem, admit you've got a problem and show me how you're going to correct it and stay on target.' I think that no whining, no excuses is the biggest, most important thing."

    Williams didn't whine back in June, when his back-channel talks with Rep. Charles H. Taylor (R-N.C.), chairman of the House Appropriations subcommittee on the District, spilled into the media. Williams was seeking more control over city contracting, and the talks infuriated both the control board and Del. Eleanor Holmes Norton (D-D.C.). He apologized, attributing his strategic gaffe to "adolescent exuberance" for a quickened pace of reform.

    The blunder wasn't the only pocket of "turbulence" -- to use his own metaphor -- that Williams has encountered along the way.

    Union leaders, still furious over last year's mass firings, have described him as their public enemy number one. Just last month, they directed a barrage of flak his way during a congressional hearing before Davis's subcommittee.

    "The CFO has earned a prominent place in labor's hall of infamy for his union-busting tactics and his abuse of employees," said AFL-CIO Vice President David J. Schlein.

    And the complaints aren't confined to union leaders.

    Constance B. Newman, a member of the control board and a former head of the federal Office of Personnel Management, has sharply criticized Williams, saying that in his rush to fire people, he may have forced out some of the wrong people.

    "I'm not ready to conclude that all the people he got rid of were people who should have left," Newman said. "I have shaken up organizations and have done it in a way that still pretty much respected the process."

    And while she says she respects his overall achievements, Newman does not see Williams as a model for Barnett to emulate as she provides day-to-day direction to city agencies.

    "I don't want to generalize that what Tony did, and the way he did it, is the way it should be done across government," Newman said.

    Andrew F. Brimmer, the control board's chairman, has clashed with Williams on several occasions, but he has been highly complimentary, nonetheless. Brimmer expressed delight last week when Williams abandoned a brief and public flirtation with the notion of running for mayor.

    Dismissing their differences as "minor, minor issues," Brimmer said Williams deserves enormous credit for the city's emerging financial stability. He said much work remains to be done, including installation of a computerized financial management system.

    "He is making a major contribution where he is," Brimmer said. "He has been persistent."

    There wasn't much Gandhi could do a year ago with all those business tax returns littering the basement floor until a roomful of metal shelving was procured -- and even that took months.

    But by summer, a 25-employee task force -- 15 D.C. government workers and 10 contract analysts -- was working overtime in a designated "business tax war room" manually checking 34,000 business tax accounts. By the end of September, they'd found and corrected $20 million in errors in 1,500 accounts.

    With Gandhi at the helm, backed by 21 new senior managers and 150 new employees, delinquent tax collections increased by $11.7 million in fiscal 1997, or 45 percent from the year before. The number of audits increased by 2,300, or 28 percent, and audit assessments increased by $10 million, or 30 percent.

    "This is not rocket science," Gandhi said. "This is tax administration. Every jurisdiction does it."

    Gandhi is promising taxpayers that he will get their D.C. income tax refunds to them faster than the IRS can send out federal refunds.

    Cabbell is paying city contractors within 30 days, not 90. Huestis has the District back in Wall Street's good graces. And Omer is building the fiscal 1999 budget around "activity-based costing," which means that program managers will, for the first time, be able to compare their efficiency to their peers in other cities.

    It's not a pretty comparison, Omer said. But that, Williams said, is tomorrow's challenge.

    Williams's top priority now is supporting Barnett, the new chief management officer.

    "Maybe we have the same rank, but let's [compare the situation to] World War II," he said. "A lot of generals had the same rank, but [Gen. Dwight D.] Eisenhower basically was laying out the big picture plan, and I think that's important here. We can't have five people drawing up the plan. And I will support, with all the powers that I have, a plan that she is ultimately responsible for creating."

    But there is no denying the prowess of his troops. Williams, momentarily tired of military metaphor, shifted to football.

    "We're a team that's won a big game that's put us on the map now," he said. "We've gone out and beat San Francisco, and people are saying, 'This team is really good; they've got potential.' But we still have not, in my mind, really won the title yet. I think that we now have the opportunity for the District to show that it can be the best in the country."

    © Copyright 1998 The Washington Post Company

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