District officials are planning to announce that the city has balanced its budget for a third straight year, setting in motion the probable return of self-government and pulling the plug on the federally appointed financial control board a year from now.

As a result, city and congressional leaders are beginning to discuss Congress's future role in overseeing D.C. affairs and, more immediately, the timetable for the control board's exit. A hearing on these and other D.C. issues is set for Friday on Capitol Hill, with the city's top elected officials slated to testify.

Rep. Thomas M. Davis III (R-Va.), chairman of a House subcommittee that oversees the District, is holding the hearing and said it is unlikely that Congress will extend the life of the control board after next year.

Mayor Anthony A. Williams (D) and the D.C. Council have shown they can effectively lead the city back from near bankruptcy and dysfunction, he said.

"We need to review what, if anything, Congress should do now," said Davis, who was instrumental in stripping the city of home rule in 1995 and creating the control board to help rescue the District from insolvency. "Congress is unlikely to continue the control board [because] there's a high level of confidence in the Williams administration and the council."

As a sign of its support for restoring self-government, Congress transferred day-to-day operation of D.C. government from the control board to the mayor a year ago.

The board continues to review all city government decisions and occasionally has exerted its influence, as it did in holding down the size of the personal income tax cut the council passed last year. But under Chairman Alice M. Rivlin, the board essentially advises--instead of runs--the government.

"If the control board shut down tomorrow, I don't think anyone in this city would know it because of the seamless way they've turned it over to the mayor," said Del. Eleanor Holmes Norton (D-D.C.).

No one is saying that the city's economic recovery is complete or that its most serious problems are behind it: Among other topics, Davis's subcommittee will discuss numerous deaths in group homes for the mentally retarded, a situation brought to light by reports in The Washington Post. Davis called the unreported deaths "outrageously unacceptable."

The Northern Virginia lawmaker also is trying to determine whether the four D.C. agencies operating under court-appointed receivers because of long-standing problems are worse off now than when the government ran them.

Only one of those agencies, the Housing Authority, has improved to the point that city officials are discussing proposals to return it to D.C. government control.

But these challenges probably can be managed by the city and do not justify lengthening the life of the control board, officials said.

Congress's goal should be "to nurture home rule" instead of micromanage or dictate policy to the city, Davis said, warning that the District cannot revert to the days of fiscal mismanagement under Mayors Marion Barry and Sharon Pratt Kelly.

"We won't make the mistakes of the past and do the politically correct thing by just letting the city have home rule," Davis said. "There will be significant oversight [by Congress], but not interference."

Rivlin said, "It doesn't seem like a good idea to extend the control board" beyond 2001. "The city ought to be ready by then to assume its normal responsibilities."

Under the law, the control board exists until the District has balanced its budget in four straight years.

Early next month, city officials said, they will report the third consecutive balanced budget, for the fiscal year that ended Sept. 30.

The city is on track to balance its books a fourth time in the current budget year, which ends this fall, although officials are facing $66 million in potential overspending that will have to be dealt with through cuts or other measures.

The final audit of the books will be released in February 2001, but the control board still will have about eight months of mop-up work, which will keep it active until October 2001. The board currently is down about seven employees from its peak of 35, as some staff members already are starting to bail out.

After next year, the board will be considered dormant, not abolished. If the city finishes a budget year in the red again, the control board will be reactivated, under federal law.

CAPTION: Rep. Thomas M. Davis III wants Congress to "nurture home rule."