My Fellow Citizens: I have asked for this time to speak to you about the financial condition of our city and your government.

When I assumed the Office of Mayor in January of 1979, I pledged a more efficient and more effective D.C. government. Over the past 19 months, to help to achieve this goal, we have opened up our government, for complete examination and community involvement . . . a process which has generated heated discussion, geniune concern, and major results.

One of the first problems facing me was the financial condition of our city. Tonight, I am presenting to you a comprehensive financial plan, a plan which deals with past, present and future financial problems.

This financial plan has been developed at a time when our city, other large cities . . . and indeed, the nation . . . are facing an alarming increase in the cost of living and thus, in the cost of providing the most basic services -- health care, social services, transportation, education, housing, aid to our senior citizens, and police and fire protection. At the same time, the current recession is causing a decrease in the revenue we need to provide these services. Adding to our problems are federal restraints on this government's authority to act the best interests of you, the citizens we serve.

In spite of the economy, and in spite of the restraints, we can restore fiscal health to our city. We can -- we must . . . and, we will . . . .

Let us now look at the three major financial problems: First, a general fund deficit, accumulated over past years, and this fiscal year . . . .

In an audit of the city's books, the first in over 100 years, our independent auditors. Arthur Andersen and Co., and Lucas Tucker and Co., discovered a deficit of $284 million in our general fund. This deficit was accumulated over more than a decade. The auditors found that the District government had $236 million in assets, and over 520 million in liabilities . . .

For 1980, we project a potential additional deficit of $125 million. Adding these numbers together, we expect to end this current fiscal year with a total accumulated deficit of approximately $409 million.

My friends, it is important to recognize that $179 million of this deficit . . . almost half . . . occurred before home rule began in 1975. This means that the city can justifiably make the case that the federal government owes the District a least $179 million. But we do not seek -- nor do we expect -- a federal bailout. That is why I am proposing that the District take the responsibility for repaying the entire amount of this deficit.

How will we do this? I propose that we will do it in two ways. First, in order to provide needed cash, the District will issue $215 million in longterm bonds. We propose to sell these bonds to the Federal Financing Bank, which was established by Congress to buy the securities of federal agencies. This purchase will have no effect on the federal budget, although it will require the approval of the Congress and the Council.

Payments on these bonds, including interest, will cost us, the District government, about $20 million each year, for 30 years. The federal government has a moral responsibility to help repay to the deficit, but the District cannot predicate its financial health on a hope that the federal government will live up to its responsibilty. This means that we must reduce future spending to pay for these past financial sins no matter who is responsible.

The remaining part of the deficit, $194 million will be eliminated by setting aside $10 million dollars from the District budget, each year, for the next 20 years.

My savings program will continue in 1980. I anticipate no additional layoffs beyond those previously in 1980.

Let us now turn to our second problem, the unfunded pension liability.

At the turn of the century, the federal government established pension programs for our police, firefighters, teachers and judges. Benefits were earned for each year of service, payable on retirement. The fact is that the federal government made no provision for payment of these benefits. . . . By 1975, the start of home rule, the cost of these unfunded benefits was more than $2 billion, and rose to $2.7 billion . . . .

The District government, therefore, is prepared to take responsibility for all pension benefits earned, since the start of home rule. But the federal government must take responsibility for the pre-home rule liability. This will require additional federal payments of $175 million, beginning in fiscal year 1982, and extending for 29 years . . . .

When implemented in the next year, the plans I have just outlined for the accumulated deficit and unfunded pensions, will restore the fiscal health of the District. But more is needed. We must be able to demonstrate our ability to keep our financial affairs in order. Most of all, we must balance the District's annual budgets.

In 1982, we estimate that revenues will be 1.5 billion. However, if expenditures are allowed to grow, as they have in the past, they would exceed the city's revenues by $168 million. Obviously, we have to close this gap. We can either raise taxes by $168 million, or we can reduce expenditure growth. Because you, the taxpayers of this city, are among the most heavily taxed in the country, I have chosen to control the growth of government.

Therefore, in September of this year, I will present to the Council a balanced budget for fiscal year 1982. This budget will call for no additional tax increases for District citizens. Without question, this will mean sacrifices by all of us. To achieve this balanced budget may require a reduction of 2,100 employe positions, for a work force reduction of 14 percent, in just two years. It will also mean elimination of some programs and a consolidation of D.C. agencies. Balancing the 1982 budget, without any tax increases on D.C. residents, will be painful for all of us.

The federal payment is valid debt which the federal government owes us . . . because it pays no taxes on the land it owns . . . because unlike other employers, it pays no business or sales taxes . . . because it prevents us from taxing two-thirds of those who work in the city . . . and, because of the many services we provide to support the nation's capital.

The federal payment is not a gift nor a subsidy. The taxes lost to the District in fiscal year 1980 alone total more than $550 million. Yet, the federal payment has been less than $300 million since home rule. When home rule began, the federal payment was 25 percent of our budget. Now, it is less than 20 percent. Those five percentage points may seen small, but in 1980, they translate into a loss to the District of more than $70 million . . . enough to avoid all of the recently enacted tax increases.

I support the adoption of the Fauntroy-Dellums Bill, creating a formula-based federal payment. This payment will be equal to 43 percent of local revenue, and will be appropriated in advance, so that we may better plan our finances. . .

In the 19 months that I have been your mayor, in spite of all the financial problems we have faced, your government has continued to provide basic and necessary services. As we plan our financial future, we will never abandon our responsibilities. We will make our payrolls and pay our bills . . . we will keep our commitment to the poor . . . we will provide protection for our citizens and their property . . . we will continue to improve job opportunities for our young people . . . we will work with the school board, and the superintendent, to improve the quality of education for our children . . . and, we will meet the needs for our senior citizens.

I love this city -- and I am proud to be your mayor. We are going to succeed -- together. We will do so with courage, determination and compassion.

Thank you.