Among the dozens of documents released Friday by the William J. Clinton Presidential Library — part of a trove of internal Clinton administration documents gradually being revealed to the public — is a fascinating piece of D.C. political history.
It is a Dec. 27, 1996, memo to Clinton, drafted by budget director Franklin D. Raines, presenting a menu of options for putting the District government on a sustainable financial footing — and, more broadly, setting the city on a path to prosperity.
At that point, the city’s finances had been under the oversight of a congressionally mandated financial control board for well over a year, and it was clear by then that the Control Board alone would not solve all the city’s woes. More lasting reforms were needed, Raines told Clinton.
“The restructuring plan proposed in this memo would relieve the District of significant budget costs and administrative responsibilities, and end Congressional micromanagement of the District’s budget,” Raines wrote. “Such actions are necessary, but not sufficient, to make the District a safe, attractive and prosperous city.”
Clinton read the memo in the early days of 2007 — underlining the aforementioned passage, among many others — and opted to endorse all of the options Raines had presented to him. “Let’s discuss ASAP,” he inscribed on the cover page, to Chief of Staff Leon Panetta and other aides.
The memo lays out a host of policy options, most of them involving the federal government re-assuming some of the functions that had been handed to the District government when home rule took effect in 1975. They included assuming the bulk of the city’s employee pension liabilities (which were underfunded even before they were handed to the District), taking over the administration of the District’s courts and prison system, having the IRS collect the District’s local income taxes, and increasing the federal share for Medicaid costs from 50 percent to 70 percent. The memo shows Clinton underlining and scribbling notes throughout, wrangling with Raines’s proposals and suggesting a few of his own.
The policy options that Clinton reviewed and approved were publicly announced a week later. And most of them were subsequently presented to and passed by Congress that summer as the National Capital Revitalization and Self-Government Improvement Act of 1997 — known more commonly as the D.C. Revitalization Act.
That law included the courts and prisons takeover, the assumption of pension liability and the Medicaid reimbursement hike. Other proposals — such as the IRS tax administration proposal and a plan to establish an “infrastructure fund” and an “economic development corporation” — did not come to pass.
Nor did another proposal that Clinton apparently gave serious consideration: A “radical restructuring of the federal tax system in the District,” as Raines put it, which would have created a federal tax haven on the Potomac in a bid to accelerate investment in the city and was favored at the time by House Speaker Newt Gingrich (R-Ga.).
Clinton appeared to be quite taken with the idea. “I am looking into the tax issue as you requested,” Raines wrote to Clinton in the cover letter. And, where Raines writes in the memo that “we may be drawn into a tax discussion,” Clinton scribbled, “we will be.”
As the city’s economic boom of the past 15 years has proved, radical federal tax breaks weren’t needed to propel the city onto a new economic trajectory. But it’s difficult to argue the city’s recent success could have happened without the reforms Clinton put forward. A 2008 report by D.C. Appleseed and Our Nation’s Capital reviewed their legacy:
Without the passage of the Revitalization Act in 1997, the District likely would not have fully recovered from fiscal insolvency. Although clearly not a complete remedy for the District’s financial inequities, the Act nevertheless relieved the District of several large state functions that no other city had to bear, including courts, prisons and a greater share of Medicaid. The Act removed from the District’s balance sheet $5 billion in unfunded pension liability, created solely by the Federal Government, which itself likely would have consigned the District to permanent financial crisis. The ongoing economic impact of the Revitalization Act on the District also is of great financial benefit to the City. Each year, the Act makes the Federal Government responsible for over $1 billion in state functions that the District no longer has to pay. This amount is in contrast to the old, static Federal Payment, which had remained at $660 million (with only one increase) for nearly a decade leading up to the passage of the Revitalization Act.