Washington's Local Government Crisis
Summer 1994

“America’s Last Colony,” the signs used to say that boosters of statehood for the District of Columbia erected on roads leading into the nation’s capital. But the District is in such dire financial straits that it may have to borrow from the Federal Government to pay its bills—a move that would undoubtedly bring the District under the closest congressional supervision it has had to endure since it won limited home rule in 1974. The District already receives about one-fifth of its $3.4 billion annual budget from the Federal Government.

Burdened with a large welfare population, a practically nonexistent industrial base, high tax rates that encourage business flight, and a large amount of real estate that is exempt from property taxes because it is used by the government, embassies, and nonprofit corporations, the District has had trouble balancing its budgets since home rule began. Over the past three years, only a series of accounting maneuvers has enabled the District to stay in the black. If nothing is done, the District’s budget deficit is expected to climb to $225 million by 1996 and to nearly $800 million by 2000. And if the U.S. Treasury has to bail the District out, Washingtonians can expect more federal oversight and even less home rule.

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