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November 19, 2004:

The Honorable Mike DeWine:


Subcommittee on the District of Columbia:

Committee on Appropriations:

United States Senate:

Subject: Posthearing Questions: District of Columbia's Structural 
Imbalance and Management Issues:

Dear Chairman DeWine:

On June 22, 2004, I testified before your subcommittee on the District 
of Columbia's structural imbalance and management issues.[Footnote 1] 
This letter responds to a request from your staff that I provide 
answers to follow-up questions from the Honorable Richard Durbin, 
United States Senate. The questions and answers follow.


Update on Management Challenges and Possible Improvements:

* Can you provide us with any current insights about whether the 
District has taken steps to address these concerns, and whether those 
efforts have produced positive results?

* What additional improvements would you like to see?

As I stated in my June 2004 testimony before your subcommittee, the 
District of Columbia has made progress in improving management and 
maintaining fiscal discipline. In fact, it appears the District has 
made some progress since we issued our comprehensive report--District 
of Columbia: Structural Imbalance and Management Issues--in May 2003 
(upon which my June 2004 testimony was based).[Footnote 2] For example, 
District officials have taken steps to balance their budgets for fiscal 
years 2004 and 2005. Also, the District's bond rating has been upgraded 
by all of the major rating agencies in part due to the region's 
improving economy and better financial management.

Further, our recent mandated review of the District's performance and 
accountability plan for fiscal year 2003 found that the District 
complied with statutory reporting requirements and that the report 
provided a comprehensive review of the District's performance.[Footnote 
3] We also found that the 2003 performance report provided an update on 
the following performance management programs.

* The District reported on the expansion of performance-based budgeting 
to 27 additional agencies. All 77 agencies are expected to be utilizing 
performance-based budgeting by 2006.

* The District also reported plans to expand its recommendations and 
court orders tracking system to begin tracking the costs of 
implementing recommendations and court orders. Originally this system 
was intended to only track the extent to which recommendations and 
court orders had been implemented throughout the District.

* In addition, the District reported plans to implement an online 
budgeting and performance program (Argus) to link agency budgeting and 
performance reporting. The District expected to implement the program 
in October 2004 in those agencies that are already using or 
implementing performance-based budgeting. This system will allow for 
monthly performance reporting and enhance oversight of agencies' data 
collection efforts. Through this system, agencies will prepare budget 
requests based on actual program costs. Further, the system will 
eliminate an agency's ability to modify performance targets or past 
performance without management approval.

The District's performance goals represent about 90 percent of its 
total expenditures. While the District has made steady progress in 
implementing a more results-oriented approach to management and 
accountability, actions have not been completed on our prior 
recommendations related to expanding coverage of goals and measures to 
all activities within the Mayor's authority, as well as the monitoring 
of court costs.

Despite the progress that has been made, challenges still remain, as 
evidenced by several studies and investigations that have been released 
since the issuance of our May 2003 report. For example, the independent 
auditor of the District's financial statements for fiscal year 2003 
again reported District Medicaid provider accounting and financial 
reporting as a material weakness.[Footnote 4] We highlighted Medicaid 
management as a major challenge in our May 2003 report. According to 
the independent auditors' report, certain conditions have hindered the 
ability of the District of Columbia Public Schools (DCPS) and 
Department of Mental Health to accurately estimate and record amounts 
owed from the federal government for eligible services in a timely 
fashion. This means that the District continues to bear more of the 
burden of its high Medicaid costs with local funds than necessary and 
does not fully leverage the permanently enhanced federal Medicaid match 
(70 percent) that Congress gave it in 1997. Addressing these problems 
in a timely manner has taken on greater significance because the 
District has proposed eliminating its Medicaid reserve fund in fiscal 
year 2005 ($55 million in fiscal year 2004). This reserve was intended 
to serve as a cushion in the District's budget in the event of less-
than-expected federal reimbursement, which had been a significant 
problem in previous years.

In another example, in September 2003 the DC Appleseed Center for Law 
and Justice[Footnote 5] and Piper Rudnick LLP issued a study on special 
education problems in DCPS, which we also discussed in our May 2003 
report.[Footnote 6] The District lacks appropriate special education 
programs and services, which frequently results in DCPS expending 
resources to subsidize private school placements and related 
transportation expenses, as well as the costs associated with due 
process hearings. According to the DC Appleseed Center for Law and 
Justice report, these problems are exacerbated by DCPS's inadequate 
dispute resolution process. The report concluded that DCPS's inability 
to promptly address parental inquiries and concerns about inadequate 
special education services and facilities results in anger and mistrust 
on the part of parents. Responding to parental concerns earlier and 
more effectively could minimize anger and mistrust, thereby reducing 
lawsuits, due process hearings, and their related legal costs. The 
report also laid out recommendations for improving DCPS's dispute 
resolution process.

Moreover, the District Office of the Inspector General reported in 
September 2003 that DCPS lost the use of approximately $4.5 million in 
federal homeland security funds because it was unable to identify a use 
for and obligate these funds in a timely fashion.[Footnote 7] Although 
DCPS lost out on the use of these funds, it nonetheless has identified 
a need for security enhancements totaling $5.7 million.

As agreed with your staff, we did not conduct updated reviews of or new 
interviews with officials in District agencies in advance of my June 
2004 testimony. Nonetheless, several GAO studies completed since the 
issuance of our report in May 2003 further describe the status of the 
District's management challenges. Several select examples of other more 
recent GAO work related to the District follow. In some cases, GAO has 
also recommended that certain actions be taken to address management 

* District-wide management and performance. In our July 2004 review of 
the District's performance and accountability report for fiscal year 
2003 (described above), we identified certain gaps. Specifically, the 
2003 performance report did not include 33 activities that represent 10 
percent of the District's budget, including public charter schools (the 
most significant program activity that lacked goals). Previously, we 
recommended that the District establish goals for the charter schools 
and report on progress. District officials told us that goals have been 
established for the charter schools and will appear in the 2004 
performance report. According to the report, most of the remaining 
program activities relate to particular funds (e.g., the disability 
compensation fund), and measures are not set for such funds.

* Medicaid--mental health system. In March 2004 we issued a report on 
the status of reforms to the District's mental health system, which is 
managed by the Department of Mental Health (DMH), including its 
enrollment and billing system.[Footnote 8] DMH has developed and 
implemented a comprehensive enrollment and billing system designed to 
coordinate clinical, administrative, and financial processes. Under 
this system, a core services agency, which is a DMH-certified provider, 
enrolls eligible consumers in the District mental health system and 
develops treatment plans, provides and coordinates services, and bills 
DMH on a fee-for-service (FFS) basis. This system has two key 
attributes. First, it links payment directly to treatment planning and 
services provided. Second, it increases access to certain community-
based mental health services, with a significant share of the costs 
reimbursable by federal Medicaid funds for community-based mental 
health services. For fiscal year 2003, DMH received $17.5 million in 
federal Medicaid funds, and DMH expects further growth in Medicaid 
revenue. In transitioning to FFS, however, providers have faced 
challenges managing cash flow in a system that no longer guarantees 
revenue regardless of performance. In addition, because provider 
contracts were tied to the FFS billing projections, DMH could not pay 
claims in 2003 for providers that were delivering more services than 
had been projected until their contracts were changed. As a result, 
providers did not always receive claims payments on a timely basis in 
fiscal year 2003. By August 2003, DMH made the necessary contract 
changes to allow providers to be paid for the remainder of the fiscal 
year and, according to senior officials, had a plan in process for 
fiscal year 2004 to prevent this problem from recurring.

* Medicaid--program and fiscal integrity. In July 2004, we issued a 
report on state and federal efforts to prevent and detect improper 
Medicaid payments to providers.[Footnote 9] Fraudulent and abusive 
billing practices across the 50 states and the District include billing 
for services, drugs, equipment, or supplies not provided or not needed. 
States can generate cost savings by applying certain measures to 
providers determined to be at high risk for inappropriate billing and 
by generally strengthening their program controls for all providers. We 
identified a number of program control approaches and surveyed all of 
the states and the District on the extent to which they have 
implemented them. These include time-limited enrollment, on-site 
inspections, and criminal background checks, as well as increased use 
of information technology and prescription drug controls. According to 
our inventory, the District had implemented 9 of these 20 cost-saving 

* Public safety and justice--jail facilities. In August 2004 we issued 
a report that reviewed the status of health and safety conditions at 
the District of Columbia's Jail and Correctional Treatment Facility 
(CTF) along with its management of capital improvement projects at the 
facility.[Footnote 10] We reported that District health inspectors 
consistently identified problems at the facility regarding air quality, 
vermin infestation, fire safety, and plumbing (among other things). 
However, we found that District health inspectors did not always 
document where deficiencies were identified or exact times and dates 
when they were identified--making it difficult for CTF officials to 
determine how prevalent health and safety deficiencies were, whether 
problems were occurring in the same locations, or whether they changed 
over time. Further, we found that the District lacked written policies 
and procedures concerning the management of jail-related capital 
improvement projects. We recommended that District health inspectors 
improve the specificity of their reports. We also recommended that the 
District strengthen management of capital improvement projects by 
establishing specific time frames for completing work and developing 
and implementing policies and procedures.

* DCPS--special education. In September 2003, we issued a report on 
special education disputes and mediation strategies across the states 
(including the District).[Footnote 11] Officials told us that 
disagreements usually arose between parents and school districts over 
fundamental issues of identifying students' need for special education, 
developing and implementing their individualized education programs, 
and determining the appropriate education setting. We found that most 
due process hearings were concentrated in five states--California, 
Maryland, New Jersey, New York, and Pennsylvania--and the District of 
Columbia. We reported that 2,311 special education disputes occurred in 
these five states and the District in the year 2000--compared to 709 in 
all other states combined. Also, the District had 336 due process 
hearing per 10,000 students, compared with 24 per 10,000 in New York. 
We also found that dispute resolution activity was generally low 
relative to the number of students with disabilities.

The District has made and is making real and important progress in 
addressing its long-term and difficult management challenges. However, 
more work needs to be done. Sustained progress is needed to address the 
critical financial, program, and performance management challenges that 
the District faces across various agencies and program areas.

Link between Structural Imbalance and Management Challenges:

* While you note that addressing these management issues could help 
reduce future budget shortfalls, such improvements will not offset the 
structural imbalance. I assume that conclusion is not in any way 
intended to signal that ignoring the management problems is acceptable, 
but can you please comment further on that?

Ignoring the management challenges that we and others have identified 
is not acceptable, nor did we mean to imply this in our report or my 
testimony. District officials agree that management issues need to be 
addressed. For example, in the District's formal response to our May 
2003 report, the District Chief Financial Officer (CFO) concurred that 
improved program performance would permit the District to enhance the 
quality of the services it delivers and position the District to obtain 
a higher level of federal reimbursement than it currently receives. The 
CFO also acknowledged that significant opportunities for efficiency 
improvements exist within District programs and noted that the District 
is taking some corrective actions.

Nonetheless, it is important to consider certain critical points 
regarding the District's management challenges and their relationship 
to the fiscal structural imbalance we confirmed in our report. The 
models we used to estimate the range of the District's fiscal 
structural imbalance presume that services are provided with average 
efficiency. To the extent that a jurisdiction does not deliver services 
with average efficiency, its actual level of services may actually be 
below average. Due to a combination of its significant management 
problems and its substantial structural deficit, the District is likely 
providing a below-average level of services even though its tax burden 
is among the highest in the nation. Accordingly, the District's 
management problems waste resources that it cannot afford to lose and 
draw resources away from providing even an average level of services.

By addressing the management challenges that GAO and others have 
identified over the years, the District could free up local funds and 
possibly gain additional federal funds for use in increasing the level 
of services to its residents and visitors. For example, improving 
Medicaid management could allow the District to obtain a greater level 
of federal Medicaid funding and fully leverage its enhanced Medicaid 
match. However, management improvements will not offset the underlying 
structural imbalance because it is caused by factors beyond the direct 
control of District officials. As a consequence, District officials may 
face more difficult policy choices than most other jurisdictions in 
addressing a budget gap between spending and revenues based on current 

As we stated in our May 2003 report, by virtue of the District being 
the nation's capital, justification may exist for a greater role by the 
federal government to help the District address its structural 
imbalance. However, this strategy is not without its own risks. For 
example, significant management problems in the District mean that the 
aid provided, if not used wisely, could result in more wasteful 
spending or in the District postponing management reforms. Given its 
management challenges, it is important that the District establish 
basic management, performance, and accountability standards to ensure 
the efficient and effective use of any federal resources. Along these 
lines, it should continue planned management reforms, including the 
movement to performance-based budgeting. It should also address 
management problems and implement recommendations for improvements that 
have been highlighted by GAO and others.


* What guidance can GAO offer as Congress evaluates legislative 
measures to address the District's fiscal structural imbalance 

* What should be included in legislative language that would ensure 
adequate and appropriate transparency and accountability for the use of 
any federal contributions that may be authorized to address the 
structural imbalance?

* What safeguards would you recommend be considered as essential 
elements of any funding proposal?

* Using H.R. 4269, the District of Columbia Fair Federal Compensation 
Act of 2004, as a baseline, what additions would improve that approach?

Due in part to its substantial structural deficit, the District is 
likely providing a below average level of services even though its tax 
burden is among the highest in the nation. As a consequence, District 
officials may face more difficult policy choices than other 
jurisdictions in addressing a budget gap between spending and revenues 
based on current policies. For example, given its existing high tax 
burdens, further raising taxes would likely worsen its competitive 
advantage in attracting new businesses and residents to the city rather 
than surrounding jurisdictions. It would also be difficult to cut 
services further.

If raising taxes or cutting services is to be avoided, an alternative 
option District officials might exercise would be to continue deferring 
improvements to its capital infrastructure. However, this strategy also 
is not viable in the long run, in that deteriorating infrastructure 
would of necessity lead to further reductions in the levels and types 
of services provided and ultimately would necessitate either higher 
taxes or cuts in services.

Federal policymakers are faced with difficult choices regarding what 
role they should play, if any, in addressing the District's structural 
imbalance. Federal policymakers could choose not to address the 
District's structural imbalance and require local officials to deal 
with the difficult choices it faces to meet its obligations. This 
approach recognizes that other jurisdictions also face substantial 
structural deficits, and District officials are in the best position to 
decide for themselves the most effective means of balancing trade-offs 
between high tax burdens and reduced levels of public services for 
local residents and visitors to the nation's capital.

Alternatively, additional federal assistance for the District could 
compensate for its structural imbalance. However, this assistance might 
suggest that some other states, also with sizable structural 
imbalances, would have an equally sound claim on additional federal 
assistance. Nevertheless, by virtue of the District being the nation's 
capital, and the restrictions placed upon it, justification may exist 
for a greater role by the federal government to help the District 
maintain fiscal balance. As previously noted, this strategy is not 
without its own risks. For example, management problems that plague the 
District mean that the aid provided, if not used wisely, could result 
in the District simply postponing many management reforms necessary to 
avoid the wasteful expenditure of much needed resources and would 
assist in closing current budget gaps. Given its management challenges, 
the District must achieve basic management performance and 
accountability standards to ensure an efficient use of any resources.

In the end, it is up to Congress to decide whether or in what form to 
provide the District with additional federal assistance to compensate 
for its structural imbalance. As the Mayor of the District of Columbia 
discussed in his May 2004 report to the Senate Committee on 
Appropriations, there are various forms that enhanced federal 
assistance could take. The Mayor outlined three forms: an unrestricted 
federal payment, assumption of state-like functions by the federal 
government, and federal funding that would be targeted for specific 
purposes as laid out in the District of Columbia Fair Federal 
Compensation Act of 2004.

No matter what form this assistance might take, it is important for 
Congress to have assurances that the funds would be spent efficiently 
and effectively and be used for any intended purposes. These safeguards 
should be written into any legislation. Specifically, District 
officials should be required to report to Congress on how they plan to 
spend the federal assistance and regularly report on how it is being 
spent. For instance, Congress could require District officials to 
submit a master plan to Congress on how they intend to spend the 
federal assistance--before any funds are obligated--and update this 
plan as circumstances or priorities change. Further, any reports and 
financial statements should be required to undergo periodic review by 
independent auditors. In addition, Congress may consider further 
specifying the types of projects for which federal funds could be used. 
Congress may also consider a matching requirement to ensure that some 
local funds continue to be used for infrastructure and capital 

Finally, as I discussed in my testimony before your subcommittee, it is 
of critical importance to have an effective and transparent capital 
decision-making and management system in place for all District 
agencies. In my response to the third set of questions that follow, I 
discuss principles and practices that should be followed to ensure 
efficient and effective capital decision making and management.


* What types of preliminary evaluations should be conducted and what 
management controls should be in place as a prerequisite for addressing 
the District's infrastructure needs?

* In your oral testimony, you referred to an inventory of 
infrastructure and noted that what GAO was provided as part of its work 
was an "incomplete" array. Can you elaborate further and describe any 
impediments GAO encountered in getting complete information?

* What do you suggest would help ensure that the District compiles and 
maintains an accurate and full inventory of its infrastructure needs 
and estimates, as well as having in place a fully functional system for 
tracking investments made and projected future costs?

If the District were to receive additional federal assistance to 
compensate for its structural imbalance and enhance its ability to fund 
capital investments--as is proposed in the District of Columbia Fair 
Federal Compensation Act of 2004 (H.R. 4269)--it is important that the 
District follow sound practices in order to avoid the costly management 
inefficiencies it has experienced in the past. Congress needs assurance 
that any federal assistance to the District would be spent effectively 
and efficiently. It is critical to have clear, transparent reporting 
and accountability mechanisms in place to ensure the proper use of 
federal funds. One option for Congress would be to require the District 
to develop and submit for review a set of capital planning and 
management policies and procedures that would be reliably followed by 
all District agencies.

Regarding my comments about the District's infrastructure inventory, we 
had some difficulties obtaining complete and timely information on 
infrastructure projects that were not recommended for financing due to 
funding constraints. This emphasizes the importance of the District 
having systems in place to track information related to all 
infrastructure projects, including proposed projects not approved for 

A key way to ensure that federal capital funds are spent effectively 
and efficiently is to have a clear capital decision-making and 
management system in place. Along these lines, GAO has developed an 
executive guide that identifies organizational attributes that are 
important to the capital decision-making process as a whole, as well as 
capital decision-making principles and practices used by leading state 
and local governments and private sector organizations.[Footnote 12] 
These principles and practices could be applied to any District agency 
or the District as a whole. Key elements of this guidance are to 
closely link any planned capital investments to a government's or 
organization's strategic goals and objectives, ensure that effective 
information systems are in place to support sound decision making and 
management, and ensure that city leaders to clearly communicate their 
vision and goals to project managers. Specifically, we have identified 
five basic principles of effective capital decision making and linked 
certain practices that leading public and private entities use to carry 
out each principle.

We did not examine the District's capital planning and management 
functions in advance of my June 2004 testimony, and District officials 
may already be following some of these principles and practices in 
certain program areas. Nevertheless, the District should consider these 
principles and practices in ensuring the implementation of an 
effective, transparent, and reliable system for making capital 
decisions and managing them from start to finish. Our executive guide 
contains additional detail on each of these practices along with 
numerous examples from the leading organizations that we studied.

Principle I: Integrate organizational goals into the capital decision-
making process.

* Conduct comprehensive assessments of needs to meet mission and 
results-oriented goals and objectives. Conducting a comprehensive needs 
assessment or analysis of program requirements is an important first 
step in an organization's capital decision-making process. A 
comprehensive assessment of capital needs considers an organization's 
overall mission and identifies the resources needed to fulfill both 
immediate requirements and anticipated future needs based on the 
results-oriented goals and objectives that flow from the organization's 

* Identify current capabilities, including the use of an inventory of 
assets and their conditions, and determine if there is a gap between 
current and needed capabilities. Leading organizations gather and track 
information that helps them identify the gap between what they have and 
what they need to fulfill their goals and objectives. To help assess 
current capabilities and establish a baseline, such organizations 
maintain automated systems that track the use and performance of 
existing assets and facilities. Current and accurate information is 
essential. Some functions performed by asset inventory and tracking 
systems include (1) identifying asset and facility location and status, 
(2) tracking and reporting asset and facility condition and deferred 
maintenance needs, and (3) tracking user satisfaction. Routinely 
assessing the condition of assets and facilities allows managers and 
other decision makers to evaluate the capabilities of current assets, 
plan for future asset replacements, and calculate the costs of deferred 

* Decide how best to meet the gap by identifying and evaluating 
alternative approaches (including noncapital approaches). Leading 
organizations consider a wide range of alternatives to satisfy their 
needs, including noncapital alternatives, before choosing to purchase 
or construct a capital asset or facility. Managers carefully consider 
options such as contracting out or divesting the activity the asset 
would support. When they determine that capital is needed, managers 
also consider repair and renovation of existing assets. When evaluating 
alternatives, prudent decision makers also consider the various funding 
options available to them. They weigh the different impacts of debt 
financing, engaging in joint-venture projects, or using current-year 
appropriations. Leading organizations examine their needs and seriously 
consider whether capital is needed to fulfill their requirements. They 
look at two primary issues to evaluate options available to them: (1) 
whether the function is essential to fulfilling the organization's core 
responsibilities and (2) whether the organization has the specific 
expertise to perform the function well and cost effectively.


Principle II: Evaluate and select capital assets using an investment 

* Establish a review and approval framework supported by analyses. We 
found that establishing a decision-making framework that encourages the 
appropriate levels of management review and approval, supported by the 
proper financial, technical, and risk analyses, is a critical factor in 
making sound capital investment decisions. A well-thought-out review 
and approval framework can mean capital investment decisions are made 
more efficiently and supported by better information. Some leading 
organizations have review processes in place that determine the level 
of analysis and review that will be conducted based on the size, 
complexity, and cost of the project. As part of the capital review and 
approval process, leading organizations develop a decision or 
investment package to justify capital project requests. Common 
categories of information in the packages include links to 
organizational objectives; solutions to organizational needs; project 
resource estimates and schedules; and project costs, benefits, and 
risks. These packages provide decision makers with a valuable tool for 
analysis and planning at the time the project is being considered. 
Decision packages are supported by a range of materials. Types of 
materials include detailed economic and financial analyses, such as 
cost-benefit analyses and analysis of return on investment.

* Rank and select projects based on established criteria. Leading 
organizations have defined processes for ranking and selecting 
projects. The selection of capital projects is based on preestablished 
criteria and a relative ranking of investment proposals. Leading 
organizations determine the right mix of projects by viewing all 
proposed investments and existing capital assets as a portfolio. 
Organizations generally find it beneficial to rank projects because the 
number of requested projects usually exceeds available funding. Sound 
criteria help link potential investments to program priorities and 
desired results.

* Develop a long-term capital plan that defines capital asset 
decisions. Once projects are ranked, they should be put into a long-
term capital plan. Leading organizations develop long-term capital 
plans to guide implementation of organizational goals and objectives 
and help decision makers establish priorities over the long term. While 
a plan must respond to changing requirements, it is based on the long-
range vision for the organization embodied in its overall strategic 
plan. Therefore, any year-to-year changes to the capital plan should be 
driven by strategic decisions. Leading organizations prepare long-term 
capital plans to document specific planned projects, plan for resource 
use over the long term, and establish priorities for implementation. 
These plans usually cover a 5-, 6-, or 10-year period and are updated 
either annually or biennially. Long-term planning requires that 
decision makers rank capital needs and promotes making informed choices 
about managing the organization's resources and debt. Some leading 
organizations also prepare long-term asset and facility maintenance 
plans that are incorporated into their long-term capital plans. This 
helps decision makers determine whether and when to purchase a new 
capital asset or continue to maintain an existing one.

Principle III: Balance budgetary control and managerial flexibility 
when funding capital projects.

* Budget for projects in useful segments. One strategy that has been 
proven to be useful to organizations in dealing with problems posed by 
full funding in a capped environment is to budget for projects in 
useful segments. This means that when a decision has been made to 
undertake a specific capital project, funding sufficient to complete a 
useful segment of the project is provided in advance. The U.S. Office 
of Management and Budget has defined a useful segment as a component 
that either (1) provides information that allows the agency to plan the 
capital project, develop the design, and assess the costs, benefits, 
and risks before proceeding to full acquisition (or canceling the 
acquisition) or (2) results in a useful asset for which the benefits 
exceed the costs even if no further funding is appropriated. For full 
up-front funding and the funding of useful segments to be effective, 
organizations must be able to develop good, firm cost estimates of the 
full cost of either the project or the segments early in the life of 
the project. To develop these estimates, the organization must have 
good information and data systems in place. Some organizations fund 
capital projects in useful or meaningful phases by breaking up their 
capital planning and budgeting cycles into segments, such as predesign, 
design, and construction. Funding is provided for one of these segments 
at a time and generally is not guaranteed from one phase to the next.

* Consider innovative approaches to full up-front funding. Alternative 
strategies used by some leading organizations and federal agencies to 
accommodate full funding of capital projects in a constrained budget 
environment include contracting out for capital-intensive services, 
using an investment component that is similar to a savings account, and 
developing public/private partnerships. These strategies enhance an 
organization's flexibility to finance the full costs of projects 
without compromising management's ability to make decisions based on 
full costs.

Principle IV: Use project management techniques to optimize project 

* Monitor project performance and establish incentives for 
accountability. Successful implementation of a capital investment 
project is determined primarily by whether the project was completed on 
schedule, came in within budget, and provided the benefits intended. 
However, the first step is to provide decision makers with good 
information about costs, risks, and scope of a planned project before 
committing substantial resources to it. This, in combination with full 
up-front funding, can help to prevent cost overruns, project 
cancellations, and projects that fail to meet completion schedules. By 
monitoring project performance against cost, schedule, and performance 
goals--as well as establishing incentives to meet those goals--
organizations can increase the likelihood that projects will be 
successfully completed. Typically, a good project plan is used to 
manage and control project implementation and includes performance 
measurement baselines for schedule and cost, major milestones, and 
target dates and risks associated with the project. Regular review of 
the status of cost, schedule, and performance goals by individuals 
outside the project team allows for an independent assessment of the 
project. Leading organizations also establish incentives to encourage 
teams to meet project goals. Leading organizations generally hold 
managers accountable for meeting goals. Further, leading organizations 
use a number of built-in incentives for managers and teams to meet 
project goals. Among them are reporting project status to individuals 
or groups in positions of authority outside the project and using the 
project manager's overall performance in determining the assignment to 
future projects.

* Use cross-functional teams to plan for and manage projects. Leading 
organizations use multidisciplinary teams, consisting of individuals 
from different functional areas led by a project manager, to plan and 
manage capital projects. Teams typically consist of people from the 
user community and from the organization's budget, accounting, 
engineering, procurement, and other functions. A core project team is 
established early in the life cycle of a project and additional 
individuals with particular technical or operational expertise are 
incorporated during appropriate phases of the project. Moreover, 
successful teams have spirit, trust, and enthusiasm and a sense of 
ownership over the project.

Principle V: Evaluate results and incorporate lessons learned into the 
decision-making process.

* Evaluate results to determine if organizationwide goals have been 
met. One way of determining if a capital investment achieved the 
benefits that were intended is to evaluate its performance using 
measures that reflect a variety of outcomes and perspectives. By 
looking at a mixture of hard and soft measures, for example, financial 
improvement and customer satisfaction, managers are able to assess 
performance based on a comprehensive view of the needs and objectives 
of the organization. To implement this balanced approach to performance 
measurement, leading organizations developed financial and nonfinancial 
criteria for success that link to the organization's overall goals and 
objectives. Another way to determine if a capital investment is 
contributing to the success of an organization's goals and objectives 
is to conduct an audit after the project is completed. The primary 
focus is not to evaluate the technical aspects of the project, but 
rather to evaluate the process and whether the end users are satisfied. 
The lessons learned from the audit can be incorporated into the design 
and construction of the next project.

* Evaluate the decision-making process: reappraise and update to ensure 
that goals are met. Although some organizations evaluate their capital 
decision-making process on an ongoing basis, this is not the norm. 
Leading organizations seemed generally to revise the processes in 
response to an internal crisis, such as severe budget constraints, or 
to a perception of changing needs, a changing environment, or both. In 
such situations, organizations felt that they had to conduct self-
assessments and undergo major changes in their capital decision-making 
practices in order to continue successful operations.

We are also sending this report to the Honorable Mary Landrieu, Ranking 
Minority Member of your subcommittee; the Honorable Richard Durbin, 
United States Senate; the Honorable Eleanor Holmes Norton, House of 
Representatives; and the Subcommittee on the District of Committee, 
Committee on Appropriations, House of Representatives. This report is 
also available to other interested parties at

For additional information on our work on the District of Columbia's 
fiscal imbalance and management issues, please contact me at (202) 512-
6806 or Individuals making contributions to this 
report were Thomas Yatsco, Jeanette Franzel, Norma Samuel, Linda 
Elmore, Jerry Fastrup, and James Wozny.

Sincerely yours,

Signed by: 

Patricia A. Dalton:

Director, Strategic Issues:



[1] GAO, District of Columbia: Structural Imbalance and Management 
Issues, GAO-04-908T (Washington, D.C.: June 22, 2004). 

[2] GAO, District of Columbia: Structural Imbalance and Management 
Issues, GAO-03-666 (Washington, D.C.: May 22, 2003).

[3] GAO, District of Columbia: FY 2003 Performance Report Shows 
Continued Improvements, GAO-04-940R (Washington, D.C.: July 7, 2004).

[4] Government of the District of Columbia, Office of the Inspector 
General, District of Columbia: Independent Auditors' Report on 
Compliance and on Internal Control Over Financial Reporting 
(Washington, D.C.: Feb. 2004). 

[5] The DC Appleseed Center for Law and Justice is an organization that 
brings together volunteer teams of attorneys and other experts to 
conduct studies of serious local issues, research and analyze them, 
develop and publish recommendations for systemic reform, and advocate 
for solutions.

[6] DC Appleseed Center for Law and Justice and Piper Rudnick LLP, A 
Time for Action: The Need to Repair the System for Resolving Special 
Education Disputes in the District of Columbia (Washington, D.C.: Sept. 

[7] Government of the District of Columbia Office of the Inspector 
General, Use of Homeland Security Funds at the District of Columbia 
Public Schools (Washington, D.C.: Sept. 2003).

[8] GAO, District of Columbia: Status of Reforms to the District's 
Mental Health System, GAO-04-387 (Washington, D.C.: Mar. 31, 2004).

[9] GAO, Medicaid Program Integrity: State and Federal Efforts to 
Prevent and Detect Improper Payments, GAO-04-707 (July 16, 2004).

[10] GAO, District of Columbia Jail: Management Challenges Exist in 
Improving Facility Conditions, GAO-04-742 (Aug. 27, 2004).

[11] GAO, Special Education: Numbers of Formal Disputes Are Generally 
Low and States Are Using Mediation and Other Strategies to Resolve 
Conflict, GAO-03-897 (Washington, D.C.: Sept. 9, 2003).

[12] GAO, Executive Guide: Leading Practices in Capital Decision-
making, GAO/AIMD-99-32 (Washington, D.C.: December 1998).