WASHINGTON - District of Columbia chief financial officer Natwar Gandhi is urging the District Council to enact legislation that would put strict limits on the city's debt ratios to maintain good standing with Wall Street amid the current economic downturn.
The CFO yesterday sent a letter to Mayor Adrian M. Fenty and the council reaffirming a recommendation he made in June 2007 that the city's debt-to-expenditures ratio be held to 10% and capped at 12%.
Gandhi reiterated that to keep the city's current bond ratings - and perhaps achieve higher ratings - district officials need to stick to his recommendations. A new law, which would require District Council's and congressional approval, would be a clear signal of the city's fiscal prudence, he said.
"Obviously, we would like to push for a [ratings] upgrade," Gandhi said at a press conference. "We would like to send the message to Wall Street that the district will not borrow above its debt capacity."
The city's current bond ratings are its highest ever - A-plus from both Fitch Ratings and Standard & Poor's and A1 from Moody's Investors Services - and are far removed from the junk bond ratings it carried during the city's financial crisis in the mid-1990s.
Currently the district's debt ratio is at 9.7%, but that is expected to increase to 11% in fiscal 2009, and to peak at 11.8% in both 2010 and 2011, Gandhi said in the letter. The median debt ratio for major municipalities is 8.6%, according to Moody's.
The district currently has the highest debt per capita - which is expected to be $10,902 at the end of this fiscal year - of all major municipalities nationwide. That figure is expected to increase to $13,999 by fiscal 2013 as a result of additional debt-driven projects, Gandhi said.
The district already has a maximum legal cap of 17% on its debt, but Gandhi said it would not be financially prudent to ever approach that limit. Rather, the CFO calls his proposal a "management" cap that is meant to provide a more relevant guide for current debt considerations.
Gandhi said that while he has briefed some council members on his recommendation, he does not expect a bill to be introduced by next week when the council has its last legislative meeting before it breaks for the summer.
Council member Jack Evans, who chairs the finance committee, could not be reached for comment. Evans and other members have called Gandhi's recommendations too conservative in the past. But Gandhi said yesterday that he does not expect the council to oppose his recommendation.
The CFO's proposed debt cap essentially would nix bond-financing for a professional soccer stadium. Some council members have suggested that construction of a new stadium be financed with $150 million of bonds that would be backed by an estimated $20 million per year of revenues collected from the Washington Nationals ballpark tax.
Other projects expected to be partially financed with bonds that would not fit under the cap would be those planned under the $10 billion Anacostia Waterfront Initiative, which is aimed at transforming land along the Anacostia River in a fashion similar to Baltimore's Inner Harbor.
The projects would include Poplar Point, a $2.5 billion, 110-acre project; a $1.1 billion southwest waterfront project, and a mixed-use project called the Hill East Waterfront. The District Council has not given officials the authority to issue debt for the Poplar Point and Hill East Waterfront projects, but it is expected on Tuesday to authorize about $200 million of bonds backed by payments in lieu of taxes and tax increment financing for the district beginning in fiscal 2014. Gandhi's recommendations only extend to fiscal 2013.
Gandhi's letter urged the council to establish an Economic Development Capital Fund, which he proposed last summer. Future revenues from bond-financed projects would be put into the EDCF and used to pay debt service on bonds. Gandhi suggested a $1.5 billion cap on the fund.
