WASHINGTON - The Washington Convention Center Authority wants to issue $750 million of bonds for a new hotel but that has raised concerns the District of Columbia could exceed its legal debt limit.
The convention center's board voted to authorize the bond deal last Friday despite an objection to the financing plan from one of its key members - Natwar Gandhi, the district's chief financial officer. Though he supports the idea of a new hotel, Gandhi opposes any issuance that would push the city's debt outstanding above 12% of expenditures.
The WCCA hopes to build a 1,167-room hotel across the street from the convention center at Ninth Street NW. The deal, which has been delayed for years, would likely include revenue bonds, but some combination with tax-increment financing bonds could be proposed, said the authority's CFO, Henry W. Mosley.
Draft legislation is pending in the District Council that would authorize the bonds. However, the WCCA, which will be the hotel's eventual owner, can only issue bonds if the CFO supports the financing.
"The cap to us is sacrosanct," Gandhi said in an interview. "It's a matter of credibility. If we are to move away from that, then we would send a bad signal to Wall Street."
Though the WCCA has its own credit ratings, it is unable to sell bonds independently of the district because any bonds would be supported by hospitality tax revenues from the hotel, Mosley said. The rating agencies have viewed those funds as district money and any bonds that involve district taxes would fall under the debt cap, he said.
The authority has $480 million of debt outstanding and is rated A2 by Moody's Investors Service and A by Standard & Poor's and Fitch Ratings, Mosley said. The district has a AAA rating from Standard & Poor's on its income tax revenue bonds, which were first issued in March. Moody's rated the bonds Aa2 and Fitch rated them AA.
Financing discussions are continuing between Greg O'Dell, the authority's chief executive officer, Gandhi, and the council, according to Mosley.
To make room under the cap, the district could move the hotel up in the district's debt queue. Gandhi said there are bond deals that have been budgeted under the cap that have not proceeded beyond the planning stage.
The hotel's construction could begin in September, Mosley said. The council would need to decide if an issue gets moved back to make room for the hotel deal.
Additionally, Gandhi said his office is working with Neil O. Albert, the district's outgoing deputy mayor, and "aggressively pursuing" private financing for the deal. Marriot International Inc., the hotel's operator, might be able to find financing on its own, a source said.
The WCCA had hoped to sell TIF bonds as part of a smaller, $187 million deal this spring. However, it has not been able to line up private financing to complete the deal. Those lenders have been unavailable, Mosley said, leaving the agency to finance all costs through the bond market. Hotel construction has been delayed since 2007 by zoning issues at first and then by market conditions.
The District Council in December passed the debt cap, which applies to all bonds financed by tax revenues and leaves little room for debt-supported projects that are not already in the pipeline for the next four fiscal years. The city's debt burden was about 9.1% at the beginning of fiscal 2009, and Gandhi has estimated that the debt burden will grow to 11.9% in 2013.
"The hotel has always been a project of the city and the timing of it has always been the issue," Mosley said. "This allows us to remain competitive with other cities in the area. Most convention centers have a hotel in very close proximity."
