WASHINGTON — The District of Columbia expects today to competitively sell $500 million of general obligation tax revenue anticipation notes, its largest note offering ever, according to city officials.
The district typically issues short-term cash-flow notes to fund seasonal imbalances between operating receipts and expenditures. About 22% of the district’s total tax revenues arrive in September, the final month of its fiscal year, according to Moody’s Investors Service. The district sold $400 million of Trans last November.
The Trans to be sold today will mature on Sept. 30, 2010, and are rated MIG-1 by Moody’s and F1-plus by Fitch Ratings, their highest ratings for short-term notes. A rating from Standard & Poor’s was not available at press time.
Under the district’s Home Rule Act of 1973, Trans cannot exceed 20% of total anticipated revenue for a fiscal year. On Sept. 21, chief financial officer Natwar Gandhi affirmed his June revenue estimate of $4.879 billion for fiscal 2010. The next quarterly revenue estimate is expected in December. Tran issuances do not count against the district’s 12% debt to expenditures cap.
The city has preserved “a healthy cushion” of cash reserves even as borrowing needs have increased, Moody’s analysts said. However, officials have recognized the growing size of the annual Tran deal.
“We are cognizant that the size has increased,” said Treasurer Lasana Mack, adding that the deal is “relatively small” compared with the proposed $6.05 billion general fund for fiscal 2010. “The effects of the national recession are well documented and [have] affected the district’s revenues as well as everyone else’s,” he said.
The city drew down its reserves to help close its fiscal 2009 deficit and it is projected to do so again this fiscal year, according to Mack. It is estimated to have $643 million in cash reserves, or 7.4% of projected total receipts, in fiscal 2010, Moody’s said.
Kutak Rock LLP will serve as bond counsel and Hawkins Delafield & Wood LLP as disclosure counsel on the Tran deal. Phoenix Capital Partners LLP and Public Resources Advisory Group will be financial advisers.
New-money bonds are planned for December. The city usually issues bonds at the end of the calendar year, and the anticipated $660 million transaction “is not a particularly large issue for them,” said Nicholas Samuels, Moody’s lead analyst on the district.
The recession has split the district into two economic halves. Residents benefit from proximity to the federal government, the district’s largest employer in 2008, and total employment has continued to rise for most of 2009, according to Moody’s analysts.
However, the unemployment rate in September was 11.4%, higher than the 9.8% national figure, as retail and hospitality jobs disappeared. Personal income per capita in the district was 163% of the national level, while its poverty rate was 16.5% in 2008 compared to the 13.2% national level, Moody’s analysts said.
The district plugged a $583 million fiscal 2009 budget gap by drawing down fund balances as well as making spending cuts and raising certain taxes. It faces a $952 million gap for fiscal 2010, but plans to cut $457 million in spending, raise $330 million in new revenue, and use $169 million of federal stimulus funds from the American Recovery and Reinvestment Act, according to Moody’s.
The ARRA provided an additional $123.5 million from the highway infrastructure funds for the district’s Department of Transportation, according to the preliminary official statement for the Tran deal.
