D.C.'s Gandhi Talks 11 Years of Challenges, Successes

WASHINGTON — Natwar Gandhi has a unique job in a city unlike any other, but the District of Columbia’s Indian-born, poetry-writing chief financial officer strives to use the advantages of his one-of-a-kind office to offset the many challenges he readily admitted his city faces.

“Nowhere else in the country would you have such an independent CFO,” he said during an interview. “When I met with these other chief financial officers, they were all quite surprised that I could enjoy this level of certainty and independence. That I could disagree with the mayor in the morning and still be in office that afternoon.”

The district’s purse strings are ultimately in the hands of Congress, and so it is federal lawmakers from around the nation that ultimately control the finances of this city of some 600,000 people.

There isn’t another public office analogous to his anywhere, and he’s responsible for everything from managing debt to certifying that the budget is balanced to enforcing the district’s tax laws.

Gandhi took the reins as CFO in 2000, when the district’s finances were still under the auspices of a control board created by an act of Congress in 1995 to rescue the city from a budgetary basis deficit of over $500 million.

At the district’s lowest point, its general obligation bonds were below investment grade, carrying ratings of B from Standard & Poor’s, Ba from Moody’s Investors Service and BB from Fitch Ratings.

The district, nearly 11 years free from the control board, now enjoys a $1.1 billion budget surplus and GO bond ratings of A-plus from Standard & Poor’s, Aa2 from Moody’s and AA-minus from Fitch.

Gandhi gives credit to the control board and the district government for helping to turn the situation around, but he is especially proud of how the district has taken advantage of the fact that some of the nation’s most affluent people call it home.

The district cannot levy taxes on the commercial property owned by the federal government, which accounts for roughly 40% of such property in the district. Neither can it tax the incomes of nonresidents who work in the city.

This creates “a limited tax base” that creates a major challenge for Gandhi’s office, but is also something outside his control.

“We have reconciled to that,” he says.

The district’s income tax-secured bonds, however, take advantage of what taxing power the district does have. First issued in March 2009, those bonds now make up the largest single chunk of the district’s more than $8 billion of outstanding municipal debt.

Gandhi said the use of those bonds, backed solely by the district’s ability to tax the income of district residents, is one of the greatest accomplishments of his time as CFO.

“What we have done, is to look at our revenue streams,” Gandhi said. “And looked at them and said 'Which one of them is more stable, more predictable, that the agencies can count on?’”

The rating agencies have shown agreement with the assessment of Gandhi and his team, rating the income tax bonds more highly than the city’s GO debt. They carry ratings of Aa1 from Moody’s, AA-plus from Fitch, and AAA from Standard & Poor’s.

In its latest affirmation of the AAA ratings on the income tax-backed bonds, Standard & Poor’s assigned the bonds a stable outlook and noted the district’s historical commitment to maintaining annual debt service requirements.

Marcy Edwards, Gandhi’s senior financial policy advisor, said old GOs are especially ripe targets for refunding with new issuances of income tax-secured debt. A $314 million sale of income tax bonds two weeks ago saved more than $35 million in interest expense for the district, Edwards said.

While Gandhi is proud of how far the district has come and said the city is in “very good financial condition” compared to many others still suffering in the aftermath of the great recession, he remains guarded about the future because of external factors largely beyond his control.

“I see two major issues for us,” Gandhi said. “One is what is happening in Europe. If the Greece situation is not resolved, if the European Union is dissolved, and if Europe’s currency is in trouble, then it could have substantial impact on the financial markets in this country. That would have impact on the finances of the commercial real property in this city.”

Real property taxation accounts for over $2 billion annually in district revenues, Gandhi said. Office downsizing from a European ripple effect could be a heavy blow to the city’s finances, he said.

Gandhi’s other major worry is the threat of $1.2 trillion in federal cuts over the next 10 years stemming from the sequestration law that came out of the debt ceiling negotiations last year.

Because about 60% of money spent in the district is federal money, Gandhi said the potential fallout of massive cuts means he is very concerned about what is going on just a few blocks from his own office.

“My sense here at this moment about our economy,” he said, “is rather pessimistic.”

Though Gandhi said he was “cautiously optimistic” as recently as February, the failure of world and U.S. leaders to resolve either the European crisis or the sequestration issue have changed his tune. He said he hopes that both situations will improve by next month, when his office is due to issue its revenue estimates.

The district also must contend with a sleeping dragon in the dormant control board.

That body, properly called the District of Columbia Financial Responsibility and Management Assistance Authority, suspended its activities on Sept. 30, 2001, when the district achieved its fourth consecutive balanced budget, which was required by the District of Columbia Financial Responsibility and Management Assistance Act of 1995.

The board, which had the authority to overrule decisions of the mayor and District Council, could return if the district commits any one of what Gandhi’s office calls “the seven deadly sins.” Those include the failure to pay bondholders or to meet city payroll, as well as carrying a cash deficit.

An author of several published works of poetry in his native language of Guajarati, which is spoken in western India, Gandhi is not inclined to wax poetic about his legacy as CFO.

“I think it would be nice to think about legacy issues,” he said. Instead, “we talk about, 'How do I go through this day and then talk about tomorrow?” he joked.

“The most important legacy,” Gandhi said, “if there is one, is of making sure that we in the district have achieved the level of fiscal prudence, financial credibility, and that we keep maintaining that level of fiscal prudence and financial credibility.”


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