WASHINGTON — The District of Columbia's new chief financial officer will likely oversee the issuance of more than $1 billion of bonds in fiscal 2015 and hopes to develop a plan that assesses D.C.'s capital challenges and how best to meet them over the long term.
Jeffrey DeWitt, who replaced Natwar Gandhi and is serving the rest of his five-year term, became CFO in January and is slated to continue in that post through June 30, 2017. Gandhi left the position for personal reasons. DeWitt had been CFO for Phoenix.
DeWitt, 53, talked about future bond issuance, infrastructure and other topics, in a recent, wide-ranging interview with The Bond Buyer.
In one of his first formal actions, DeWitt certified that the proposed fiscal 2015 budget D.C. Mayor Vincent Gray released earlier this month is balanced. The fiscal year is to begin on Oct. 1 and the budget calls for almost $1.1 billion of general obligation or income tax secured revenue bonds to be issued during the year to finance general capital expenditures.
The proposed capital budget provides budget authority for more than $4 billion of GO or income tax revenue bonds to be issued from fiscal 2015 through fiscal 2020. The borrowings would fund projects in the city's capital improvement plan, including those to modernize schools and libraries, rehabilitate public pools and athletic fields, and develop other infrastructure.
Gray transmitted the budget to the D.C. Council earlier this month. If the council makes any changes, DeWitt will have to certify it again before it goes back to the mayor and then to President Obama who will have to submit it to Congress for final approval.
DeWitt said his office is considering selling $500 million of bonds sometime in the late spring to provide money for the ongoing capital program.
It hasn't yet been decided whether the city will issue GO or income tax revenue bonds, although if market conditions remain the same it will likely be a GO sale, he said.
The GO credit carries ratings of AA- from each of Fitch Ratings and Standard and Poor's and Aa2 from Moody's Investors Service. The income tax revenue bonds have a triple-A rating from S&P, an AA+ rating from Fitch, and a Aa1 rating from Moody's.
"We'll be looking at what's the market like, which [type of bonds] is the appropriate one to use at the particular time in the best interest of our capital program," DeWitt said. "So obviously if credits get tight and the market gets difficult, it's better to use the triple-A credit."
The CFO's office is also looking into starting a commercial paper program in which short-term debt could be issued in smaller pieces while projects are being built and then longer-term debt would be issued once a project was completed, DeWitt said.
"It's something that we used in Phoenix quite a bit for managing our airport and our water-sewer system. In other words, you don't want to issue debt while you're taking two years to build it. Issue the debt whenever all the construction risk is gone," DeWitt said. "And here's the other reason to do it. The yield curve is so steep, you're taking advantage of the short-term rates instead of paying long-term rates early."
Infrastructure
DeWitt is working on a strategic work plan that he hopes to release in June. The plan will look at all areas of the CFO's office and will focus on three areas: customer service, continuous improvement and transparency.
As part of the plan, DeWitt said he wants to take a long-term look at the district's capital challenges, in areas including transportation and infrastructure, human services and public safety.
He said he wants the strategic plan to address, "how do we best meet those needs over the long-term or over the next decade and beyond by looking at what's the role of municipal bonds, what's the role of pay-as-you-go, what's the role of public-private partnerships."
Last fall Gandhi said that, had he more time in the position, he would have liked to explore the idea of a public-private partnership to address infrastructure needs. One of the reasons he was interested in P3s is because D.C. has high per capita debt and is restricted in the amount of money it can borrow. The city put in place a borrowing cap a few years ago that limits debt service spending to a maximum of $12 for every $100 of budgeted spending.
DeWitt said he wants to take a long-term look at the capital needs and plan how to finance them on a strategic basis, to see how the cap and the infrastructure needs fit together.
"I think in the long run, you have to look at [the cap] in context of all the other things that need to be done," he said. But the CFO also believes that the borrowing cap needs to stay in place. He called it "a good tool for fiscal discipline."
"If you did ever think about changing it, there would have to be discussions with rating agencies," as well as investors and you would have to show "what the infrastructure challenges are that would make you change that," DeWitt said. "But in lieu of that, no, I think it needs to stay where it is."
Figuring out how to address the district's infrastructure needs is one of the biggest challenges for the CFO's office, DeWitt said. Those needs are becoming important for the city because of its changing dynamics.
A decline in federal government jobs is being offset by growth in the private sector, he said. And while in 2007, only one-third of income earned in D.C. stayed in the district, that rose to 45% in 2012.
"People are now living here, not just working here. And when they live here, they pay income taxes here. When they live here, they go to restaurants, and they shop and they go to retail stores," DeWitt said. Infrastructure plays a role because residents will want to ensure the schools are there for their children, that public transportation is reliable, that streets are good and safe and that crime is low, he added.
Ratings
In February, DeWitt and several D.C. elected officials went to New York to meet with the rating agencies. The officials emphasized several factors that make the city's finances strong, in hopes of getting the GO bond ratings raised.
Rating agencies are taking a closer look at pensions and other post-employment benefits (OPEB), because many municipalities are struggling in those areas. But as of last fall, the district's police officers and firefighters retirement plan and its teachers' retirement plan were together about 104% funded "under some of the most conservative assumptions of any large city in the country." It's plan for OPEB was about 80% funded, DeWitt said.
"That was something we emphasized a lot with the rating agencies 'cause they don't see that everywhere," DeWitt said. "They don't see anything like that anywhere else."
D.C. officials also stressed to the rating agencies that the district's reserves are at the highest level they've ever been, and that the district is adhering to its debt cap and has become less reliant on the federal government.
"I have no control over what ultimately [the rating agencies] decide but I think it's a great story here in D.C. and I'm lucky to walk into a job as the CFO for a city that has come such a long way and is on the right track in every area on the financial side," DeWitt said.
The district currently has more budget autonomy from Congress than in the past. Normally, Congress has to give the district the authority to spend its own funds each fiscal year. But the omnibus appropriations legislation Congress passed in January gave the district the ability to spend its own funds at council-approved levels in fiscal 2015, even if there's another federal government shutdown before the end of that year.
Because of this unprecedented action, the city is provided with an "extra year of protection," DeWitt said.
"That makes it less likely that there would be a problem," he said.
The district will see changes in its elected positions next year. There will be a new mayor, since Gray was defeated in the Democratic primary by council member Muriel Bowser. She faces independent council member David Catania and others in the general election in November. Additionally, there will be new faces on the council.
DeWitt said he does not have a preferred mayoral candidate and that CFOs should do their job in the same manner regardless of who the mayor is.
"What the elected body relies on the CFO to do is provide reliable, factual information on which to make policies. And it doesn't matter who the mayor is, you should be doing your job the same way," DeWitt said.
D.C. vs. Phoenix
There are many similarities between the CFO positions in D.C. and Phoenix, DeWitt said.
"You have to work to make sure you're issuing your debt as efficiently and effectively as possible. You have to manage the credit ratings with the rating agencies. That's no different between the two jobs," he said.
But in Phoenix, unlike in D.C., DeWitt had to manage the debt for a major airport and water and sewer system. The biggest difference between the two jobs is that the Phoenix CFO reports to the city manager while the D.C. CFO is independent, he said.
"Here, you are the independent office .... There's no other position in the United States anyway where the CFO is an independent entity that provides that role to support the mayor and council but you don't necessarily report to them."
The CFO post in D.C. is also unique in that it's a federally created job, with Congress setting the salary, DeWitt said.
One of the challenges DeWitt faced in Phoenix was dealing with the fact that the city lost half of its property tax base during the Great Recession due to "the busting of the real estate bubble." Because of budget cuts, the city's finance department lost almost one third of its employees, he said.
"I bring that experience of always looking at what you do and trying to make it better, because we had to get through the downturn," DeWitt said. "So one of the things we're going to be looking at here is kind of the concept of employee empowerment and continuous improvement and going through the process of reviews of different areas of the CFO's office to make them as efficient as possible."
DeWitt worked in Phoenix government for 25 years, starting as a rate analyst and working his way up to CFO.
He grew up in Illinois and went into the military after high school to pay for college. He has a bachelor's degree from Eastern Illinois University and a master's degree from Southern Illinois University, Carbondale.
"In municipal government, what you do touches the public directly," DeWitt said. "When you do something and you find a way to do a bond deal to finance a new school or a homeless shelter or a police station or a fire station or whatever it is, what you do directly touches the public. And it's just a very rewarding, very great thing to be able to have that kind of impact on where you work at."
DeWitt said his favorite part of his new job is being in the nation's capital. His office is on Pennsylvania Avenue, in between the White House and the U.S. Capitol. And on the weekends, he can walk from his apartment to the monuments on the National Mall and other attractions.
"The best thing about [the job is] just living in D.C. and all of the wonderful dynamics and excitement of living in D.C.," he said.
