D.C. Debt Cap Appears Less Likely To Pass Amid Council-CFO Dispute

WASHINGTON - A bill that would establish a firm debt cap for the District of Columbia seemed less likely to pass yesterday after a hearing of the District Council's committee of the whole because of a disagreement over whether the cap should include all forms of debt, such as tax increment financing, or only general obligation bonds, as currently proposed in a bill by council chairman Vincent Gray.

The office of the chief financial officer is urging council members to include all of the district's tax-supported debt under the bill's proposed 12% cap, arguing that rating agencies and investors consider a city's entire debt when considering the quality of a given city's credit. According to CFO Natwar Gandhi, when including all types of debt, the district's debt ratio is at 9.7%, but is expected to increase to 11% in fiscal 2009 and peak at 11.8% in both 2010 and 2011.

If the cap only included GOs, the percentage of GOs to revenues or expenditures, which are about equal, would drop significantly and hover between 8% and 9% from fiscal 2008 to fiscal 2013.

The district has a legal maximum cap under which debt service on GOs cannot exceed of 17% of revenue, but no official has suggested the city would ever reach that number.

"We believe that the limit must apply to all of the district's tax-supported debt obligations, not just its general obligation bonds," district Treasurer Lasana Mack said yesterday in a prepared statement to the council.

But council member Jack Evans said it seems unlikely that any legislation that would include all the city's debt will make its way through the council.

Evans, who supports a cap only of GO bonds and who also chairs the council's finance committee, said yesterday that he doesn't want a firm cap on the district's entire debt because it could limit the city's ability to respond to unexpected needs. He also added that because many economic development projects are supported by TIFs and bonds backed by payments in lieu of taxes, he would not want legislation barring the use of those financing tools, which create new revenue streams for the projects and ultimately the city.

Gray said he was not sure where he stood after one hearing, but that he was leaning toward keeping the cap only on GOs, adding that he considered TIFs and PILOTs a "different kind of debt."

"I'm not sure it should be subjected to the same limits," he said.

Gray said he does not expect an official mark up of the bill before the third week of October, and that even if he does bring it to the full council, he would not expect it to be finalized until next year.

Marcy Edwards, senior financial policy adviser for the CFO's office, said that they stand by their recommendation that the cap be set at 12% of all types of district debt. Edwards added that if the newly authorized income-tax revenue bonds could achieve lower debt service than GOs, the district could stop issuing GOs, which would essentially make Gray's proposal obsolete.

Gray said he needs to gather more information before commenting on the income tax bonds' effect on the bill.

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