WASHINGTON - The District of Columbia Council yesterday approved a bill that would cap payments on all of the district's tax-supported debt at 12% of its expenditures. That's a much stricter limit than its current cap, which only applies to general obligation bonds and restricts their debt service payments at 17% of revenues.

The 12% cap would include payments on tax increment financings and bonds backed by payments in lieu of taxes, representing a reversal for some council members who had wanted to only include GOs.

Chief financial officer Natwar Gandhi has been pushing the bill - which still must be approved by Mayor Adrian Fenty and Congress - to garner favor with rating agencies and ultimately achieve higher credit ratings.

"This legislation is an important step in the process of maintaining and improving the district's bond ratings and financial stability," Gandhi said in a statement. "By establishing a lower and more comprehensive cap on borrowing, the district has sent a message to the financial markets and to all of its residents that, even in these difficult economic times, it will continue to adhere to the most prudent and responsible financial policies."

But the measure leaves little wiggle room for additional debt-supported projects that are not already in the pipeline for the next four fiscal years.

The bill also would require the district to make an annual allocation of about $50 million to an operating cash reserve account for the Washington Metropolitan Area Transit Authority for general operating expenses.

The measure is a reversal from an earlier version of legislation introduced by council chairman Vincent Gray, who had proposed only including the district's GO bonds under the 12% cap.

Gandhi had argued that the bill would have done little to help the city's credit rating because analysts and investors consider all tax-supported debt. After speaking with rating agencies in a recent call with Gandhi, Gray revised the bill to include TIFs and bonds backed by payments in lieu of taxes.

The district is currently rated A1 by Moody's Investors Service and A-plus by Standard & Poor's and Fitch Ratings.

Council member Jack Evans, who chairs the finance committee, voted for the bill even though he had said he wouldn't support a bill that included all forms of debt for fear that it could limit the city's ability to respond to unexpected needs.

Many economic development projects are supported by TIFs and PILOTs, and Evans did not want legislation barring the use of those financing tools, which create new revenue streams for the projects and ultimately the city. Local business development leaders also opposed the cap for the same reason.

But Evans agreed to vote for the bill at the urging of Gandhi and Gray. "I don't think [TIFs and PILOTs] should be in the bill, but I'll go along with it," he said prior to the meeting yesterday.

When all types of debt are included, the district's debt ratio for fiscal 2008 is 9.7%, but is expected to increase to 11% in fiscal 2009 and peak at 11.8% in both 2010 and 2011, according to Gandhi.

If the cap only included GOs, the percentage of GOs to expenditures would drop significantly and hover between 8% and 9% from fiscal 2008 to fiscal 2013, Gandhi said.

The district has the highest debt per capita of major municipalities nationwide. Its debt per capita is expected to increase to $10,902 at the end of this fiscal year and to $13,999 by fiscal 2013 as a result of additional planned debt-driven projects, a statistic Gandhi used in pushing the bill.

Meanwhile, the CFO is expected to release updated fiscal 2009 revenue projections by the end of this week. Gandhi in mid-September projected district revenues would be $130 million less than originally expected.

The council responded to that estimate in mid-November by cutting $130.7 million from the budget and deciding to put $46 million into a reserve account for possible future revenue shortfalls, rather than spend that money as had been planned.

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