WASHINGTON - The District of Columbia Council yesterday passed a $5.4 billion fiscal 2010 budget that includes $433.5 million for tax-exempt borrowing - all of which is expected to be issued as income tax-secured revenue bonds, according to the district's treasurer.
Treasurer Lasana K. Mack said it is "most likely" that the district will issue the full budget allocation for tax-exempt financing as income tax bonds. The budget allocation for bonds allows for income tax or traditional general obligation debt financing.
But Mack said the success of the district's first income tax deal in March should prompt that option to be used almost exclusively in the future. Mack said the district does not currently have short-term cash needs, but the district would issue tax revenue anticipation notes if such a need arises.
Standard & Poor's at the time of the first sale rated the district's income tax bonds AAA, the highest-ever rating for its bonds. The bonds received strong demand from the market, and the district nearly doubled its planned financing amount to $810 million.
The budget, which passed unanimously by a voice vote, now moves to Mayor Adrian Fenty. Once district officials agree on a budget it is sent to Congress for approval. Congress considers the district's annual budget as one of the 13 annual federal appropriations bills.
The budget includes $470.1 million for fiscal 2010 debt service on approximately $5 billion of long-term debt. The cost represents a $10 million increase on the fiscal 2009 approved budget due to the costs of debt for the district's capital improvements program, Mack said. The fiscal 2010 debt service reflects additional costs for $631 million of capital improvement spending.
The government's additional borrowing could push the district's debt burden to 11.9% of expenditures by 2013, according to May 14 testimony from the district's chief financial officer, Natwar M. Gandhi. That figure puts the district close to its debt burden cap of 12% and above the median debt burden of 11.5% for large cities, according to Moody's Investors Service, Gandhi said.
Income tax-secured revenue bonds are secured by individual income taxes and business franchise taxes. The bonds have higher ratings than the district's general obligation bonds because tax revenues that back the bonds go directly to a trustee bank and are isolated from any fiscal stress that the district might have in its general funds.
Gandhi has estimated that the district will save approximately $28 million in debt service over the next four years as a result of issuing the higher-rated income tax bonds as opposed to GOs.
Gandhi's office certified that the budget is balanced. For the first time in years, this budget has less revenue from local funds than the previous year's budget. A revenue estimate from February expects the district to collect $5.0 billion in fiscal 2010, a 2.7% decline from fiscal 2009.