WASHINGTON - District of Columbia officials yesterday said that fiscal 2009 revenues are expected to be $131 million less than earlier estimates, and that the figure could worsen in the coming months because it excludes the effects of recent market turmoil.
As the district tries to keep up with a tumultuous market, treasurer Lasana Mack also said yesterday that officials plan to replace Lehman Brothers Inc. as remarketing agent on $125 million of its variable-rate demand obligations and as counterparty on a $125 million interest rate swap in the next week to 10 days following the investment bank's bankruptcy.
The district's downwardly revised revenues come after its neighbors, Virginia and Maryland, recently announced projected shortfalls for their fiscal 2009 and 2010 revenues of $3 billion and $1 billion, respectively.
The district's projections, released yesterday by chief financial officer Natwar Gandhi, showed that the shortfall stems from an expected slowdown of income tax revenues, mostly from reductions in capital gains tax collections, which make up nearly 13% of total income tax revenues for the city. Because officials revised the projections prior to Sept. 15 - excluding the past two weeks of turmoil that have reaped havoc on Wall Street - finance officials said the figures could be worse in December when they will release updated numbers.
"We haven't seen the real effects of the market [on revenues]," Robert Ebel, the district's chief economist, said yesterday after the press conference.
However, the lower income tax revenues will not deter the city from pursuing the issuance of income tax-backed bonds in the future, according to Mack.
"Given the large coverage ratio - total annual income tax revenues divided by annual debt service on the prospective new bonds - these lower projections would not affect the ability to issue such bonds," Mack said in an e-mail. "We still intend to pursue the issuance of income tax revenue bonds for funding of the district's fiscal 2009 capital project expenditures."
The District Council this summer approved a bill that would allow the city to issue bonds backed by income taxes, which finance officials have said will save on debt service due to possible higher bond ratings. Mack said the income tax bonds would be issued in lieu of general obligation bonds.
Gandhi said real property and sales tax collections are projected to yield, respectively, $77.4 million and $6 million more than was projected in May, which will slightly offset the slowing income taxes. The district will end fiscal 2008, which ends Sept. 30, with $17.2 million more in overall in net tax revenue growth, which will also offset the 2009 shortfall, Gandhi said.
Mack, speaking yesterday after the press conference on revenue, said the district plans to replace Lehman as remarketing agent on about $125 million of variable-rate demand obligations the city brought to market earlier this month. The district has about $600 million of VRDOs, the rates of which have spiked to 5.5% from 2.5% since the turmoil began last week.
Mack also said the district has a $125 million swap in place with Lehman Brothers Special Financing, which is subject to optional termination due to the bankruptcy. Mack said the city will not terminate the swap, but rather replace LBSF with another counterparty, possibly Barclays Capital, which bought many of the Lehman businesses.
Meanwhile in Virginia, Gov. Timothy Kaine told the Governor's Advisory Council on Revenues on Tuesday to expect $2 billion to $2.9 billion in less revenue for the state's $77 billion biennial budget.
An official revenue revision is expected by Oct. 10. Ric Brown, the state's secretary of finance, said yesterday the revision will not affect any of the state's planned bond issuance.