WASHINGTON — Natwar Gandhi, the District of Columbia's chief financial officer, says that while it's time to retire from his post, he would have liked to have explored the idea of a public-private partnership to fund the district's infrastructure needs and find a way to help the poor given the city's narrow tax base.
"Those are the areas where I would have liked to work more and do more for the city and its people," he said.
Gandhi, 73, is leaving the CFO job after 13 years for personal reasons.
In a wide ranging interview with The Bond Buyer, he discussed his accomplishments and disappointments, his future plans and the challenges facing the district and his successor.
Gandhi sees providing more infrastructure as crucial given the district's growing population.
"They are younger people. They have needs. We would need better roads, better technology, better schools. Of course we are investing a lot in all these areas. Nevertheless, we need ...to spend more money," the CFO said.
However, the district already has perhaps among the highest per-capita debt in the country. The city has a borrowing cap that limits debt service spending to a maximum of $12 for every $100 of budgeted spending, and Gandhi is opposed to raising that cap because it could adversely impact the district's credit ratings.
"Had I stayed longer, I would have liked to work on some kind of public-private partnership, whereby we would collaborate with the private sector and borrow money to take care of this infrastructure needs," he said.
Gandhi sees investment in infrastructure as something that should be done nationally as well as in the district.
"By not spending money on infrastructure, we are not investing into our future. We will lose our competitiveness. In case of district, we would lose that locally. In case of the country as a whole, we would lose internationally," Gandhi said. "This is the time to borrow money. Make sure that we borrow money to spend on infrastructure. That's an investment. That is not spending."
Jim Dinegar, president and CEO of the Greater Washington Board of Trade, said that some infrastructure has been built while Gandhi's been CFO. "He's brought a great deal of credibility to the District of Columbia," and by extension, to the region, Dinegar said.
D.C. currently does not have law that specifically authorizes public-private partnerships, but groups are hoping to get P3 legislation passed.
Gandhi called D.C. "truly a tale of two cities," because the district is home to some of the richest and poorest communities in the country. Roughly one-third of the city's population was enrolled in Medicaid as of May 2013 and the child poverty rate is about 30%.
"We have profound health care needs, human services needs, all these need to be satisfied, for which you need money," Gandhi said. "We have, on the other hand, a very constrained, limited, narrow tax base."
The district only gets to tax $45 of every $100 earned in the city, with the rest being taxed in the Maryland and Virginia suburbs where a lot of employees live. D.C.'s real property tax base is also limited, since about 40% of commercial real property values in the District are exempt from D.C. taxes. Property owned by the federal government, the World Bank, the International Monetary Fund and embassies are exempt from district taxes.
"With all this tax exemption, and our inability to tax people who earned money here, creates this problem of a narrow tax base. And yet, as I pointed out, we have basically a very needy population," Gandhi said. "So how do you take care of the needy population? Had I had more time, or decided to stay longer, I would have liked to work on that issue."
Accomplishments
When Gandhi was appointed CFO in 2000, the city was still under a control board created by Congress in 1995 that could override decisions made by the mayor and city council.
"With the control board, we basically lost our limited democracy, the so-called 'home rule,'" Gandhi said. "Congress established the control board, and put extraordinary powers in the hands of control board, and deprived the mayor and the council, who were elected, of their legitimate authority, particularly in the financial area."
In order for the control board to go dormant, the district needed to have four consecutive balanced budgets with clean audits. But elected officials weren't sure the district would be able to produce the fourth clean audit and balanced budget in a row after there were "some issues in the financial cluster" following the third clean audit, the CFO said. Gandhi was asked to become CFO around that time, knowing that if the fourth audit wasn't clean, the control board would be in place for another four years. The district succeeded in getting the fourth clean audit, and the control board went dormant in 2001.
Gandhi called the transition from the control board to a more normal form of municipal government one of his three major accomplishments during his tenure. The second major accomplishment was gaining and maintaining financial viability and credibility for the district.
The "district basically was a joke in financial markets in late 90s. We were not a welcome presence on Wall Street, our bonds were rated junk bonds. And for us to stand up and be counted on the financial front, we needed that financial viability and financial credibility," Gandhi said.
Now, D.C.'s general obligation bonds are rated AA-minus by Standard and Poor's and Fitch Ratings and Aa2 by Moody's Investors Service. The district recently sold $405 million in one-year, tax revenue anticipation notes at its lowest cost ever, and Gandhi expects that the district will get advantageous rates from a sale of $500 million in GO bonds slated to be priced next month.
D.C. may be in better financial condition than any other city in the United States, Gandhi said. "We do not have any pension liability to speak of, we have a healthy fund balance ... our systems are working and we get invited to advise other jurisdictions," he said.
Gandhi said his third major accomplishment was establishing a financial infrastructure that will allow the district to maintain its credibility and viability.
"Gandhi did a lot to create a professional CFO office," said Alice Rivlin, one of the leaders for the search committee to find his successor. "I think he's got a lot to be proud of."
His tenure was not without its problems. In 2007, a mid-level tax office manager was found to have embezzled millions of dollars. "It was, I would say, the darkest moment of my professional career, professional life. Yet, that happened," Gandhi said. "What is more important, however, that once that was discovered and discovered by our staff, we basically followed all the recommendations that were given to us by an independent law firm that examined the scandal and its implications." Gandhi added that he is confident that similar impropriety is unlikely to happen in the office of the CFO again.
Challenges Ahead
Gandhi is all but certain to be succeeded as D.C. CFO by Jeffrey DeWitt, who has served as CFO of Phoenix since 2009. DeWitt was confirmed by the D.C. Council on Nov. 5, but Congress will still have the opportunity to review the pick.
The unique nature of D.C.'s CFO bring challenges for Gandhi's successor.
"Here, the CFO is not mere a financial functionary, but is a principal. With the mayor, and the council and then there is CFO," he said. The CFO has control over the district's finances, so major decisions from the mayor and council come to the CFO for approval. The "CFO, even though the role is that of an objective evaluator of the facts, numbers, does have this policy implication in that a negative word from the CFO would kill a legislation."
Additionally, the CFO faces many levels of responsibilities. "We have a very complex government with the problems of a state, county, municipality and school district imposed upon us," Gandhi said. Plus, he added, The "CFO has an obligation to make sure that we retain our credibility at all levels — on the Hill, in the financial markets, in the administration, at the White House."
Another major challenge Gandhi sees for DeWitt is that he'll be pressured to spend money. He'll have to balance the need to spend on services and infrastructure with the need to maintain the district's financial viability and credibility.
That being said, Gandhi called Mayor Vincent Gray's choice of DeWitt "inspired" and thinks DeWitt can handle the challenges.
"Congress will turn to him. The mayor, council, communities, and Wall Street, they will all look to him to make sure that district maintains financially viable," Gandhi said. "So he has to make sure that every action that he takes with that goal in mind. And I'm quite confident that Jeff DeWitt will do that."
D.C. has been affected by the congressionally mandated federal spending cuts known as sequestration because it receives a substantial amount of federal grants and has many federal government employees and contractors.
"Nevertheless, our duty is to make sure that we account for all those impacts in our budget, so that we are not faced with the situation where we would have a deficit," Gandhi said. "We will not spend more money than what we take in. That is the bottom line, sequestration or no sequestration."
The recent federal government shutdown would have had a more severe impact on D.C. if it had lasted for longer and if the federal government had not decided to give back pay to its furloughed employees, but contractors' employers are not going to make them whole from their shutdown losses. The District is counting up its losses and plans to report its findings in December.
Gandhi said he supports Gray's efforts to diversify the district's tax base, so that the city is less of a one-industry town centered on government.
"One extreme example of a city or jurisdiction that was one-industry base has been Detroit, and we do not want to be there," Gandhi said, adding, "We would like to have more industry, different kind of industries, not manufacturing, not small-stack, but basically soft industry, and the mayor is trying very hard to do that."
Future Plans
Gandhi, an Indian immigrant, feels like he's lived the American Dream.
"I'm an Asian immigrant with an accent and am the chief financial officer of the nation's capital. Only in America, that is possible. So no matter what others say, I will still say, this is a promised land," he said.
Gandhi could have stayed longer in the job, since Gray last year appointed him to a five-year term. but he feels like he's "leaving on a very high note."
When asked what his plans were after leaving the office, Gandhi replied, "relax." He's going to prioritize time with his girlfriend, Panna Naik.
"My wife of 47 years passed away several years ago, and now I have a new love in my life, and to spend more time with her, we decided that it's about time that I should work on those areas," he said. "Besides, we both have literary careers. I'm an established poet in my language, and so I'm going to pursue my literary career going forward."
Naik is going to move to D.C. from Philadelphia. "My daughter is in Chevy Chase just 15 minutes from where I am. My son is in Bethesda, another 15 minutes," Gandhi said. "So I'm extraordinarily lucky to be where I am, and I don't plan to move out of the city at all. This is the last station for me."
