The District Council is expected tomorrow to approve a bill that would establish a firm debt cap of 12% for the District of Columbia.

The cap would include all forms of debt, such as tax increment financing. Some council members had originally proposed only including general obligation bonds under the cap.

At a first reading of the bill in early December, the council unanimously approved the measure, which states that the all of the district’s debt service on tax-supported debt must fall under 12% of expenditures.

The office of the chief financial officer had argued that only capping GOs would do little to help the city’s credit rating, which was the bill’s intention, because rating agency analysts and investors consider all debt.

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

According to CFO Natwar Gandhi, when including all types of debt, the city’s debt service is 9.7% of expenditures, but is expected to increase to 11% in fiscal 2009 and peak at 11.8% in both 2010 and 2011.

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.

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