Over the course of two weeks in late February and early March, Wall Streeters came down to take a gander at the nation’s capital. Apparently, they liked what they saw.
Chief Financial Officer Natwar Gandhi had invited officials with the three principal bond rating agencies — Moody’s, Fitch, Standard and Poor’s — to tour the District. Gandhi was about to ask Wall Street to refinance D.C.’s debt. Since the rating agencies determine the quality of the bonds, Gandhi wanted them to see what those many millions had been buying.
If the rating agencies determined the District was using the borrowed money wisely, and investors who bought D.C.’s bonds were likely to get paid back, then funds would keep flowing at the lowest rates to build schools and such. The municipal bond game is, after all, high stakes poker. When governments in Florida are starting to default on their bonds, and California is so broke it’s handing out IOUs to contractors, bond rating agencies and investors have a right to be wary.
Millions of dollars were at stake. If the rating agencies blessed D.C.’s bonds with the best safety rating, the city could borrow more for less. In homeowner’s terms, Gandhi wanted to refinance to a lower rate and save many millions.
Gandhi, who is months away from celebrating a full decade as D.C.’s chief bean counter, did not squire the bond folks around town. Officials with the CFO’s bond office took them to see Nationals Park, Eastern Market, Eastern High School — all projects done with borrowed cash.
After they had seen the bricks and mortar projects and met with Gandhi, the Wall Streeters blessed the debt restructuring plan. Gandhi estimated it would save $328 million over the next five years: $95 million in 2010 and $54 million next year. It required a push from Council Finance Committee Chairman Jack Evans to convince some members it was a good idea, but in the end Mayor Adrian Fenty and Council Chairman Vince Gray agreed to back the deal.
Gandhi announced it in a letter to the mayor and council this week.
That’s the good news. Our neighbors are facing billion-dollar budget deficits and are cutting back. The District, which is short $200 million, is close to balancing its budget — with much less pain.
Here’s the bad news: Refinancing the debt will stretch the repayments into the future, push the city close to its borrowing limits and restrict the amount that politicians can borrow for new projects. Politicians might not want to wade through or understand Gandhi’s entire explanation, but they had better read the last paragraph. It asks the mayor and council to “evaluate the need for any and all proposed borrowing” and “to set priorities for what is most critical to the needs of District residents.”
Bottom line: The Wall Street bond rating agencies have told Gandhi the District has reached its limit, and Gandhi is ready to say “no” — to just about every new project.
E-mail Harry Jaffe at [email protected].
