D.C. officials will tell Wall Street on Friday that the District deserves a bump in its credit rating after substantially increasing its cash reserves.
District leaders, including Mayor Vincent Gray, will spend the day meeting with officials from Standard & Poor’s, Moody’s and Fitch, all of which issue assessments on D.C. finances that help drive the interest rates the city pays on its bonds. A ratings upgrade could ultimately save the District tens of millions of dollars.
“The best impact of an upgrade is it decreases your borrowing costs, so that means that capital costs and other borrowing costs are reduced,” said Richard Clinch, a University of Baltimore economist who has worked with some Maryland counties on their efforts to earn favorable bond ratings.
D.C.’s bond ratings have been stable since 2009, when credit agencies said the District was a largely safe investment. As recently as 1999, one agency said buying the District’s bonds amounted to a “substantial” risk.
But Gray is hoping a boost in the city’s fund balance — the District’s savings account — will move the ratings agencies to declare D.C. a better bet for investors. At similar meetings last year, the agencies said D.C. needed to boost its cash reserves if it wanted improved standing.
Earlier this week, Gray announced that D.C. has more than $1 billion in the fund balance, for a $215 million increase from last year.
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The uptick in the fund balance is a part of Gray’s effort to build an emergency reserve that could keep D.C. government functioning for two months without any tax revenue. Eric Goulet, Gray’s budget director, said he expects such contingency planning will impress financial opinion makers.
“We’ve made commitments to Wall Street that we intend to get to the two months’ cash on hand,” Goulet said. “It’s really going to [help] us in terms of our ratings.”
So far, D.C. has saved enough money to run the government for 33 days.
D.C. is seeking an upgrade less than six months after one agency slapped a “negative” outlook on the District’s rating. Moody’s blamed the revision on D.C.’s “unique exposure … to federal government downsizing” and said it wasn’t a disavowal of the District’s financial stewardship.
