D.C. Council members will consider setting a legal cap on the amount of bonds the District may issue for new projects, heeding warnings of debt-related financial peril if the city continues to borrow at an “unsustainable” rate.
Council Chairman Vincent Gray last week introduced legislation that would restrict the District’s overall debt level to 12 percent of its annual expenses. The ratio is expected to reach 11 percent next year, already a percentage point above Chief Financial Officer Natwar Gandhi’s recommended ideal limit.
“This legislation will send a strong message to the bond-rating agencies that the District of Columbia is taking the issue of managing its borrowing and debt seriously,” Gray said. “This legislation will also require the council to make tough choices on what we borrow in the future, but it will also ensure that future generations of Washingtonians are not saddled with excessive debt.”
In his annual debt letter issued earlier this month, Gandhi urged the council and Mayor Adrian Fenty to “send a signal to Wall Street” and adopt the debt cap “out of concern for the District’s financial health.” The city’s “somewhat unsustainable” level of borrowing threatens its bond rating, the CFO said, which could bring higher interest rates on existing debt.
D.C. already plans to borrow more than $3.5 billion through 2013 for a dozen economic development projects, school modernization, government facility upgrades and the consolidated forensics laboratory. If the city were to stop adding projects, Gandhi said, its highest-in-the-nation debt per capita would still skyrocket from $10,902 this year to $13,999 by 2013.
New initiatives that call for major borrowing, Gandhi wrote, “may have to displace currently-planned projects.”
Gray’s bill, co-sponsored by 10 of his colleagues, would institute a “firm cap” but still allow for exemptions in an emergency or for a “unique project,” the chairman said. Several major endeavors not yet in the pipeline for new borrowing could be threatened by a debt cap, including the redevelopments of Poplar Point, the McMillan Reservoir and Hill East.
City Administrator Dan Tangherlini recently told The Examiner that the Fenty administration would find it difficult to back a strict debt cap if it meant closing the door on revenue-enhancing projects.
