Despite unprecedented economic successes in recent years, the District’s habit of borrowing huge sums of money to pay for its capital needs has threatened its much-improved financial standing.
Most recently, Mayor Adrian Fenty proposed a $589 million general obligation bond sale to support 170 capital projects, from school modernizations and Metrorail rehab to salt dome renovations and street paving. The resolution, now before the D.C. Council, is tied to spending approved as part of the current fiscal 2007 budget.
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Though District finance officials say the $589 million will not affect the city’s good standing with the bond rating agencies, they warn future debt could raise red flags on Wall Street. Fenty, who is scheduled to roll out his fiscal 2008 budget later this month, must account for the city’s more than $4 billion debt as he rationalizes future spending, Chief Financial Officer Natwar Gandhi said Tuesday.
“The District must continue to be very careful about adding new tax-supported, debt-financed projects beyond what is already in the Fiscal Year 2007 Budget and Financial Plan,” Gandhi said. “If the mayor and council decide new projects are needed, those projects must be carefully prioritized so we’re managing the District’s debt burden responsibly.”
Gandhi has cautioned of problems associated with rising debt since 2005, even as D.C. accumulated record financial surpluses.
Years of borrowing have led to the city’s staggering debt per capita, roughly $9,000 owed by every District resident, while the ratio of debt service to overall spending has climbed above what Wall Street considers the high range. Bond rating agencies look at both figures when judging a jurisdiction’s financial health.
The better the bond rating, the lower the interest rate on debt, saving taxpayers millions of dollars.
“We have to be careful and disciplined about it,” William Singer, Fenty’s budget chief, said of the rising debt burden. “Otherwise we’ll spend our way out of the fiscal discipline we’ve fought so hard to maintain.”
The District struggles with a so-called “structural imbalance,” the difference between how much money it needs and how much can collect. Increasing demands are challenged by an inability to tax commuters and by a large concentration of nontaxable real estate.
