The D.C. Council returns this week from summer recess, and the lawmakers need to immediately set their calendars to return to fiscal matters — specifically debt and spending. Stakeholders are understandably anxious to push ahead with the school modernization plan and other capital projects, but the occupants of the District Building are quite familiar with the negative consequences of ignoring yellow flags. Chief Financial Officer Nat Gandhi alerted the legislature in June. “It is crucial,” Mr. Gandhi testified, “that the District implement and adhere to policies and practices that ensure current and long-term financial health.” He also warned that Fitch, Moody’s and S&P — the three ratings agencies — have all indicated they consider the District’s debt burden to be “relatively high.”
Currently, the city has the highest debt per capita of all major U.S. municipalities — $10,429 — and that number is projected to rise by more than $3,000 by the next mayoral election in 2010. Meanwhile, the city is juggling numerous short- and long-term capital projects — chief among them school modernization, several convention-center projects and various public projects involving Tax Incremental Financing. Taxpayers are also pushing for a state-of-the-art central library in a central location, and Congress expects the District to utilize the several parcels of land it granted the city. That’s the short list.
All of those projects call for borrowing, but the mayor has seemingly forgotten his promise to keep the city in good financial stead. In the nine short months since his inauguration, Mr. Fenty has already begun reprogramming funds to cover tens of millions of dollars for school renovations (in addition to spending capital funds) and he wants to dip into the city’s cash reserves without reservation. The mayor is not only moving too fast but in the wrong direction as the city faces mounting spending on Medicaid and other social-service programs. Moreover, transit subsidies are on the rise, and the costs of road building, utilities, salaries and gas are rising, too — all this in the midst of a topsy-turvy real-estate market.
In his June testimony, Mr. Gandhi delivered a clear message to the council — don’t jeopardize the city’s hard-won bond ratings — and made recommendations. One of the CFO’s proposals calls for raising and capping the debt-service-to-total expenditures ratio at 12 percent with a target goal of 10 percent. (That ratio presently stands at 9 percent.) Mr. Gandhi also recommends a target of6 percent on the District’s debt-to-full value ratio, with a firm cap of 8 percent compared to the current 5.9 percent ratio.
During the 2006 mayoral campaign, Mr. Fenty pledged allegiance to several liberal refrains — affordable housing, health care for the uninsured and underinsured, etc. But there’s a more important pledge that we want to remind Mr. Fenty of. In January, the mayor, the CFO and the chairman of the council, Vince Gray, stood united to applaud the city’s 10th consecutive clean audit. Mr. Gandhi said at the time that “we have to watch what we borrow and spend.” Mr. Gray said City Hall must bring needed improvements “without compromising our financial stability.” Even D.C. Council member Jack Evans, chairman of the Finance and Revenue Committee, had words of caution: “The District’s credibility in the bond markets is going to be very important in the year ahead. We have an ambitious agenda of projects, which includes critical improvements to schools, and we need that strength on Wall Street to get the job done.”
For his part, the mayor alluded to the red ink of the 1990s: “Strong fiscal management will be the hallmark of this administration. I appreciate the hard work of the past decade to bring us where we are today, and I pledge to keep the momentum going.” If the mayor fails to keep his word, the job falls to the council and the CFO.
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