D.C. wins bond rating upgrade from S&P

March 21, 2013

The big dog of Wall Street ratings firms is smiling on the District’s bonds. (Henny Ray Abrams/AP)

A Wall Street firm has upgraded its opinion of some District bonds, handing city officials a modest reward for their financial management amid ongoing federal budget uncertainty.

Standard & Poor’s upgraded the District’s general-obligation bonds Thursday from A+ to AA-, putting their rating on par with the other two major ratings firms. Moody’s and Fitch have rated the city’s “full faith and credit” debt at AA-equivalent levels since April 2010.

In its report on the higher ratings, S&P said the upgrade reflected the District’s “improved financial position that has been strengthened by recent strong revenue performance as well as the rebuilding of reserves in accordance with … recently adopted new reserve policies.”

The District booked a $417 million surplus in fiscal 2012 — a sum that Mayor Vincent C. Gray (D) has declined to spend, using it instead to build the city’s financial reserves to $1.6 billion.

Gray said in a statement that the upgrade is “an affirmation of my administration’s commitment to fiscal discipline and stability and our hard work promoting economic development and diversifying the District’s economy.”

The upgrade is also a nice parting gift for Chief Financial Officer Natwar M. Gandhi, who has announced his intent to retire in the coming months once his successor is selected by Gray and confirmed by the D.C. Council. In his own statement, Gandhi called the rating “a true testament to the responsible financial management of the District” by Gray, Council Chairman Phil Mendelson (D), Council Finance Committee Chairman Jack Evans (D-Ward 2) and other elected officials.

The S&P raters acknowledged Gandhi’s impending departure in their report, as well as the turnover in the council chairmanship and city treasurer positions: “Should these changes negatively affect the district’s financial position and/or its ability to adjust to upcoming operating cycles, the rating could be pressured downward.”

It is unclear how much the new rating will allow the city to save on its borrowing costs, given (1) that two of three agencies already rate the GO bonds at similar levels and (2) that virtually all of the city’s long-term debt is now issued as higher-rated income-tax secured bonds rather than as general obligations.

In 2011, Moody’s gave the District’s rating a negative outlook, citing the potential for federal budget cuts. But S&P said Thursday that the District’s outlook is stable, based on the District’s healthy reserves as well as the expectation that city leaders “will continue to maintain structurally balanced operations and contend with ongoing uncertainty in its revenue base in a timely manner.”

However, the raters said officials shouldn’t hold their breaths waiting for more good news: “In light of the uncertainty about how some of the sequester cuts could be implemented and the exact impacts on the district’s future budgets and economic activity, we believe a further upgrade is limited at this time.”

And they cited the possibility of a downgrade should city revenues erode, economic activity slows or officials give “material ongoing hospital operational support” — the last of which appears to be a real possibility.

Mike DeBonis covers Congress and national politics for The Washington Post. He previously covered D.C. politics and government from 2007 to 2015.
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