Gandhi Warns City to Limit Borrowing

CFO Wants to Curb Spending on Projects

D.C. Chief Financial Officer Natwar M. Gandhi yesterday called on government leaders to rein in their borrowing on Wall Street, a warning that, if heeded, eventually could limit the city's ability to pay for major redevelopment projects proposed for the Southwest waterfront and at Poplar Point along the Anacostia River.

In his annual debt letter to Mayor Adrian M. Fenty (D) and the D.C. Council, Gandhi heightened previous alarms that the city is at risk of spending too much to repay its economic development bonds. He recommends the council adopt legislation limiting debt service to 12 percent of the city's overall expenditures.

The District's current debt service payments eat up 9.7 percent of its budget, rising to 11.8 percent by 2010, Gandhi said. By law, the city can spend up to 17 percent. But Wall Street analysts think that is too high, Gandhi said, because the city would have less money to pay for critical everyday services.

The analysts consider the debt level when issuing the city's bond ratings, and Gandhi fears that the District is in jeopardy of harming its standing on the financial markets. Gandhi has made similar warnings before. He said the situation has taken on increased urgency because the national economic downturn has flattened revenue.

"It is crucial that the District adopt and adhere to policies and practices that ensure its current and long-term financial health," Gandhi wrote in his five-page letter.

District officials said that they respect Gandhi's position but that they do not think a legislative cap is warranted.

City Administrator Dan Tangherlini said the District needs to have flexibility to be able to respond to unforeseen crises such as the decision last year to rebuild Eastern Market and the Georgetown Library after fire ravaged both on the same day. Tangherlini said borrowing money to spur development can lead to increased revenue for the city, which can increase its financial health.

"A legislative hard cap is a goal to work on, but there may be implications we have not thought of," Tangherlini said. "We have to look at the tradeoffs before we set a hard cap."

The many projects the city is paying for include Gallery Place near Verizon Center, the new development anchored by Target in Columbia Heights, the Walter E. Washington Convention Center and the Southeast Federal Center.

Not included are several large projects the Fenty administration has proposed: the 110-acre mixed-use Poplar Point development in Ward 8 that could include a soccer stadium, the Southwest waterfront redevelopment and the 67-acre Hill East site near RFK Stadium in Ward 6. The District probably would be expected to contribute hundreds of millions in funds, tax breaks or infrastructure to complete them over the next decade.

Gandhi said that the government might not be able to fund all the projects through public borrowing and that officials would have to make tough choices.

"That is a question of priorities," he said. "If you go with a soccer stadium or anything else, you would have to reshuffle your priorities."

Council member Jack Evans (D-Ward 2), chairman of the Finance and Revenue Committee, said he is glad Gandhi brought attention to the issue.

Evans said that he does not support a legislative cap but that he expects his council colleagues to be prudent in their decisions about paying for future growth.

"What I'd like to do is start to limit borrowing and see if there is a way to scale back our debt and pay down our debt," Evans said.