The District government has floated its first bond issue since home rule, selling $30 million worth of higher education bonds to Riggs National Bank and American Security Bank.
The bonds were sold by the city on behalf of George Washington University, which will use the $30 million to build a classroom-laboratory-office complex.
Other municipal bond issues are planned next year as a result of congressional action last month that swept away some legal clouds over the District's authority to issue bonds.
The bonds sold this week are not only the first issued in modern times by the District, but also one of the first variable rate municipal bond offerings. Variable rate municipal bonds first came into use about six months ago, when governments found it difficult to get long-term, low-interest loans.
Interest charges on the D.C. bonds are tied to the prime rate, explained Bill Kao of the city finance department. The rate is equal to 65 percent of prime. At today's 15 3/4 prime, the bonds pay about 10.7 percent interest.
The issue is what bond dealers call a "conduit revenue bond" in which the city acts as a pipeline to funnel funds to George Washington.
The District borrows the money, then passes it on to the university, which is responsible for paying the principal and interest on the bonds.
Because the interest on bonds issued by municipal governments is exempt from federal income taxes, municipal bonds carry lower interest rates than those issued by private organizations.
D.C. Mayor Marion Barry Jr., said similar bond issues have been used by colleges, including Harvard and Stanford, to cut the cost of financing educational facilities. GW could save several million dollars in interest by using the pass-through financing technique, city officials said.
Barry said congressional action earlier this month "will remove impediments to issuing other types of bonds." Congress passed a series of technical amendments that removed some legal uncertainties about the District's bonding authority.
The congressional action did not effect higher education facilities bonds like those issued this week. With the help of the consortium of local private colleges and universities, the District pushed through amendments to its charter in 1977 that made such bonds possible.
GW is the first educational institution to ask for such bonds, but other institutions have expressed interest, city officials said.
The city will also be able to issue industrial revenue bonds to provide low-interest financing for businesses.