Standard & Poor's announced yesterday that it was giving an A rating to the District's new $80 million bond issue -- two grades below the AAA or AA ratings that city officials had hoped to receive from the bond-rating service.
Standard & Poor's cited several factors that affected its rating of the city's first publicly issued long-term general obligation bonds. They included the city's $3.4 billion unfunded pension liability, the escalating cost of the Metrorail system, plans to issue $6 billion in general obligation debt during the next six years and the lack of a set formula for deciding the federal payment to the city each year.
Alphonse G. Hill, the District's deputy mayor for finance, declared that he was "completely displeased" with A rating and said it would cost the city an extra one-quarter to one-half percentage point in interest it must pay to attract investors.
"We warrant a higher rating," Hill said. "We have very good credit. The reasons given for the rating not being higher are things outside of our control."
Hill said the city plans to take bids today for the new issue and hopes to pay under 11 percent. He also said the city had told Standard & Poor's that it wished to appeal the rating.
Standard & Poor's, in its announcement, also cited positive factors affecting its decision. The firm said that the city had made "sizable, measurable improvements" in financial management, in financial reporting and in reducing an accumulated general fund deficit inherited from pre-home-rule days. Also cited were the growth in the tax base -- aided by commercial construction -- and the city's close economic and financial ties to the federal government.
Hill said Standard & Poor's was critical of the lack of a "formula federal payment" under which the District would receive a predictable amount of money each year. He noted that the federal payment is now arrived at after yearly negotiations. He said the rating company also raised the sovereignty issue -- meaning that the city remains dependent on congressional approval for its budget.
"It is clear that the District has done all it can do with our inheritied problems, and it is up to the federal government to face up to its responsibilities" and provide the city with more financial help for pension funding and the federal payment, Hill said.
The funds from the long-term bonds will be used to refinance loans from the U.S. Treasury. Last October, the city sold $150 million of short-term tax anticipation notes and received the highest credit-worthiness ratings possible for that issue from Moody's Investor Service and Standard & Poor's.