The District government next week will miss its second consecutive payment to the Metro system, and an infusion of $300 million in borrowed money will have to be set aside for more shortages anticipated because of the city's cash crunch, officials said yesterday.
Robert Pohlman, deputy mayor for finance, said the city has enough money in escrow to make a crucial $264 million payment tomorrow to pay off short-term debt owed by the District, and enough extra money to pay $55 million that it has owed since July to the D.C. retirement board, the pension fund for city employees.
But Pohlman said the city will have to balance its budget and employ strict cash management controls to avoid running out of money by the end of the year. Already, the city is stretching out the time it takes to pay vendors.
The city's worsening financial situation has prompted the Japanese bank that guarantees the city's short-term notes to impose new, potentially costly, conditions for the issue.
The city began issuing the short-term notes -- borrowing money and issuing what amounts to IOUs to the lenders -- in 1984.
For the last two years, Japan's Sanwa Bank has provided letters of credit to holders of the notes guaranteeing that the bank would buy the notes from them if the city failed to pay them off. Under that arrangement, the city would have paid Sanwa the same interest rate as it paid the noteholders -- currently 6 3/4 percent.
But in legislation passed by the D.C. Council late Tuesday, the city agreed to new terms demanded by Sanwa and will pay the bank up to 15 percent interest on notes it buys in the event of a city default.
The new series of notes, constituting the largest amount of short-term obligations the city has issued, carries the highest rating from Standard & Poor's, SP-1+, but some city budget analysts said the city could have difficulty marketing additional notes this year.
"It's a very tight cash situation, even assuming the budget is balanced," Pohlman said in an interview. "It will be especially tight when cash is lowest in July, August and the early part of September."
In July, the city failed to pay nearly $20 million it owed to Metro. The debt is outstanding. A new payment of $29.1 million is due Monday.
Although the city's cash situation has deteriorated in recent years, Pohlman said this year's outlook is even bleaker. The reasons, he said, are a possible longer delay in getting the $430 million federal payment and the threat of "sequestration" -- automatic spending cuts -- under the Gramm-Rudman-Hollings deficit-reduction law that would cost the city $161 million.
"Sequestration would be catastrophic," Richard C. Siegel, the city's budget director, said yesterday.
The city depends upon the federal payment to cover its obligations in the first quarter of the fiscal year. "If we have full sequestration, we will get in trouble immediately," Pohlman said. If not, "it will occur in the latter half of the fiscal year."
The short-term notes, called tax revenue anticipation notes, originally were issued to provide cash to the city while it awaited property tax payments.
During a heated council debate Tuesday night over the new conditions set by Sanwa, John A. Wilson (D-Ward 2), head of the council's Finance and Revenue Committee, said the notes no longer are a stop-gap measure.
They "have become nothing more than a credit card for the city," Wilson said, criticizing council members who questioned the need for complying with Sanwa's new conditions.
"I'm tired of you taking cheap shots on this issue," Wilson said. "You say you don't want to borrow, but you don't want to raise taxes and you don't want to cut the budget and you don't want furloughs."
Pohlman said that since tax revenue started coming to the city in mid-August, the city has been accumulating money in a special, legally mandated escrow account, to pay off the current $264 million in short-term obligations. But during the same period, the city missed its $55 million July payment to the D.C. retirement board, a $19 million payment to Metro and slowed down its payment schedule for large contractors.
Pohlman said that contractors owed $15,000 or less by the city continue to get payments quickly, but that for others the city is hewing close to the 30-day limit imposed by law. "We're not paying early, let's put it that way," he said.
He said the city will pay the $55 million to the retirement board tomorrow, but will not pay Metro, which has had to secure a line of credit to cover the shortfall. The District must pay interest on the late payments to the retirement board and Metro, but those amounts were not available immediately.
A $60 million payment to the retirement board is due next week, but under the board's charter the city is allowed to make that payment when it receives the annual federal payment.