Mayor Sharon Pratt Dixon went to Wall Street yesterday to present her budget plan for the District to two major Wall Street credit-rating firms, which said later they see no change -- for better or for worse -- in the city's credit-worthiness.
The assessments by Standard & Poor's Corp. and Moody's Investor Service, indicators of the city's financial health, mean the District faces no change in the cost of raising money on the bond market to build new facilities, finance repairs of buildings and pay for other capital projects.
A city's bond rating determines the interest it pays when it borrows money by selling bonds. The better the District's rating, the lower the interest it pays on the bonds; as the rating drops, the city must pay more money to borrow -- which can translate into hundreds of millions of dollars, forcing D.C. Council members to raise taxes or cut programs to balance the budget.
The District owes $2.2 billion in such bonds, plus more to the U.S. Treasury and other sources, for a total debt of $2.9 billion. That means it expects to pay $252 million in interest and principal this year, or almost 7 percent of its budget. "That's a highish debt burden," said Parry Young, a senior vice president at Standard & Poor's.
Marion Barry traveled to New York to meet the bond raters each year he was mayor. This was Dixon's first trip, and it was, in part, a get-acquainted session.
Dixon, her chief of staff and financial advisers "were very pleased with the response they received," said the mayor's press secretary, Vada O'Hara Manager.
In May, Standard & Poor's reduced its rating on nearly $1 billion worth of District bonds from A to A- because of concern about the city's growing budget deficit, now projected to reach $302 million in the current fiscal year.
The firm's highest rating is AAA. The District had been rated A since 1984, when the city first issued bonds.
The A category "connotes a strong capability to pay principal and interest on time," Young said. The slightly lower rating reflects "the budget stress that the District has been under," he said.
The bond ratings of several states have been lowered over the last year as the economy headed into recession.
The District's Standard & Poor's bond rating is the same as New York City's, but lower than Baltimore's A rating.
Moody's, which uses a different scale, has rated the District's bonds since 1984 as Baa, which is "at the low end" of the scale, said Jeffrey F. Rizzo, the firm's managing director.
Rizzo said the firm's first formal meeting with the new mayor "went very well" and that her budget plan "seems to be a prudent one."
Dixon hopes to balance the District's budget by cutting $136.4 million in agency spending, deferring $63 million in raises for city workers and winning $100 million in additional aid from Congress.
But Young said it is too early to know if Dixon will get the cuts and federal assistance she is seeking.
Investment firms use many factors to determine the city's bond rating. The most important criteria in most cities is the overall health of the local economy, because that is what generates the revenue the city needs to pay its bills.
As the recession has deepened, states and cities across the country have collected less revenue than expected through taxes on sales, property and income, Young said.