The District will hold the largest bond sale in its history today, offering $900 million in general obligation notes that will form a financial foundation for the city for years to come, allowing tax cuts, school renovations and a wide range of other initiatives.
The sale follows four years of work by D.C. officials to stabilize the city's finances and will enable the city to restructure $660 million in old debt and raise $240 million in new money.
"This is going to give our city the wherewithal to achieve some of our key policy initiatives," said Mayor Anthony A. Williams (D), whose efforts to improve government operations depend in part on the money generated from today's sale. "It is going to allow us to manage our financial affairs more efficiently and over the long term more economically."
The sale is notable for at least one more reason: The District is going to the market today for the first time since its bond rating was lifted in the spring from "junk" status to "investment grade."
The new BBB rating by Standard & Poor's Corp. and Fitch Ibca Inc. came after two years of budget surpluses and the release of much rosier projections for coming budget years, in large part because the federal government last year assumed financial responsibility for the city's court and corrections system and eliminated a projected $3.6 billion shortfall in its pension system.
All this means that the District now can raise money on Wall Street at lower interest rates by selling its bonds to investors who have more confidence that they will not lose their money.
The money raised today will be used for two basic purposes. Much of the city's $2.98 billion in outstanding debt is "front-loaded," meaning the city is scheduled to pay it back quickly--a plan created in large part to ensure that investors got their money back before the one-time pension liability became due.
Now that the city no longer has to worry about the $4 billion pension shortfall, which was expected to start sucking money from city operations in 2004, it can pay back its debts over a longer period of time.
With this flexibility, the city today intends to sell $660 million in 15-year bonds to pay off old debt. Even though this repayment schedule is longer, lower interest rates mean the city ultimately expects to save about $4 million, said Tom Huestis, the District's deputy chief financial officer.
The big benefit is lower debt payments over the next several years. In the coming fiscal year, for example, debt payments will be $59 million less, savings that will allow city officials to fund the first year of a five-year, $300 million package of income, property and business tax cuts.
By 2002, the debt payments are expected to be about $95 million less, again covering the tax cuts while allowing extra spending on new construction, city officials said.
The second chunk of money being raised today--about $240 million--is slated for rebuilding neighborhoods, schools and libraries and modernizing police and fire equipment. The school system plans $55 million in repairs and renovations; the police department is installing $17.9 million in new computer systems; and the Fire and Emergency Medical Services Department is set to get a new fire training simulator and communications system. Roof repairs and other improvements are planned for several city libraries.
Ultimately, the city intends to spend $2.72 billion on capital projects in the next six years, a 65 percent increase over what was planned just a year ago.
"Instead of spending so much money on interest, we will be getting things done," Chief Financial Officer Valerie Holt said.
For years, the District's efforts to renovate schools, parks, libraries and other city facilities have been frustrated by a lack of capable project managers to ensure that such work gets done. The District has sat on millions of dollars in available grant and capital funds as construction projects languished.
"It is something Mayor Williams was frustrated with when he was chief financial officer and that as mayor he will be working with our agency directors to make sure it does not happen again," said Peggy Armstrong, the mayor's spokesman. "You want to be careful with how you spend and make sure you are getting the best value for your dollar. But the goal is not to have huge unspent piles of money every year."
Big-Money Day for D.C.
The District of Columbia is set to hold the largest bond sale in its history today, refinancing or restructuring up to $660 million in debt and issuing $240 million in new bonds to pay for dozens of planned projects. Below are some of the larger new projects that would be financed with the new debt, which would be paid back over 30 years.
Department Purpose Amount
D.C. Public Schools Maintenance and general $55.0
Police Department Computer systems replacement 17.9
Public Works Street repair and traffic 15.3
Fire & Emergency Medical Communication system 11.7
Fire training simulator
D.C. Libraries Repairs, asbestos removal 6.0
Recreation & Parks Kennedy playground 3.9
Total* $240.0 million
*Includes about $130 million in other projects spread across several city agencies.
SOURCE: D.C. chief financial officer