A key U.S. Senator yesterday pointedly questioned the accuracy of a $409 million D.C. budget deficit claimed by Mayor Marion Barry in Monday's plea for unprecedented federal aid to solve the city's financial crisis.
Sen. Patrick J. Leahy (D-Vt.), chairman of the Senate District Appropriations subcommittee, said that according to a General Accounting Office report, the figure should be almost $200 million lower.
Leahy also questioned Barry's assertion that the federal government should pay more than $5 billion over the next 29 years to fund pension liabilities. He suggested that the true figure is less than half as large.
"We need to begin this process by getting figures which are accurate and universally accepted," Leahy said. "Before we can find solutions, we must agree on the problems."
Barry said the $409 million deficit is made up of a projected $125 million deficit for the current fiscal year, plus a $285 million accumulated debt from years past. The GAO report, released last month, stated that the accumulated debt is only $90 million.
To erase the deficit, Barry proposed borrowing $215 million from the Federal Financing Bank, an arm of the U.S. Treasury. He also proposed setting aside $10 million a year for the next 20 years to pay the rest of the debt.
Leahy's subcommittee must approve all city spending and would have to decide on much of Barry's rescue plan. The committee would have to vote to allow the District of Columbia to set aside the $10 million each year and would be involved in a decision on the pension monies. In addition, opposition by Leahy -- who is influential on D.C. matters -- could kill the borrowing plan.
In a prepared statement, Leahy recalled that during Congressional debate two years ago it was estimated $2 billion would be needed for Congress to fund the federal government's full share of D.C. pension liabilities. According to Barry, that figure now is more than $5 billion.
Leahy said he was "anxious to help in any way I can," but added, "I am interested in knowing what the current liability of the city is."
While acknowledging that the federal government has "a clear responsibility" to help solve the crisis, Leahy said Congress also will "be interested in closely examining steps in District of Columbia government itself will be taking to put its financial affairs in order. Missing from Barry's presentation Monday were details on how the city plans to further cut costs.
Barry's long-awaited budget plan, revealed in a televised address Monday night, was described by aides as a comprehensive proposal to restore the city's financial health. It called for no new or increased taxes for D.C. residents for the next two years, and instead proposed the federal aid along with unspecified layoffs and service cutbacks.
The plan also called for reimposition of tax on the incomes of nonresident professionals -- struck down by the courts in February -- as a way of funding the city contribution to the Metro system. In addition, Barry proposed higher bus fares and less bus service.
Initial reaction from local business leaders, who long have urged the city to hold the line on taxes and to decrease personnel, was positive. Labor leaders were fearful of more layoffs, and city officials expressed doubts that Congress would grant all the federal aid requested by Barry.
The Federal Financing Bank, from which Barry proposed to borrow $215 million to refinance city debt over a 30-year period, is an arm of the U.S. Treasury that buys securities issued or guaranteed by a federal agency.
Created by Congress during the Nixon administration in 1973, it is not a bank in the ordinary sense, but rather a barely visible conduit with only 10 employes.
According to one key official, it actually is a method by which the Treasury manages and channels funds it borrows on the public money market on behalf of other government agencies. It currently has $76 billion in loans outstanding, including $177 million sold to help finance Metro.
Before it was created, the individual agencies offered their own securities publicly, sometimes glutting the market. It came into unaccustomed public view with Barry's televised announcement that he hopes to make the city one of its borrowing clients.
"I had calls from several private citizens who wanted to borrow from me, on the basis of the mayor's speech," Roland H. Cook, secretary and principal manager of the bank, said with a chuckle during an interview yesterday. "I had to turn them down."
It would take an act of Congress to grant the city the right to become a borrower. Some federal government agency, perhaps the Treasury itself, would have to guarantee that the District of Columbia would repay the loan -- in effect becoming a cosigner.
Currently, D.C. is permitted to borrow directly from the Treasury without paying interest for short periods a privilege designed to tide the city over during periods of the year when tax revenues fall short of the rate of spending. The city now owes the Treasury $60 million of such shortterm debt.
The Federal Financing Bank charges its agency borrowers a service charge of one-eighth of 1 percent more than it costs the Treasury to borrow the money on the open market. On Tuesday, the rate the bank would have charged for a 30-year loan was 10.24 percent.
Throughout the bank's history, the interest paid on all its loans has been subject to federal income taxation. Franklin D. Raines, of the New York investment banking firm of Lazard Freres & Co., one of Barry's principal financial advisers, said he would seek to negotiate a lower rate with the bank based upon the tax-free status of most municipal bonds.
Raines estimated yesterday that his firm would earn a fee of about $200,000 under the terms of its contract if the city borrowed the $215 million from the bank. "We haven't gotten a nickel yet" for advisory services to the city, Raines told a reporter.
Although the District of Columbia itself cannot now use the Federal Financing Bank, an agency in which it is a governmental partner -- the Washington Metropolitan Area Transit Authority -- is among its borrowers.
The transit authority sold the bank $177 million of its bonds to raise some of the money to build Metro. It did so under legislation passed by Congress in 1972 that required the U.S. secretary of transportation to certify that the bonds were "an acceptable risk to the United States."