THERE ARE TWO things to be said about the audit of the District government released Monday. First, the government finally has an idea of where its finances stand. Second, it is finally beyond all reasonable doubt that the warnings and cries of anguish about the city's budget were no performance for the galleries; the city's finances are speeding toward a terrible crash if some answers are not found fast.
According to the audit, the city needs $105 million right now to avoid bouncing checks and missing payrolls. The audit also indicates that assets are dropping even as liabilities are climbing; liabilities are already $388 million greater than assets. But as bad as the audit reports the city's finances to be, they are not as bad as Mayor Barry had projected they would be. That, such as it is, is the good news.
The audit has not stopped the constant loss of money from the city treasury. City Administrator Elijah Rogers estimates that the city is currently spending at a rate that will leave it with a deficit of approximately $20 million for this fiscal year. Something has to be done to stop the loss of dollars now. The ideas on the table include a tax package proposed by council Finance Committee Chairman John Wilson, a plan to ask for congressional authority to issue loan notes to local banks from Del. Walter Fauntroy, a combination of short-term loans and bonds suggested in council Chairman Arrington Dixon's white paper, and Mayor Barry's proposal to go to congress to get permission to get money from the Federal Financing Bank. Mr. Rogers, however, says that the financing bank is no longer being seriously considered by the mayor.
The ideal program for resolving the financial crisis can best be described in negatives: it would not make demands of Congress, it would not mortgage the debt so that 20 years from now the city would again be in a budget crisis and, finally, it would not leave the current city government powerless. Of the plans under consideration, Del. Fauntroy's comes closest to that ideal. Still, better plans may be available. And certainly, to be successful any plan will need more than a single city official's backing. The support of all District leaders will be required. The consensus among several city politicians now is that the city's final financial plan will probably include some new taxes and, instead of loans, the city will undertake its first venture into the bond market.
The bond market idea entails risks that the city must be aware of before it buys in. The issuance of bonds to finance the deficit will immediately hurt the rating of any bond offering because a deficit implies that the city has not done a good job of managing its finances in the past. Issuing bonds now will also hurt the attractiveness of any future bond offerings. This city's roads, bridges and sewers will soon need major work, and the financing of such ventures is likely to have to come from the same bond market. With bonds already extended to cover a deficit, the second issuance will be all the more expensive.
Another risk in issuing bonds is the probable reaction of Capitol Hill. The city currently has an unlimited ability to borrow money from the federal government. Going to the bond market will complicate that relationship. Also, with the isuance of bonds come bond counselors and others who will demand a slice of the city's money. This is not to say that the bond market should not be considered; it may still be the best option. But it is an option that shouldn't be taken without full knowledge of the risks.