The city's top politicians, each of whom has had his own plan to rescue the cash-strapped District of Columbia from its budget crunch, finally announced yesterday that they have united around a single proposal that centers on seeking congressional authority to sell $184 million in bonds.
Mayor Marion Barry, Del. Walter E. Fauntroy, City Council Chairman Arrington Dixon and council finance chairman John A. Wilson said they believed the city would be able to sell the tax-exempt bonds to private investors, despite the city's continuing financial difficulties.
The proposal would cost the city estimated $600 million in the next 30 years, meaning the District must raise an additional $20 million a year in revenue. It is the fifth -- and officials hope the last -- financial plan proposed by the city in the last year.
Fauntroy introduced legislation in Congress yesterday that would authorize the bond sale, the first of its kind in the history of the District. He and the other officials said they were optimistic that the bill would be approved.
If the legislation passes, the city woul hope to begin selling bonds by midsummer, Barry said. But key to the city's ability to sell bonds would be the rating its bonds receive from financial rating services such as Standard & Poor's Corp. and Moody's Investors Service, which advise investors on the soundness of municipal bonds. Barry said the city's financial counselors have assured him that the city can receive a favorable rating. The better the city's rating, the lower the interest rate at which the city may borrow.
But Hyman Grossman, a Standard & Poor's vice president, said yesterday that before the firm gives the city any rating it will have to thoroughly analyze the District's financial situation, including its unique ties to Congress.
"The whole structure of government [in the District] is unique," Grossman said. "We've never rated them before." Grossman said he "can't rule in or out" any possible rating, from the AAA rating given to the most creditworthy cities to the B and C ratings given less reliable credit risks.
In an attempt to remove one possible concern of potential investors, the legislation introduced by Fauntroy yesterday exempts the estimated $20 million a year the District would have to pay in interest and principal on the bonds from the congressional review the rest of the city budget must face.
The legislation also calls on the City Council to pledge specific revenue sources such as property or sales tax money to finance payments on the bonds.
Wilson, who previously had opposed long-term borrowing in favor of heavy tax increases, said he went along with the proposal but still considered it "risky." He said it was "vitally imporant that we all recognize and make clear . . . [that the plan] commits the District to raising approximately $20 million in new revenue each year for 30 years to pay off the bonds."
The $184 million raised from the bond sale would go to pay off the most pressing portion of an overall $388 million city deficit accumulated over the past 10 years. Barry has said that the city needs this money soon or faces the possibility of running out of cash.
"This is a workable plan," Barry said. "It is a fiscally responsible plan and it is a plan which relies completely on District action and funding to meet our deficit needs."
The plan was hammered out by the four officials in a series of closed-door meetings over the last two weeks, after the need to consolidate their four separate proposals became clear.
Last summer, Barry proposed borrowing the necessary funds from the Federal Financing Bank, an arm of the U.S. Treasury. He said yesterday that his earlier proposal had appeared most promising at the time, but that with the completion of the first ever audit of the city's books -- released earlier this week -- he concluded that the city could go to the private bond market instead. That audit concluded that the District was $20 million less in debt than projected.
Fauntroy suggested two weeks ago that the city seek loan guarantees from the federal government. He said yesterday, however, that since, under the current proposal, interest on the bonds would be tax exempt, the city would end up paying less than it would have under his loan guarantee proposal.
Dixon had originally proposed private borrowing to finance the deficit, and said the plan "reflects our belief that we can solve our problems by standing on our own, and not through a bail-out by the federal government."