THE MAYOR, the congressional delegate, the council chairman and the head of the council's finance committee have now agreed that the sale of bonds is the best way to take the financial pressure off the District. Their agreement on a single plan is an accomplishment in itself. But beyond this gracious and cooperative union are some very troubling questions that should not be lost sight of amid shouts that the crisis is over. The crisis is not over. The question now is whether selling bonds is the best way to ease a situation that will be with the city for the foreseeable future.
Bond sales are not a clear or self-evident remedy for the city's budget troubles. They would get the city the needed cash to continue meeting payrolls at the moment, but they would mean new taxes for District residents and businesses. Spreading the taxes out over 30 years would be better than implementing a tax package that would raise the money immediately, but no one should think that the new taxes wouldn't be felt.
The bond issue would also bring other risks. With bonds on the market, the city would endanger its traditional unlimited line of credit at the federal Treasury. That blank check has saved the city on many a close call. With the city on the private bond market, the now budget-conscious federal government would not be likely to let the city continue to have free access to its money. Similarly, the District now owes the federal government several million in debts to the Bureau of Prisons and St. Elizabeths Hospital. With the city competing for dollars on the private lending market, the federal government might begin treating the city like an independent debtor and demand payment. If it did, the city wouldn't have the money.
Another danger is going to the bond market now is that the District might not get a good bond rating, since the city's finances are not in any condition to impress investors. The bond issue is being used to get the city out of debt, a signal of troubled finances. In addition, city officials admit that the city is headed for yet another deficit, about $20 million, for this fiscal year. That is an indication that problems with the city's financial management are not totally a thing of the past. It is also important to note that the bond issue would only cover $184 million. That is not the full deficit; $204 million in other debts remain. Added bond issues and/or taxes might be needed down the line to satisfy that debt.
In addition to those potential problems come the certainty that the city will have to find a major pot of money in the near future to pay for work on its decaying bridges, streets and sewers. Those capital improvements would likely necessitate another bond issue. The city's first bonds would be a good bet to attract buyers because the city would have no other bonds outstanding, and a revenue source, such as the sales tax, could be set aside to pay off the bonds. And after all, this is the nation's capital. But if there were a continuing deficit, and there is every indication there would be, a second bond issue would surely be a very expensive proposition. Without the attractiveness of a first-time bond issue, the city might have to pay dearly to get money needed to keep the streets and sewers working.