THE HOUSE DISTRICT Committee has delayed hearings on the city's plans to enter the bond market. Congressmen say they want first to hear how Mayor Barry plans to deal with the estimated $60 million deficit the city may run this year -- on top of the $400 million deficit remaining from past years. The delay is well advised.
The tackle the new deficit the mayor intends to limit city spending for the rest of this year. But past experience prompts a certain skepticism that this alone will do the trick. More than half the city's total debt, after all, was incurred under Mayor Barry 's leadership -- $99.2 million is fiscal 1979, $105 million in 1980. He now concedes that at the start of this fiscal year, last Oct. 1, he knew there was a potential deficit on the horizon, but he ignored it. At the same time, the mayor was proposing to get into the bond market.
The mayor would use bond money -- $184 million of it -- to pay off a major portion of the city's past debt. "Past debt" evidently includes the $200 million-plus accumulated while he -- not Walter Washington, not the federal government -- was running the District of Columbia. So the question of resolving "past debt" is necessarily linked to the question of how to deal with current debt.
For the current $60 million, the mayor must immediately cut programs and lay off workers, as he says he intends to do. In respect to past debts, however, he needs to think some more. In principle, it is bad for a city to make its first venture into the bond market an effort to get money to pay off old debts. fIdeally, the city should have its finances balanced before approaching the bond market. In any event, the District's city charter prohibits the city from selling bonds to meet old debts. It allows bond sales only to finance capital projects. The reason the mayor has gone to Congress on the bond issue is that he needs its approval to change the city charter to sell bonds to finance a deficit.
Selling bonds to finance the deficit has a further unsavory aspect. It would saddle the city with bonds at the current high interest rates at a time when national policy is aimed at bringing those rates down.
The city needs another debt strategy. One possibility for getting the $184 million that would have come from bonds is a combination of austerity -- layoffs and programs cuts -- plus short-term lonas to cover cash-flow problems. lThe extent and manner of budget cutting that can be done without damaging the city excessively will have to be worked out carefully by the city council and the mayor. Any plan prepared to limit city spending, moreover, must go beyond the immediate need to pare $60 million from the budget this year, and must touch future spending projections as well.