THE HOUSE District Committee has approved legislation authorizing the city to sell bonds. The good news is that, as a matter of home rule, the committee should have passed the bond bill -- and for the same reasons, the full House should approve it. This goes for the Senate as well, where hearings have begun on the city's proposal to sell bonds for deficit financing. The point is that Congress should give the city authority to manage its own affairs. The sale of bonds is an essential tool of modern-day municipal government, and the District needs a full hand if it is to operate as a big city.
Now for the bad news -- we think the District will be making a mistake if it chooses to use this authority to go to the bond market for deficit financing.
Other cities have gone to the bond market for deficit financing, it is true. But none did so on its first bond issue. And those other cities had past histories of reasonable management that cast their deficit financing as an interim problem. If the District starts out with a weak reputation on the bond market, this may continue to be its "image" whenever it goes back to the market for money to finance capital projects, such as roads and sewer construction. High interest rates on the capital project bonds are likely enough when a city has not had a balanced budget for a decade, as is the case with the District. But comfing after the city has gone to the market to finance only part of its deficit -- the proposed bond sale would still leave the city with a deficit over $200 million -- the price of the capital construction bonds would be even higher.
Before going to the bond market, the city needs to get its finances in order on its own. It can do that through a plan of yearly set-asides of money that will eventually retire the debt. Meanwhile, the city will need access to some money to prevent cash-flow problems that could result from continuing to juggle the past debts. The obvious place to get temporary loans to prevent cash-flow problems is the U.S. Treasury. The city now has an unlimited line of credit for temporary borrowing from the Treasury. The Treasury, however, has proposed to begin limiting the city's access. As an independent body, the District should not have any special help from the District should not have any special help from the Treasury. But to avoid a disastrous debut on the bond market, city officials and Congress should work out a plan to allow the city some Treasury privileges until it is able to fend for itself.
Congress has reason to help the city with this problem because a good part of the debt, causing the current difficulty, was incurred while Congress was in charge of the city. The trip to the bond market just now would be a mistake that would have District residents dizzy with added debts and would leave them suffering from a lack of city services for years.