D.C.’s CFO pushing for boosting reserves vs. big spending downtown

Bonds

Big spending in Washington D.C.’s downtown is crashing up against a need to hold the line on cutting the city’s budget reserve funds.  

“We have to worry about liquidity,” said Glen Lee, the district’s Chief Financial Officer. “And unlike other jurisdictions, we have to deal with the Congress. We are a creature of the Congress and if we don’t pay certain bills, they take us over.”

In addition to congressional oversight Washington is also saddled with developing four-year budgets that must remain in balance by law. 

“We have to worry about liquidity,” said Glen Lee, Chief Financial Officer, DC. “And unlike other jurisdictions, we have to deal with the Congress. We are a creature of the Congress and if we don’t pay certain bills, they take us over.”

Christopher Mobley

D.C.’s Democratic Mayor Muriel Bower’s latest $21 billion budget proposal, which went live last Wednesday, revealed a $4 billion deficit measured through fiscal 2029 which includes a $700 million shortage for this year. 

The budget’s unveiling was accompanied by reports of a disagreement between the administration and the Office of the Chief Financial Officer haggling over the optimum level of reserves. 

“I’m a relatively new to this job and appreciate that there’s always tension,” said Lee. 

“The reality is we all have to address this transformation that’s caused by remote work. It’s going to make for tight budgets and that ultimately leads to tension.”  

Lee was nominated to the position in May 2022 and was confirmed in August after leaving his job as Seattle’s Finance Director, a position he held since 2010.  

Moves to support a downtown trying to recover from the pandemic and work from home culture includes tax hikes, transit funding, and a major, bond-financed sports arena.  

Like many municipalities, D.C. has been spending down a budget surplus fattened by federal COVID-19 relief funds while also dealing with vacant office space and the lower property tax revenues that results. 

The remedy includes $500 million in budget cuts and increasing sales tax to 6.5% from 6% starting in October 2026 before rising to 7% the following two years. Taxes on family leave programs paid by businesses are also set to rise, along with fees on hotel bookings.   

The district cannot levy taxes on commercial property owned by the federal government, which accounts for roughly 40% of the commercial real estate in the district. It’s also restricted from taxing the incomes of nonresidents who work in the city. 

The Office of the Chief of Finance manages debt, certifies the budget and enforces tax laws, but steers clear of strategy and politics.  ”The actual policy decisions about what revenues are raised or lowered, or how those revenues are allocated to programs is the domain of the mayor and the council,” said Lee.  

Pledging $200 million from the city’s general fund to support to the financially flailing Washington Metropolitan Area Transit Authority was a policy decision unveiled prior to the budget going public. Lee sees the funds, along with probable contributions from Maryland and Virginia stabilizing the system but only temporarily. 

“They (WMATA) have a structural imbalance,” said Lee. “The commitments of the mayor and hopefully the council and the two legislatures and the two governors is enough to stabilize the situation for the next two years.”

Propping up metro-based transit systems reeling from ridership drops caused by the pandemic and exacerbated by the work from home movement is also a key issue for the Biden administration. 

D.C. was pushed into the middle of discussions about the benefits of tapping public financing for sports arenas and stadiums when two of its professional sports teams were threatening to leave town for a new arena in Northern Virginia. 

Bowser’s budget includes an already approved $500 million bond issuance that will be used to renovate the Capital One Arena in the Chinatown neighborhood, home to the National Basketball Association’s Washington Wizards and the National Hockey League’s Washington Capitals. 

The plan to move the teams announced last December sought to move the teams across the river to a new, public-private partnership in Alexandria, Virginia fueled by $2 billion in revenue bonds. 

The deal was scuttled by political opposition in the Virginia state legislature and objections from neighborhoods near the site. D.C. will be issuing its own debt to spruce up the existing arena.  

According to D.C. Treasurer Carmen Pigler, the paper will be issued in three tranches over the next three fiscal years and backed by income tax revenue, once the Mayor and Monumental Sports & Entertainment, the parent company of the teams, settle up on exactly what is going to be renovated. 

Leveraging income tax revenue has served as a sound strategy.  ”Every year we’ll go out on the market for income tax base debt, so it’s not outside of normal this this is just another typical way we finance our debt,” said Lee. 

In November of last year, before all the hoopla, Fitch Ratings assigned an AA+ rating to the district’s Tax Secured Revenue Bonds with a stable outlook, saying “the ‘AA+’ rating reflects strong legal provisions, strength and resiliency of the structure and the district’s unique position under federal law.”

“Pledged revenue growth remains strong, and a two-tiered additional bonds test (ABT) offsets the risk of overleveraging the somewhat more volatile non-withholding portion of the income tax.”

The same rating appears on its Long-Term Issuer Default Rating and General Obligation rating by reflecting “the district’s exceptionally strong budget control, long-term economic and revenue growth prospects and commitment to long-term capital planning, including a sizable pay-as-you-go program.”

In October 2023 S&P Global Ratings also issued a stable outlook.  

At the same time, S&P affirmed its ‘AAA’ rating on the district’s income tax revenue bonds.” 

Articles You May Like

A 20% home down payment isn’t ‘the law of the land,’ analyst says. Here’s how much people are paying
Australia’s budget is expected to target housing crisis as prices keep climbing
GameStop mentions surge on Reddit, surpassing Nvidia
Robust new-issues led by NYC TFA, SFO airport, NJ turnpike, price into welcoming market
Virginia lurches towards passing a budget in special session