Get to know D.C. with our daily newsletter
We dive deep on the day’s biggest story and share links to everything you need to know.
Mayor Marion Barry dubbed himself the financial “miracle worker” before he took office, but the D.C. control board eventually realized it was just talk. Recently, the five-member panel finally relented and announced it would ask Congress for the authority to borrow money in order to finance the District’s long-term debt. Barry had been trying to convince everyone the city needs to finance its cumulative deficit to the tune of $500 million.
Last Wednesday, the board finally said uncle. During a public hearing, the panel voted to ask Congress to establish a ceiling for borrowing on the District’s behalf. It took the control board a year to realize what folks in New York and Philadelphia recognized immediately—recovery can’t occur without financing the massive long-term debt, estimated to be about $650 million. Control board Chairman Andrew Brimmer says the borrowing would not occur until after Oct. 1, 1996—the start of fiscal year 1997. The money is critical, since the District has already borrowed against the federal payment for next fiscal year.
The long-term financing is inevitable. Any fool knows you can’t possibly effect a financial recovery plan for a hole this deep solely by cutting expenses. It has to be the Total Package.
The District can’t simply show up on Wall Street tomorrow and walk away with $500 million. Its credit and its credibility are shot. D.C. needs an outside agency to help it crawl out from under its debt.
It’s unclear what Congress’ response to the board’s request might be, but as originally billed, the control board was going to effect a speedy recovery for the District, get it the money it needed, and smooth out the management wrinkles. The control board is supposed to effect the kind of change folks in New York and Philadelphia saw, using pretty much the same methodology. Both of those fixes began with a long-term financing of the deficit.
New York City hit the wall in 1974 when then-mayor Abe Beame decided to defer payment of more than $2 billion in short-term notes; the city simply didn’t have the money. The total cumulative deficit the city confronted was nearly $10 billion. The courts decided around 1978 that Beame’s actions were unconstitutional, pushing the city over the edge. The federal government lent some assistance and the state created a control board—the Municipal Assistance Corporation (MAC)—which essentially did the borrowing for the city. In order for New York to get long-term debt financing, the city and MAC worked out an agreement: Sales-tax revenues would be used to pay back the loans. With a dedicated revenue stream, borrowing the money was easy, says Carol O’Cleireacain, who worked with the board. O’Cleireacain was recently tapped by the Brookings Institution to lead a team of experts who will study the District’s revenue structure and problems.
Similarly, Philadelphia crawled out of debt through the use of sound financial management and common sense, supplemented by the work of the Pennsylvania Intergovernmental Cooperation Authority (PICA)—a control board by any other name. According to its director, Joseph C. Vignola, in June 1992 PICA borrowed on Wall Street about $475 million—$256 million was used to refund the cumulative deficit; $120 million went to new capital improvement programs. And the remaining money helped fund a productivity bank, a sort of revolving loan that individual agencies could tap to improve efficiency and productivity. Mayor Ed Rendell also instituted expenditure cuts, renegotiated contracts, and instituted other savings measures. To date, Philadelphia has borrowed $1.2 billion as part of its recovery program. The city’s credit rating has improved to the point where it can borrow without the aid of PICA—all this in only four years.
D.C.’s control board, along with a quasi-independent chief financial officer and a fully independent inspector general, were all put in place to ensure that past fiscal improprieties and mismanagement aren’t repeated. They represent sufficient controls to guarantee that any bailout loan from the federal Treasury or Wall Street will be spent efficiently and properly.
Without an immediate loan to finance the deficit, the District might limp along until the start of the 21st century, but by then full recovery may be next to impossible. If the District is allowed to rot further, no sane business executive will locate here, most taxpaying residents will have escaped to greener pastures, leaving the city to the poor.
If Congress really cares about its nation’s capital, it should step in immediately to give the District the help and long-term funding it needs. Barry and others in the city are, frankly, fresh out of miracles.
—Jonetta Rose Barras