WASHINGTON -- The House District of Columbia Committee yesterday abruptly postponed a vote on legislation that would allow the district to issue bonds to eliminate its accumulated deficit.
The surprise postponement of the vote on $332 million of deficit bonds, part of Mayor Sharon Pratt Dixon's plan to get the city's finances in order, came despite earlier reports that passage of the measure appeared certain.
But yesterday -- at what was to be a hearing and vote on the legislation --Rep. Thomas J. Bliley Jr., R-Va., said the plan "demands further inquiry. We should not allows the tail to wag the dog." Rep. Bliley said he has "major concerns" about issuing long-term bonds to finance current expenses.
"The District of Columbia clearly has cash-flow and cash-management problems," he said. "But long-term financing should not be used for short-term problems."
Mayor Dixon has billed the 12-year deficit bonds as a means of both paying off the city's accumulated deficit and eliminating the need for costly short-term borrowings.
Yesterday, Major Dixon said eliminating the accumulated deficit is eesential for the district to retain and enhance its credibility on Wall Street.
"If we don't deal with the deficit, the doors will be closed to us," she said. "The investment banking community will close the doors."
The district's uninsured general obligation bonds are rated Baa by Moody's Investors Service and Aminus by Standard & Poor's Corp. If confidence in the city government falters and the bond ratings are lowred, the district's bonds would fall into the so-called junk bond category.
John A. Wilson, chairman of the Council of the District of Columbia, told the panel at the hearing that the deficit bond plan would bring discipline to city government. "We can't create new programs, can't go on a spending spree, because we would have to make the $41 million interest payments on the bonds." he said.
Mr. Wilson stressed, however, that he would not support bond issuance unless Congress, which is vested by the Constitution with exclusive legislative authority over the district, also provides the mayor and district council with the authority to gain control over expenditures by independent agencies and to fire unneeded city workers.
"I would not like to see us do deficit financing if we have no control over independent agencies, because we will need tight control of the budget" to meet interest payments on the bonds, he said.
Mr. Wilson and Mayor Dixon said that if Congress does not give the deficit bond plan its approval, the city will have to resort to a tax and revenue anticipation note issuance -- an unpalatable option.
Mr. Wilson noted that when the city first went to such a short-term borrowing years ago, it was for a relatively small amount of $30 million to $40 million. At that time, the underwriters on the deal provided Mr. Wilson with a miniature copy of the official statement encased in plastic.
"They said, 'We want to present you with your tombstone,'" he recalled. "Well, that's what it's become in some respects." The city's annual short-term borrowings now hover around $100 million.
House district committee Chairman Ronald V. Dellums, D-Calif., said he will consult with Rep. Bliley to see if holding more hearings on the bond plan would mollify his concerns. He also said his panel next Thursday will hold another hearing on legislation that would provide the district with deficit bond authority, give the mayor and district council fiscal control of independent agencies, and grant the city with authority to lay off workers -- all items that were to have been voted on yesterday.
In other developments, Mayor Dixon yesterday announced that the city faces another near-term fiscal crisis because of a newly projected $20 million to $25 million revenue shortfall.
At a news conference held following the congressional hearing, the mayor said discretionary spending will be cut, furloughs will be examined, and other agency budget cuts will be sought.
Ellen M. O'Connor, the city's deputy mayor for finance, said the shortfall comes from lower than anticipated income tax withhoding. The city projected an unemployment rate of 7.5%, but the rate is currently 8.2%, she noted, lessening revenues from income tax withholding.
She also said that "this is a fiscal 1991 problem. The options for a cure are limited."
