Rating agencies slight city finance reforms, role of leadership, D.C. fiscal head says.

Ellen M. O'Connor, Washington's chief financial officer, asked rating agency officials on Friday to dispense with a "puritan streak" that has led them to downgrade many of the nation's municipalities.

O'Connor said further that rating analysts deal only in "absolute abstracts," which fail to consider political leadership concerned with responsible fiscal reform. She made her comments during a speaking engagement at a luncheon sponsored by the Municipal Analysts Group of New York at the Downtown Athletic Club in Lower Manhattan.

O'Connor said municipalities during the 1980s "suffered like Job" through numerous afflictions, yet remained resolute in efforts to deal with the resulting fiscal crises.

Over the last two years a number of recession-plagued cities have seen their general obligation debt rating lowered, including New York City, Detroit, Buffalo, and Philadelphia, although the last on the list was recently upgraded.

Pleading for greater flexibility, O'Connor called on rating officials to "give bonus points for political reformers who are rethinking how government should work" and to "rethink how they approach their own work in the 1990s -- to be more inclusive and reflective of the real reforms that are taking place."

O'Connor said Mayor Sharon Pratt Kelly of the district and the entire city government are committed to fiscal reform, and asked analysts for "the support we need to make it happen.

"If you aren't a part of the solution of cities, you are part of the problem," she said.

The district's bonds are currently rated A-minus by Standard & Poor's Corp. and Fitch Investors Service Inc., and Baa by Moody's Investors Service.

Rating agency analysts said they did not believe O'Connor's remarks were directed at them specifically.

Colleen Woodell, a Fitch senior vice president, said, "The only thing I would say is that I don't think she was talking about us," Woodell added, "We've given no indication that the [district's] rating is in jeopardy."

Marie S. Pisecki, a Moody's assistant vice president, concurred, saying, "That has not been the case here."

Parry Young, a Standard & Poor's director, said O'Connor's remarks were "interesting," and said he was not surprised at her frustration given the number of downgrades over the past year. "But I really don't think we think everyone needs to be downgraded," he said.

Last Thursday, however, Moody's said the agency "will continue to monitor developments and comment as appropriate" in light of projections by D.C. Council Chairman John Wilson that the city faces a budget gap. Wilson forecasted the gap at $111 million for fiscal 1993, which ends Sept. 30, and a projected $415.4 million for fiscal 1994. Moody's made the comment after receiving market inquiries.

The analysts at Moody's, Standard & Poor's, and Fitch all said they were monitoring the situation and that they were concerned more about what the district does to close the gap than about the gap's size.

About $50 million of the current year's gap resulted from adjustments made by Congress and President Bush in the city's budget, according to ratings officials at Moody's.

The mayor has not quantified the potential gap beyond the estimated $50 million, but city officials are reassessing the underlying economic assumptions in the current budget.

Kelly and Wilson have clashed in the past over solutions to the city's budget woes, but O'Connor said Friday there is a strong consensus among the city's leadership that "fiscal facts have to be faced."

Addressing the city's fiscal future, O'Connor said analysts should expect to read of political tumult, and to greet it as a harbinger of fiscal reform.

For example, she said, Mayor Kelly's proposal to tax city employees living in the suburbs will surely bring a fight from suburban governments, who fear the move would set the stage for a full-blown commuter tax.

Federal law currently prohibits the city from taxing those who work in the city but live elsewhere.

"This fight must be made by the district," O'Connor said. "It's a healthy sign, a prerequisite for our fiscal integrity."

A tax on district employees who make their homes outside the city would bring in $50 million, she said.

While bracing analysts for future political fights, O'Connor cautioned the bond market not to use newspaper headlines as the sole guide in setting interest rates. She warned that the press "magnifies politics and personalities" and makes things appear more significant than they are.

She pointed as an example to the many press accounts about the attempted political comeback of Marion Barry Jr. The former Washington mayor left office following his arrest and conviction on a cocaine possession charge.

Barry is now seeking a seat on the D.C. Council, and some observers expect friction between Barry and Kelly, who campaigned for mayor with the stated goal of clearing the government of Barry's cronies.

"The media has an 'As the World Turns' mentality about the affairs of the city," she said. "This sort of mentality is corrosive to good decision making."

O'Connor said state and city governments have done a better job of facing the fiscal crisis of the past four years than the private sector or the federal government.

She said municipal bonds are still the "best safe harbor" for investment, adding that the projects built by today's bonds will last 25 to 30 years, "and we will all surely be in business in 2016."

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