WASHINGTON -- Standard & Poor's Corp. is reviewing its A-minus rating of the District of Columbia after Two days of meetings last week with district finance officials.

The meetings left a key rating analyst reassured about some of the city's "crisis" but unsure whether the rating will remain the same.

"There are a alot of factors to be considered here, and it's a tricky credit," said Parry Young, a director in Standard & Poor's municipal finance department. "I ... can't say what's going to happen to the credit."

Both Standard & Poor's and Moody's Investors Service, which rates the districts GO bonds Baa, plan to publish credit reports by the end of June.

The district is planning to sell $230 million of GO bonds in mid-July to fund capital projects. The sale, initially proposed at $250 million, is subject to approval by the district council, which is expected to vote on June 26.

"We have to look at this [credit] beyond the current administration, and beyond whoever is in the next administration, even if it's the same administration ... We have to make sure we are comfortable with the rating for the long term," Young said.

"It's a type of credit that one has to watch more carefully because there isn't ... much room for slippage," said Patricia McGuigan, assistant vice president in Moody's public finance department.

But McGuigan emphasized that "the district has some underlying strengths ... It's our nation's capital, it's home to many large universities, and it does have a big tourism" industry. In addition, last week's settlement between the district government and the retirement board of a pension payment schedule for fiscal 1994 and 1995 "is definitely good news," she said.

Under the settlement, the district will catch up this fall on $190 million of deferred fiscal 1994 payments by drawing on the federal payment in fiscal 1995, which begins October 1.

But the district must come up with additional cash that it hasn't budgeted for fiscal 1995 to make up for what would have been spent in other programs, and its 1994 budget is balanced tightly, McGuigan said. "Given their tight cash position and that tightly balanced budget, there's little room for slippage," she said.

Neither Young nor McGuigan has seen any indication that the district's position relative to the federal government will change dramatically. The federal payment currently makes up about 24% of the district's total revenue, but the real percentage is lower on an adjusted basis, Young said. For example, the fiscal 1994 payment is based on revenue of two years ago, which was lower than the current year's revenue, he said.

In any case, "I don't think we are going to wake up tomorrow and find that in fiscal 1996 it's going to be 10% or 40%," Young said.

The meetings between Standard & Poor's analysts and district officials provided "a total of information that ... defused some of the press reports that we have been hearing about crises in certain areas, Young said.

"That's not to say there aren't some problems, but I think that a lot of the problems that we have been reading about may be more manageable than previously thought," he said.

For example, Mayor Sharon Pratt Kelly's proposals to restructure and make more efficient the District of Columbia General Hospital may mean that the public facility's accumulating operating deficit can be brought under control. "While there are some major financial challenges there, there's also a lot that can be done," Young said.

"Getting that under control will be a real plus for the district," McGuigan said. Among the mayor's plans is establishment of a public benefits corporation to retain the hospital's public mission but run it as a private business, with control over the number and wages of employees. However, this proposal could be difficult to carry out because of political opposition, McGuigan said. Affected labor unions oppose key elements of the plan.

In addition to reviewing day-to-day operations of the district, Standard & Poor's "is trying to put this [review] in the context of a 20- to 30-year bond horizon," Young said. The rating agency is looking at how the economy is changing and the "slippage" in the district's real estate market, he said.

Both rating agencies are reviewing all revenue streams, with particular attention on new programs such as a temporary four-month sales tax increase that took effect June 1.

The district's financial straits have received unusually intense congressional and press scrutiny this year, and several city and federal studies are underway as a result. The mayor's proposal in February to defer the fiscal 1994 pension payments proved to be a "lightning rod," both McGuigan and Young said. The deferral decision coincided with efforts in Congress to eliminate the unfunded pension liability, triggering an outcry.

"There's a structural imbalance here that's been obviously for years," McGuigan said. The erosion of the district's cash is "no surprise to us ... I guess there are some people who didn't focus on it until the cash completely, really got wiped out," she said. "We have been watching it happen."

The district's recent short-term borrowing of $200 million is one reflection of its tight cash position, McGuigan said.

But, "the key thing is to look at the cash flows at the beginning and end of the fiscal year," Young said. What happens month to month "doesn't really matter," he said, noting many municipalities borrow from the short-term market within a fiscal year to bring revenues into the line with expenditures.

Short-term borrowing is not necessarily a signal of financial stress, Young said. The district's cash position at the end of this fiscal year will be higher than at the end of fiscal 1993, "which means they don't seem to be that much worse at the end of September 1994 compared to September 1993," he said.

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