WASHINGTON -- District of Columbia Mayor Sharon Pratt Kelly is working with Mayor-elect Marion Barry and his transition team to demonstrate to Wall Street a united resolve to make "hard budget choices," Kelly said late Tuesday.
The showing is necessary because the district may be forced to make a short-term borrowing as early as this month to meet its financial obligations, she said.
Lenders are apprehensive about their risk exposure as the district's financial troubles mount in the face of an unsympathetic Congress. Standard & Poor's Corp. said in a recent report that the district must take "strong management actions" to control its finances to prevent a credit rating downgrade.
Kelly has recommended that the district borrow $250 million in the municipal market during the first week of January, after Barry is sworn in on Jan. 2. But, "I am not averse" to an earlier borrowing, Kelly said in a telephone interview and in a Nov. 29 letter to Barry.
However, Kelly reiterated her longstanding opposition to borrowing from the U.S. Treasury. "That's not on our screen at all," she said.
Kelly said she has been in close touch with the financial markets, and while market participants have shown "receptivity" to a short-term borrowing, they have not made firm commitments.
Kelly urged Barry and council chairman David Clarke to join her in visiting the credit rating agencies and other financial entities prior to entering the market. A tentative meeting date has been set for Dec. 9 in New York.
The officials also may need to meet during the week of Dec. 12 in Washington with banks that "would either allow us to make a direct borrowing or offer credit enhancements for our borrowing," Kelly said.
The key to an earlier borrowing will be a showing by the district of "an agreed-upon strategy to further reduce spending and close the fiscal year 1995 budget gap," Kelly said. She told Barry that "we will need to be united on this front in order to make a firm, credible case to Wall Street and the credit rating agencies."
The district council is scheduled to vote on Dec. 16 on a package of $140 million in budget cuts under a congressional mandate for fiscal 1995, which began Oct. 1.
Top Kelly Administration officials were scheduled to meet with members of Barry's transition team yesterday afternoon to present options for cuts beyond that amount. Kelly said she will suggest $290 million in additional cuts that she hopes will be "marketable and palatable" to the council.
The Kelly Administration last month released a new assessment of the district's finances that projects a budget gap of $431 million in fiscal 1995, and a cash shortfall of $91 million.
The $431 million figure comprises the $140 million in legislative cuts, a projected $40 million revenue shortfall, and $251 million in projected overspending.
To get its cash situation in hand, the district is "tightening the reins on all areas of overspending that is within our power," Kelly said. Much of the overspending is nondiscretionary, such as for Medicaid and Aid to Families With Dependent Children, she said. But the district is cutting back in areas such as overtime in police, fire, and corrections departments, and operations at the District of Columbia General Hospital, she said.
If the district presents a "united front," and if the council acts immediately on the $140 million in cuts and makes a "clear commitment" with Barry to achieve an additional $290 million in cuts, "I don't think we'll have a problem at all in terms of short-term borrowing, or ... dealing with the budget gaps we are up against," Kelly said.