Will Mayor Williams Leave Us a Mountain of Bad Debt?

The below piece was in this Month’s DC North. The DC Fiscal Policy Institute does great work pushing the political conversation in a responsible direction. The DC City Council passes 1000 to 1500 laws and resolutions each year. If they would stick to pressing issues, we would see some serious improvements in this city.

<<Will Mayor Williams Leave Us a Mountain of Bad Debt?

Ed Lazere

For Mayor Williams, it’s seven years down and one to go. Combined with his three years as Chief Financial Officer, Williams has been a leading figure in the city for a decade. That allows him to claim a lot of credit for bringing us from being in debt and junk-bond status to surpluses and A+ bond ratings. As we start 2006, the finances of the District of Columbia are stronger than ever.

But a lot can happen in one year. I am starting to get nervous about the fiscal legacy Mayor Williams will leave his successor. From a hugely expensive baseball stadium, to a heavily subsidized hotel, to a new hospital that many health experts say is the wrong prescription, the mayor is pursuing a number of initiatives that are bold but not necessarily wise. The combined price tag is staggering.

Gandhi and debt??

Don’t get me wrong. I think DC should use this opportunity to start tackling some of its most serious long-standing problems. It’s the right time to be thinking boldly. Fixing dilapidated schools that were neglected for years is key to the city’s future. Preserving and building housing that is affordable to low- and moderate-income families is needed to keep us from going the way of Manhattan and San Francisco. And something has to be done to help residents gain skills that will connect them to the area’s good-paying jobs.

Boldness along is not enough, however. Given limited resources we have to set smart priorities and strategies. In a number of high-profile projects, I don’t think that is what we’re doing right now. The decisions made in 2006 on these projects could have serious long-term effects.

Total Cost

DC Share

Baseball Stadium

$667 million

$647 mil

Convention Center Hotel

$670 million

$170 mil

National Capital Medical Center

$400 million

$200 mil

Sursum Corda New Community

$558 million

$290 mil

Total

$2.3 billion

$1.3 bil

…….Baseball Stadium: In the past month, cost estimates have jumped from $535 million to $667 million. While stadium deals in other cities normally put the burden of cost overruns on the team, Mayor Williams offered to cover it all. He tells us not worry because the economic spin-offs will outweigh any costs, ignoring the economists who have studied the impacts of new stadiums for decades unanimously and have concluded that this doesn’t happen. (Williams actually says that he doesn’t believe them or their research.) The fact that Mayor Williams is willing to bring baseball back to Washington at any cost – forgoing the price cap that other mayors and governors have insisted upon – is perhaps the greatest sign that his fiscal responsibility instincts have atrophied horribly.

Convention Center Hotel: When the city committed to building a convention center that ultimately cost $850 million, were we told that the city also had to have a huge hotel to go along with it? Maybe they did, but I certainly don’t remember. Now plans are firming up to put $170 million of public funds from “Tax Increment Financing” into a $670 million privately-owned hotel. The notion behind TIF is that this subsidy is paid off using the new or “incremental” taxes flowing from the project. That makes sense if the area would not otherwise be developed without the subsidy. This is not the case for the site of the hotel, which is prime real estate and will generate tons of taxes from some other development if the hotel is not built. So the $170 million is really a cost to the city. It is not free money.

National Capital Medical Center: Mayor Williams also wants a new hospital on the site of the former DC General to be part of his legacy. Almost everyone agrees that a health facility is needed there, but health experts say we don’t need another 250 hospital beds. The new hospital, which would be owned and operated by Howard University Hospital, would cost $400 million, with DC putting in at least half. No one has been able to tell me where that money would come from. Howard says that the hospital will be self-sufficient after three years, but this relies on overly optimistic assumptions. Moreover, because it would be privately owned, it is not clear NCMC would serve anyone who comes through the door, regardless of insurance or ability to pay. The community would be far better served — and at a lower cost — by a facility that has an emergency room and urgent care center and a full range of diagnostic and specialty care services. But that doesn’t sound as sexy as a new “Level One Trauma Center” hospital.

New Communities: Robert Bobb and associates have worked tirelessly over the last year to develop a plan to re-develop the area around Sursum Corda, a housing development faced with foreclosure in an area that has both serious crime and drug problems and gentrification pressures. Only in DC. The plan is to invest $558 million to create a new into a mixed-income community, with additional funds going for a new school, rec center and medical clinic. This “New Community” would be funded in part by borrowing against future revenues going into the Housing Production Trust Fund. The city’s goal to preserve affordable housing and coordinate other services is laudable, but the cost of the project on a per-unit basis is incredibly high. Meanwhile, in other parts of town, tenants have been told their plan to buy their building before it goes condo is too expensive. New Communities may be the right way to go, but I am not convinced that officials have determined that this is the best long-term strategy for preserving as much affordable housing as possible.

One of the things that ties all of these projects together is debt. In each case, the city’s share of the project would be supported by borrowing money in one way or the other. On paper, it looks like it’s doable. But the District of Columbia already has a lot of outstanding debt — more per capita than any other jurisdiction — and our Chief Financial Officer is waving a red flag. Dr. Gandhi recently sent a letter to Mayor Williams noting that our debt would soon exceed levels considered safe by industry standards. He wrote that “District policymakers must be judicious about additional borrowing and set priorities among projects…” I agree.

You may have noticed that schools were not included in the list above. That is because Council Member Kathy Patterson has come up with a novel way to fund school modernization efforts. Rather than issuing bonds, the normal way to fund construction projects, she has put together a package of tax deferrals and revenue enhancements to directly fund $1.3 billion in school facility improvements over the next 10 years. This plan is not worrisome because it is fully paid for in advance. But that also will make it hard to get it through the DC Council. She wouldn’t have to do it this way if borrowing capacity were not so tight.

This is backwards. Funding schools should be at the top of the list, not pushed off. This is just like the bumper sticker that say “Wouldn’t be great if schools got what they needed and the army had to have bake sales?” While Mayor Williams and others would argue that building a baseball stadium doesn’t conflict with schools — and he may be right technically — it certainly looks bad to be piling on debt for the stadium while telling schools we cannot borrow more for you.

It’s not too late to get it right. The DC Council can make wise choices and avoid getting us into costly long-term obligations that are not top priorities. The next mayor better be praying that it’s so.

Ed Lazere is the executive director of the DC Fiscal Policy Institute (http://www.dcfpi.org/), which conducts research on tax and budget issues that affect low- and moderate-income DC residents.>>

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