District of Columbia: Information on the District's Debt (Letter Report,
11/22/94, GAO/AIMD-95-19).

As of September 30, 1994, the District of Columbia has $3.65 billion in
long-term general obligation debt and the debt service as a percent of
revenues was 11.42 percent.  GAO estimates that the District's debt
service percent will reach 13.84 percent by the year 2000--very close to
the statutory 14-percent limit.  The District's general obligation bond
rating as of September 30, 1994, is the lowest investment grade rating
and is below that of any state and nearly all of the largest cities.
The bond rating has not changed since the District began issuing such
bonds in 1984.  Various debt indices are available to compare the
District's debt levels with those of other jurisdictions.  Two
indices--debt per capita and debt as a percentage of real
property--suggest that the District has a high level of debt when
compared with other jurisdictions.  However, the District is unique and
such comparisons may not be meaningful because the District has service
responsibilities that include elements of both city and state
governments.  GAO also found that the debt service percent calculations
contained in the general obligation bond offering documents are based on
the method required by the Home Rule Act.  However, the debt service
percent calculations found in the District's multi-year plans and annual
financial statement plans are not consistent with this methodology and
could mislead users of this information.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-95-19
     TITLE:  District of Columbia: Information on the District's Debt
      DATE:  11/22/94
   SUBJECT:  Debt subject to statutory limitation
             Public debt
             Financial management
             Budget administration
             Municipal bonds
             Authority to borrow from Treasury
             Future budget projections
             Municipal governments
             Financial analysis
             Comparative analysis
IDENTIFIER:  Capital Projects Aid Fund
             District of Columbia
             
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Cover
========================================================================== COVER


Report to Congressional Requesters

November 1994

DISTRICT OF COLUMBIA - INFORMATION ON
THE DISTRICT'S DEBT

GAO/AIMD-95-19

District of Columbia's Debt


Abbreviations
========================================================================= ABBREV

  TRANS - Tax Revenue Anticipation Notes
  WEFA - x

Letter
========================================================================= LETTER


B-257550

November 22, 1994

The Honorable Fortney H.  (Pete) Stark
Chairman, Committee on the District of Columbia
House of Representatives

The Honorable Julian C.  Dixon
Chairman, Subcommittee on the District of Columbia
 Committee on Appropriations
House of Representatives

This report responds to your request for information on the District of
Columbia's debt and supplements information contained in our report to you
entitled:  Financial Status:  District of Columbia Finances
(GAO/AIMD/GGD-94-172BR, June 22, 1994).  In that report we noted that the
District is facing a financial crisis. 

The District of Columbia Self-Government and Governmental Reorganization Act
(Home Rule Act), Public Law 93-198, authorizes the District of Columbia to
issue various types of short- and long-term debt and sets various limits on
that debt.  The major type of long-term debt available to the District is
general obligation bonds which cannot be issued unless the total projected
annual debt service as a percent of revenues is less than 14 percent. 

This report addresses the following three questions: 

(1) What are the types of debt available to the District and the limitations on
that debt? 

(2) What is the current amount of District debt and what are the District's
estimates of future borrowing? 

(3) How does the District's level of debt compare with other selected
jurisdictions? 


   RESULTS IN BRIEF
---------------------------------------------------------------------- Letter :1

As of September 30, 1994, the District had $3.65 billion in long-term general
obligation debt and the debt service as a percent of revenues was 11.42
percent.  We estimate that on the basis of the District's projections for
future planned long-term borrowing, the District's debt service percent will
reach 13.84 percent by 2000--very close to the statutory 14-percent limit. 

The District's general obligation bond rating as of September 30, 1994, (Baa by
Moody's Investors Service) is the lowest investment grade rating and is below
that of any state and nearly all of the largest cities.  The bond rating has
not changed since the District began issuing general obligation bonds in 1984. 

Various debt indices are available to compare the District's debt levels with
those of other jurisdictions.  Two such indices, debt per capita and debt as a
percent of real property, indicate the District has a high level of debt when
compared with other jurisdictions.  However, the District is unique and
comparing its debt with other jurisdictions may not be meaningful because the
District has service responsibilities which include elements of both city and
state governments. 

In addition, we found that the debt service percent calculations contained in
the general obligation bond offering documents are based on the method required
by the Home Rule Act.  However, the debt service percent calculations contained
in the District's multi-year plans and annual financial statements plans are
not consistent with this methodology.  As a result, the debt service
information in the multi-year plans and financial statements could mislead
users of this information. 


   SCOPE AND METHODOLOGY
---------------------------------------------------------------------- Letter :2

To answer the three questions, we analyzed information provided by the District
of Columbia on past, current, and projected borrowing and met with District
officials to discuss the District's debt.  We also analyzed applicable laws
that authorize borrowing and impose limitations on that borrowing.  We obtained
information on other jurisdictions debt limitations, debt ratios, and bond
ratings from Moody's Investors Service, Standard & Poor's Corporation, and
Fitch Investors Service, Inc.  and discussed this information with officials of
those organizations.  We did not independently verify the information provided
by the investor service organizations on other jurisdictions. 

We conducted our work from August 1994 to October 1994 in accordance with
generally accepted government auditing standards.  The District of Columbia
provided comments on a draft of this report.  These comments are discussed in
the "Agency Comments and Our Evaluation" section.  We have incorporated agency
views where appropriate. 


   THE DISTRICT'S TYPES OF DEBT AND
   DEBT LIMITATIONS
---------------------------------------------------------------------- Letter :3

The Home Rule Act authorizes and sets limits on various types of short- and
long-term debt that is backed by the full faith and credit of the District. 
The limits have not been revised since enactment of the provisions in the Home
Rule Act that authorized the various types of debt.  The District also is
authorized to issue revenue bonds that are not backed by the full faith and
credit of the District.  Finally, the District is authorized to borrow from the
U.S.  Treasury to meet the District's general expenses. 


      SHORT-TERM DEBT
-------------------------------------------------------------------- Letter :3.1

The District can issue Tax Revenue Anticipation Notes (TRANS) to compensate for
expected cash shortfalls related to delays in receipt of projected tax revenue. 
Although TRANS are renewable, they must be repaid no later than the last day of
the fiscal year in which the notes were issued.  The total amount of
outstanding TRANS at any time is limited to 20 percent of the District's total
anticipated revenue for the fiscal year.  The amount of TRANS borrowing is
discussed later in this letter. 

The District can also issue short-term general obligation notes to meet
appropriation requirements when budgeted grants and private contributions are
not realized.  Similar to TRANS, these notes are renewable.  However, they must
be repaid no later than the last day of the fiscal year following the year in
which they were issued.  The amount of general obligation notes issued during a
fiscal year is limited to 2 percent of the District's total appropriations or
approximately $70 million for fiscal year 1994.  District officials said they
have never issued this type of note. 

In lieu of these short-term borrowing vehicles, the District has borrowed
moneys from its capital projects fund.  The District's annual appropriation
specifically states that "the Mayor shall not expend any moneys borrowed for
capital projects for operating expenses of the District of Columbia
government." The District's Corporation Counsel has concluded that the District
does not violate the appropriation act restriction as long as borrowings from
the Capital Projects Fund are repaid before the end of the fiscal year in which
the borrowing is made.  The District borrowed $140 million from the Capital
Projects Fund in fiscal year 1993 to finance seasonal cash flow needs.  These
funds were repaid before the end of the fiscal year.  In fiscal year 1994, the
District again borrowed from the Capital Projects Fund to compensate for cash
flow shortages due to a delay in the receipt of the Federal Payment.  The
District borrowed $40 million in October 1993 and repaid it shortly thereafter;
and, the District borrowed $40 million from the Capital Projects Fund in early
September 1994 and repaid it before the end of the month. 


      LONG-TERM DEBT
-------------------------------------------------------------------- Letter :3.2

The District also has the authority to issue long-term debt.  Long-term debt
generally takes the form of general obligation bonds.  The District can issue
general obligation bonds to refund (that is, refinance) existing debt or to
finance capital projects.  In fiscal year 1991, the District also received
authority to eliminate the general fund's existing accumulated deficit by
issuing general obligation bonds.\1

The Home Rule Act restricts the District from issuing long-term general
obligation bonds if total debt service in a fiscal year will exceed 14 percent
of the District's estimated revenues for the year the bonds are issued.\2 This
debt limitation is calculated by the Treasurer's Office when the District
requests new general obligation borrowing.  At that time, the highest projected
cost of debt service (including debt service from both general obligation bonds
as well as long-term U.S.  Treasury debt) for any fiscal year including debt
service on the projected borrowing cannot exceed 14 percent of the District's
estimated revenues for the fiscal year the bonds will be issued. 

Revenues for this calculation do not include court fees and any fees or
revenues directed to servicing revenue bonds, retirement contributions,
revenues from retirement systems, revenues from Treasury loans, and the sale of
general obligation or revenue bonds.  This debt service calculation does not
include refinancing costs of previous bonds and any obligations associated with
the Redevelopment Land Agency, the National Capital Housing Authority, or
obligations pursuant to the authority contained in the District of Columbia
Stadium Act of 1957.  The specific amount of long-term borrowing is discussed
later in this letter. 


--------------------
\1 D.C.  Code Section 47-321. 

\2 D.C.  Code Section 47-313. 


      U.S.  TREASURY DEBT
-------------------------------------------------------------------- Letter :3.3

The District may also borrow funds from the U.S.  Treasury to finance its
general expenses.  Between 1939 and 1983, the District routinely borrowed from
the U.S.  Treasury under this provision.  It has not borrowed from the U.S. 
Treasury since then.  Under this provision, which originated before the
enactment of the Home Rule Act, the Mayor of the District of Columbia may
requisition the Secretary of the Treasury for "such sums as may be necessary,
from time to time, to meet the general expenses of said District, as authorized
by Congress, and such amounts so advanced shall be reimbursed by the said Mayor
to the Treasury out of taxes and revenue collected for the support of the
government of the said District of Columbia."\3 The interest rate to be
applied, if any, and the term of these borrowings are not specified.  These
borrowings are not subject to the 14-percent limitation on long-term debt.  All
general obligation and TRANS offering documents refer to this section of the
D.C.  Code and specify that the Mayor shall request funds from the U.S. 
Treasury as may be necessary to pay the principal and interest on the bonds
when due. 

In addition, the District previously had authority to borrow funds from the
U.S.  Treasury to finance capital projects.  While the authority for new U.S. 
Treasury borrowing for capital projects was terminated by 1983, the District
had $71.8 million and the District's Water and Sewer Authority had $15.1
million outstanding debt issued under this authority at September 30, 1994. 
The District's $71.8 million U.S.  Treasury debt is scheduled to be repaid by
2003, and the Water and Sewer Authority's U.S.  Treasury debt is scheduled to
be repaid by 2014.  As previously noted, the debt service on U.S.  Treasury
long-term capital projects debt is included in the 14-percent limitation
calculation described in the previous section of this report under long-term
borrowing. 


--------------------
\3 D.C.  Code Section 47-3401. 


      REVENUE BONDS
-------------------------------------------------------------------- Letter :3.4

The District of Columbia also is authorized to issue revenue bonds, notes, or
other obligations to finance or refinance undertakings in the areas of (1)
housing, (2) facilities for health, transit, utility, recreation, college,
university, or pollution control, (3) college or university student loan
programs, and (4) industrial and commercial development.  Such revenue
obligations are not general obligations or debt of the District backed by the
full faith and credit or the taxing power of the District.  Instead, they are
payable from earnings of the respective projects and may be secured by
mortgages on real property or creation of a security interest in other assets. 


      NEW DEBT AUTHORITY SOUGHT
-------------------------------------------------------------------- Letter :3.5

In addition to the current types of financing allowed, the District is
proposing to partly finance the construction of a new convention center and
sports arena by authorizing District enterprises to issue revenue bonds that
would include as security a pledge of dedicated taxes.  This proposed method of
financing requires amending the Home Rule Act.\4 Specifically, the Home Rule
Act would need to be revised to authorize the District (1) to issue such
revenue bonds and (2) to delegate authority to District enterprises to issue
the bonds and to receive and expend the dedicated revenues.  Under this
proposal these bonds would not be subject to the 14-percent long-term debt
service ceiling. 


--------------------
\4 These proposed projects and financing are discussed in two recent GAO
reports:  District of Columbia:  Status of Convention Center Project
(GAO/AIMD-94-191, September 15, 1994) and District of Columbia:  Status of
Sports Arena Project (GAO/AIMD-94-192, September 15, 1994). 


   AMOUNT OF DISTRICT DEBT
---------------------------------------------------------------------- Letter :4

The District's primary borrowing involves short-term tax revenue anticipation
notes and long-term general obligation bonds.  In May 1994 the District
borrowed $200 million in short-term Tax Revenue Anticipation Notes which were
paid in September by the end of fiscal year 1994.  The District anticipates
that in fiscal year 1995 it will need $250 million in short-term Tax Revenue
Anticipation Notes ($125 million in February 1995 and $125 million in June
1995).  These notes will be due in September 1995.  The fiscal year 1994
short-term debt represented 6.0 percent of total anticipated revenues, and the
fiscal year 1995 short-term debt represented 7.2 percent of total anticipated
revenues--considerably below the 20-percent limitation on TRANS borrowing
discussed earlier in this report.  The District does not make short-term
borrowing projections beyond the year for which a budget has been submitted to
the District of Columbia Council. 

Also on September 30, 1994, the District had $3.65 billion in long-term debt
(both general obligation and U.S.  Treasury debt).  As calculated by the
District Treasurer's Office, total debt service for these long-term obligations
is expected to be $409 million in fiscal year 1998, the highest projected year,
or 11.42 percent of total expected fiscal year 1994 revenues. 

This debt service percent is projected to grow in the future.  The Budget
Office estimates that capital borrowing will be $250 million annually from
fiscal years 1995 through 1998 and $190 million in each of fiscal years 1999
and 2000.  Based on these estimates of future general obligation borrowing and
Budget Office projections of revenues, we estimate that the debt service
percent will rise to 13.84 percent by 2000.  Figure 1 shows the debt service
percents for fiscal years 1989 through 2000. 

   Figure 1:  Debt Service Percentage: 
   1989-2000

   (See figure in printed edition.)

Source:  Fiscal years 1989 to 1993 are GAO calculations based on bond offering
documents and actual revenues from financial statements, fiscal years 1994 to
2000 are GAO calculations based on future projected borrowings. 

More details of the assumptions and calculations for the data contained in
figure 1 are provided in appendix I. 

When analyzing the projected debt service percents, two additional factors need
to be considered.  First, the projections in the chart are based on revenue
estimates.  As we noted in our June 1994 report,\5 the District has
overestimated some revenues in the past.  Lower than expected revenues would
increase the debt service percent.  And, as discussed in our June 1994 report,
the District plans to limit general obligation bond borrowing below what is
needed for capital projects.  Capital funds requirements are particularly
significant for the D.C.  Public Schools and the Water and Sewer Authority. 


--------------------
\5 (GAO/AIMD/GGD-94-172BR, June 22, 1994.)


   THE DISTRICT'S BOND RATING AND DEBT
   COMPARED WITH OTHER JURISDICTIONS
---------------------------------------------------------------------- Letter :5

Various debt indicators are available to compare debt characteristics of
jurisdictions.  For example, investment services provide ratings of bonds which
assess the amount of risk associated with borrowing.  Moody's Investors Service
ratings range from Aaa (best quality) to C (lowest quality).\6 Tables 1 and 2
show the long-term bond ratings of the 20 largest cities\7 and all 50 states. 



                                     Table 1
                     
                        Long-term General Obligation Bond
                     Ratings of the Largest Cities as of July
                          1994 (ratings are described in
                                   footnote 6)

City             Rating    City             Rating    City              Rating
---------------  --------  ---------------  --------  ----------------  --------
Baltimore, MD    A1        Honolulu, HI     Aa        Philadelphia, PA  Ba

Boston, MA       A         Indianapolis,    Aaa       Phoenix, AZ       Aa
                           IN

Chicago, IL      A         Jacksonville,    A1        San Diego, CA     Aaa
                           FL

Columbus, OH     Aa1       Los Angeles, CA  Aa1       San Francisco,    A1
                                                      CA

Detroit, MI      Ba1       Memphis, TN      Aa        San Jose, CA      Aa

District of      Baa       Milwaukee, WI    Aa        Seattle, WA       Aa1
Columbia

Hempstead        A1        New York City,   Baa1
(Town), NY                 NY
--------------------------------------------------------------------------------
Source:  Moody's Investors Service



                                     Table 2
                     
                        Long-term General Obligation Bond
                        Ratings of States as of July 1994
                      (ratings are described in footnote 6)

State       Rating  State       Rating  State       Rating  State         Rating
----------  ------  ----------  ------  ----------  ------  ------------  ------
Alabama     Aa      Indiana     *       Nebraska    *       South         Aaa
                                                            Carolina

Alaska      Aa      Iowa        *       Nevada      Aa      South Dakota  *

Arizona     *       Kansas      *       New         Aa      Tennessee     Aaa
                                        Hampshire

Arkansas    Aa      Kentucky    Aa      New Jersey  Aa1     Texas         Aa

California  A1      Louisiana   Baa1    New Mexico  Aa1     Utah          Aaa

Colorado    *       Maine       Aa      New York    A       Vermont       Aa

Connecticu  Aa      Maryland    Aaa     North       Aaa     Virginia      Aaa
t                                       Carolina

Delaware    Aa      Massachuse  A       North       Aa      Washington    Aa
                    tts                 Dakota

Florida     Aa      Michigan    A1      Ohio        Aa      West          A1
                                                            Virginia

Georgia     Aaa     Minnesota   Aa1     Oklahoma    Aa      Wisconsin     Aa

Hawaii      Aa      Mississipp  Aa      Oregon      Aa      Wyoming       *
                    i

Idaho       *       Missouri    Aaa     Pennsylvan  A1
                                        ia

Illinois    Aa      Montana     Aa      Rhode       A1
                                        Island
--------------------------------------------------------------------------------
* State has no general obligation debt. 

Source:  Moody's Investors Service. 

As can be seen from tables 1 and 2, the District's bond rating of Baa is lower
than any state and all but two of the cities listed.  According to Moody's
Investors Service analysts, this rating reflects the District's long history of
financial pressures and budget-balancing difficulties.\8

This rating has been the same since the District first issued general
obligation bonds in 1984. 

Other comparisons of the District's debt with other jurisdictions are more
problematic.  For example, comparing the District's 14-percent debt service
limitation with other jurisdictions is difficult because the type of limits
vary.  In fact, a Moody's Investors Service official told us that no state
imposes a limit on cities and counties based on a percentage of total revenues
like the District's limitation.  A May 1994 Moody's Investors Service report
that outlined debt restrictions imposed on cities and counties by their states
notes that almost all states imposed general obligation debt volume limits on
cities and counties.  In most states the limit is based on a percentage of the
local jurisdictions's taxable real property. 

Although the limits imposed by states on cities and counties most often are
related to property values, the way these limits are calculated varies widely. 
For example, some limits are based on the full property value and others on an
adjusted value.  In other states, limits exclude some types of borrowing; for
example, enterprise fund borrowing or public school borrowing.  Because the
limits of other jurisdictions vary widely, we did not specifically determine
how close other jurisdictions are to their legal limits. 

Other indices are routinely used by investment services to compare the extent
of borrowing among jurisdictions.  Two of these indices are per capita debt and
the amount of debt compared with the value of real property subject to tax. 
Table 3 shows the median, high, and low values for these indices for various
population categories of cities, counties, and states. 



                                     Table 3
                     
                        Fiscal year 1994 debt indices for
                           cities, counties, and states

                          Overall net debt per        Net debt as a percent of
                                capita\a               taxable real property
                      ----------------------------  ----------------------------
Population range         Low\b    Median    High\b     Low\b    Median    High\b
--------------------  --------  --------  --------  --------  --------  --------
Cities 500,000 and        $774    $1,363    $5,699       1.1       2.9      14.6
 over
Cities 300,000 to         $500    $1,479    $2,740       1.5       3.4       7.4
 499,999
Counties 1,000,000        $756    $1,287    $2,342       1.2       2.3       5.8
 and over
Counties 250,000 to       $278    $1,358    $2,676       0.5       2.6       7.3
 999,999
States over               $100      $550    $1,947       0.2       1.4       6.4
 5,000,000
States under               $37      $382    $2,602       0.1       0.9       5.3
 5,000,000
--------------------------------------------------------------------------------
\a Amount of debt for a jurisdiction used in this calculation refers only to
debt of that jurisdiction.  For example, the debt per capita for a city would
not include any debt of the state.  In contrast, calculations of debt per
capita of the District include debt that covers both city and state functions. 

\b High and low values are the highest and lowest values in the population
range. 

Source:  Moody's Investors Service

The District of Columbia's overall net debt per capita was $6,315, and the
ratio of net debt to taxable real property was 8.1 percent.\9 Although both
ratios are high when compared with other cities, counties, or states, comparing
the District's debt limitations and amount of debt with other jurisdictions is
problematic because of the unique nature of the District.  For example, debt
limits for state, counties, and cities would only affect the debts incurred to
finance the functions carried out by the specific jurisdiction.  In contrast,
the District has a single debt limit applicable to carry out all its
governmental functions, whether these functions are representative of those
carried out by states, counties, or cities.  Thus, comparing the District's
ratios to state, county, or city debt ratios may not be a meaningful comparison
to the extent the District's debt is used to finance functions that may overlap
functions financed by state, county, and city debt.  For example, the
District's debt would include debt related to typical city functions (for
example, police and fire protection) as well as debt associated with typical
state and county functions (for example, motor vehicle and driver licensing). 
District officials also pointed out that other unique factors make comparing
the District to other jurisdictions difficult.  They noted that unlike most
cities and counties, sales and income tax provide a substantial portion of the
District's tax revenue.  Therefore, the debt/taxable real property ratio is not
meaningful to compare the District to other jurisdictions. 


--------------------
\6 Other investment services also develop bond ratings for jurisdictions,
including Standard & Poor's Corporation and Fitch Investors Service, Inc. 
Standard & Poor's Corporation and Fitch Investors Service use different bond
rating designations but their rating of "A-" is the same relative rating as
Moody's Investors Service Baa rating.  We used the ratings by Moody's Investors
Service to illustrate how the District compares with other jurisdictions. 
Moody's definitions of long-term bond ratings are as follows:

Aaa - Best quality bonds with smallest degree of investment risk.
Aa - High quality bonds by all standards.
A - Upper-medium grade obligations.
Baa - Medium-grade obligations neither highly protected nor poorly secured.
Ba - Bonds with speculative elements.
B - Bonds that generally lack characteristics of the desirable investment.
Caa - Bonds of poor standing.
Ca - Obligations which are speculative in a high degree.
C - Lowest rated class of bonds.

When a "1" is included at the end of the rating, it indicates the jurisdiction
possesses the strongest credit attributes of the class. 

\7 These are the 20 largest jurisdictions categorized as cities that are
included under a single governmental unit.  Other cities could be larger;
however, they may be separated into more than one governmental unit. 

\8 Approximately two-thirds of the District's general obligation debt is
insured and rated Aaa, based on the claims-paying ability of the insurers.  The
uninsured portion is rated Baa which reflects the District's credit risk. 

\9 These ratios are more current than the data contained in table 3 for other
jurisdictions.  Comparable information for the District for the same timeframe
as the table is a debt per capita of $5,538 and debt-real property ratio of 7.9
percent.  The debt per capita was calculated based on total general obligation
debt of $3.65 billion on September 30, 1994, divided by the estimated 1993
District of Columbia population of 578,000.  The ratio of net debt to taxable
real property was calculated by dividing total general obligation debt of $3.65
billion by $44.98 billion in taxable real property as shown in the 1993
financial statements. 


   DEBT SERVICE INFORMATION IS NOT
   CONSISTENT
---------------------------------------------------------------------- Letter :6

As discussed earlier in this letter, the general obligation debt limitation
calculations are made by the Treasurer's Office at the time the District issues
new general obligation bonds and are included in the bond prospectus.  These
debt service percent calculations are done in accordance with the methodology
outlined in the Home Rule Act as described earlier in this letter.  Information
on the debt service percent is also included in the District's multi-year plans
and annual financial reports, but this information is not consistent with the
Home Rule Act methodology. 

The estimates in the multi-year plans do not use the methodology required by
the Home Rule Act, which is the same methodology that is used to determine
whether the District may issue new general obligation bonds.\10 Instead of
calculating the debt service percent by using the highest fiscal year debt
service divided by the estimated revenue for the fiscal year the bonds will be
issued--as is done in the bond prospectus--the debt service percent information
in the multi-year plan is calculated by dividing the current year debt service
by the current year revenue. 

The result is that the debt service percent information contained in the
multi-year plans is less than what the percent would be if the Home Rule Act
methodology were used.  For example, for fiscal year 1994, information in the
bond offering documents indicated that the debt service percent was 11.42
percent, while the debt service percent included in the multi-year plan for
fiscal year 1994 was 10.14 percent.  Although the fiscal year 1994 revenue
estimates for each calculation were slightly different, the primary reason for
the difference was the amount of debt service.  The bond offering documents
used the highest debt service for any fiscal year ($409.1 million which will
occur in fiscal year 1998) and the multi-year plan used the fiscal year 1994
debt service of $362.2 million.  The Home Rule Act not only specifies the
methodology to be used in the multi-year plan, but the information in the
current multi-year plans understates the debt service percentage in relation to
the District's debt limit.  District managers need accurate information as they
outline the various options needed to deal with the financial crisis. 

Table 4 outlines the differences between the debt service percents contained in
the multi-year plan and our calculations using the Home Rule Act methodology. 



                                     Table 4
                     
                       Comparison of Projected Debt Service
                                     Percents

                              (Dollars in millions)

Fisc
 al
year            Multi-year plan                  Home Rule Act Methodology
----  ------------------------------------  ------------------------------------
                                                             Maximum
                                                                debt
        Revenues  Debt service     Percent    Revenues       service     Percent
----  ----------  ------------  ----------  ----------  ------------  ----------
1994    $3,572.5        $362.2       10.14  $3,581.4\a      $409.1\a       11.42
1995     3,604.8         391.4       10.86     3,604.8         435.0       12.07
1996     3,581.9         431.5       12.05     3,581.9         461.0       12.87
1997     3,660.8         452.8       12.37     3,660.8         486.4       13.29
1998     3,727.2         472.8       12.69     3,727.2         510.0       13.68
1999     3,811.9         491.0       12.88     3,811.9         526.9       13.82
2000     3,905.2         507.3       12.99     3,905.2         540.3       13.84
--------------------------------------------------------------------------------
\a Home Rule Act Methodology for fiscal year 1994 data is from the general
obligation bond offering documents dated July 22, 1994. 

Source:  Multi-year Plan data from the District Office of the Budget.  Home
Rule Act Methodology are our calculations using projected revenues from the
District Office of the Budget and our projections of debt service based on
expected borrowing.  See appendix I for more details. 

Information on the debt service percent contained in the annual financial
reports also is not consistent with information in the bond offering documents. 
The methodology for calculating the debt service percentage in the financial
statements is not specified in law.  Like the debt service percent information
contained in the multi-year plan, the debt service percent included in the
financial statements is calculated by dividing fiscal year debt service by
fiscal year revenues rather than the highest debt service for any fiscal year. 
The financial statements include the debt service information in an exhibit
entitled "Computation of Legal Debt Limitation".  Even though portrayed as the
legal calculation, the information is not consistent with the methodology
stipulated in the Home Rule Act. 

Table 5 outlines the differences in the debt service percentage that are
currently contained in the annual financial statements and the debt service
percentage using the Home Rule Act methodology.  Specifically, our calculations
use the highest projected annual debt service divided by the actual annual
revenues. 



                                     Table 5
                     
                      Comparison of Debt Service Percents in
                       Financial Reports and Bond Offering
                                    Documents

                              (Dollars in millions)

            Annual Financial Report              Home Rule Act Methodology
      ------------------------------------  ------------------------------------
Fisc
al                                                      Maximum debt
year    Revenues  Debt service     Percent    Revenues       service     Percent
----  ----------  ------------  ----------  ----------  ------------  ----------
1989      $3,148          $260        8.26      $3,148          $275        8.74
1990       3,290           281        8.54       3,290           307        9.33
1991       3,552           311        8.76       3,552           364       10.25
1992       3,583           370       10.33       3,583           393       10.97
1993       3,724           384       10.31       3,724           395       10.61
--------------------------------------------------------------------------------
Sources:  Annual Financial Report is from the District's Comprehensive Annual
Financial Report.  Home Rule Act Methodology revenues are from the annual
financial reports and debt service is from the general obligation bond
prospectus for the bonds offered in the fiscal year. 


--------------------
\10 D.C.  Code Section 47-302(8). 


   CONCLUSIONS
---------------------------------------------------------------------- Letter :7

As we noted in our June report, the District is faced with both unresolved
long-term financial issues and continual short-term financial crises.  The
District's high level of general obligation debt is approaching the 14-percent
debt service ceiling. 

Although information on the debt service percent in the bond offering documents
is calculated using the methodology required in the Home Rule Act, information
on the debt service percent included in the District's financial statements and
multi-year plan does not use that methodology.  As a result, the debt service
percent amounts shown in the financial statements and multi-year plan are less
than if the Home Rule Act methodology were used.  As such, the current
financial statements representation of the debt service percentage and the
multi-year plan debt service information could mislead users of such
information.  Because the District's long-term debt is approaching the legal
limit, it is critical that District managers and other District stakeholders
have accurate information as they make decisions about how meet the District's
financing needs. 


   RECOMMENDATIONS
---------------------------------------------------------------------- Letter :8

We recommend that the Mayor of the District of Columbia direct that (1) the
multi-year plans contain debt service percentage information in the manner
required by the Home Rule Act, and (2) the financial statements contain
information on the debt service percentage that is calculated using the Home
Rule Act methodology by dividing the maximum estimated annual debt service by
the actual revenues. 


   AGENCY COMMENTS AND OUR EVALUATION
---------------------------------------------------------------------- Letter :9

We provided a draft of this report to officials of the District of Columbia for
their comment.  In general, District officials agreed with the information
contained in the report and supported the recommendations.  They emphasized
that comparing the District to other jurisdictions is difficult because of a
variety of unique factors, including the high percentage of District property
that is not subject to property tax.  We believe the report sufficiently
outlines the unique factors that make the comparison of the District to other
jurisdictions problematic.  District officials provided two additional reasons
for the relatively low bond rating:  the District's unfunded pension liability
and lack of state sovereignty.  They also noted that part of the reason the
District is approaching the debt limit was the issuance of $331 million in
12-year bonds in 1991 to eliminate a deficit in the General Fund.  They
explained that these bonds were of shorter duration than typical general
obligation bonds that are used to finance capital projects and that this
increased the amount of debt service.  We agree that these bonds contributed to
the debt service, but regardless of the term or the purpose of the bonds the
fact remains that the amount of District debt is nearing the legal limit. 
District officials also said they are considering reducing the amount of future
borrowing for capital needs.  Although reduced future borrowing would lower the
debt service percentage, such reductions need to be weighed against the
District's major capital needs.  District officials also made some technical
comments which have been incorporated in the report where appropriate. 


-------------------------------------------------------------------- Letter :9.1

We are sending copies of this report to the Mayor of the District of Columbia;
the Chairman of the City Council; the Chairmen and Ranking Minority Members of
the Subcommittee on the District of Columbia, Senate Committee on
Appropriations, and the Senate Committee on Governmental Affairs; interested
congressional committees; and other interested parties.  Copies will also be
made available to others upon request.  Please contact me at (202) 512-8549 if
you or your staffs have any questions concerning this report.  Major
contributors to this report are listed in appendix II. 

John W.  Hill, Jr.
Director, Financial Management
 Policies and Issues


DEBT SERVICE ASSUMPTIONS AND
CALCULATIONS
===================================================================== Appendix I



                                    Table I.1
                     
                      GAO calculation of future debt service
                                     percent

                              (Dollars in millions)

                                   Fiscal year of borrowing\a,b
                   -------------------------------------------------------------
Fiscal year of
debt service\a        1994     1995     1996     1997     1998     1999     2000
-----------------  -------  -------  -------  -------  -------  -------  -------
1994                $379.4
1995                 377.3
1996                 406.5   $432.4
1997                 407.9    433.8   $459.8
1998                 409.1    435.0    461.0   $486.4
1999                 407.9    433.8    459.8    485.2   $510.0
2000                 406.3    432.3    458.2    483.7    508.5   $526.9
2001                 401.7    427.6    453.6    479.0    503.8    522.3   $540.3
2002                 396.0    421.9    447.9    473.3    498.1    516.6    534.6
2003                 390.7    416.6    442.6    468.0    492.8    511.3    529.3
Maximum amount of    409.1    435.0    461.0    486.4    510.0    526.9    540.3
 debt service\c
Estimated revenue  3,581.4  3,604.8  3,581.9  3,660.8  3,727.2  3,811.9  3,905.2
 for the year the
 bond is issued
Maximum debt         11.42    12.07    12.87    13.29    13.68    13.82    13.84
 service as a
 percent of
 estimated
 revenue
--------------------------------------------------------------------------------
\a The year of the borrowing is indicated at the top of the column.  The amount
of debt service for the cumulative debt to that date plus the new borrowing in
that year is shown in the column below the year of the borrowing.  For example,
new and existing borrowing in fiscal year 1996 is expected to incur debt
service in the amounts shown in the column below 1996.  The maximum debt
service for that borrowing ($461.0 million) is expected to occur in fiscal year
1998.  Therefore the $461.0 million would be divided by fiscal year 1996
expected revenues of $3.581 billion for a maximum debt service percent of 12.87
percent. 

\b Projected debt service for actual borrowing in fiscal year 1994.  Fiscal
years 1995 through 2000 are projected borrowing based on assumptions shown in
table I.2. 

\c The year of maximum debt service for borrowing year is in bold print. 



                          Table I.2
           
                Assumptions used for new debt
                         calculations

                   New Debt Assumptions\
------------------------------------------------------------
                            Amount\a      Rate\b        Term
Fiscal year               (millions)   (percent)     (years)
------------------------  ----------  ----------  ----------
1995                            $250        8.25          20
1996                             250        8.25          20
1997                             250        8.00          20
1998                             250        7.65          20
1999                             190        7.35          20
2000                             190        7.06          20
------------------------------------------------------------
\a These amounts are projected annual general obligation borrowings by the
District of Columbia Office of the Budget. 

\b These rates are used by the District of Columbia Office of the Budget and
are based on projected interest rates published by the WEFA group in its U.S. 
Long-Term Economic Outlook. 


MAJOR CONTRIBUTORS TO THIS REPORT
==================================================================== Appendix II


   ACCOUNTING AND INFORMATION
   MANAGEMENT DIVISION, WASHINGTON,
   D.C. 
------------------------------------------------------------------ Appendix II:1

Edward H.  Stephenson, Assistant Director
Laura B.  Triggs, Audit Manager


   U.S.  OFFICE OF GENERAL COUNSEL
------------------------------------------------------------------ Appendix II:2

Richard T.  Cambosos, Senior Attorney


*** End of document. ***