Mayor L. Douglas Wilder's plan to use $20 million of his City of the Future money as a reserve fund could wind up damaging the city's credit.
The so-called "rainy day fund," which Wilder announced during his State of the City speech last month, has been panned by the likes of City Council President Bill Pantele and Wilder's former adviser, Paul Goldman, as irresponsible because it relies on a line of bank credit rather than real money set aside by the city over time.
"Paying for your living expenses on a credit card is just fiscally irresponsible," Goldman says. "Anyone who knows anything about finances knows that's not a reserve fund. If the mayor follows through on that, it would hurt the city's bond rating and it would hurt the city's financial situation."
Two of the nation's top bond-rating agencies are also looking into the matter.
"Ah, we'll have to get back to you on that," says Danielle Leonardis of Standard & Poor's, acknowledging that the agency was unaware that Wilder plans to spend $20 million of the $150 million borrowed "for whatever, capital or operating."
Patrick Mispagel, a vice president at Moody's, says money borrowed for capital projects and then spent on operating expenses would warrant looking into. "I don't know it would change the rating," Mispagel says. "It's certainly something we would take under consideration."
The money in question -- the $150 million Wilder secured in early 2006 in a deal with Banc of America Securities was at the time touted as the answer to paying for a host of City of the Future projects.
In its acceptance of Wilder's negotiated deal, City Council passed an ordinance in May 2006 that approved borrowing the money to "finance the cost of school projects and other general capital improvement projects of the city."
The agreement with Banc of America was similarly specific, earmarking the funds to "finance in whole or in part, a program of general capital improvement undertakings" and mentioning by name the Carpenter Center, public schools and "various infrastructure needs."
Wilder's borrowed "rainy-day" fund isn't in line with the borrowing practices of other area localities; Henrico and Chesterfield county officials say they've never issued bonds for yet-to-be-determined purposes.
Hanover officials say they've issued such notes only for a specifically named project rather than a broad menu of unnamed projects.
"Any kind of bond is issued for a very specific purpose," Chesterfield spokesman Don Kappel says. A public affairs official in Henrico suggests that borrowing capital funds and then using them to pay for operating expenses would put the county "seriously at risk" of losing its AAA bond rating.
City Councilman Chris Hilbert stops short of calling Wilder's plan illegal, but "it seems to open the door to deficit spending."
Pantele also worries that the mayor's plans as outlined "would cause significant damage to the [city's] credit standing, and it would be, I believe, impermissible."