D.C. credit rating gets junk bond status

February 16, 1995|By New York Times News Service

WASHINGTON -- Expressing serious doubt that city leaders can balance the municipal budget in the current fiscal year, Moody's Investors Service, a Wall Street credit rating firm, yesterday lowered Washington's rating to junk bond status.

The decision by Moody's to drop the city's rating to below investment-grade levels followed similar action Tuesday by Standard & Poor's Corp., which lowered the district's rating to one level above junk bond status.

With the city facing a projected budget deficit of $722 million and Congress poised to wrest more control of the city's finances, the rating changes have a double-barreled impact.

The city will have to pay higher interest on future loans, and Mayor Marion S. Barry Jr. will have more trouble restructuring the city's current debt to save $70 million, as outlined in his deficit-reduction plan earlier this month.

Mr. Barry yesterday declared himself helpless to fight the rating changes and, in his strongest language yet, blamed his predecessor, Sharon Pratt Kelly, for the current crisis.

"I have been in office for one month and 14 days," he said at an afternoon news conference. "As you look at all these problems, please refer to the one who was in office when they occurred." He chided Mrs. Kelly for failing to make deeper budget cuts or conduct yearly audits.

Mrs. Kelly, now a fellow at Harvard University, did not return a telephone message seeking comment. She has said that she managed the best she could, given the $300 million deficit she said she inherited from Mr. Barry, who had served as mayor the previous 12 years before his imprisonment on a drug charge.

With the lower ratings, Mr. Barry acknowledged that the city would have difficulty going back into the bond market, especially after city officials had to lobby in December to secure $250 million in loans.

That transaction is under investigation by the Securities and Exchange Commission because the deficit, described in the prospectus as $40 million for 1994, is now said to be $631 million.

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