Fitch: No negative credit implications for D.C. from shutdown

Reuters

WASHINGTON, Oct 3 (Reuters) - The U.S. government's currentbudget shutdown has no negative credit implications for thenation's capital city of Washington, D.C., Fitch Ratings said onThursday.

Since the district is a local government without a state,the U.S. Congress authorizes its budget when it approves thefederal budget. But Congress has been locked in a fight over thenational budget, leading the federal government to shut downoperations on Oct. 1, the first day of the D.C. fiscal year.

"Fitch believes no debt service payments are at risk," theagency said in a special comment. "However, D.C.'s economy isdirectly and indirectly dependent on the federal government.Federal employment provides an important share of district taxrevenues and the lack of a federal budget limits the district'sability to provide basic services."

Because it is at the heart of federal operations, thedistrict was able to weather the 2007-09 recession better thanmost cities and states. But its political leaders have grownconcerned about its reliance on the U.S. government as a majoremployer and renter, especially after the across-the-boardspending cuts known as sequestration took effect this spring.

The credit rating agency said the District of Columbia hasenough money in reserves to support operations for up to twoweeks and that it can replenish those funds as soon asindependent auditors certify its surplus for the fiscal yearthat ended on Sept. 30.

But Fitch also said the district will likely miss out on taxrevenues related to leisure and hospitality from the shutteringof U.S. museums, parks and monuments, which it will not be ableto recoup. The leisure and hospitality sector provides a littlemore than 9 percent of the non-farm payrolls in D.C., accordingto Fitch.

After the last federal shutdowns of 1995 and 1996, Congressauthorized backpay for federal employees, Fitch noted. It addedit is "not convinced the current Congress would agree to similarreimbursement."

"This could cost the district just $5 million to $6 millionper week in forgone personal income tax revenues based on 2011data," the agency said.

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