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

WASHINGTON, Oct 3 (Reuters) - The U.S. government's current budget shutdown has no negative credit implications for the nation's capital city of Washington, D.C., Fitch Ratings said on Thursday.

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

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

Because it is at the heart of federal operations, the district was able to weather the 2007-09 recession better than most cities and states. But its political leaders have grown concerned about its reliance on the U.S. government as a major employer and renter, especially after the across-the-board spending cuts known as sequestration took effect this spring.

The credit rating agency said the District of Columbia has enough money in reserves to support operations for up to two weeks and that it can replenish those funds as soon as independent auditors certify its surplus for the fiscal year that ended on Sept. 30.

But Fitch also said the district will likely miss out on tax revenues related to leisure and hospitality from the shuttering of U.S. museums, parks and monuments, which it will not be able to recoup. The leisure and hospitality sector provides a little more than 9 percent of the non-farm payrolls in D.C., according to Fitch.

After the last federal shutdowns of 1995 and 1996, Congress authorized backpay for federal employees, Fitch noted. It added it is "not convinced the current Congress would agree to similar reimbursement."

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