District of Columbia ballpark bonds get an upgrade

Fitch Ratings upgraded the District of Columbia’s ballpark revenue bonds Series 2006A and 2006B to AA from AA-minus, a development that Washington officials believe highlights the strong current and future position of the unique city.

“This Fitch upgrade reflects our financial stability and the strong economic prospects of the district,” said Chief Financial Officer Glen Lee. “The improved rating underscores the resilience of our revenue structure and the growth of our pledged ballpark fees and utility tax revenues.”

The ratings adjustment, announced Wednesday, includes the District of Columbia ballpark revenue bonds, series 2006A-1, 2006A-2, and 2006B-1. It also includes a stable outlook. 

Per Fitch’s statement, “The upgrade of the 2006A and 2006B bonds reflects improved long-term resilience of the structure to very strong levels, as well as growth prospects for pledged District ballpark fees and utility tax revenues. Fitch does not incorporate stadium-related revenues into its analysis given their volatility and unpredictability.”  

Negative factors that could affect future adjustments include “large and sustained delinquency in ballpark fee filers resulting in coverage levels below 2.3x, sustained stagnation or decreases in ballpark fees and/or utility tax revenues, or sizable increased leverage of the key revenue sources.”  

Positive factors that could further boost the ratings higher include growth in key pledged revenues consistently and continued reduced leverage through early redemptions.

Nationals Park, which hosts Major League Baseball’s Washington Nationals, was built from scratch in 2008 for a total cost of $783.5 million which included $535 million in revenue bonds. According to the CFO, the revenue receipts are exceeding the stadium’s debt service. 

In July, Lee signed off on a proposal to siphon extra money not used for ongoing debt service into a Ballpark Maintenance Fund supported by the existing Ballpark Revenue Fund. 

The proposal to create the fund was first unveiled by D.C. Council Chairman Phil Mendelson in January.  

Per the proposal, “The Ballpark Revenue Fund is pledged to repay District debt taken out to construct the stadium and forecasted revenues in excess of debt service through 2028 are also transferred to the District’s General Fund to help balance the budget and financial plan.”  

“Beginning when the Ballpark Revenue Bonds have been fully repaid, and provided the authorized transfers to the District’s General Fund have been made, the CFO must deposit the Ballpark Sales Taxes, and the stadium rent into the Ballpark Maintenance Fund.” 

At the time, Lee’s office indicated that there’s enough money in the fund to support the plan through fiscal year 2028.  

Fitch notes support for the bonds comes from the pledged ballpark fee with over $5 million in annual gross receipt, along with utility taxes.  Lee’s office is required by law to keep the fees high enough to cover the debt service without needing approval required from the Mayor, Council, or Congress. 

The District of Columbia has a unique budgetary process that requires it to submit four-year budgets that must remain in balance and are subject to Congressional oversight.

It’s restricted from taxing the incomes of nonresidents who work in the city and can’t levy taxes on commercial property owned by the federal government, which accounts for roughly 40% of the commercial real estate. 

The upgrade joins an upgrade from Moody’s Ratings in early October of five different special tax bonds.