Exclusive interview with Natwar Gandhi.
By Deepak Chitnis
WASHINGTON, DC: Natwar Gandhi is the outgoing Chief Financial Officer (CFO) of Washington, DC. Appointed to the position in 2000 by then-mayor Anthony Williams, Gandhi was re-appointed by both succeeding mayors.
He is widely credited with bringing the nation’s capital from the verge of financial ruin, to creating its current surplus.
Gandhi earned his LLB and B.Com. from the University of Bombay, his Master’s degree in business administration from Atlanta University, and his Ph.D. from Louisiana State University.
In an exclusive interview to The American Bazaar, Gandhi talks about his tenure as CFO, his thoughts on where the American and Indian economy should go from their current situation, and his own future as well.
Excerpts from the interview:
How do you look back on your time as the Chief Financial Officer in Washington, DC?
Well, it has been an extraordinary professional period in my life. Indeed, I have never done more important professional work than what I have done in the District, so I’m very proud and gratified at the opportunity that was given to me for being the Chief Financial Officer [CFO] of the nation’s capital.
In your 13-year-tenure, the District earned record-high bond ratings and built solid surpluses. You also left after unveiling a $417 million budget surplus. DC flourished under your leadership. How did you manage this?
Well, we have an extraordinarily responsible political leadership. We [have] had excellent mayors – Mr. Williams, who appointed me twice, then Adrian Fenty, and after that Mr. Gray – and each one of them has appointed me. They were all very responsible, fiscally speaking. We have had a control board before the tenure of Mr. Williams [which] established a [fiscal] discipline, so I would say with that leadership and that financial discipline, we were able to perform what is generally termed as a “near miracle” in [the] financial restoration of the District.
In your letter to the Mayor of the District of Columbia, Vincent Gray, announcing your resignation, you cited the excellent financial health of the District. But there have been reports that you resigned for personal reasons, that you wanted to spend more time with the poet Panna Naik, the love of your life. You are a poet yourself, have written collections of poetry in Gujarati. So why exactly did you resign after being reappointed for a third term?
Well, as I have said, that I have been at it for 13 years now; the city is doing extraordinarily well in terms of its financial condition – as you pointed out we just turned in a surplus of $417 million – so this is as good a time as any to leave. And I want to spend personal time with the new love in my life, as well as concentrate on my literary work, poetry in particular.
In that same letter to Mr. Gray, you also wrote of some of the hurdles the District continues to face, like dependence on Congress to approve the budget and the inability to tax income earned in the city. What are some of the other problems you see for growth?
Basically, the District has a problem [with its] tax base. [The] tax base is basically constrained, limited, narrow. Roughly more than half of the income that is earned in the city is not taxed in the city, it’s taxed in the suburbs. Also, 40% of our commercial rural property values are tax exempt. And we have a sizeable number of our people, about one-third, who are quite poor [and have] needs to be taken care of. With these constraints, we have a problem to sustain ourselves economically and financially. We are a one-company town; our major industry is federal government. Of course we have tourism, we have health [care] and other areas, but nevertheless, excessive reliance on [the] federal government is a major problem, and my suggestion to our leaders has been to diversify our dependence so that we are not exclusively reliant on just the federal government.
One of the ways you built the District’s financial progress was by securing multiple rating upgrades, in fact a total of 14 rating steps, from the major rating agencies for its general obligation bonds. Recently, there has been a tug of war going on with the US Govt. and the rating agencies, and some other Govts., Including India. Some feel rating agencies exert too much power. What is your take on the situation given the global economic slowdown?
Well, it is true that rating agencies, particularly in my area – municipal financing – have extraordinary powers. The reputation of the CFO, the reputation of a given jurisdiction, depends on what the ratings agencies tell us. If you have a AAA rating, as we presently enjoy on our revenue bonds, then you are able to borrow cheaply from Wall Street. Additionally, we can do business better if we have higher ratings. So ratings agencies do have great power [in terms of] our financial fortunes. In term of the global crisis, however, there is a larger issue about the reliance on ratings agencies. Given what had happened during the recent financial crisis, ratings agencies have suffered a lot in terms of their reputations. They have basically tried to clean up their act but as of now, as far as we [in DC] are concerned, ratings agencies do matter a great deal.
A bone of contention on Capitol Hill has been increasing the size of government. Do you favor more government workers to carry this country forward?
I don’t think it’s a question of hiring people, but I do want a larger government role in the economy. By that I mean we need to have substantial spending increase at federal level, [and] even state level, to enhance [the] economic activity of the country as a whole as well as [in] several jurisdictions. I do believe we have an infrastructure problem; we need to spend more on our roads, bridges, technology, [control our] electric greed. [There are a] vast number of areas in which we need to reinvest in our infrastructure, that would require the federal government to spend more money, and I’m all for it. I think it’s not spending in the manner that you hire more people [who] then provide some services, but [it should be] an investment. I believe in more government borrowing at this time; this is as good as it gets in terms of borrowing at the federal level. Rates are very low for federal government, and we should spend more money on infrastructure. It’s an investment [in] our future.
Detroit recently filed for municipal bankruptcy protection. What would you have done to avoid the situation in the first place? More cities in the US seem to be on the verge of financial meltdown. Is there a quick fix solution?
Well there is no quick fix, if that’s what you’re looking for, in Detroit. Detroit’s downslide had been happening over the last 30-plus years. Their fundamental problem was exclusive reliance upon one industry: automobile. When that industry was globalized, and when they had to face a crisis in terms of Japanese competition as well as competition from other areas, Detroit and the other companies were not able to sustain themselves because they had legacy costs. And they basically had to move away from Detroit and go to southern states, [the] mid-western states – [the] states which are called “free of union states” or “right-to-work law states” [where] you don’t need unions – as opposed to northern “rust belt states” where there are closed shops, meaning you must be member of a union to work there.
So the problem that Detroit has had over these past 30 years is that they relied primarily and exclusively upon the automobile industry, which was on its way down. Secondly, in good times, Detroit did not make investments in education and infrastructure. They simply relied on the money that was coming from [the] auto industry, which was not enough. Had I been the CFO of Detroit all these years, all I would have done was to advise the political leaders to diversify and not rely on one particular industry.
The US municipal bond market is worth $4 trillion – Detroit only owed around $159 billion. Of late the stock market is very nervous, some say they see catastrophe ahead. What is your prediction?
It is a somewhat exaggerated view. As you pointed out, we have about $4 trillion in the municipal bond market; Detroit’s share is about $159 billion. As bad as it is, and indeed it the largest municipal bankruptcy in the country, it is somewhat isolated case. Cities in certain areas are coming back. I think what we need to do in [the] case of cities to address the particular problems that they face –problems of pension[s], of the erosion of the tax base, of diversifying their reliance on single industries – all that can happen when there is close collaboration and cooperation between federal and state governments. I do not think that cities would be able to manage themselves out of their problem, particularly cities [in the] rust belt like Detroit and Chicago, [so] they would need to have certain federal, state, and local government collaboration to help.
Many people fear Social Security and pensions will not survive after two more decades. Is that fear unfounded?
I don’t think it is a well-founded fear. Social Security problems are not as acute as those of Medicare. I think with minor changes in Social Security, like [defining] when you can retire and who are eligible, Social Security problems can be solved. Medicare is the much more [urgent] and bigger problem that we face. Again, my expectation here is that American political leadership will come to their senses and resolve that issue. We must remember that Americans are very practical people, and American leadership is also practical, despite all that we hear today. My expectation is that the problem will be solved.
The comprehensive immigration bill is fighting its way through Congress to get passed. There has been a lot of talk about STEM graduates, the need for more of them. What about quality accountants and actuaries? Do we have enough of them, or is there a need to import them?
Well, first let’s talk about comprehensive immigration reform. That should be the first priority of any administration. It is extremely important that we take care of that on two fronts, in particular. One is that we should solve the issue of the 11-plus million so-called illegal aliens who are in this country working [and] contributing to this economy. There must be some solution to bring them towards legalized citizenship. Two, there should be immediate relaxation of H-1B visas. That would bring in people that we badly need. Engineers, doctors, technicians, people with great amounts of skill. This country needs those skills very badly. [If] you ask any tech entrepreneurs – [if] you ask Microsoft, Google, Yahoo, [any of] those companies – they want more highly technical people immediately, and people want to come to this country. So those two issues should be immediately addressed under the comprehensive immigration reform. I think the Senate bill addresses those issues very well. The House [of Representatives] will work on that, but if we were to delay that [bill], it would be very bad news. Now, on the issue of so called STEM graduates coming to this country, there is a need for all kinds of highly trained people. There is a highly developed, post- industrial society [in the US], dependent on technical manpower, technical resources, and more people like accountants and actuaries are most welcome. Unfortunately, the immigration laws do not favor that. If I had my choice to make any recommendations, I would open the borders to these people; they would make great contributions to the prosperity of [US] society and economy.
You recently traveled to Gujarat. You lived and studied in Bombay for several years, in fact you have a law degree from the University of Bombay. What are some of the biggest changes you see in India today?
Well the India that I left in the late 60s and the India I see today are two very different Indias. The India today, particularly the younger Indians, are more vibrant, more energetic, more confident. Indian companies are also very vibrant and resourceful, and they are going abroad and acquiring other companies. This shows [they have] a great deal of confidence in themselves. The problem that I see is the political structure that we have in India today. In addition to the whole issue of corruption and transparency, two particular problems need to be addressed. One is infrastructure; unless we make substantial investments in Indian infrastructure, I see bad news for the economy. And second is the problem of energy; I think we must provide reliable cheap energy for the industry to be stabilized. Unless we solve those two critical issues, I see immediate consequences for Indian economic growth.
Most critics point to red tape and lack of transparency in doing business in India. What can the country do to increase business confidence, get more FDI, and boost their ratings?
As I pointed out, out economic decision-making at the federal level must be transparent. The best thing one could suggest would be for the government to the get out of the way of the entrepreneurs. Let the foreign investments come in, let the local governments be open to all kinds of investments, and unless there is a step taken by the state and local governments [towards] deregulating, [towards] inviting the globalizing corporations, I do not see much hope to continue to progress economically. The GDP [Gross Domestic Product] growth rate [has] already stabilized and [is] coming down, so my expectation, and my hope, is that government gets out of the way. I believe in globalization; more of it is good for India and it would be better for younger people [in India] to absorb their resources and energies. Otherwise I see a great deal of upheaval coming for India.
Do you see yourself coming back to public service, or to going into private service? How do you let the kind of talent that you have to go unused?
[Laughs] Well I’m not going to let my talents go unused. I’m open to board membership, both private and nonprofit. But I think the public service in this country provides great models [in the] people who have devoted their lives to [it]. I followed some of those models and devoted all of my life to public service. Of course there are monetary costs – public service in this country does not offer as much money as [private sector] jobs – but it provides great professional and personal satisfaction. I’m an Indian immigrant in this country with accent, and now I’m the CFO of the nation’s capital. That is deeply satisfying, and it gives me the opportunity to be grateful to a very generous country and very generous people who provided all this opportunity to a person like me.
To contact the author, email to deepakchitnis@americanbazaaronline.com