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Posts Tagged ‘Municipal Bonds’

28th February
written by Mike

From Antiplaner.com – The state of California has a $41 billion budget deficit. This is even worse when you realize its total budget is $143 billion, so the deficit is is 29 percent of the budget.

The planning advocates who frequent this blog will deny it, but it is no coincidence that California has the strongest smart-growth laws in the nation and the worst deficit of any state in the nation.

Land-use restrictions that crammed 94.5 percent of the state’s residents into just 5.1 percent of the state’s land also made the state’s housing the least-affordable in the nation — and some California cities the least-affordable in the world. This led to an exodus of people and jobs. The bursting of the housing bubble devastated many recent home buyers   and took the state’s (and world’s) economy with them.

Meanwhile, the state has overspent on high-cost transportation systems in five major urban areas, while stinting on the forms of transportation that people actually use. (Californians travel more than 400 billion passenger miles by auto in urban areas and take transit only 7 billion passenger miles.) This did little to relieve the traffic that makes Los Angeles and San Francisco-Oakland the worst-congested urban areas in the nation while it added to the state’s deficits.

Tucson Choices – Recipe for disaster:

Does this post sound familiar? 86% of Pima County land is owned by a government entity. Pima County has already committed $200m to buy the remaining 14%. Will the voters approve another $500m to run up the credit card for more open space?  Less land, higher cost to develop (sewer hook up fees, impact fees, time to finish developments) and what you get is housing that becomes unaffordable to our working poor community.  Add in a dash of NIMBY from the City of Tucson neighborhood activist and what’s a community to do? Without leadership, I’m afraid we’ll have more of he same.

As if that wasn’t enough – From today’s LA Times

State caught in avalanche of job losses

Conditions are even worse in Los Angeles County, which saw its unemployment rate jump to 10.5% in January from 9.2% the month before.

The deep job losses follow a sharp drop in the gross domestic product — the value of all goods and services produced — in the waning months of 2008. Nationwide, GDP shrank at an annual rate of 6.2% in the fourth quarter, the Commerce Department said Friday. That was far worse than the 3.8% drop the agency had estimated, and the biggest decrease since 1982.

Paul Policarpio knew it was only a matter of time before he would be laid off.


15th February
written by Downtown Dudette

Taxpayers lost big on Rio Nuevo bond sale

By not delaying it, as other US areas did, city may have to pay extra $10M or more

By Rob O’Dell

Arizona Daily Star

Tucson, Arizona | Published: 02.15.2009

When other communities across the country were pulling out of the bond market in December as the failing economy pushed interest rates higher, Tucson forged ahead with a Rio Nuevo bond issue.

The move potentially cost taxpayers more than $10 million in extra interest — money that could have gone into projects instead — because the municipal bond market recovered in January and February, experts interviewed by the Arizona Daily Star said.

One municipal bond expert put the potential loss at as much as $18 million.

The city’s bond adviser, Shawn Dralle of RBC Capital Markets, estimated the savings from delaying the bond sale would have been a much smaller $5.4 million over the life of the bonds, from 2011 to 2025.

Tucson issued $78 million in bonds for its Downtown redevelopment district Dec. 15-17, as state lawmakers were openly threatening to take back the state sales taxes that go to Rio Nuevo because of the project’s perceived lack of progress.

Several experts said interest rates now would be about 1.2 percentage points lower than the nearly 6.5 percent the city sold its bonds at in December. Dralle estimates the rate difference would be only 0.25 percent to 0.5 percentage points lower.

Several Tucson officials said no one could predict future interest rates, and added that the city sold the bonds to get Rio Nuevo projects moving. The legislative threats weren’t a factor, they said.

But numerous communities across the country delayed their bond sales in December. A January report from JP Morgan Asset Management said many issuers were postponing year-end bond sales because they were unwilling to pay the high yields required to attract buyers.

Just three days before Tucson’s sale, New-York based municipal bond adviser Freda Johnson told Bloomberg News it was recommending “borrowers delay their sales if at all possible” because of high yields and weak demands.

Mayor Bob Walkup said the bonds were sold to get Rio Nuevo moving in response to criticism from the public and the media about a lack of progress. He said the legislative threat to take the money back “wasn’t even a discussion.”

“I think we still did the right thing at that moment,” Walkup said, adding the city can’t predict interest rates. “If you find the guy with that crystal ball, let me know because we can make a lot of money.” Action delayed elsewhere

Deven Mitchell, executive director of the Alaska Municipal Bond Bank Authority, said the bank pulled back two bond issues in early to mid-December, one for a prison and the other for money that would be loaned to municipalities. The Alaskan bonds had similar ratings to Rio Nuevo’s, although Tucson spent $750,000 on bond insurance to boost its rating several levels.

The bond bank waited for the markets to calm down and then sold its bonds “as soon as possible” at rates under 6 percent just before Christmas and again in January.

It’s a difficult decision, Mitchell said, because if you need the money to start construction, it can be better to issue the bonds than wait.

But the amount of construction to be done with the $78 million in Rio Nuevo bonds is limited, with $58 million split between design and construction for 13 projects Downtown and on the West Side. One expert questioned the amount of “soft costs” for design in the bonds.

A total of $20 million went to pay back a loan to the city, into a reserve fund or for bond insurance.

Issuers as disparate as the state of Minnesota, the District of Columbia and Oklahoma City delayed bond sales at the end of 2008 because of market conditions.

In Florida, top state officials questioned the state bond director in January over a bond sale for universities on Dec. 14 with an interest rate of 6.16 percent, pointing out that another Florida issue a month later fetched a rate of 4.7 percent. The director blamed volatile credit markets. Higher interest costs

Michael Stanton, publisher of the Bond Buyer newspaper, looked at the difference in market rates — calculated from municipal market data or MMD — between December and the second week in February.

He said the average rates today are about 1.2 percentage points lower than rates were in December, resulting in roughly $10 million more in interest costs for the December bonds.

Stanton made a second calculation of only $4.3 million in savings using an index of revenue bonds — which are paid off with revenuelike sales taxes. But the Rio Nuevo bonds are backed not just by sales taxes, but by the city’s general fund as well.

Alvin Boutte Jr., managing director and head of the Midwest region for Chicago-based investment banking firm Grigsby & Associates Inc., estimated the difference in interest rates cost the city $18 million in interest over the life of the bonds. He estimated the city would pay 5.2 percent on the bond issue today.

In a larger issue by the city of Chicago on Jan. 20, Boutte said, the interest rate for 15-year bonds was 4.81 percent. By contrast, the yield for Tucson’s 15-year bonds is 6.79 percent.

The companies that underwrote Tucson’s bonds declined to estimate what the difference in interest rates cost Tucson. Stone & Youngberg said there were too many variables to calculate. Piper Jaffray referred calls to the city’s bond adviser, Dralle at RBC Capital Markets.

In a statement, Dralle said the rates did drop in January but that much of the drop was “on paper” because there were few sales, and many issuers had higher credit ratings — although the city paid $750,000 for bond insurance to boost its credit rating equivalent to AAA.

Dralle said the bonds got the best rates they could at the time they were sold, and estimated that Rio Nuevo bonds today would sell with interest rates between 6 percent and 6.25 percent because of “a worsening economy and with Legislative threats to the revenue.”

Jaret Barr, assistant to City Manager Mike Hein, said interest rates have dropped, but estimated the impact was more like $5 million.

He added the city talked about waiting but decided to move forward to keep projects going. He challenged those who criticize the city’s decision to tell him what the interest rates will be in March, since they think the city should have been able to see the future. Deliberately hurried

State Rep. Frank Antenori, R-Tucson, has railed against the city bond sale for months, contending the city knew it was getting a bad deal but went out to market anyway to commit the money so the Legislature wouldn’t be able to take it away.

“It was deliberately done in a hurry to use it as a bargaining chip,” Antenori said. “Because it was somebody else’s money, they just did it.”

Councilwoman Nina Trasoff countered that Tucson proceeded in order to jump-start important projects, acting on the advice of its bond attorney.

“You can always second-guess these things,” Trasoff said. “It’s always easy in 20/20 hindsight to say, ‘gee, if.’ ”

Contact reporter Rob O’Dell at 573-4346 or rodell@azstarnet.com.

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