Is it prudent for a municipality (Oro Valley) to go forward with any unnecessary bond issue at this time? Please read excerpts from this Az Republic article.
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Credit woe pinches governments
Jahna Berry
The Arizona Republic
Apr. 27, 2008 12:00 AM
Shockwaves from the Wall Street credit crunch may hit Valley residents' pocketbooks in ways they might not expect.
Historically, government bonds have been seen as the sensible shoes of the investment world: reliable, with low risk. That has started to change. Cities and government agencies, like millions of consumers who are having a harder time qualifying for loans, face investors who want more assurances they can handle debt payments that bankroll projects like sewer upgrades, airport taxiways and fire stations. "
If it cost more to issue debt for a project, it will eventually cost the people more when they want to build parks, light rail, or other projects," Todd Curtis, a fund manager for Aquila Investment Management. Across the nation, cities, counties and other government agencies are cutting programs, weighing their options and looking to refinance debt.
Nationally, "everything hit the fan at once," said Curtis, the Phoenix-based fund manager who specializes in municipal bonds. Bonds are the long-term debt that cities and counties use to pay for construction projects and equipment. But now bond insurance, which used to work like a Good Housekeeping Seal of Approval, is under scrutiny. Before, if a city bought bond insurance with a high rating - AAA - buyers would invest with few worries about the town's underlying credit. Recently, however, some bond-insurance firms' ratings are under question.
While several experts say that the market will stabilize, cities are watching closely, said Tom Belshe, deputy director of the League of Arizona Cities and Towns. "Even if a city is not at the point where it's going to go out, get in the market and sell (bonds) they need to be aware of what the market is like," Belshe said. "I don't think anyone can say they are economy-proof as far as what their bond rating is concerned."
If it cost more to issue debt for a project, it will eventually cost the people more when they want to build parks, light rail, or other projects," Todd Curtis, a fund manager for Aquila Investment Management. Across the nation, cities, counties and other government agencies are cutting programs, weighing their options and looking to refinance debt.
Nationally, "everything hit the fan at once," said Curtis, the Phoenix-based fund manager who specializes in municipal bonds. Bonds are the long-term debt that cities and counties use to pay for construction projects and equipment. But now bond insurance, which used to work like a Good Housekeeping Seal of Approval, is under scrutiny. Before, if a city bought bond insurance with a high rating - AAA - buyers would invest with few worries about the town's underlying credit. Recently, however, some bond-insurance firms' ratings are under question.
While several experts say that the market will stabilize, cities are watching closely, said Tom Belshe, deputy director of the League of Arizona Cities and Towns. "Even if a city is not at the point where it's going to go out, get in the market and sell (bonds) they need to be aware of what the market is like," Belshe said. "I don't think anyone can say they are economy-proof as far as what their bond rating is concerned."
5 comments:
For those who listen to the Zeeman... we've mentioned this "issue" a number of times under the topic of fiscal responsibility.
It will take the bond market at least three years to "recover" since it will take the bond insurers that long to do so.
As a result, borrowing costs for municipalities like Oro Valley will be up.
Is it prudent to borrow money at high cost for a luxury, like a town site? Don't think so.
Agree! I also don't think it is
responsible to borrow money for luxuries.
I consider this theme type park
almost a luxury, especially in the current troubled times.
Seems like the town is trying to nickel and dime us.
Coyote house is voting NO.
Sales tax receipts are down, spendable income is down, jobs in Tucson (and vicinity) are down, new housing starts are down, ability to get financing is down, forclosures are up, cost of food is up, cost of fuel is up, cost of building materials is up, overall debt is up, cost of utilities is up, the County's water supply is down, how the country is either in or is on the verge of a recession (probably going to be one of the longest ever because of the nature of the causes), but Oro Valley keeps rolling along; some of our officials must have attended the school of 'oblivion'!
In Oro Valley (where we live)
Revenues are up.
That is good, Terry, but we should be very cautious; none can state
that these times are of unwavering stability however.
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