Credit Crisis May Affect Municipal Bonds
RENEE MONTAGNE, Host:
Banks are not lending to each other. Some have collapsed. The stock market has plummeted and municipalities are bracing for the effects of the credit crunch. That would be towns and cities and their park districts - hospitals, roads. Pretty much every public service relies on access to credit and it's not yet clear how much credit municipalities will be able to get as NPR's Adam Davidson reports.
ADAM DAVIDSON: Whatever town you live in, there's someone there like Michael Connors. He's the comptroller of Albany County in upstate New York. He's a guy who makes sure the county has enough money. He was in the city this week for a bunch of meetings.
MICHAEL CONNORS: And today, we're getting some of the bad news that we know is going to be facing us as we access the municipal market.
DAVIDSON: He means the municipal bond market. When a government agency wants to build a hospital or a park of fix up a jail, they often get the money by selling municipal, bonds, muni's to investors. It's basically a fancy loan. For Michael Connors right now, the big thing on his mind is getting money to fix some roads in the five hill towns of Albany County before winter.
CONNORS: The weather is extremely severe on the hill towns because of the elevations and those of jobs need to be done for public safety. Those are service areas that are critically important and people's safety does depend upon those roads being done.
DAVIDSON: You might expect me to say now that because of the credit crisis, those roads won't be fixed and people are going to die. That's not exactly it. The problem is a little more subtle. It's not the Connors can't get any money.
CONNORS: Well, we can get money but it's going to cost more.
DAVIDSON: A month ago, they could have raised that money in the muni market for say three or four percent interest but in the last few weeks, investors got spooked and won't lend money to even a trustworthy county without charging a lot more interest. Today, that means at least six percent. It might not sound like much but it's a big deal for Albany County. How big?
CONNORS: Give me three minutes to do the math here.
DAVIDSON: I see you're doing the math in your head.
CONNORS: Yeah. You might be looking at an increase as high as 75 percent of the interest cost.
DAVIDSON: When he figures everything out, he says Albany County will have to pay an extra two million dollars to pay that debt. That's a lot of money for them and that could mean not fixing those roads or having the cut 40 county jobs, maybe putting off that sewer improvement the village of (unintelligible)Manans has been desperate for.
PAUL WILLIAMS: We, in fact, have not been issuing in the last few weeks.
DAVIDSON: Paul Williams runs the Dormitory Authority of New York which has a really misleading name. It's grown way beyond being a funding agency for college dorms into one of the nation's largest municipal bond agencies. It raises billions every year for all sorts of New York State projects. Well, it did race billions until a few weeks ago. It's raising nothing now. They just don't see any reason to enter the market when rates are so high and it costs so much to borrow. But weirdly, they say they won't have to cut any projects right now even though they're not raising new money because they have enough in the bank to keep them going for a while.
WILLIAMS: We're probably talking for two to three years and well within that period of time, I hope optimistically that the markets will turn around.
DAVIDSON: The nurse, Marlene Zuric(ph), the CFO of New York City Health and Hospitals Corporation, she says she's not panicking. She says municipal government workers are a hardy bunch.
MARLENE ZURIC: We're not the folks who got used to huge salaries and bonuses so we're used to trying to help poor people get health care and we're going to keep doing it and we'll deal with whatever gets put before us. We've done it before, we'll do it again.
DAVIDSON: A lot of municipal agencies around the country are like the dorm authority. They have a cushion and can survive the tough times, as long as they don't last too long. Other governments are near collapse. They're in real trouble. And most are somewhere in the middle. They're just waiting to figure out what this all means and if they can't get any money, what services they'll have to cut. Adam Davidson, NPR News New York.
MONTAGNE: And for more on how the crisis might affect you, visit NPR's Planet Money blog and podcast at npr.org/money.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.