Remember, readers, U.S. Banks Driving Credit Crunch ON PURPOSE!
Also see: Mass. Economy at the Mercy of Wall Street as it Borrows Itself Into Oblivion
"National upheaval, local shudders; Credit woes convulse plans of cities, towns" by John C. Drake, Globe Staff | October 3, 2008
Springfield Mayor Domenic Sarno said the city has been waiting a long time to repair sidewalks and tear down abandoned buildings in his financially beleaguered city. Now residents will have to wait a little longer.
With the crisis on Wall Street, the first-term mayor's promises to pay for improvements on Springfield's streets are on hold because raising money by floating municipal bonds in this climate is prohibitively expensive, he said.
It is the kind of problem facing dozens of communities, say officials. Like a hurricane swirling offshore, the financial crisis is barreling down on Massachusetts cities and towns, but no one knows yet how bad the damage could be.
Local leaders this week have been nervously eyeing bailout negotiations on Capitol Hill, the freezing bond markets, their falling pension fund values, and the State House, where Governor Deval Patrick may eventually decide to seek local aid cuts.
The moribund credit markets are making it difficult to pay for capital projects such as road work, because credit is either unavailable or rates are too high, local officials and municipal finance observers say.
"I'm trying to be fiscally prudent while at the same time trying to drive an ambitious agenda," Sarno said. "It does affect Main Street, whether people are calling for a pothole or a multimillion dollar project they want improved."
Boston has so far not been affected because it usually issues general-obligation bonds in February or March, said the city's chief financial officer, Lisa Signori. But other cities and towns were looking to enter the bond market sooner.
"Communities that have been planning on issuing debt for a large municipal project - a police station, a school, infrastructure improvements - are likely monitoring the situation and waiting to issue debt, waiting for the market to stabilize and for banks to issue credit again," said Geoff Beckwith, executive director of the Massachusetts Municipal Association.
Sarno said Springfield has a wish list of capital improvements totalling $470 million, with $23 million on a high-priority list. Projects that could be affected range from sidewalk repairs and planned demolitions of derelict buildings costing tens of thousands of dollars to a major renewal for Springfield's South End estimated to cost $6.2 million.
Quincy Mayor Thomas P. Koch said funding for ongoing construction of a new Quincy High School and other projects, including a planned new middle school, could be affected.
"You don't put the bond out at once. You borrow periodically and then float the bond," he said. "We're working with the state on an application to replace the middle school and we're going to market soon with the bonds for that. Some of the other improvements at other buildings may just have to wait a little bit."
Officials at the Massachusetts School Building Authority, which has committed to help dozens of communities build schools, have sought to assuage concerns.
"The MSBA's financial obligations to school construction projects will be met despite the current economic turmoil," the authority said in a statement provided by spokeswoman Carrie Sullivan on Wednesday.
Municipal pension funds, which are invested in a vast array of stocks, bonds, and other securities, are another significant source of worry.
"Clearly this is not good news and is not a good market and there will be some loss of value that will appear on the books," Beckwith said. "The question is, will that value be recovered before the pension system needs to access those assets."
Signori said Boston's pension board would be briefed by financial advisers next week on the state of the city's investments. "Certainly, this quarter's performance is important, but what you're looking at is what's happening over five years or over ten years," she said.
Other Boston city accounts and investments are considered secure because the city collateralized them in the late 1990s, meaning the investments are backed up by cash from other banks and not subject to ceilings on federal deposit insurance.
"We weren't out there to make a lot on high interest rates; we wanted to make sure our money was safe," Boston Mayor Thomas M. Menino said this week. "The city of Boston's money is safe."
But Menino and Signori acknowledged the city's finances could be hurt if revenue from motor vehicle excise tax and hotel-motel excise taxes are down and if local aid takes a hit. Projected local aid for Boston already had fallen $60 million from 2002, Signori said.
Quincy Mayor Koch said he was worried the city's retirement board could seek more city funding if its investments are hurt.
"If the retirement board does not get back the returns they anticipate, that means they're going to be asking for more appropriation level on the operations side," Koch said in a phone interview. "That bears watching, big-time."
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