The upcoming $206 million bond vote comes at a time when various governmental units are delaying or withdrawing new bond referendums due to the faltering economy and unstable condition of our financial markets. Consider the following:
Under a banner heading, Crisis on Wall Street, The Wall Street Journal has reported in an article, “municipal money market yields are soaring as investors flee tax-exempt debt in a rush to safety across the credit markets.“ The article went on to state, “debt investors are nervous lately. Borrowing is expensive and hard for cities, states, hospitals and turnpikes nationwide. Such extra costs will likely be met by raising taxes in coming months.” The article goes on to mention difficulties associated with money market funds that historically have been big buyers of obligations in the municipal-bond market, but now find themselves frozen out. More than just the news article, there have been numerous warning signals that we may be headed for deeper economic times.
I suggest therefore that, given the unsteadiness of our national economic picture, it would be prudent for the city to defer the bond referendum until market conditions are stabilized. If voters approve the bonds and they are sold at auction Greensboro potentially could pay sharply higher interest costs. Unless the City Manager and Financial Services Director can offer assurances to the contrary that we have nothing to worry about, the bond package should not be placed to a vote in November. If there is no plan to use the bond proceeds for the foreseeable future, then perhaps the matter should not be on the ballot in the first place. Furthermore, a postponement would allow time for questions and concerns about the bond package to be addressed.
Fiscal accountability dictates that this matter be placed on top of the next City Council update session. The City Manager or Financial Services Director should speak on this matter at an open meeting of City Council and ask for reconsideration of the earlier Council vote that authorized the bond referendum.
Saturday, September 27, 2008
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3 comments:
Hey Bill,
I'm not disagreeing with what you wrote, but you cite something that is counterintuitive for me and I'm wondering, given your financial background, if you can explain it.
Why would a flight to quality lead people to abandon tax free municipal bonds? Here I was thinking that, in times like these, that might actually be a very good place to put money. Why am I wrong?
Roch, thanks for your question. I answered you in an email addressed to you. I hope that will suffice.
Bill, I got your email. Thank you. You should post it in these comments, it was very informative. If I am understanding it correctly, an investor who may be willing to hold onto bonds for a while (a younger investor), may find the currently higher rates and lower prices on bonds attractive. Yes?
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