Wednesday, October 01, 2008

Does 'credit crisis' bode ill for arena and school bond issues?

The feds in Washington, D.C. keep telling us that credit is drying up and will become a crisis if they don't act to bail out the financial institutions.

Being a conservative, I really don't trust the people who caused the mess to clean it up - and I don't believe that more government interference is the correct thing to do.

Those thoughts aside, we've already seen a local impact of a restricted credit market, as Larry Dillin, developer for the Marina District, had to re-work his agreement with the City of Toledo because he couldn't obtain bank financing for his portion of the deal.

In North Carolina, several counties are having trouble with finding buyers for their bonds.

In the past two weeks, Wake County delayed plans to sell $454.5 million in bonds, while Durham County's attempt to borrow $30 million failed because no lenders bid on the offering.

Their struggles are notable because both counties enjoy the highest AAA credit rating -- meaning they are among the safest institutions to lend money to.

In Wake County, $370 million of their bond total is for school construction and renovation projects that voters approved in 2006. Durham County plans to split their bond offering into smaller chunks in the hopes of attracting buyers. But the rates they pay could be higher, even with their AAA credit rating.

In light of these examples, I wonder if it's wise for Toledo Public Schools to have a bond issue on the ballot this year.

Shall bonds be issued by the Toledo City School District for the purpose of CONSTRUCTING, RENOVATING, REMODELING, ADDING TO, FURNISHING, EQUIPPING AND OTHERWISE IMPROVING SCHOOL DISTRICT BUILDINGS AND FACILITIES AND ACQUIRING, IMPROVING AND EQUIPPING REAL ESTATE FOR SUCH BUILDINGS AND FACILITIES in the principal amount of $37,000,000, to be repaid annually over a maximum period of twenty-eight years, and an annual levy of property taxes be made outside the ten-mill limitation, estimated by the County Auditor to average over the repayment period of the bond issue seven-tenths (0.7) mill for each one dollar of tax valuation, which amounts to seven cents ($0.07) for each one hundred dollars of tax valuation, commencing in 2008, first due in calendar year 2009, to pay the annual debt charges on the bonds, and to pay debt charges on any notes issued in anticipation of those bonds?

And then there is the Lucas County arena, for which notes in anticipation of bonds have been approved. The idea was to issue the notes now with the hope of getting a better rate later on. But if this 'crisis' continues, and all indications are that it will not go away quickly, will the County even be able to sell their bonds or will they, like Wake and Durham Counties, find either no buyers or buyers at an unacceptably high rate of interest?

During the original discussions of the arena project, many people asked 'what if' your plans for financing fall through? What then? I repeatedly argued against going forward until the finances were solidified, but my fellow commissioners at the time insisted that everything would fall in place eventually. Now we're at eventually, and things are not anywhere near as good as hoped.

For the sake of taxpayers who are footing the bill for all of this, I hope the situation improves. But I'm not optimistic that our final bill will be at, or lower, than what we were told.

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