Sandy Cost Spurs N.J. Shore Borrowing at ’60s Yield: Muni Credit
The town of about 75,000 authorized $18 million in short- term borrowing to help pay bills as it awaits federal aid. Its southern neighbor, Toms River, approved a $35 million emergency appropriation Nov. 16 to cover Sandy-related costs after the storm damaged about 30 percent of its tax base.
The biggest Atlantic storm in history cost New Jersey an estimated $36.9 billion after sweeping ashore Oct. 29, killing 38 people in the state and blacking out 2.7 million. While states and localities expect the federal government to reimburse at least 75 percent of their response and cleanup expenses, some towns are borrowing to cover bills before those payments arrive.
“Every municipality in this area is going to be hitting the market for temporary financing,” Paul Shives, Toms River’s administrator, said at a Nov. 26 hearing.
Cities and towns tapping investors stand to benefit from the lowest municipal interest rates since 1965, according to Bond Buyer data. The $3.7 trillion market rallied the past four weeks on bets taxes will rise to help trim the federal deficit.
Municipalities affected by the storm could temporarily have less cash or more debt after dealing with power outages, fires, water damage and debris removal, Moody’s Investors Service said in a Nov. 13 report.
Such expenses “do not fundamentally threaten long-term credit quality” because issuers will recoup most of those costs, the company said.
Still, a limited number of issuers have been “so heavily impacted by Sandy that their ratings could be affected,” Moody’s said. New Jersey towns cited include Brick, Atlantic City and Seaside Heights along the shore and Woodbridge, about 30 miles (48 kilometers) from Manhattan.
Atlantic City, which had to evacuate some of its 40,000 residents and shut seaside casinos, will delay projects such as road-paving and pay for repairs from a capital fund rather than short-term borrowing, said Michael Stinson, the finance director.
The municipality will get a sense of investor appetite for its debt next week in a sale, planned before Sandy, of about $98 million of bonds to cover property-tax appeals from casinos.
In preliminary marketing, the city was offering tax-exempt debt maturing in 2022 to yield 2.36 percent, according to three people familiar with the sale. That interest rate is about 0.9 percentage points above a Bloomberg index of AAA munis.
In comparison, investors required 1.28 percentage points of extra yield on 10-year bonds in a January 2011 general- obligation sale, data compiled by Bloomberg show. Atlantic City is rated A- by Standard & Poor’s, seventh-highest.
Woodbridge Mayor John McCormac, a Democrat and former state treasurer, said the town is pulling cash from its snow-removal account to pay Sandy costs and he doesn’t see a need for borrowing right now.
In Brick, business administrator Scott Pezarras said he doesn’t expect Moody’s to cut the township’s rating of Aa2, the third-highest grade. An estimated 109 to 140 of the community’s homes were destroyed, out of 34,000.
“It’s tragic to the people whose homes that happened to, but it’s not fiscally tragic to the town,” Pezarras said by phone Nov. 19.
Governor Chris Christie, a first-term Republican, in 2010 placed a 2 percent limit on how much towns can raise property taxes each year, allowing exemptions for natural disasters. The governor on Nov. 13 said that residents may face higher bills as localities seek to cover Sandy costs.
Property-tax caps have strained local finances in places like California and Massachusetts, said Peter Hayes, head of muni debt at New York-based BlackRock Inc. (BLK), which oversees about $105 billion of munis. New Jersey’s exemption for major storms should make the latest issues more sought-after, Hayes said in an interview.
“Waiving that cap would theoretically give them more flexibility, so my guess is that investors would respond favorably to that,” Hayes said.
Shives, the Toms River administrator, said he is concerned that “everyone is going to hit that market at the same time.”
He said the township’s bond counsel has also warned him that banks may be concerned about municipalities’ ability to repay the debt and may be reluctant to bring those transactions to market.
“I’m told by our bond counsel that’s something we need to look out for,” he said. “It may take state legislation to make sure we can have those markets open to us.”
Christie said Nov. 26 that the state has begun working with municipalities to help them access capital markets. In addition, he said the state is reaching out to banks to solicit their involvement and assistance.
New Jersey postponed its own sale of $2.6 billion of notes after Sandy struck the state. It completed the offering, which helped repay a loan, on Nov. 15 after underwriter JPMorgan Chase & Co. agreed to buy any unsold debt.
New Jersey municipalities using short-term borrowing include the shore town of Belmar, which plans to issue $20 million of six-to-12-month notes starting next month. About $3 million will cover cleanup and the rest will help rebuild 1.3 miles of boardwalk. Contracts should be in place by year-end, said Mayor Matt Doherty.
“By being aggressive, we’re going to get to the market sooner,” Doherty, a Democrat, said by telephone on Nov. 27.
Little Ferry, about six miles west of Manhattan, was inundated by storm surge from the Hackensack River. The council approved $3 million in financing over five years to cover costs, including replacing vehicles and fixing public buildings. It doesn’t expect federal relief by the end of the year, said the borough administrator, Michael Capabianco.
Capabianco estimated the cleanup costs at $2.4 million to $2.7 million, and the borough made bigger borrowing plans as a precaution.
“We made sure it was high enough to cover everything,” he said by telephone Nov. 19.
Following are pending sales:
NEW JERSEY TRANSPORTATION TRUST FUND AUTHORITY plans to sell $1.25 billion of revenue debt as soon as next week, data compiled by Bloomberg show. The bonds are backed by gas-tax revenue the legislature appropriates annually. Proceeds help finance highways, bridges and mass-transit. (Added Nov. 28)
TEXAS is set to offer $939 million in general-obligation bonds, including $100 million of taxable debt, as soon as next week to finance roads, according to data compiled by Bloomberg. The debt will be issued through the Texas Transportation Commission. (Added Nov. 28)
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