Localities Seek Approval for $18 Billion of Bonds: Muni CreditDarrell Preston
U.S. localities are asking voters to approve about $18 billion of bonds for schools, hospitals and streets, less than half the 2007 record for an off-year election, showing officials’ reluctance to take on borrowing.
The proposed debt is 9 percent above the similar electoral period two years ago and almost double the 2009 figure, according to New York-based Ipreo, a financial-market data provider. Yet the tally is still catching up to 2007’s $28.6 billion, before the longest recession since the 1930s eroded tax revenue. If approved, the securities would finance work near Denver’s airport, parks and utilities in Columbus, Ohio, and revamp a hospital in Miami.
Even with yields more than a percentage point below their five-decade average, cities and states have been slow to borrow as they rebuild reserves depleted during the financial crisis, said Eric Friedland, head of muni credit research in New York at Schroder Investment Management North America. At about $3.7 trillion, the municipal market has shrunk two years in a row for the first time since 1996, Federal Reserve data show.
“Though there has been a general improvement that makes it easier to afford to do more, there’s still a spirit of fiscal austerity,” said Friedland, whose firm handles about $3 billion of munis. “There’s a lot of pressure not to issue.”
Today’s ballot is an off-year general election, featuring no presidential vote. Local officials typically pack the most financing requests into presidential polling years, when voter turnout is greatest.
A year ago, when President Barack Obama won re-election, localities put $37 billion of debt on ballots, of which 87 percent passed. The record for bond votes in a November general election was $78.6 billion in 2006.
Municipalities have sold about $255 billion of fixed-rate, long-term debt this year, 15.5 percent less than in the same period of 2012, data compiled by Bloomberg show.
Phil Fischer, head of municipal research at Bank of America Merrill Lynch & Co., and Chris Mauro, head of muni strategy at RBC Capital Markets, last month projected 2013 issuance at $325 billion to $330 billion. That would be the second-smallest total in the past five years.
Revenue is rebounding along with the expanding national economy following the 18-month recession that ended in June 2009.
In the fiscal year that ended June 30 for most states, the governments’ collections climbed 5.3 percent from the year before, swelling reserves, according to the Denver-based National Conference of State Legislatures. At the same time, cities project their first revenue increase since 2006, according to the Washington-based National League of Cities.
Borrowing is falling short of what it would take to repair the nation’s roads and bridges. The U.S. needs an estimated $3.6 trillion investment in infrastructure by 2020, according to the American Society of Civil Engineers.
“State and local borrowers have been deleveraging and not investing enough in infrastructure,” said Fischer at Bank of America. “We’re not going to get the issuance we need to meet critical needs.”
This year’s proposed borrowings include $830 million for Jackson Health System, Miami-Dade County’s flagship public hospital, and about $1 billion for developments around Denver International Airport.
Houston’s home county is asking voters to approve $217 million of bonds to renovate the Astrodome, once a stadium for Major League Baseball’s Astros, into a convention center.
In a statewide borrowing question, Texas voters today will consider whether to change their constitution to allow use of $2 billion from reserves to help finance water projects.
In California, voters are considering a $394 million bond referendum to rebuild Marin General Hospital in the county across the Golden Gate Bridge from San Francisco. The facility opened in 1952 and serves a county that has grown by almost five times to 250,000 people since the hospital was designed. The work is also being done to comply with state laws for earthquake preparedness.
The site sometimes diverts patients to other facilities and operating rooms are too cramped to fit doctors, modern technology and the necessary staff, said Jon Friedenberg, chief fund and business development officer for the venue.
In Colorado, the Panorama Metropolitan District is seeking $70 million for streets, parks, water and other infrastructure in the development in Lakewood, outside Denver.
“Development has been on hold for a long time,” said A.J. Beckman, manager for Special District Management Services Inc., which oversees the community. “Some developers are looking at breaking new ground, and they just want to be ready.”
Following are the largest bond issues before voters, according to Ipreo and reports from local press or unofficial tallies from districts:
Aviation Station and Smith Metropolitan Districts, Colorado $1 billion combined Columbus, Ohio $842 million Miami-Dade County $830 million Mecklenburg County, North Carolina $500 million Jordan School District, Utah $495 million Comal Independent School District, Texas $451 million United Independent School District, Texas $408.7 million Marin Healthcare District, California, $394 million Fort Worth Independent School District, Texas $386.6 million Chesterfield County, Virginia, $353 million