Columbia Need Not Float Bad-Deal Bonds

Like most everybody, I’m still trying to grasp the implications of the current financial death roll.

So, after I read this article in the New York Times about how cities and states are having trouble raising money for projects like hospitals and sewer systems because rates in the municipal bond market have gotten so high, I had two thoughts: a) What about Columbia? and b) What exactly are municipal bonds and how do they work?

I guess those are two and a half thoughts.

The good news, according to Columbia’s Finance Director, Lori Fleming, is that the city doesn’t need to issue any bonds for at least the next 60 days. She’s watching the market, though.

The city issues bonds every year or so, but has no regular issuing schedule. Fleming said that every five years the city will issue bonds to raise money for utilities improvements, such as for sewer, electric and water infrastructure.

The last time Fleming authorized bonds was back in May to help fund the renovation of City Hall.

As for the what municipal bonds do and how they work?

Municipal bonds are like IOUs issued from cities, counties and states (there are federal bonds also) to raise money for public projects. The city gets capital cash from an investor to build, say, a new City Hall, and the investor makes a nice profit. Municipal bonds are usually tax free.

As the Times article shows, when credit markets recently seized up, interest rates for these bonds jumped tremendously, meaning cities have to pay a lot more for the money they borrow. Billings, Mont. is left trying to pay for its new cancer center and the state of Maine needs cash to “keep the dump trucks rolling” on roadwork.

For all the talk of squeaky Columbia budgets, it could always be worse.

It’ll be a phrase worth reciting as the recession deepens.


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