Christopher Peak Photo
Controller Daryl Jones.
Given the uncertainty around the overdue state budget, no insurer would touch the city’s general obligation bonds this year. But investors were still willing — even without that guarantee — to buy up $43.4 million worth of bonds and refinance another $33.4 million.
The bond sale took place Wednesday evening in the mayor’s conference room in City Hall.
New Haven’s top officials and a crew of consultants — including the mayor, three alders, three budget staffers, four lawyers, two financial advisors and an underwriter — looked over sheets of numbers. The seemingly incomprehensible digits reflected how low an interest rate investors were willing to offer to handle the city’s debt.
In the end, the lowest of three bidders, PNC Financial Services, offered a true interest cost of 3.64 percent for the newly issued bonds and 2.94 percent for refunding the older bonds.
Controller Daryl Jones called that a good deal for the city, especially with the financial woes in the statehouse scaring off potential backers.
“With what’s going on with the state budget in Hartford, there’s a lot of pressure. We have investors looking at us, and the first question they ask is ‘Has the state resolved the budget yet?’ That’s a question they’ve asked for the last three or four months that weighs heavily on some of the investors and that made it tough to market,” Jones said in his office on Thursday afternoon.
The state’s precarious finances aren’t the only force weighing on the sale. Following Donald Trump’s election, the municipal bond market dropped nearly 5 percent — a hefty sum for what’s supposed to be a safe investment. Money managers predicted more troubles to follow. That’s because the main selling point for “munis,” as they’re known on the stock exchange, is their tax-exempt status. In November, when bonds from a major infrastructure package poised to flood the market and Congressional tax reform threatened to eliminate their tax-exempt status, other market investments seemed likely to yield greater profits. Sales have lagged, dropping 14 percent compared to this time last year. But with the Republican agenda seemingly stalled, munis are once again looking like a reliable bet.
However, one consequence of the market pressure has been a demand for short-term bonds. In New Haven’s recent offering, three types were up for sale, with maturity dates ranging from five years to two decades. Generally, the smaller purchases are covered by short-term bonds, while bigger undertakings are paid by long-term ones. For instance, Jones said, a new fire engine takes a five-year bond; a bridge, 20. Out of the $43 million bonds issued this week, $7.8 million was for five-year bonds, $8.1 million was for 10-year bonds, and $27.4 million was for 20-year bonds.
The issuance will cover dozens of capital projects that the Board of Alders previously approved. Big-ticket items include:
- $6.9 million for bridges
- $2.3 million for sidewalk reconstruction
- $1.7 million for sidewalk construction and rehab
- $1.5 million for Ralph Walker Skating Rink
- $1.5 million for information technology upgrades
- $1.4 million for new computers
- $1.1 million for general repairs
- $1 million for energy performance enhancements
- $1 million for housing development
- $900,000 for commercial or industrial development
- $850,000 for neighborhood housing assistance
- $800,000 for facility renovations
- $800,000 for pavement management
- $750,000 for safety measures
- $700,000 for street trees
- $675,000 for heating and air conditioner replacement and repair
- $600,000 for infrastructure improvements
- $500,000 for public improvements in commercial zones
- $450,000 for Stetson Library
- $450,000 for general park improvements
- $450,000 for general airport improvements
- $450,000 for demolitions
- $400,000 for coastal area improvements
- $400,000 for street signs and pavement markings
- $400,000 for general storm funds
A few smaller but notable purchases include body cameras for cops ($300,000); a collaborative learning space, known as the Innovation Commons, at the main library ($300,000); Goffe Street Armory ($250,000); conversion of the Wintergreen Army Reserve Center into a police training academy, including a new firing range ($225,000); the Dixwell Q House ($200,000); The Escape teen center ($200,000); playgrounds ($200,000); and improvements on the Farmington Canal Line ($100,000).
Why is debt the best way to fund these projects?
“The purpose of bonding money out is to leverage [the city’s wealth] to buy those things that normally cost a lot and spread it over time,” Jones explained. “In other words, it’s easier to borrow $43 million and pay it over time, because financially, if you took it out of the budget to pay for it, you wouldn’t be able to pay for other services.”
As 12.8 percent of its $523 million annual expenditures, New Haven’s $66.7 million in debt service this year looks “a little high” to Michael Belsky, executive director of the Center for Municipal Finance at the University of Chicago. But he said it is nothing out of the ordinary for a city that earned an A-/Stable rating by both Standard & Poor’s and Fitch. Anywhere from 8 to 10 percent is considered average, he added.
That financial situation helps New Haven command a good price on the market, but the city might have been able to get an even lower interest rate, had it been able to secure insurance. Assured Guaranty Municipal, which already covers about $350 million of the city’s bonds, Jones estimated, said it was at capacity for Elm City debt. (“That’s a legitimate reason,” Belsky noted. “They can’t have too much paper from one issuer. They try to keep their portfolio diversified.”) BAM, another insurer the city reached out to, declined to cover the bonds because of concerns about the state budget, Jones said.
While selling uninsured municipal bonds was new for the Elm City, doing so has become the norm for many cities since the Great Recession, when credit ratings across the board took a nosedive, Belsky explained. “That’s very common now,” he said. Jones still wondered aloud just how much New Haven had lost out, but none of the consultants could assign a figure.
New Haven, however, was able to reel in some of the expenses by refunding past transactions. By getting a lower interest rate on prior bonds, from as far back as 2008 and as recently as 2016, taxpayers will see a $170,000 savings this fiscal year and $3 million in the next, he said. That windfall will be used to cover any unforeseen budgetary pressures, like the state not following through on promised urban aid or a rise in medical costs, and any extra will go toward increasing the general fund’s balance.
Living on credit is not good for families , cities , states or countries. I'm reminded of the line in the song by Traffic- "The man in the suit has just bought a new car with the profits he made on your dreams". New Haven is no worse than other government entities, but I wish we had the discipline to save money in advance to pay for projects rather than borrow the money and pay interest on top of the costs. Why do we have to borrow money for street signs and pavement markings? Shouldn't we expect those kind of expenses and have an annual budget with these things paid for?