The Financial Times is reporting this morning that “financing for US states, cities and other municipalities has ground to a halt and borrowing costs have risen as the latest chapter of the credit crunch unfolds.” In other words, cities and school districts that need to sell bonds to raise money for schools, bridges and convention center hotels can’t do it.
The FT (as those of us who are savvy international investors call the paper) says “In the last two weeks, roughly $10bn in new municipal issuance has been shelved, including two issues from the state of New York.” In addition, interest rates for the highest quality municipal bonds were 5.24 percent on Wednesday, the highest in six years and up from 4.85 percent on Sept. 12.
The city plans to sell $550 million worth of debt from something called an LGC (a separate corporation established by the city). The LGC would issue tax-exempt bonds, and the bonds would be repaid from hotel revenue.
What does all this mean in English? It means it will be increasingly difficult to sell the bonds to finance the hotel, and that the interest rate that the city will pay will be much higher than anticipated. This means the hotel will have to be more profitable than first budgeted to pay the debt.
I don’t know that the argument has ever been whether we need the hotel or not. Wamre, who has been our point man on the hotel, has taken a lot of guff from visitors who think he is inalterably opposed to it. He isn’t. He just thinks there’s a better way, using the private sector. And the news from the financial markets seems to bear him out.
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