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Credit troubles not so distant: Some projects for city, state could be delayed [Houston Chronicle]
10/01 02:11 PM
Oct. 1--The list of casualties stemming from the credit crisis is about to get longer.
Local governments, long dependent on debt as a bedrock financing mechanism, could be forced to put off or even scrap plans for new schools, sports stadiums, even road and bridge projects as credit markets continue to dry up.
While Houston has one of the strongest regional economies in the nation, as well as a high credit rating, the region's public entities may not be spared the troubles rippling through municipalities around the country.
"Market circumstances right now are extremely difficult for any entity to navigate," City Controller Annise Parker said.
She added that some public improvement projects may have to be postponed in the coming months, although it is too soon to tell which.
Amid the failure of lawmakers in Washington to pass legislation authorizing a $700 billion rescue plan for the country's wounded financial markets, the City Council today will take up several measures intended to shore up city finances already hit hard by Hurricane Ike.
They include borrowing up to $95 million to deal with hurricane-related costs, restructuring nearly half a billion dollars' of debt and shifting funds to pay for capital expenditures that ordinarily would be bought with bond monies.
Still, analysts and city officials said, the Houston area likely will weather the crisis well.
Many other cities, counties, school districts, transit authorities and states -- already roiled by sagging sales and property tax revenues in the economic downturn -- may not.
Some states have made sharp cutbacks to public services, and some cities, such as Philadelphia and New York, have initiated hiring freezes that extend to police officers. Being cut off from credit could make matters worse.
But cities like Houston or states like Maryland, both of which have high credit ratings, will be able to borrow, said Robert Inman, professor of finance at the University of Pennsylvania'sWharton School.
"For at least the next year or so, there may be a significantly lower quality of services," said Inman, who specializes in public finance.
Money will be tight, but few municipalities will be bankrupted because of regulations that govern how they can borrow and invest money, said Robert L. Bland, chairman of the Department of Public Administration at the University of North Texas.
Chief among them in Texas, he said, is the Public Funds Investment Act, passed by the Legislature in 1989 to protect municipalities from poor investments.
"We're not immune, and not so arrogant as to say we'll never suffer a loss," Bland said. "But we have provisions so that we only incur losses if there's total incompetence. And that's not likely to happen."
Around the region, elected leaders are keeping an eye on the credit markets. Budgets are busting with rising fuel and utility costs and steep tax revenue drops caused by housing foreclosures or lower consumer spending.
Harris County financial officials said there would be serious repercussions locally if Congress fails to inject liquidity into the markets. If the market to finance short- or long-term construction debt collapses, it could be difficult for the county to tackle expensive capital projects, officials said.
"I don't think that's going to happen," said Financial Services Director Edwin Harrison. "But it could." The county has $3.8 billion in debt outstanding in principal alone. The Harris County Toll Road Authority is responsible for about $2.1 billion of that.
The Woodlands Township, a special district that collects sales throughout the master-planned Montgomery County community, has struggled to find a buyer for $17 million in bonds it needs for payments to Houston and Conroe under regional agreements.
The township may have to resort to a short-term loan, its board chairwoman said.
Houston Independent School District officials said they did not expect an immediate impact, although they are closely following the credit markets.
The district still must sell about $400 million in bonds approved by voters in November.
In the city of Houston's$2 billion investment portfolio, finance officials already have begun to capitalize on some of the problems other areas are facing. In the past week, they have invested millions in bonds from the Broward County, Fla., Airport System and the Harris County Flood Control District. Interest rates in both cases hovered around eight percent, city officials said.
Today, City Council will vote on whether to refinance $423 million in public improvement bonds in an effort to get a lower interest rate. Council also will consider opening a line of credit for Ike-related expenses, a tab that already has hit $30 million.
Houston officials said those steps should ensure enough cash is available to run the city before the state releases property and sales tax revenues at the beginning of 2009. The city's efforts to keep cash flowing are not unusual: municipalities often try to save money by adjusting high short-term interest rates or borrowing against anticipated tax revenues.
But because interest rates have remained high, city officials have had to delayed issuing some bonds or restructuring other debt used for planned improvements in airport and utility infrastructure.
The city currently has about $12 billion in debt, about $4 billion of which is supported by property tax revenues. The remainder is backed by airport and utility fees, and hotel occupancy taxes.
Sooner or later, Parker said, the city may have to pay higher interest rates for many of these projects, leaving less money for everything else.
"These are things we do on a routine basis," she said. "The timing is a factor and the amount of money may be bigger because of market issues and Ike, but this is not yet an emergency situation."
Chronicle reporters Liz Austin Peterson, Ruth Rendon, Eric Hanson, Renee C. Lee and Ericka Mellon contributed to this report.
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