Municipalities Feel Credit Market Pain

Unaffordable bonds mean projects stall— or taxes rise
By Kevin Spak,  Newser Staff
Posted Nov 29, 2007 12:58 PM CST
Municipalities with lower credit scores have already had to forget about expected bond deals.   (Getty Images)
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(Newser) – Cities, towns, and schools are learning what would-be homeowners already know: the credit market stinks. Municipalities have grown addicted to financing projects with extremely low-interest bonds, but such cheap credit is hard to come by as bond insurers swing in the subprime wind, the Washington Post reports. Local governments either have to scrap projects, or pass fat interest costs to taxpayers.

Many are being caught off guard—Chicago, DC, and Miami-Dade County have each had to cancel hundreds of millions in bond deals. “When we went to market, [it] was very volatile,” said a Miami-Dade official. But though low interest rates have buoyed the bond industry, analysts warn of broad trickle-down effects on the economy should it reach crisis point.