Credit Crunch Shuts Down State, City Projects

Projects shelved as municipal bond market dries up

By Rob Quinn, Newser Staff

Posted Oct 1, 2008 6:56 AM CDT

(Newser) – The credit crisis is squeezing the life out of local governments, reports the New York Times. Cities and states have found themselves shut out of bond markets for the last 2 weeks, and big projects, from new hospitals to highway repairs, are being shelved or delayed. Analysts believe the days of cheap cash for local governments are over and tough choices lie ahead even when the market picks up again.

"We are really in terra incognita here," one banker who deals in municipal bonds tells the Times. New York City had the market to itself when it issued $300 million in bonds Monday, and had trouble finding takers even at a hefty 5.75% interest. Municipalities will likely be able to keep functioning, but the level of service may drop. "It’s no different from a family budget,” said the chief of a finance firm. “We’re not going to go out to dinner any more. We’re not going to buy a new car. That’s the similarity."

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Crews work on a closed portion of Highway 138 in California last year. (AP Photo/Damian Dovarganes)

Construction equipment is sitting idle in cities across the country as trouble in the bond market brings projects to a halt. ((c) SMN)

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Things just keep getting worse and worse. We’re just sitting on our hands like everybody else, trying to figure out what to do and how we do it.
- Michelle Barstad, executive director of the Montana Facility Finance Authority

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Credit Crunch Shuts Down State, City Projects