KCUR News
2:35 am
Mon October 13, 2008

Kansas City Hurt By Credit Crunch

Kansas City, MO – City and other local governments have been put in their own credit crunch by the crisis on Wall Street. They can't find anyone to buy their municipal bonds. That's how cities normally pay for everything from sewer upgrades to a new city hall. But the market has dried up, and Kansas City, for one, has put tens of millions of dollars of water projects on hold as it waits for the municipal bond market to shake out. KCUR's Maria Carter reports.

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Chad Haines is a Kansas City contractor and over the past decade his company has worked on city water projects. Three years ago Kansas City voters approved 250 million dollars in bonds for upgrades to the city's water system. Hanes says he thought he would be sitting pretty.

CHAD HAINES: When that passed everyone was expecting for all this work to happen, and I was expecting it too until I actually sat down and learned the process of the bonds and the bonds have to be sold in order for it to actually happen.

Here at the corner of 80th and Tracy, one of Hanes' crews replacing water main lines. It'll improve water pressure and make the fire department happier if they have to put out a fire here. But projects like this going on around the city could stop if the city can't sell its bonds.

SEAN HENNESSY: There isn't a market right now to issue much in bonds. The liquidity isn't there. So people are just not going out and buying these bonds. Means interest rates are going up, which means our costs are going up.

That's Sean Hennessy is the Chief Financial Officer for the city's water department. He says selling municipal bonds has up until now been a routine process for Kansas City and most other cities.

SEAN HENNESSY: We'd bascially go to market, people would bid on those, the purchase of those, and we would sell the bonds. It was literally that mechanical.

So what's changed? Hennessy says it's the market, not Kansas City. The city can still pay off the bonds. It still has a double A credit rating the second highest out there. So why's no one looking to plunk down 200 million dollars on Kansas City's water bonds? Well, that has more to do with Wall Street. First, bond insurers took a big hit when the subprime mortgage market collapsed. Then, the investment banks, the biggest buyers of municipal bonds, started faltering. When Lehman Brothers went belly up, the market for municipal bonds all but ground to a halt. Matt Fabian is with Municipal Market Advisors. He says there now about half as many big bond buyers out there and those that are left don't want to tie up their money in bonds that could be tough to resell.

MATT FABIAN: It makes it just very difficult to get bonds moving around the system. There's simply a lot less capital being deployed to hold and trade municipal bonds.

Even if a city does manage to sell a bond, the interest rate is higher, which means the cost of paying off the loan is higher, too. Cities are putting major infrastructure on hold to see if those rates drop. And it's not just Kansas City. Broward County, Florida recently put off 170 million in bonds for new sewers and Washington DC delayed a bond sale for an airport expansion. Chris Hoene is a policy analyst for the National League of Cities. He fear fewer city projects will hurt local economies.

CHRIS HOENE: Typically those projects are jobs producers, so if they scale that back it means that there's less jobs and there's less money flowing around in the local economy.

But Hoene cautions that even if the bond market bounces back soon, many cities' finances could be bleak for the next few years. In many p Property taxes have fallen as housing prices have plummeted and most cities are bracing for an economic downturn.

For NPR news, I'm Maria Carter in Kansas City.