Eye-opening op-ed piece this morning from the financial juggernaut Bloomberg.com, regarding the deteriorating condition of the current US municipal bond market, which shows further evidence of being solidly "in the tank". Joe Mysak's lead paragraphs provide the gist of the story:
May 30 (Bloomberg) -- The amount of municipal bonds that have defaulted this year is already more than triple what it was for all of 2007.As Weber County Forum readers are painfully aware, our Ogden RDA board has already made its 2006 and 2007 "Junction Project" bond payments by "drawing down" against BDO revenue. And in mid-April we learned of another RDA draw down, presumably designed to satisfy the RDA's obligation toward its 2008 bond payment(s). So far the RDA board seems to have so far succeeded in scraping up the dough to keep itself current in its bond obligations, although Junction revenue hasn't been much help in this regard.
And who could doubt there's more bad news on the way?
So far this year, $736 million in municipal bonds have defaulted. That doesn't necessarily mean they didn't pay investors; they may have just drawn down reserves. That's what happens just before they stop making payments to bondholders.
During all of 2007, only $226 million in municipal bonds defaulted, according to the May edition of the "Distressed Debt Securities'' newsletter, published in Miami Lakes, Florida.
That $736 million is nowhere near the record for municipal bond defaults, to be sure. The record year, if you're counting, was 1991, when almost $5 billion went bust. That's still small potatoes compared with what happens over in the corporate-bond market, where $36.6 billion blew up in 2006, and almost $24 billion in 2007.
But wait a minute: Municipal bonds never default, do they? Or at least this is how they are perceived by individual investors, right?
We're probably going to see a lot more munis default this year and in the years to come, because of the subprime crisis and maybe, just maybe, because of the high price of a barrel of oil [emphasis added].
And remember... we got into this Junction morass because Boss Godfrey assured us that it "couldn't fail," and that the taxpayers would "never be on the hook." And previous councils bought it all, hook, line and sinker.
Whether the Junction Project is in permanent financial trouble we don't know. What we do know is that this project has suffered significant cost overruns and income shortfalls, and that so far it has plainly failed to pay its own way, leaving the taxpayers of Ogden to pick up the tab. We see no evidence, by the way, that there are prospects of this changing in the near future. We'll also add that we do agree with Mr. Mysek's proposition: Reserve drawdowns often signal genuine insolvency.
In the context of our currently sagging and unpredictable economy, it's not the time, we believe, for prudent city government bodies to indulge in frivolous and risky luxuries of any kind. Nor is it time to blindly accept the representations of glad-handed "visionaries" who peddle "can't fail" projects.
And it's in this connection we do hope our city council/RDA board members are all keeping a close watch on the Junction Problem, and remaining mindful of the fiduciary obligations owed their Ogden City constituents. At the very least, we believe that our Council/RDA elected representatives should exercise the same standard of care as they would exercise with regard to their own personal affairs. We also strongly emphasise that the same standards should be applied by our elected council members with respect to both their RDA and council roles.
And it's with all this in mind we ask this question:
"How many council/RDA board members would be dumb enough to invest (or contingently commit) a dime of their own money toward Boss Godfrey's Ice Tower Project?"
Seriously. Seems like a no-brainer to us.
There's still time to contact the city council to express your sentiments about the Ice Tower Project. We suggest you do it NOW.
And don't let the cat get your tongues. It's been quiet as a tomb here today.
