Crisis raging, no hurry on parkway loan

NASHUA – With financial markets in danger of collapsing and credit evaporating like a savannah watering hole during drought, some would argue it’s time to borrow the $37.6 million to build the Broad Street Parkway – and fast.

City officials, however, say they can bide their time until the nation’s financial systems at least stabilize, if not shift into recovery mode.

“We wouldn’t want to be issuing bonds right at this point, and fortunately we don’t have to,” said Michael Gilbar, the city’s chief financial officer.

“We can wait for the muddy water to clear,” he said.

The city wouldn’t have to sell many of the bonds until the first year of the parkway’s construction, which would probably be in 2010 or 2011, said Alderman-at-Large Brian McCarthy, who chairs the budget review committee.

However, a potentially paralyzing credit crunch could drive up the overall cost of the parkway, said Alderman-at-Large David Deane, a former budget review committee chairman and parkway opponent.

When it comes time to sell the bonds, interest rates are probably going to top out at a much higher level than the city had anticipated, Deane said.

On Sept. 23, the board of aldermen passed the resolution to borrow up to $37.6 million for the controversial, long-delayed cross-city roadway.

A week later, the Dow Jones plunged 777 points when Congress failed to pass a $700 billion bailout of Wall Street. In a domino effect, markets across the globe likewise suffered losses.

Against that backdrop, city officials have the security of knowing the city’s bond rating – which determines the interest rate it pays on borrowing money – remains strong.

The city received a credit rating of AA-plus from Standard and Poor’s, with AAA the highest rating, Gilbar said.

With that strong rating, the city has enjoyed a 4 percent interest rate on bonds for the past two years, he said.

As one might expect, there’s not much traffic in the bond market now, Gilbar said. A community in Maine recently issued municipal bonds, at a rate of 5.5 percent, he said.

Parkway bonds were projected to have an interest rate of 5 percent, Gilbar said.

“I’m still hopeful we’ll be coming in at 5 percent because we’ve had such a high rating,” he said.

Currently the city carries a total of $151 million in bonded debt against the general fund, Gilbar said.

The city is scheduled to pay $18.5 million is debt service, which is principal and interest, during the current 2009 fiscal year, he said. Without additional borrowing, the debt service would fall to $18 million in 2010 and $17.1 million is 2011, he said.

Much of that debt is due to the city’s two high schools, which were built for a combined cost of $143 million.

It’s crucial the city maintain its undesignated fund balance of $26 million, Deane said. A big reason why the city got the AA-plus rating was because of the size of undesignated funds, he said.

While the nation’s future financial picture remains murky, there is another option available when the city puts the parkway bonds out to bid, Gilbar said.

If the climate is such that there is little interest in municipal bonds – which is unlikely, because “munis,” as they’re called, are deemed a safe risk – there is another option, Gilbar said.

The city could have a negotiated bond sale, in which the city chooses an underwriter who would structure the bonds, he said.

Don’t think the city is in the same position of the many homeowners whose homes have been foreclosed, or who face foreclosure, McCarthy said.

The city’s bonds, including the $143 million high school bond, were at fixed rates.

“We didn’t fall for the variable rates,” McCarthy said.