This problem is further compounded by the fact that many of the companies that insure bonds against default also underwrote the subprime mortgages that caused so much devastation in the investment banking industry. These insurers saw their credit nosedive and that has made it harder for municipalities to buy insurance for the bonds they issue. Uninsured bonds receive lower credit ratings, forcing many municipalities to offer higher interest rates in order to entice investors (Chicago Tribune, 9/21/2008: Municipal Bonds More Risky But Also More Attractive).
But even a fully insured municipal bond isn't a sure thing. In Alabama, Jefferson County is in danger of declaring bankruptcy due to a variable interest rate associated with a sewer bond. The situation has so badly deteriorated that two of the firms that insured the bond have sued the county to force compliance with the bond's covenants (The Birmingham News, 9/17/2008: Bond Insurers Sue Jeffco Over Sewer). The county has been unable to find anyone to refinance the bond at a lower rate and Alabama Governor Bob Riley has been exploring how the Treasury Department's $700 billion financial bailout fund might be tapped to help alleviate the situation (Associated Press, 10/8/2008: Riley Asks for Help On City's Sewer Debt).
The bond the town of Waitsfield is asking voters to approve on November 4 is much smaller than the multi-billion-dollar issues that I've mentioned. But $3.93 million is still a lot of money to a town of Waitsfield's size and that figure takes into account $3.66 million in grants that the town has been promised to complete this $7.59 million project. When you realize how murky the bond market is right now and how uncertain the whole economic climate is as well, it just doesn't make sense for voters to support this proposal.
Peter Cammann lives in Waitsfield.
