In the midst of the panic over a collapsing municipal bond market during the financial credit crisis, the Obama administration passed a new bond program called “Build America Bonds” (BABs). As with most federal stimulus programs, its effects don’t kick in until the crisis is over, and the costs way exceed the benefits.
Sounds like BABs are perfect fit for the Chapel Hill government!
The Chapel Hill governance board agrees. In September 2010, they approved the use of BABs for future town indebtedness. Mayor Mark Kleinschmidt forgot to tell residents that the town will be charged larger commissions for selling BABs than the normal municipal bonds. Weighted by size, municipal issuers paid $6.55 per $1,000 of Build America Bonds sold in June, compared with $6.08 for traditional municipal bonds. More than $109 billion in Build America Bonds has been sold, according to Thomson Reuters, a news and financial data company.
As if this memory lapse isn’t enough, the Mayor also forgot to tell residents that Wall Street banks — which have pocketed over $700,000,000 dollars in fees from the program — are now releasing research reports warning that issuer’s financial woes may make the bonds less attractive. Some banks are even telling investors how to bet against BABs. You can use derivatives and other financial mechanisms to sell BABs short.
Mayor Kleinschmidt also failed to tell residents that BABs will be counted against the town’s creditworthiness as if they were normal municipal bonds without benefit of the federal subsidy on payment. Why? The bonds must be evaluated as not having a subsidy because the federal government can suspend the subsidy.
Guess who will be paying the bill for BABs? You will, of course. Mr. Thomas Doe, chief executive of research firm Municipal Market Advisors, a research company has said, “What’s clear is that the federal government, over the life of the Build America Bond issues, will be writing checks in excess of $50 billion to cover the interest.” he said.
How did the Chapel Hill governance board discuss this important financial issue? It didn’t. It passed on the consent agenda.
In most of North Carolina, when you find yourself in a hole, you stop digging. However, Orange County isn’t like the rest of the state. Here, a financial hole is simply another “Progressive valley”.
Pulpsters will remember over the past few years the Pulp reporting on the Buckhorn Village project. In 2008 Orange County Commishes selected their Developer Dream Team. They threw millions in county finances to develop infrastructure for their Dream Team. Heck, they even got the Buckhorn Flea Market in trouble using the County Manager and his “PZI police”.
Fast forward two years. Developer Dream Team member Roger Perry delivers the requiem for Buckhorn Village. “[T]he Buckhorn Village project is dead, and no major retail center is likely to replace it along Buckhorn Road at Interstates 85 and 40.” (See CHN Buckhorn Obit.) Admitting defeat to the obvious, Mr. Perry notes that the Tanger Outlet Center opening just to the west across the Alamance County line renders Buckhorn Village a moot point.
So what do the Commishes do? They get busy digging. Why stop throwing your money away? Perhaps they’re looking for the little blue pills that will cure Orange County’s flaccid ED problem. Having spent $2,000,000 installing public water and sewer lines to serve Gravelly Hill Middle School and the Eurosport Soccer Complex, these financial geniuses plan to spend another $2,300,000 expanding that infrastructure to the north side of I-85.
”Any activity with [the town of] Mebane will probably offer some economic development opportunity for the county. They're more geared toward it.” Such is the genius of Commish Barry Jacobs, This is the same person who said in April 2008 that Buckhorn Village would create living wages. This is the same person who for two decades has overseen the looming ED disaster in Orange County. Of course, neither he nor any of the other Commishes have any responsibility for the problem. They simply offer more Progressive platitudes.
If you build it in the middle of the Great Recession, they will come. Everybody loves a good wake.
