For those of you living under rocks, or in cabins waaaaaayyyyy out in the woods, our economy has been in a bit of turmoil lately.
It’s with that context that I felt I had to ask some questions about the Poulsbo City Hall process.
The bond in question is $9.5 million to pay for the second phase of the $16.9 million (projected) city hall.
As you can read, the bond rating increase is good news for the city’s finances, and according to officials reflects the city’s sound budgeting principles and financial health.
But no city lives in a bubble, so I had to wonder about how the economy and volatile markets might affect the city’s plans to pay for the building. Sales tax is a major source of income for the building, and would presumably go down when the economy sours. And the sale of three properties is a fair portion of the financing plan. If credit is tight, and the economy is sluggish, will there be buyers? Bonds are purchased by investors, so it’s the same question. Will there be buyers?
Most every source agrees municipal bonds are fairly secure, but you can find some hyperbolic examples of things going wrong. (I haven’t seen anything to suggest Poulsbo is headed there, and the bond rating upgrade would seem to signal quite the opposite.)
It’s been a good excuse to get a 101 education on BOTH sides of the bond financing process. When no one questions the state of the economy, it’s easy to look at bonds only from your government’s perspective. (They need money, issue bonds, pay them back with tax revenues, or in some cases fees generated by the project, like sewers.) I felt I should also at least get a little better understanding of the investor side of the equation. In the most basic form, when a city issues a bond for a project, investors are loaning the city the cash, and the city makes it worth their while by paying out interest.
In the wake of economic uncertainty, caution and conservatism in budgeting are likely in store for the city, according to Councilman Ed Stern. I should hear more specific policy proposals at tomorrow’s Finance/Admin Committee meeting. If there’s anything interesting, I’ll write an update.