Air Flow

It’s a new day

0 Comments | Buffalo News, Jul 28, 2010

It wasn’t that long ago that the idea of big-time investors competing for the right to lend the City of Buffalo millions of dollars — and offering rock-bottom interest rates to boot — would have been dismissed as a fantasy.

But this month the city felt confident enough in the attractiveness of its bond issues to offer them for sale on the open market. And city officials’ faith — and their long efforts at fiscal reconstruction — were rewarded.

Two issues totaling $27.6 million, money the city uses to finance improvements to parks, schools and other public facilities, were offered in online auctions. The ability of any municipal government to sell its debt competitively makes a huge difference in its ability to pay for things any decent city needs, in a way that leaves more of the money for those improvements and less to be paid in finance charges.

And that’s what happened here. The larger of the two offerings, $22.7 million, was snapped up by J.P. Morgan Securities, in a bid that will force taxpayers to fork over only 3.63 percent interest. Morgan Stanley & Co. won the other contest, agreeing to charge interest of only 3.53 percent for the use of $4.9 million.

This was the first time in nearly a quarter century that the city went the auction route in offering bonds. In the interim, Buffalo bonds were so unpopular in the market that the city and its representatives had to go hat in hand to Wall Street to negotiate the best deal it could get. Such a process was not only likely to be more expensive, with fewer potential buyers scrambling for the business, but also less transparent, with more opportunities for back-scratching, log-rolling or any number of other practices that would benefit everyone else ahead of city residents and taxpayers.

Now, with Mayor Byron W. Brown’s administration able to present would-be investors with a much more credit-worthy city, the major rating agencies recently upgraded the city’s rating to A status. That eliminated the need for the more costly (to taxpayers) negotiated means of bond placement and allowed a return to the auction marketplace.

The poor fiscal status of the Buffalo School District still weighs the city down, and means that the control board era — which helped immeasurably in winning the status Buffalo now enjoys — is not yet over
sales idea