Chattanooga: Without help, city and county may not be able to borrow for projects

Oct 01, 2008 (Chattanooga Times/Free Press - McClatchy-Tribune Information Services via COMTEX) -- VLKAY | Quote | Chart | News | PowerRating -- With financial markets seized up by the ongoing Wall Street crisis, it's getting harder for local governments to borrow money, Chattanooga and Hamilton County officials said, and without some kind of congressional action to spur lending, some projects may have to be delayed.

"There's less money available, as I understand it, therefore the less money available, the harder it is to get," said Daisy Madison, the city's chief financial officer.

Ms. Madison said the city is looking at issuing bonds for upcoming capital projects this year and credit could become tighter because of the financial meltdown. Interest rates paid by the city on the bonds probably will be higher, she said.

County Finance Administrator Louis Wright said the county now is not in the bond market.

"We're not borrowing money right now," Mr. Wright said. "We borrowed money back last spring when we did our bond issue, and right now we're spending those proceeds."

But without some kind of federal action that would open banks up to lending again, Mr. Wright said, the county may not be able to recoup some of its investments. He said the county's $25 million now held in still-active commercial paper -- short-term, low-yield securities issued by entities with high credit ratings -- may not sell when it matures Dec. 2.

"Something needs to happen," he said. "The streets have dried up. Money's not out there."

The county has a line of credit with SunTrust Bank it can fall back on if the commercial paper doesn't sell, Mr. Wright said.

"That was a part of the deal that was put together," he said. "I'd prefer not to do that."

The city approved $33.6 million in capital improvement projects two weeks ago for the 2008-2009 fiscal year that runs from July 1, 2008, to June 31, 2009. Of that, $10 million comes from bonds, city records show, and the money will help pay for road improvements, neighborhood enhancements such as sidewalks, streetlights or community parks, building construction and other projects.

The Chattanooga City Council last month also approved a $40 million bond issue for site work at Enterprise South industrial park, which will be home to the new Volkswagen assembly plant.

Ms. Madison said the city holds a good bond rating, so that could make it easier for a creditor to take a risk with city business. Bond companies prefer that 15 percent to 18 percent of city expenditures be in bonds, and the city is around 10 percent, officials said.

But higher interest rates could translate into higher costs for projects, Ms. Madison said, which would mean some projects would have to be put on the back burner.

City spokesman Richard Beeland said the city would not know which projects could be delayed until it is known what the interest rates will be.

"We'd just be guessing at this point," he said.

The county is using the funds from its bond issue to build new schools, Mr. Wright said, and those projects are going along as planned.

"They've got planned opening dates and things like that that are contingent upon construction staying on schedule," he said.

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