Municipal bonds — financial risks where they’re least expected | From the Roundtable

The other day I sat in on a conference call with a group of big-city bankers discussing bond investments. With developing concern about the soundness of various bond-issuing entities, it was an instructive hour spent with specialists at one of the world’s largest financial houses.

Their advice was somewhat revisionist compared to what they’ve said before. They advised caution and an ongoing review of the portfolio, and they suggested selling certain bonds they considered risky.
Tax-free bonds have been around for a very long time. Upheld over the years in the face of numerous court challenges from jealous taxing bodies, these bonds raise capital for entities ranging from municipalities and school districts to a gamut of other public agencies too numerous to list. Apart from commitments by major league institutional investors including banks, insurance companies and bond funds, individuals buy these bonds because they are comparatively risk-free and immune from federal and state income taxes.
Inevitably, the analysts reviewed bonds issued by various area entities including the city of Columbia and the University of Missouri. Reassured that bonds issued by these two bodies were safe and well regarded, I was left with the caveat to pay attention and follow each entity like a hawk and to be aware of sudden reverses that might arise and thus harm the sanctity of those investments.
That left me wondering about the city’s future and whether Columbia is becoming another one of those cities that grew too fast. Certainly it’s time for a reality check, given the growing list of things in the future we’re going to have to pay for. Although it’s nice that the city commissioned a survey of some 800 residents with the predictable result that finds us largely satisfied with the city’s performance and our lives here, my skepticism about their hosannas grew upon hearing the city ordered and paid for the survey.
The bond-analyzing bankers wondered about boulders in the city’s financial highway and whether funds would be available to make them go away. Some obstacles are more obvious than others. The visible part of Columbia’s financial iceberg includes paying for basic infrastructure: street construction and maintenance and the municipal water, sewer and electric utilities. It’s the submerged part of Columbia’s financial iceberg that I’m concerned about.
The first movement in this probable dirge of financial challenges will soon have us fretting over how to fund pensions promised to city workers as part of their employment package. The second movement will be finding the financial means to make the waters of Hinkson Creek as pristine as fresh-fallen snow. Then there are stanzas dedicated to downtown parking issues arising out of the still unloved high-rise garage and the apparent pressing need to build a shorter twin a few blocks away.
Then there are wish lists, and they are crammed with things some department or another wants to get crazy about. We all agree it would probably be a good thing if the police chief got the 42 officers he’s pining for. The same goes for whatever is on the fire chief’s wish list. Of course, everyone wants a raise, but those might be derailed if some new federal directive comes along to surprise us. And it would be equally sweet if Parks and Recreation could build and operate a new multifield soccer complex to steal business from similar entities in Missouri’s two major metro areas. So it goes, on and on, in this Saturnalia of municipal spending.
Finally, let’s churn up fresh talk and vigilance about paying for Columbia’s magnificent new City Hall that opened for business a few months ago. The idea was resoundingly defeated by skeptical voters at the polls, and yet the city resorted to various acts of apparently legal accounting legerdemain to go ahead and build the darned thing anyway — kind of a build-it-now-and-we’ll figure-out-later-how-to-pay-for-it strategy.
Well, those financial chickens might be returning to stir things up and throwing more controversy into the boiling stew of public skepticism as the city’s financial picture gets even squeakier.