Market crisis delays sale of Maine bond

PORTLAND – The turmoil in the nation’s financial markets hit close to home for Mainers as the state found no takers on Wall Street for a $50 million transportation bond.

State officials hope the financial crisis will soon stabilize so the state can access capital for the 15-year TransCap bond that would finance road projects across Maine.

If and when the state does float the bond, it will probably have to pay a higher interest rate than it anticipated.

Interest on the AA-rated revenue bond would have been around 3.8 percent or 3.9 percent, said Robert Lenna, executive director of the Maine Municipal Bond Bank. As of Tuesday, however, interest rates on municipal bonds had soared as high as 10 percent, effectively shutting down market activity.

“In 34 years I have never had a trader say, ‘I can’t give you a sale price. There is no market,”‘ Lenna said.

The bond bank’s board of directors voted Wednesday to sit out the turmoil for the time being and try to sell the bond sometime before Nov. 15 at a rate no higher than 5.5 percent. At that rate, it would cost taxpayers millions of dollars in additional interest payments over the life of the loan.

Failure to sell the bond this week hasn’t had any immediate repercussions because the Department of Transportation didn’t need the funds immediately. But if the financial markets continue in turmoil, there will be consequences, said Maine Treasurer David Lemoine.

The $50 million bond is meant to pay for 10 highway reconstruction projects on more than 20 miles of road in eight counties. It is part of a larger transportation package approved by the Legislature last session that includes $160 million in bonds earmarked for bridges. Those bonds are scheduled to be put on the market in annual $40 million issues from 2009 through 2012.

If the markets don’t recover, the jobs associated with the 10 projects covered by the $50 million bond could be jeopardized, Lemoine said. As a rule of thumb, about 34 jobs are created for every $1 million in transportation funds, meaning that up to 1,700 jobs could be affected.

“If this problem is not fixed, then you can look at the list of projects and the jobs that they would have created and say that is not going to happen,” Lemoine said.

Maine is not alone, said Susan Gaffney of the Government Financial Officers Association, a Washington, D.C.-based trade association.

“We’re hearing from many state and local entities that they are having problems with pricing and accessing the market,” she said, adding that most, like Maine, are delaying activity until the market stabilizes. “This is a problem with liquidity and not a problem with municipal securities as a product.”

If anything, Maine is in a better position than most since it has a limited number of bonds in play.