Topic: financing
City of LA Votes Against Becoming Successor Agency to CRA/LA
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In a lengthy session this week, the City Council of the City of Los Angeles, CA voted against assuming the obligations of the Community Redevelopment Agency of Los Angeles (CRA/LA) to become the successor agency under the provisions of ABx1 26.
The passing of ABx1 26 and the subsequent fallout has put several projects into a precarious position, including 10 projects in Los Angeles County show in the graphic on the left.
An article about the Council’s decision can be found in today’s Los Angeles Times. To hear the discussion about the Council’s decision and the next steps, watch the on-demand video of the meeting here.
What Does the Harrisburg, PA Bankruptcy Mean for Muni Bonds?
This week, Harrisburg, PA filed for Chapter 9 bankruptcy protection. Pennsylvania’s capital city was facing $458 million in creditors and claims and a state takeover, according to media reports. The City Council voted 4-3 to seek bankruptcy protection for Harrisburg, which has a debt burden five times its general-fund budget. This imbalance was blamed on the “incinerator from hell”— a waste-to-energy incinerator, the renovation of which created $310 million in municipal debt. In December 2010, Pennsylvania declared the city financially distressed. Including Harrisburg, six communities have filed for bankruptcy in 2011.
Here are some considerations regarding Harrisburg’s financial troubles for existing and prospective investors:
- Holders of the incinerator bonds should continue to receive principal and interest payments due to insurance that was purchased from Assured Guaranty upon the issuance of those bonds.
- Harrisburg’s financial difficulties may be somewhat unique. With an entire budget of less than $60 million, the city incurred more than $300 million in debt over a failed incinerator project. The imbalance is perceived to be an isolated incident.
- Municipal bond prices recently have been driven down (and yields driven up) for a variety of reasons. In trading on Wednesday, October 12, 2011, prices for tax-exempt bonds finished mostly lower, with yields on AAA-rated, 10-year municipal bonds up three basis points to close at 2.53% on Municipal Market Data’s benchmark triple-A scale. In contrast, yields on 10-year U.S. Treasury notes closed at 2.23%.
- Diversification continues to be the prudent course. Bond investors should never over commit to any single issuer.
President Obama’s Better Buildings Initiative
President Obama recently proposed several incentives designed to encourage commercial building owners to increase the energy efficiency of their buildings by 20% over the next decade. The White House stated that the proposal, the Better Building Initiative (BBI), will save business owners $40 billion in energy retrofitting costs, allowing for more hiring, better products and increased shareholder value. The President outlined his plan at a February 3 visit to Pennsylvania State University.
The BBI’s five-point plan includes:
- New tax incentives for building efficiency: The President is urging Congress to change the current tax deduction for commercial building upgrades to a more generous credit. Other possible changes to the current tax deduction include lowering the energy savings threshold for owners of existing buildings and permitting the transfer of the tax benefit to third-party retrofit investors.
- More financing opportunities for commercial retrofits: The initiative seeks to create a Department of Energy pilot program to provide loan guarantees for energy efficiency upgrades in hospitals, schools and other commercial buildings.
- “Race to Green” competitive grant program: The President proposes to offer competitive grants to state and/or local governments designed to encourage upgrades and streamlining of building standards.
- The Better Buildings Challenge: The President is asking CEOs and university presidents to commit to a series of actions to make their facilities more efficient, in turn becoming eligible for public recognition, technical assistance and best-practices sharing through a peer network.
- Training for commercial building technology workers: The initiative also seeks to provide more workforce training in such areas as energy auditing and building operations as well as launch the Building Construction Technology Extension Partnership training program modeled on the successful Manufacturing Extension Partnership, a training program for manufacturing companies.
While the Administration has not estimated how much the BBI will actually cost, it intends to pay for the initiative through higher taxes on oil and gas companies. Further details on the program, including its projected cost appears in the President’s budget proposal released earlier this week.
Weekly Quick Hits – Happy New Year
Transport Issues Still Snarled – Transportation funding has been delayed by Congressional gridlock. However, an extension of the Build America Bonds program may be introduced early in 2011, clearing hurdles for increased transportation financing. (The Bond Buyer)
Home Design Trends for 2011 – A preview of green design trends for 2011, including CALGreen, which mandates eco-friendly practices. (USA Today)
Massachusetts Sets Targets to Slash Carbon Emissions – Massachusetts officials recently announced a plan to curb heat-trapping gases emitted by homes, cars and businesses in the state by 25% below 1990 levels over the next decade. (The New York Times)
Bird Species at Risk from Wind Development – Rapid construction of wind turbines in the Midwest is threatening golden eagles, whooping cranes and greater sage-grouse. (The New York Times)
