States, cities move to refinance debt

To help, Fabian suggested that temporary credit relief be allowed from home-loan banks — a system of 12 quasi-public regional banks created during the Depression to ensure a stable source of funds for residential mortgages.

Legislation to that effect is being pressed in Congress by hospitals, cities and counties. It would change federal law to allow thousands of banks to guarantee tax-exempt municipal bonds. Supporters say that would free up financing for local projects like roads and sewers that otherwise may be bogged down in tight lending markets.

Some authorities, such as the state of California and the authority that runs New York City's airports and bridges, have been able to stop some of the bleeding by swapping out for long-term fixed-rate debt. The Children's Hospital of Philadelphia took out a short-term $170 million bridge loan to escape the auction-rate market more quickly.

Others, such as the E-470 Public Highway Authority in suburban Denver, are looking at a matrix of options provided by financial consultants, including short-term deals.

In some cases, refinancing costs may be higher than the extra interest rate payments.

Increasingly, a bigger syndicate of banks is necessary to back a new bond issue. And financial officers say they are being told by consultants not to bother sending requests for bids — the banks are too busy to go through them all — and instead pick up the telephone and milk personal relationships.

Houston is trying to get out of $1.9 billion in auction-rate bonds and expects to be tied up in the process for months to come.

"The market stinks right now no matter what you do," said Jim Moncur, the deputy controller for the city of Houston. "Every other issuer with auction-rate securities is doing what we are."

Assuming the increased costs subside soon, many agencies say they have the reserves or flexibility to absorb a hit that, for some, has piled up by millions of dollars a week. Some smaller agencies say they hope to save enough money elsewhere in the budget.

The Houston city controller's office cited $15 million in increased costs. Guenther's agency, the Pennsylvania Higher Education Assistance Agency, is unlikely to realize $115 million in earnings this fiscal year that otherwise would have supported its operations and student tuition grants, he said.

Amid the scramble, officials have stressed the larger savings their agencies and institutions realized over the years, but also raised questions about how transparent the auction-rate market was, or how well-regulated the insurers were.

Some are unhappy that investment banks continued to collect fees to operate the auctions even after dropping out of the bidding, despite what state and other public officials described as the banks' unwritten obligation to act as the bidder of last resort.

"We will keep in mind the investment banks that stood with us," said Tom Dresslar, a spokesman for California Treasurer Bill Lockyer, "and those that didn't."

MORE FROM BUSINESS JOURNALS

Business Journals Section Front

WellCare acquisition talk heats up Leinie’s charts national craft beer rollout Peacock poised for top A-B post Hard-money lenders finding credit climate hard to gauge A new kind of co-worker Business Journals Section Front   Add Business Journals headlines to your news reader: