From Public Works Financing newsletter
A Colossal Mistake
Frenzied demand by investors for the $2.5 billion in bonds sold recently to finance construction of a new central terminal at LaGuardia Airport is the best evidence yet that abundant, long-term money is available at rock-bottom rates to invest in America’s infrastructure.
That this is not happening—with credit spreads collapsing in the municipal bond market and global investors scrambling for yield—may go down in history as one of the colossal mistakes of our time.
For LaGuardia, demand from hedge funds, mutual funds and others exceeded supply by 10 times—$25 billion for $2.5 billion in 30-year fixed-rate bonds, which sold at a true interest cost of 3.27%, tax-exempt.
An earlier investor riot resulted in $7.5 billion in orders for $850 million in bonds sold to build the Tappan Zee Bridge. Those 40-year bonds were issued in May at a fixed interest rate of 3.94%, tax exempt.
That other critically needed projects aren’t being financed is due largely to the lack of new funding at all levels of government. For transportation, the FAST Act locks in only minimal increases in federal funding over five years. No state has increased its gas tax this year. An unholy alliance of the far left and far right opposes tolls.
Starved of new funds, the municipal bond market has spent the majority of its time in the past few years on refundings of existing debt. According to the Bond Buyer, $9.8 billion in transportation bonds were issued through April of this year vs. $14.4 billion in the first four months of 2015. That steep drop continues a four-year downward trend in the transportation sector.
Over and over we all agree that strong political leadership is needed to reverse this trend. Sadly, it’s usually in short supply when it comes to paying for big, expensive infrastructure projects. Yet, without a new willingness in America to pay our own way, the best opportunity in decades to borrow and invest will be lost.
by William G. Reinhardt, editor