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Economic turmoil could hit RFTA

ASPEN ” Talk about the trickle-down theory.

The national financial meltdown that threatens everything from retirement savings to mortgages for average Americans could even determine if and when the Roaring Fork Valley’s bus system can expand.

The Roaring Fork Transportation Authority will ask voters Nov. 4 to approve its plan to issue $44.55 million in revenue bonds to expand the bus system. The bonds would be repaid through a sales and use tax increase.

Even if voters say yes, upheaval in the world financial markets could make it difficult ” but not impossible ” for RFTA to sell its bonds. Cities and other government entities across the country are having a tough time attracting buyers.

“There are many, many fewer buyers then there were even two, three months ago,” said Dan O’Connell of RBC Capital Markets, a Denver firm working with RFTA on its bond issuance.

Investment banks were the main buyers of municipal bonds. They have been hit hard by the financial crisis. The buyers that remain are very picky about what they buy, O’Connell said. So, simple supply and demand means fewer buyers of bonds is driving the interest rates up.

That means when an entity like RFTA, the Aspen School District or even New York City issues bonds that it will repay through a sales or property tax, it must pay a higher interest rate on what is essentially a loan.

RFTA’s ballot question envisions a maximum interest rate of 6 percent, according to RFTA Chief Executive Officer Dan Blankenship. RFTA wants to issue $44.55 million in bonds. It would repay a total of $99.16 million, assuming a 6 percent interest rate and repayment over 30 years.

RFTA hopes to score a much lower interest rate, but it legally cannot exceed the 6 percent rate, Blankenship said. Right now, rates for revenue bonds are pushing 6 percent but remain lower. If the ballot question is approved, RFTA would want to issue its bonds in two or three months. Given the wild fluctuations in the stock market and its effects on other markets, no one will hazard a guess on where interest rates in the bond markets are headed.

In one possible scenario ” one with soaring interest rates ” RFTA would have to wait for an undetermined amount of time for the interest rate to fall within the legal range in which it could issue bonds. That could mean making due this winter with the existing number of buses and staff rather than adding service during peak commute times.

In a more likely scenario, RFTA will have to spend millions of dollars more than officials hoped to repay the bonds because the interest rate is likely to hover around 6 percent rather than 5 percent.

RFTA would pay roughly $10 million more at a 6 percent interest rate than on a 5 percent interest rate on a 30-year revenue bond, according to a financial expert who helped The Aspen Times analyze the potential impact. Bond repayment plans can be complicated, noted Paul Menter, former financial director for the city of Aspen, but a 1 percent difference in interest would mean a multimillion dollar difference in the total repayment amount.

The turmoil in the bond market has spooked some cities and forced them to shelve public works projects, according to a report Monday on National Public Radio. Kansas City has delayed a $250 million bond issuance for a water works project because the interest rate has risen so drastically, the radio report said. Other municipalities are having a tough time luring buyers at any rate, according to the report.

O’Connell, the underwriter for RFTA, said he remains confident buyers would be attracted to RFTA’s bonds. Sales tax revenue bonds are considered a bit riskier than property tax bonds because sales could plummet in tough economic times. However, RFTA draws sales tax revenues from a wide region ” Aspen to New Castle ” that remains economically healthy, he said.

scondon@aspentimes.com


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