Fallout: The Financial Crisis

Cash-strapped Philly borrows money

Jeremy Hobson Sep 2, 2009
HTML EMBED:
COPY
Fallout: The Financial Crisis

Cash-strapped Philly borrows money

Jeremy Hobson Sep 2, 2009
HTML EMBED:
COPY

TEXT OF STORY

Kai Ryssdal: Municipal finances can be remarkably similar to our own. They borrow, they go to the bond market, where they get loans at fixed rates that don’t have to be paid back for a while. Kind of like a typical fixed-rate mortgage, really.

This year, though, has been anything but typical for cities like Philadelphia. The City of Brotherly Love in desperate need of cash, so it’s getting the money it needs from JPMorgan.

It is a bank loan. But the adjustable rate on it makes it look like the kind of mortgage that got this economy into a boatload of trouble. Marketplace’s Jeremy Hobson reports.


JEREMY HOBSON: Philadelphia’s treasurer Rebecca Rhynhart says because of budget woes, bond investors were demanding an interest rate that Philadelphia couldn’t afford to pay.

REBECCA RHYNHART: We didn’t feel like we could get into the public market at an acceptable rate, and JPMorgan offered us what we considered a very reasonable rate through the end of November in the private placement.

She’s talking about a $275 million loan. The city will pay 3 percent interest to begin with. But the rate jumps to 8 percent in December.

Rhynhart says the city should be able to refinance the loan by that time. And really, what other option is there?

RHYNHART: No other bank was able to produce any type of viable alternative or option like JPMorgan did.

JPMorgan calls it good business to lend to a city or state in need and says it’s confident it’ll be paid back.

The bank’s already lent money to New Jersey and California. And a spokesman told Marketplace the directives to make these loans come straight from the top of the organization.

Tom Doe is CEO of Municipal Market Advisors. He says cities and states almost never go to banks for money these days, it almost seems like a blast from the past to him.

TOM DOE: You know you build a bridge. And you go down to the bank, and you organize a loan. And you don’t get involved in the marketplace, you just deal directly with the lender.

Doe says this doesn’t mean Philly’s done with the bond market. If anything, he says, the city is trying to prove to hesitant bond investors that it can pay back a loan in a timely manner.

And with reports indicating a rough fiscal year ahead for the nation’s cities, Philadelphia will need all the help it can get.

In New York, I’m Jeremy Hobson for Marketplace.

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.