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Debt Downgrade

The downgrade’s effect on cities’ budgets and growth

Marketplace Staff Aug 9, 2011
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Debt Downgrade

The downgrade’s effect on cities’ budgets and growth

Marketplace Staff Aug 9, 2011
HTML EMBED:
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Kai Ryssdal: Not to get all Reaganomics on you here, but there is a certain trickle-down element to the S&P ratings downgrade. Not just to big companies like Fannie and Freddie that Stacey was talking about earlier.

S&P says it’s also looking into the possibility of adjusting the credit ratings of some municipal bonds. Makes sense, since a lot of those bonds are backed by the now-AA+ federal government. But it doesn’t do anything to make economic life easier out there for issuers of muni bonds, like cities and states.

Michael Bissonette is the mayor of Chicopee, Mass. Welcome to the program.

Michael Bissonette: Thank you very much, glad to be with you.

Ryssdal: Tell us a little bit about Chicopee, would you?

Bissonette: Chicopee, Mass., is the second-largest city in western Massachusetts. We’re the home of Westover Air Reserve Base, the largest air reserve base in the country. We also make Callaway golf balls here, and we print the Wall Street Journal here. So we have a pretty diverse economy here in Chicopee, and we have a very large residential component as well.

Ryssdal: Now about the credit markets: you are going to, I understand, go out to the markets in September, next month, looking to borrow around $25 million for some new projects, right?

Bissonette: Yeah, we have on the drawing board a new police station, a new senior center. But the Standard & Poor’s decision — this is not just going to affect borrowing. You’ll see impacts on home mortgages, consumer credit. We just broke ground last week on a $4.5 million expansion of a local car dealership, going to create 20 new jobs. But if folks can’t get good credit on their car loans, good interest rates, they may not buy those cars and those jobs may not appear. So there’s a lot of concern throughout my constituency right now about this S&P decision.

Ryssdal: What are you going to pay when you go to the markets in September with $25 million — what’s your interest rate going to be?

Bissonette: Well the last two times we went out for short-term and long-term borrowing, but last two times we went out, we had interest rates on short-term borrowing of under 1 percent. And we’d hoped to go out and get something around 3, 3.5 percent for these long-term 20- and 30-year notes. Now it looks like we may be pushed up into the 4, 5, even 6 percent. It’s very disconcerting to not have any certainty about where we’re going to be when we go out to borrow.

Ryssdal: Well let me ask you the question, though: if you wind up having to pay 4, 4.5, 5 percent — and we should say that’s not where the markets are now, but who knows what’s going to happen — would you just not build a new police station and senior center?

Bissonette: There may be a point where we say we cannot afford to do this right now, and we’ll put it off until the interest rates come down. I’m on my way now to Bridgeport, Conn., to talk to eight of my fellow mayors about this. In the history of the country, we’ve never defaulted and we’ve never had this kind of partisan turmoil. And I think the partisan bickering is what’s got us into this mess, and the partisan bickering is not going to get us out of it. They’ve got to lower their voices, raise their heads and look each other in the eye and see if they can come to some common ground.

Ryssdal: Michael Bissonette is the mayor of Chicopee, Mass., out in the western part of that state. Mr. Mayor, thanks so much for your time, sir.

Bissonette: Thank you so very much. Have a great day.

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