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Sewer Plan Oblivious to Market Woes
The City of Akron is moving ahead with the Sewer Lease for Scholarships plan despite the uncertain conditions in the financial markets for municipal debt. I'm sure the mayor would counter that this is a lease transaction but it will take place in the same arena that municipal debt and financial intermediaries do business. From what I've heard there is a bit of a credit crunch in this once thriving playground.
As has been the case from the beginning the Plusquellic administration has chosen to focus on the novel concept on how to use the $200 million that will theoretically flow from a lease transaction. I for one could draw up a great deck of power point slides that could layout my plans for spending $200 million. That wouldn't change the fact that I don't have it now and have much less chance of getting it that the financial markets are in a bad mood.
The Mayor will be submitting an ordinance to council Monday to lay out the requirements for the scholarship program. The story in the ABJ cites a press release that is not on the City's website yet that breaks out the main requirements of the program. The stated parameters call for the first scholarships to be allocated by fall of 2009. I understand that a measure will be on the ballot this November and time is a wasting but not enough attention has been paid (at least in public) to how a lease will raise the stated amount of funding.
There are already three factors that either potentially lower the net savings (money that will be gained from a lease) of the transaction or make it less likely to occur. Two go together and are already in the works. Council took up an ordinance that will transfer the employees of the Sewer Division to other City divisions. The dollars needed to pay those personnel costs will lower the net savings generated from the lease agreement. The City in choosing to forgo that potential savings will decrease the net savings of the deal. The second component is the rigid conditions the City will have to demand from the potential lessee in order to make the deal politically palatable. These include rate caps on user charges and continuing the capital costs associated with the CSO requirements for the system. These too will decrease desirability and net savings. Less savings less scholarship dollars.
The third sticking point is just that. The credit markets are stuck here in the U.S. and in Europe. Sure we enacted a bailout plan but that has yet to take effect. The financial system is still not moving at normal pace. Even if it were, the condition of the credit markets overseas is even more pertinent. There are numerous reports that the European strain of what ails American markets has that system in a bind also. You see, chances are the company that City leases to will be based in Europe. They will be required to pony up a large one time payment which they will have to borrow from a financial institution. If they normally borrow from a line of credit originating in the troubled Eurozone banking system then their ability to do so will be lessened. The problem has been and still is the sources of funds.
Council is meeting tomorrow to discuss the plan. Maybe some members will bring these points up. I'm still waiting for the City to release some basic numbers on how this thing will work on the financing side.
As has been the case from the beginning the Plusquellic administration has chosen to focus on the novel concept on how to use the $200 million that will theoretically flow from a lease transaction. I for one could draw up a great deck of power point slides that could layout my plans for spending $200 million. That wouldn't change the fact that I don't have it now and have much less chance of getting it that the financial markets are in a bad mood.
The Mayor will be submitting an ordinance to council Monday to lay out the requirements for the scholarship program. The story in the ABJ cites a press release that is not on the City's website yet that breaks out the main requirements of the program. The stated parameters call for the first scholarships to be allocated by fall of 2009. I understand that a measure will be on the ballot this November and time is a wasting but not enough attention has been paid (at least in public) to how a lease will raise the stated amount of funding.
There are already three factors that either potentially lower the net savings (money that will be gained from a lease) of the transaction or make it less likely to occur. Two go together and are already in the works. Council took up an ordinance that will transfer the employees of the Sewer Division to other City divisions. The dollars needed to pay those personnel costs will lower the net savings generated from the lease agreement. The City in choosing to forgo that potential savings will decrease the net savings of the deal. The second component is the rigid conditions the City will have to demand from the potential lessee in order to make the deal politically palatable. These include rate caps on user charges and continuing the capital costs associated with the CSO requirements for the system. These too will decrease desirability and net savings. Less savings less scholarship dollars.
The third sticking point is just that. The credit markets are stuck here in the U.S. and in Europe. Sure we enacted a bailout plan but that has yet to take effect. The financial system is still not moving at normal pace. Even if it were, the condition of the credit markets overseas is even more pertinent. There are numerous reports that the European strain of what ails American markets has that system in a bind also. You see, chances are the company that City leases to will be based in Europe. They will be required to pony up a large one time payment which they will have to borrow from a financial institution. If they normally borrow from a line of credit originating in the troubled Eurozone banking system then their ability to do so will be lessened. The problem has been and still is the sources of funds.
Council is meeting tomorrow to discuss the plan. Maybe some members will bring these points up. I'm still waiting for the City to release some basic numbers on how this thing will work on the financing side.
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