Credit crisis hobbles Wake, Durham counties

Borrowing delayed for schools, more

Wake and Durham leaders say the national financial crisis is making it nearly impossible to borrow from banks to pay for schools and other projects.

In the past two weeks, Wake County delayed plans to sell $454.5 million in bonds, while Durham County's attempt to borrow $30 million failed because no lenders bid on the offering.

Their struggles are notable because both counties enjoy the highest AAA credit rating -- meaning they are among the safest institutions to lend money to.

"That is an extremely cogent indication of how deeply this financial crisis has spread," said Jay Gladieux, a principal with Smith Breeden Associates, an investment firm in Durham. "Instead of just impacting Wall Street, this is impacting the very foundation of our economy."

Wake County Manager David Cooke said the county has enough cash that the delay in selling bonds will not have an immediate effect on projects already under way. The bulk of the bonds, $370 million worth, would be for school construction and renovation projects approved by voters in 2006.

If problems in the national credit market persist for months and the county is unable to borrow money, the planned construction of schools, county libraries and the expansion of Wake Technical Community College could be delayed. Continuing credit problems also may raise borrowing costs.

On the bright side, when the turmoil on Wall Street eases, banks will look to lend first to institutions with the highest credit ratings.

"We've got AAA bonds," Cooke said. "Those have to be the safest in the marketplace. So you'd think that whenever it comes back, they'd at least be a market for that."

Durham County Manager Mike Ruffin said the county plans to split its $130 million offering into smaller chunks to attract buyers. The money is to go toward a new human services building and a new courthouse.

Last spring, Durham County sold more than $60 million worth of bonds without any problem. Ruffin expects the county to find a buyer for its debt, but the terms of the borrowing are unlikely to be as favorable as before. "It could be a higher interest rate on the remaining chunk," he said.

Raleigh City Manager Russell Allen said the city has not yet faced any major problems related to the financial crisis. Once Wall Street stabilizes, he said, the city should benefit both from its AAA credit rating and the fact that most of Raleigh's more than $1 billion of debt is at a fixed interest rate.

But if the crisis in the capital markets continues, Raleigh is likely to reconsider how it plans to borrow the nearly $450 million it needs to build a new public safety center and a remote operations facility. Allen said the city will wait until the financial markets settle before deciding how to move forward.

Dee Freeman, executive director of the Triangle J Council of Government, said the longer the financial crisis persists, the more it will force local officials to make hard decisions. If a project can't be delayed, governments may be forced to borrow money on unfriendly terms and then hope to refinance the debt later, when the markets return to normal.

Freeman said a similar situation occurred in the 1970s. Local governments borrowed only the money needed for key projects and were forced to pay more until they were able to refinance when the economy rebounded.

"The difficulty with that scenario is you pay a lot more in the long run then you would have expected," he said. "The question is how much pain there will be."