Credit problems delay Wake projects

Finance frozen for schools, libraries

RALEIGH -- As stocks plunged Monday, Wake County commissioners learned that the nation's worsening financial crisis will stall several government building projects.

The projects are likely to include the county's new downtown court-house, libraries and some new schools that voters approved two years ago. How long the projects might be delayed depends on how long the economy takes to rebound.

County manager David Cooke told the board that frozen credit markets have rendered it impossible for the county to sell the fixed-rate bonds -- the primary low-interest financial instruments local governments use to borrow money for construction.

"The situation on Wall Street affects every county and city in the nation," Cooke said. "We're going to slow down or delay all debt-financed projects. We're going to call a time out and see what the markets do."

On the advice of financial advisers, Wake canceled the Sept. 23 issuance of $354.5 million in bonds with fixed interest rates because there were no buyers.

"It's not just a matter of getting the rate you want," said Tim Lee, a lawyer with the firm Womble Carlyle who advises the county on bonds. "It's that all sales are on hold."

The county could still move ahead with the previously planned sale of $100 million in variable-rate bonds set for Oct. 15, but the volatility in the financial markets is causing interest rates for even AAA-rated borrowers like Wake County to fluctuate wildly.

Bonds that recently allowed the county to pay only 1.7 percent in annual interest have surged as high as 8 percent in the last week, potentially adding tens of millions in finance costs to planned projects.

Adding to the uncertainty, about $152 million in variable-rate bonds the county has already issued are being handled by Wachovia, the Charlotte-based banking giant in the midst of selling itself to avoid collapse.

Cooke said he needed authority from the elected board to restructure that debt if necessary. In addition, he said, the county staff negotiated a potential deal with Bank of America to borrow up to $300 million at 2.5 percent interest for 1 year.

The loan would give the county enough money to continue moving forward with construction projects already under way, while also buying time for the financial system to right itself.

"The idea is to make the county more nimble to respond to the market," Lee said.

Heartburn ahead

Some commissioners expressed doubt about borrowing more money in a climate of uncertainty. All told, the county already has about $1.4 billion in debt.

"My concern is issuing the short-term debt, and then a year from now finding ourselves in a terrible situation," Commissioner Paul Coble said to Cooke. "I don't want to give you a credit card for you to go out and spend [$300 million]. We're going out in hard financial times and saying we're going to spend. That gives me heartburn."

The board voted 6-0 to let Cooke manage the county's current bonds with Wachovia, but declined to give the manager the authority to issue new debt. Chairman Joe Bryan, a financial consultant with Wachovia, recused himself from the vote.

At a joint meeting with the Wake County school board set for Wednesday, the two elected bodies will discuss the financial crisis, what school projects may be delayed, and the impact on students.

The commissioners will meet again Monday to consider whether to issue more bonds.

Most on the board appeared ready to borrow enough to keep money flowing to projects where ground has already been broken.

The county will honor existing contracts, said Commissioner Tony Gurley: "We're not going to stop paying our bills."