Disagreeing with the Great Curmudgeon

I do this at my own risk, but I am afraid I must rise up to disagree with the Great Curmudgeon, a/ka/ Bill Duvall, and his post over at Duvafiles.

The Great Curmudgeon surmises that the Mayor and City Council are going to take the bonds issued for the new lift station and try to shift them into a Community Development Corporation, since the need for the lift station is evaporating.

I disagree, because such a move would be a) illegal, b) punished heavily by the bondholders, and c) immediately drop Salisbury's bond rating to sub-junk status.

It would be illegal because it would violate the Internal Revenue Code, since municipal bond issues that carry a tax-deferred or tax-exempt status must be for capital improvements only.  They can only be use for hard capital projects.  The Community Development Corporation would be no such thing, no matter how you might spin the benefits.

It would be punished heavily by the bondholders because of the bait and switch.  It would most certainly engender lawsuits, and would also likely put the city in a precarious financial position as immediate payback would most certainly be demanded.

Finally, Salisbury's bond rating would immediately be lowered to junk status, sinking the entire panopoly of indebtedness.  The City of Salisbury wouldn't even be able to finance a bridge loan to buy a computer if that happened.  Vendors to the city would also certainly start demanding net/net terms.

Now, it is certainly conceivable that the city would seek to shift the bond revenue to another capital project, although would harbor certain risks and dangers as well.

Of course, the ultimate issue here is that the City suffers from an overarching lack of professionalism and talent in its development and planning workforce.  Capital improvement projects that are funded under the auspices of the "developer reimbursement" concept should not be even be sent out for bid until the developer has actually done development to be reimbursed.  If the developer cannot secure immediate bridge financing because the project doesn't have the economic sustainability and return on investment is a good sign that the development shouldn't take place.  Wall Street investors and bond houses are no slouches in properly assessing the value of investment.