Politics on the Hudson

   The global credit crunch is hampering local governments’ ability to access the credit markets, according to a report released by state Comptroller Thomas DiNapoli this morning. Impaired access to capital could jack up debt-service costs and potentially delay planned projects, he said.

   “The credit crunch is squeezing local governments,” DiNapoli said in releasing the report. “The disruption in the markets could have serious implications for school districts and local governments, which need access to short-term credit to manage cash flow and finance infrastructure projects.

   “Higher borrowing costs are making an already volatile fiscal situation more challenging for school districts and local governments. These are tough times, and local governments face hard choices. In today’s environment, local officials have to reevaluate their cash flow needs and pay very close attention to movements in the market,” he said.

   Decreased demand from banks, money market funds and institutional investors have combined to constrain the municipal bond market, the report said. The volume of new issues in September was about 40 percent less nationwide than September 2007, it said.

   Local governments outside New York City issued $5.1 billion in short-term debt last year, with more than half of the borrowing done school districts. Nineteen percent of short-term borrowing was for counties, 14 percent for towns, 10 percent for cities, 6 percent for villages and 1 percent for fire districts.

   DiNapoli recommends that local governments develop contingency plans in case market conditions warrant postponing a note sale; ensure that revenue remains adequate and that an alternative source of repayment is available to finance notes that can’t be rolled over; and make sure debt-service costs are budgeted conservatively and that budgets are modified to reflect any higher costs.