Addressing infrastructure improvements has taken on renewed importance in many of the nation's largest cities this year, as New York, Chicago, and others are emphasizing needs such as road and bridge repairs over new construction projects.
Many of the infrastructure projects in the second half of 1994 will be financed by the proceeds of municipal bonds sold last year, finance directors in most of the countries' major cities say. The largest cities, most experts agree, will still have a large demand for bonds the rest of the year, even though overall municipal issuance is expected to be lower in 1994 than in the last two years.
According to several sources inside city governments and in the municipal bond market, there will be a greater emphasis in coming months on the issuance of bonds for essential projects that have been put on hold during the last two years.
"We are back to looking at smaller deals that have been on the back burner for the last few years of refunding mania," said Robert W. Chamberlin, a senior vice president in the research department of Dean Witter Reynolds Inc. "The same people that were only looking at a $50 million deal two years ago are now looking at an $800,000 deal."
Chamberlin said that the largest issuers of bonds will continue to sell debt in the second half of 1994 because they generally have a strong plan to do so.
But he also said that one of the problems that may come to light during the rest of the year is that the prolific issuers of the last few years may be lagging the rest of the country's economic recovery.
States like California and New Jersey and cities like Washington, D.C., Detroit, and New York City are still in the throes of the recession and have lost a bit of their capacity to borrow, Chamberlin said.
He said that areas like Texas and North Carolina, which are experiencing large population growth, are developing a greater ability to issue debt.
Chamberlin expects that there will be fewer hospital, solid waste, and environmental deals sold during the second half of the 1994. He attributes this to uncertainty about the outlook for those industries.
"The analysts that predicted a yearly issuance of about $175 billion may be on the high side of things for this year," Chamberlin said.
Most experts agree that bond issuance will be lower this year.
"We don't usually issue an expected amount of issuance for a given year, but it's pretty clear that volume will be lower," said Jeffrey L. Esser, executive director of the Government Finance Officers Association. "There just won't be the large volume of refundings that we have seen over the last couple years."
The Public Securities Association also expects a quieter second half of 1994. The association has not revised its estimate of $180 billion in issuance for the year, according to Caroline Benn, a spokesperson for the PSA.
While refundings are down, a number of cities plan to sell new-money issues in the second half of the year to take advantage of interest rates that are still fairly low.
In New York City, Alan Proctor executive director for the city's Financial Control Board, said that the most interesting thing to watch during the second half of the year is whether the city will have to step up its short-term borrowing.
"The city found itself in a very tight cash flow position at the end of 1993 and may well be there again this summer," Proctor said. "We may see the city return to being a $2 billion-a-year issuer of short-term paper."
Proctor said that as the city continues to try to save money through massive refundings, he expects a continued use of derivatives in the city's financing plans.
"The city's overall debt service is growing at a higher rate than any other part of the budget," Proctor said. "Derivatives are a way of shaving off basis points for the city."
Earlier this year, new Mayor Rudolph Giuliani said that he would continue former Mayor David N. Dinkins' plan to shift money that had been allocated for new construction into maintenance of existing facilities.
Proctor said that one of the problems with New York City's finances is that the state legislature keeps allowing the city to do massive refundings of debt because the city does not have the cash to pay its debt service.
"As long as the legislature keeps giving the city a green light to do more refundings, the debt problem will continue to grow," he said. "City officials have not managed the debt program very well."
In Chicago, the focus for projects during the remainder of 1994 will be on repairing long-standing problems.
"We had a sizable general obligation sale earlier this year and are working on a refunding for the [Chicago-Calumet] Skyway project," said John Holden, spokesman for the Chicago city finance department. "We also expect that the aviation authority will sell about $200 million of bonds for improving the parking facilities at O'Hare International Airport."
Holden said that Chicagoans will begin to see much better road conditions throughout the city before the end of the summer.
He said that many streets in outlying neighborhoods are little more than tar over the dirt roads that used to run through the city. Along with the repairs, the city will lay thousands of miles of new sewer pipes, he said.
"We are in the midst of the largest infrastructure repair, street resurfacing, and sewer reconstruction project in the city's history," Holden said.
He said that most of the bonds for the repairs were sold last year before the market turned south.
After this last winter, Boston found itself with one of its largest pothole and road damage problems in years.
This spring, Mayor Thomas M. Menino said Boston will work through the summer to improve the city's roadways.
"The city does its borrowing as part of an about $1 billion, five-year capital borrowing plan," said Robert Ciolek, the city's chief financial officer. "The city currently has enough in its capital spending pool for the rest of this year and into next year."
But Ciolek also said that during the second half of the year, the city will be going out to bid for the construction of a $63 million new police headquarters.
The current headquarters, on Berkeley Street, was built in 1929, according to a police spokesman.
Although not financed through the issuance of municipal bonds, the one main construction project in downtown Boston -- the new Boston Garden, or Shawmut Center -- will continue through the summer.
The building is in the North End of Boston, adjacent to the old Boston Garden.
Additionally, one of the nation's largest public works programs -- the cleanup of the Boston Harbor and the construction of the Deer Island Sewage Treatment plant -- will continue through the year.
"By the end of 1994, we will have the first half of the primary treatment facility open at Deer Island," said Walter Armstrong, director of the Massachusetts Water Resources Authority's project management division. "The facility is about 85% complete now."
Armstrong said that most of the work left to be completed on the $800 million plant involves testing and getting the project on line. When open, the plant will provide a large portion of Boston's northern metropolitan region with improved sewer services.
He said the authority is running about $650 million under the projected $4 billion budget for the Deer Island plant.
In Atlanta, as in New York, the focus for the remainder of the year will be on renovating the city's infrastructure.
"During the fourth quarter, we expect to sell about $190 million in water and sewer renovation bonds and issue about $19 million in tax anticipation notes during June," said Michael Bell, chief financial officer for the city.
Bell also said that city residents will vote on a $149.9 million general obligation bond referendum on July 19. If approved, the bonds would be sold in either August or September, Bell said.
"Our public works people tell me that we need to sell at least that many bonds in order to make necessary repairs," Bell said. "We are focusing on infrastructure repairs and renovations as opposed to new projects."
Bell said that he could not advise Atlanta to emulate New York City's use of derivatives because of the risk associated with the securities.