Credit crunch squeezing city

Posted: October 08, 2008

Every year, around August or September, the city of Philadelphia borrows at least a couple of hundred million dollars to pay its bills until property taxes start rolling in after the New Year.

It's a routine thing, done by technocrats and bankers, so boring it never makes news.

This year, it could make news.

The financial meltdown that has frozen the nation's credit markets has put the city's borrowing in jeopardy, raising the prospect that city managers will soon be strapped for cash.

They might be faced with tough choices, like having to delay hiring for key positions, or postpone buying tires for trash trucks.

"What you're asking about is a very serious problem that we're aware of," said Finance Director Rob Dubow.

What the city usually gets is a Tax Revenue Anticipation Note (TRAN) - a short-term loan to tide the city over until tax revenues come in.

This year, the city wants $350 million to cover expenses. It is reviewing applications from banks that want to back the deal and hope to get it done in October.

But the plummeting financial markets have slowed most borrowing to a halt, leaving insiders wondering if the TRAN will happen this month.

"The municipal bond market is frozen. It's very difficult to get any kind of credit," said Uri Monson, executive director of the Pennsylvania Intergovernmental Cooperation Authority, which oversees the city's finances.

The lack of short-term municipal credit is squeezing cities and states across the nation. California has asked the federal government to float $7 billion in short-term debt because of the frozen debt market.

"In general there is no credit market. Zero," said former mayoral candidate Sam Katz, who worked for years as a municipal-finance consultant. "Are there isolated transactions getting done? Yes. But in general it's an extremely difficult thing."

Dubow said he thought the borrowing might be delayed for weeks, but hopefully not months. He wouldn't say if there was a point when the city would run out of cash. Dubow said that if it can't borrow, the city will have to conserve to stay afloat.

"We're not talking about missing payroll, we're not talking about missing debt-service payments," Dubow said. "It would create strains and it would force us to manage our money."

The city already has been feeling the pinch of the plunging economy.

Last month, Mayor Nutter announced that the city faced a $450 million budget shortfall over five years, due to poor performance by the pension fund and over-optimistic projected tax revenues.

Nutter said everything was up for consideration to close the gap, including service cuts, slowing down tax breaks and work-force reductions. *

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