Municipal market overview

By Joe Feuerherd NCR Washington Correspondent State and local governments (and the “quasi-governmental” affiliated entities they establish) issued more than $400 billion in tax-exempt municipal bonds last year to finance all manner of “public purpose” projects: roads, sewer systems and parks among them. In most cases, these bonds are a “general obligation” of the taxpayers of an area — meaning the long-term borrowing the bonds represent are backed by the government’s ability to tax its residents. Read all the stories in this series Wall Street sees Austin venture as new model for church financing Catholic connections help pitch plan The bonds between church and state Municipal market overview Outstanding municipal debt totals more than $2 trillion. About 10 percent of municipal bonds issued benefit nonprofit organizations that pledge to use the funds to fulfill a public purpose, such as providing affordable housing, building a YMCA center or constructing a hospital to serve a community’s needs. Under federal law, local governments or their affiliates must issue this debt, though the risk of default is not typically borne by taxpayers. Instead, like a home mortgage, the loan is generally tied to the value of the underlying real estate. The $79.8 million in bond financing the Austin, Texas, diocese is using to reduce interest payments on existing debt and to construct and modernize parish halls and schools is unusual in some respects. First, it is not directly backed by the value of diocesan real estate holdings; instead, it is a general obligation of the diocese. “Austin is the first diocese [that has used tax-exempt financing] where there are no mortgages,” says diocesan financial adviser Pat O’Meara. “That’s an awesome thing, a tremendous plus,” says O’Meara. Further, the bonds were issued by the newly established Capital Area Cultural Education Facilities Finance Corporation, acting under a Texas law that allows for the financing of parish meeting rooms and schools as long as no “sanctuaries” or “chapels” are built with the funds. In addition to being the largest such transaction of its kind, the Austin transaction marks the first time a diocese has used the tax-exempt market to finance its non-education-related capital needs. Joe Feuerherd is NCR Washington correspondent. His e-mail address is jfeuerherd@ncronline.org This story appears in the June 17, 2005, issue of National Catholic Reporter