"Risk Free" Debt

Be afraid. Be very afraid.

In order to pay for the City of Great Falls' share of a coal fired generator, City staff is proposing that we, the taxpayers, assume responsibility for $125,000,000.00 in bonds to finance the construction. But don't worry, City Manager Lawton assures us that we are not at risk. Of course, "This will be totally self-sustaining," claims our Manager. Forgive me my doubts.

Aren't the golf courses supposed to be self-sustaining? How about the waterpark? The parking ramp? Oh, come on Gee Guy, don't be a curmudgeon. It'll be great. Nothing can go wrong!

No risk! According to the City, "The city isn't backing the bonds; it's a partner in the Southern Montana Electric Generation and Transmission Cooperative, which is backing the bonds. Consequently, if the project falls through it's the co-op, not the city, that's on the line to pay back the money."

Manager Lawton goes on to say, though, that "at worst, the city would mortgage its share of the plant or its share of the electricity." Wait a minute. Didn't they just say that the City is not responsible to pay back the bonds? Yeah, they did. And now they're talking about mortgaging things??!!?? Why, pray tell, would we have to mortgage anything to repay a debt we don't have to repay?

Let me venture a guess. I would suggest that the bonds, if simply sold by a start-up venture, would not carry a high (safety) rating and, therefore, would be required to pay a higher interest rate in order to attract buyers. On the other hand, though, if these same bonds were sold by a start-up but guaranteed by five, established municipalities, they would be seen as safer and, therefore, cheaper. Manager Lawton, are you asking the City of Great Falls taxpayers to guarantee these "risk free" bonds? Because if you are, you damn well better drop your little word games and be straight about it.


Anonymous said...

Why are we (any City) trying to get into the power business? We have already thrown $200,000.00 down the drain for the supposed buyout of the transmission lines owned by Northwestern and are on the hook for an additional $300,000.00. Now we are going on the hook for $125,000,000.00. I thought government was supposed to be for the people and not in business.

WolfPack said...

That's been my problem with Lawton all along. He distorts the truth just enough to give the Tribune justification (“City: Debt no risk for taxpayers”) for a headline to provide cover for the scheme of the day. The problem is that some of us read the article and like GeeGuy are insulted by the explanation provided. If the city isn’t sharing the risks then what are we bringing to the table? Why share potential profits if you are not sharing risks?