Crisis half a world away hitting Everett's budget
Everett is one of dozens of U.S. cities affected by a burgeoning debt crisis in Greece that led to a sharp increase in interest rates for municipal bonds.
The Everett Public Facilities District, which owns Comcast Arena, issued $27.4 million in revenue bonds now affected by the crisis.
The publicly owned district's variable interest payments have more than doubled since May -- from $14,646 to $39,432 a month.
Everett got a mention in the Wall Street Journal last week as an example of a far-flung town affected by Greece's troubles.
While the city of Everett doesn't own the arena, it does guarantee the bonds that paid for its construction. That means if the district couldn't pay on its debt for some reason, the city would have to pick up the bill.
Variable interest rates on bonds often provide better terms than a fixed rate, saving thousands of dollars.
One risk of variable-rate municipal bonds is that payments can suddenly balloon, which is why it is important to keep a close eye on the market, said Karen Clements, the chief financial officer for the Port of Everett.
She deals with bonds as part of her job with the Port. In her experience at the Port, it takes about 60 days to refinance bonds into a fixed rate, she said.
The public facilities district is having no problem making interest payments right now, said Debra Bryant, Everett's chief financial officer.
"There's really nothing to be done at the moment," she said.
The city is monitoring the markets daily.
Even with the increase, the variable interest rate -- hovering around 2 percent as of Friday -- is still relatively low, Bryant said. The district had enjoyed an interest rate of around .65 percent earlier this spring.
Bond interest rates went up sharply after Standard & Poor's Corp., a ratings firm, warned that Belgian-French bank Dexia's credit ratings might be downgraded. Dexia backs some of the municipal bonds held by the Everett Public Facilities District. That bank also has billions of dollars of exposure to Greece's debt.
After the warning surfaced, investors became skittish about municipal bond deals tied to Dexia.
Dexia sent the city a letter in late May warning of higher bank bond rates and advising the city to "seek another provider" or "consider alternative financing structures" for the public facilities district.
It doesn't make sense to do that now, Bryant said.
The variable interest rate is still a better deal for the district than moving to a fixed rate, which would likely be around 5 percent to 6 percent, she said.
"It should remain pretty low unless there's some big jolt to the economy," Bryant said.
The district has a contract with Dexia until 2017.
Debra Smith: 425-339-3197; firstname.lastname@example.org.
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