Bonds Find a New Home

A new financing tool is helping public housing authorities raise money to fix up their properties. They can now issue revenue bonds that promise to repay today's loan with tomorrow's federal dollars.
by | February 2004

A new financing tool is helping public housing authorities raise money to fix up their properties. They can now issue revenue bonds that promise to repay today's loan with tomorrow's federal dollars.

The largest of these deals so far was the Puerto Rico housing authority's $650 million bond in December to fund renovations of 7,400 aging public housing units. Also in December, New Orleans sold $50 million in debt to construct new subsidized housing and may sell more debt later to help pay for refurbishing other units.

These bond instruments help solve a longtime problem for the nation's 3,300 housing authorities. Each year, Congress gives them money for capital projects. But the annual trickle of funds is never enough to do major work, especially in cities with large stocks of old housing in disrepair. Bonding those capital funds gives housing authorities a large lump sum to work with. As the federal dollars drip in over the next 20 years, a portion will go to paying back the bondholders. The U.S. Department of Housing and Urban Development has approved nearly two dozen of these deals since the first one two years ago, allowing housing authorities to raise more than $1 billion.

The latest wrinkle in the trend is for small housing authorities to pool their resources so they can share the costs of going to the bond market. That's what 37 Alabama housing authorities did last summer when they sold bonds worth $124 million. Likewise in Maryland, the state recently coordinated a large bond issue on behalf of five jurisdictions.