Detroit Slows Michigan's Muni Bond Sales to Fewest in a Decade

The smallest amount of municipal-bond issuance in Michigan in 10 years is threatening to derail the state’s economic comeback, showing how Governor Rick Snyder underestimated the fallout from Detroit’s bankruptcy.
 

Bond sales dwindled to $71.5 million in August, the slowest month in the state since at least February 2003, data compiled by Bloomberg show. At least three Michigan localities -- Genesee and Saginaw counties and Battle Creek -- postponed a combined $131 million of issuance last month after Detroit’s July 18 Chapter 9 filing because interest rates were too high. Oakland County delayed a $350 million deal last week.

Detroit Emergency Manager Kevyn Orr has proposed imposing losses on general-obligation bondholders, drawing scrutiny to debt backed by a local government’s full faith and credit. Frankenmuth, northwest of Detroit in Saginaw County, is offering $1.75 million of limited-tax general obligations tomorrow in one of two long-term sales planned in the state this week.
 

“At some point, the cities need the money and will have to borrow, but it’s going to be more expensive and that’s bad for the Michigan economy,” said Erik Gordon, who teaches at the University of Michigan’s Ross School of Business in Ann Arbor. “Money that’s paid in excess interest is money that’s flowing out of the state with nothing coming back in return.”