Jackson Jambalaya

See sidebar on lower right side of page for a collection of all posts on Jackson's attempt to use interest rate swaps.

Atlanta Constitution-Journal reported recently how interest rates swaps burned governments in the Atlanta area:

"At least a dozen local governments and other institutions that used derivative deals called swaps to try to lower the cost of bond issues have ended up owing as much as $394 million in fees to the Wall Street investment banks that set up the deals, an AJC analysis of public debt documents shows.

That total includes at least $100 million in fees paid to firms such as Goldman Sachs, J.P. Morgan and UBS AG just to cancel the deals when they went sour.

The city of Atlanta was among the hardest hit by its use of swap schemes — complex, multi-party deals involving varying interest rates, cash payments and loan guarantees. Atlanta shelled out about $86 million to cancel most of its derivative deals. The city also still owes roughly $79 million on another soured swap deal, an obligation it hopes it can reduce in time..." Article

What are swaps? Very complex financial instruments but for those of you who didn't go to Wharton, think of it as as City using borrowing money on short-term adjustable rates that can burn badly if the markets go the wrong way. Jackson tried to use these in refinancing its 2002 and 2004 bonds in 2009 but this blog led the fight in killing it while the Clarion-Ledger completely abdicated its responsibility as a newspaper in ignoring the story. Meanwhile, Rick Hill is getting creative again (Uh-oh):

"The city is looking into the possibility of refinancing its general fund debt in hopes of saving an additional $27.6 million over the next five years after a study released to city council members yesterday predicted a $48.5 million budget shortfall by 2015....

City Deputy Director of Administration and Finance Rick Hill said the city, by refinancing its general fund debt, is delaying debt payments that are currently due, to free up excess cash that the city can use toward its deficit by 2015 if the city does not make drastic cuts to its expenditures or raise revenue through tax increases.

Hill added that the move comes with two disadvantages: "You're moving the debt payments out, but paying more interest. (Also), on out in the years, you'll be paying that money back, so you'll have to have money then to make that payment so the city's millage will be going back up out into the future. We've got to plan how we're going to figure out how to cover that millage increase out into the future."

Hill said the city would be responsible for an extra $1.6 million in additional interest payments by delaying its debt payment, but hoped the city would be in a position to benefit from upcoming projects within the next five years that will generate new sales tax to counter the delayed debt.

"What this does, is it buys us some time to get the new Convention Center Hotel built, buys us some time to get the Farish Street Entertainment District development online, and gives us time to get out of this economic downturn we're all in," Hill said. "Hopefully the Capitol Green Project can also be online to get our sales tax back to where it needs to be."