Not Even 2% Fed Funds Help Munis Amid Record Rates

Bloomberg reports:

The Oakland, California, agency that runs toll bridges across the San Francisco Bay is proving that the era of cheap money for municipal borrowers is over.

This week the Bay Area Toll Authority sold more than $700 million of bonds at rates as high as 5.33 percent to refinance debt that cost 4 percent last year. That leaves less money to finance projects, such as bridge improvements.

``The cost of money just went way up,'' said Brian Mayhew, the agency's chief financial officer. ``You may have projects on the cusp that are going to be difficult to do.''

Almost a year after the Federal Reserve began to cut its target rate for overnight loans between banks to 2 percent from 5.25 percent, borrowing costs for states, cities, hospitals and municipal authorities are going in the opposite direction.

You'll want to read the whole article.The Fed easing didn't turn out like the mainstream economists claim it should.The ability to pay back debt is the name of the game.In the coming years,those municipalities with underfunded pensions will be treated like any other type of junk bond.