Vermont's worst flooding in 75 years and the lowest borrowing costs in more than four decades are pushing the state and its municipalities to borrow at the fastest pace in the United States.
Facing a $733 million repair bill from Tropical Storm Irene, which devastated the state almost a year ago, Vermont and its local issuers have sold $492 million of municipal bonds this year, up from $99 million a year earlier, according to data compiled by Bloomberg.
“The muni market has been pretty friendly toward debt associated with making repairs and replacements, and improvements, after weather-related events,” said John Hallacy, head of muni research at
Bank of America Merrill Lynch. “Part of the issuance was just driven by the need to make repairs quickly.”
Irene struck the state Aug. 28, 2011, killing six people and dumping as much as 18 inches of rain. It destroyed 531 miles of roads and 34 bridges, and damaged more than 600 historic buildings and 3,500 homes.
The storm roared up the East Coast, causing about $15.8 billion in damages, including $4.3 billion in privately insured costs, according to the National Hurricane Center.
The devastation in Vermont still is visible. The Deerfield River swept over its banks and submerged Dot's Restaurant in Wilmington in five feet of water.
Last month, a crew sawed the restaurant in half, swung the two sections over the river with a crane and lowered them into the parking lot. The move will allow builders to lay a new foundation.
“People think Irene was a year ago, and we should be done rebuilding,” said Sue Minter, a former state lawmaker who was named Vermont's Irene recovery officer in January. “The story, though, when you look below the surface, is that there's an ongoing recovery.”
Vermont's year-over-year issuance has increased about five times faster than the $3.7 trillion muni market overall. States and localities had borrowed $216.3 billion this year through Aug. 3, a 66% boost compared with the $130 billion of bonds sold through Aug. 3 last year, Bloomberg data show.
Debt of Vermont and its issuers earned 8.71% during the 12-month period through Aug. 9, beating the 8.68% gains for the broader muni market, according to
Barclays Capital data.
BRIDGE REPAIRS
On July 31, the state sold $10.8 million of special-obligation bonds backed by fuel-tax revenue, allowing it to obtain another $51 million in federal matching funds for post-Irene cleanup. The money will be used for the replacement or rehabilitation of bridges in Bennington, Cavendish, Hancock, Hubbardton, Jamaica and Woodford.
A 10-year bond from the sale traded Aug. 6 with an average yield of 1.9%, 0.21 percentage points above an index of benchmark munis with similar maturity, data compiled by Bloomberg show. That yield difference is down from a 0.35-percentage-point spread when the bonds were sold.
Vermont shifted money around to address immediate needs in the wake of the storm. State Treasurer Beth Pearce sent out about $125 million in local school payments two weeks early to help towns cope.
She also gave municipalities a three-month deferment on education payments to the state.
Investors in the muni market have purchased the securities as a haven from concerns that Europe's debt crisis will deepen, driving down interest rates. Yields on 20-year general-obligations dropped to 3.61% on July 26, near the 45-year low of 3.6% on Jan. 19, according to a Bond Buyer index.
“Their cost of capital is ex-tremely attractive should they need access to capital markets to improve or repair, or to expand infrastructure needs,” said John Flahive, senior vice president and director of fixed income at
BNY Mellon Wealth Management, which manages $22 billion in munis.
The state sold $69 million of general-obligation bonds March 6 to refinance debt, saving $5.4 million on interest over the life of the bonds, Lisa Helme, director of financial literacy and communication in the state treasurer's office, wrote in an e-mail.
Vermont, which has the highest credit rating of any state in New England, has a top Aaa ranking from Moody's Investors Service and is rated one step lower by Standard & Poor's, at AA+.
INFRASTRUCTURE COSTS
In a June report, Ms. Minter put the state's estimated cost of road, bridge, rail and infrastructure repairs at $486.2 million.
The Federal Highway Administration will pick up about 90% of the $163.5 million bill for fixing roads and bridges, she said.
The Federal Emergency Management Administration should cover about 90% of the $118.6 million cost of hazard mitigation to minimize damage from future storms, according to the report.
Traditionally, FEMA has covered about 75% of such projects. Vermont Gov. Peter Shumlin, a Democrat, persuaded President Barack Obama in May to increase the federal share to 90%, freeing up another $30 million in FEMA funds.
The storm damage won't have a long-lasting effect on the state's economy or its abilities to repay debt, Mr. Flahive said. “It's been a challenge for them to put it behind them completely,” he said.
“You still see a lot of scars up there when you drive. It's still pretty amazing the devastation and what it did, but, much like any state, they will get through this,” Mr. Flahive said.
