Does Kingsport, TN have risky bond derivatives from Morgan Keegan?
Morgan Keegan, an underwriter of municipal bonds has gotten a lot of attention in Tennessee over their investment advice and their risky bond derivatives.
It started with a New York Times article “Firm Acted as Tutor as It Sold Risky Deals to Towns”
It appears that the City of Kingsport has been cozy with Morgan Keegan and the question is what is Kingsport’s situation with Morgan Keegan and the risky bond derivatives? (See business meeting minutes below).
On December 6 1994, Orange County, a prosperous district in California, declared bankruptcy after suffering losses of around $1.6 billion from a wrong-way bet on interest rates in one of its principal investment pools. This bankruptcy is prominent because of unprecedented losses and because it was caused by a highly leveraged derivatives strategy rather than a shortage of tax revenues and excess spending.
See what others have said about Morgan Keegan in the links below
Morgan Keegan Mess Continued – Unanimous Approval By State
Morgan Keegan Investment Advice Takes TN Towns Down
Importance of Open Govt proven once again
Monday, November 17, 2008, 4:30 PM Regular Work Session Minutes
VI.D.6 Consideration of Initial and Detailed Bond Resolutions Authorizing the Issuance of General Public Improvement Bonds (Various Projects including Parking Garage) in an Amount not to Exceed $12,305,000 (AF: 365-2008).
City Recorder Demming explained how these bonds will be implemented, the requirements for each, and indicated they would be bid sometime after the new year.
Mr. Rick Delaney, an investor from Morgan Keegan, was asked to speak to the current, overall bond market. He explained that markets have been upside down, with very little activity, as expected, but have picked up significantly over the last two weeks. He added that interest rates have continued to fall and that passing these proposed resolution is the first step in preparing to move forward as rates improve in the market.
City Manager Campbell forecasted that this is a very favorable bidding time period regarding construction due to a hungry contractor market and material costs coming down.
Mayor Phillips clarified that if the BMA passes these three bond resolutions, it is doing so to be ready to take advantage of a more favorable bond market than the current one and that the bonds would not be sold without the Board’s prior knowledge. City Manager Campbell explained the necessity to advertise the sale date and confirmed Board members would be made aware before the bonds were sold.
In response to an inquiry from Alderman Shull about peculiarities in any of these bond issues, Mr. Delaney responded that the V.O. Dobbins project involves 501(c)(3) nonprofit entities, the bond regarding MeadowView expansion has some tax issues that attorneys are still working on, and the third one involving the parking garage construction may also raise tax issues. City Recorder Demming added that the MeadowView resolution might be “peculiar” in that it is pledging local option tax on that debt.
Alderman Munsey confirmed that the Board would hold additional discussion on the parking garage construction project even if this is approved by BMA tomorrow night. City Manager Campbell stated that further BMA input would be sought on this project regarding design, size, and if the BMA eventually approves downtown TIF (tax increment financing), additional amounts that can be used. Mr. Munsey indicated that he supports all three of these resolutions to allow the City to prepare to take advantage of the bond market and wanted to voice his support at this work session because he will be unable to attend tomorrow night’s regular meeting when the vote is taken.
Alderman Shull reiterated that he believes the V.O. Dobbins project grew beyond what was originally presented which is why he voted against it. Regarding downtown parking issues, he stated that, in earlier discussion, Alderman Marsh had provided some great alternative avenues in lieu of building a parking garage. Alderman Shull mentioned that he had not seen parking studies done from 1970 forward and would like further documentation to confirm the need. City Manager Campbell agreed to provide Board members with updated information. Assistant to the City Manager, Chris McCartt, also shared that discussion had been held with Regions Bank representatives and that possible parking is now tied up in leases. He stated that another avenue explored was possibly demolishing certain City-owned buildings but that action was not supported by the downtown community because of the number that would need to be torn down. The 300 parking spaces a parking garage could provide, right off of Broad Street, would be a huge lift to existing businesses, as well as an incentive for future business recruitment. He will provide Board members with copies of reports recommending the City look at a parking structure.