NORWALK, Conn. Like many people, Thomas Hamilton isn't sure what would happen if the federal government didn't raise its debt ceiling and went into default. "We'll have to see," said Norwalk's director of finance. "I don't think anyone really knows what the impact is."
Hamilton and other city officials have several concerns, including the city's Triple-A bond rating and the value of its investment portfolio. "Exactly what the impact on the city of Norwalk's bonds is going to be we don't know," Hamilton said. "We don't have any variable debt out there right now. All of our debt is fixed rate debt so there's not any immediate impact it would have on the city, but it would have a potential impact on our cost of borrowing in the future."
Hamilton and Norwalk have already taken action: The city's municipal bonds, which finance the capital budget, are being sold Thursday. That's ahead of the scheduled Aug. 2 date, which happens to coincide with the date the federal government will run out of money if the debt ceiling isn't raised. "We're actually getting into the market early and keeping our fingers crossed that it stays with us until then," Hamilton said. "It's moving up slightly, but it's actually been pretty quiet in municipal bonds."
The city owns U.S. security bonds. "We've refunded old debt to take advantage of interest rates," he said. "It's what called an Advance Refunding; we end up having to buy U.S. government securities, which go into escrow until the call date on those bonds is reached. ... Because the escrows that are being held are all U.S. government securities, if the U.S. rating is downgraded then the rating on those particular issues will be downgraded. This won't affect our interest bonds, won't affect the city of Norwalk rating, but it does affect the rating on certain bonds that would be outstanding."
He's also concerned that the federal government's rating may be downgraded, no matter what happens, because of its precarious financial situation. That might affect the city's rating, even though Norwalk isn't as dependent on the federal government as some other cities are. Norwalk does not have a "significant federal facility," he said, so a federal workforce is not a major factor in city life. Norwalk does not own hospitals or nursing homes, so it will not see a major impact if Medicare and Medicaid cannot make payments.
If the federal government is downgraded, all Triple-A rated cities will be re-evaluated. Norwalk should do well because it isn't as dependent as other cities, he said, but "we can't say anything with complete certainty."
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