How the muni bond market is affecting some governments

Cities, states and other local governments have been effectively shut out of the bond markets for the last two weeks, and it's beginning to show.

Maine had already begun some road work on planned highway repairs when the bond markets stopped functioning, so now it is scrambling for bank loans to keep the dump trucks rolling. If money does not start flowing soon, Maine will have to cancel some of its road and bridge projects, said Robert O. Lenna, executive director of the Maine Municipal Bond Bank. He said he had worked in public finance for 34 years and had never seen credit evaporate so completely.

The Washington Metropolitan Airports Authority has already begun construction of a bigger international arrivals building at Dulles, a new parking deck at Reagan National and other major projects, and said it intended to forge ahead using cash and commercial paper.

Those who are strictly opposed to bonds being used for most government projects may see this as an "I told you so" -- it probably depends on the type and importance of the project. Some, like Municipal Market Advisors President Thomas Doe, are beginning to compare the current municipal issuance to the years following the 1929 crash. Still, Doe says he doesn't foresee widespread bond defaults, only greatly narrowed local budgets. Maybe that's a good thing in some locales in the long run. Here's more from today's New York Times.