Arbor Update

Ann Arbor Area Community News

Downtown Library Project Suspended

24. November 2008 • Bruce Fields
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This morning the Board of the Ann Arbor District Library voted unanimously to suspend work on the project to renovate, or tear down and rebuild, the Downtown Library at 5th and Division.

The Library’s 2004-2010 Strategic Plan called for this project, but with more bad economic news expected for Michigan, Board members agreed that continuing this project now would be inappropriate. The AADL will instead focus its attention on maintaining the Downtown Library.

  1. According to the AA News’ real-time coverage this afternoon, Library Board member Ed Surovell said “Right now, there is not an adequate market for Michigan-based bonds….We could not prudently finance the project at this time.” Josie Parker, Library Director, told the News that there is no market for the bonds. “Someone has to be willing to buy the bonds.”

    Compare and contrast these statements with the News’ Sunday coverage of the financing of the adjoining underground parking lot: Tom Crawford, the City’s CFO’s says that although the financial crissis has made borrowing difficult for many private organizations, there is still a market for capital improvement bonds.

    Something is not right here. The Library and City are both in the same bond market. The projects are next to each other. The City, buried in debt, says it can sell bonds for the parking structure. The Library, debt-free, says it can’t sell bonds for the new downtown library.

    Can anyone reconcile these two views of the same bond market?

       —David Cahill    Nov. 25 '08 - 06:49AM    #
  2. Check out for Michigan municipal bond information. Historically, Michigan’s municipal bond market has probably been one of the most stable investments in this state. Stock-based mutual funds nationally have reported a 30-40% decrease in value over the last year however municipal bond-based mutual funds have been relatively stable; a good example is the Franklin Michigan municipal bond fund (FBMIX) which has declined only about 5 per cent during the last year; these bonds are insured. Nationally, it has been reported that financial experts believe that the tightening of the credit market will lead to greater demand for municipal bonds and this will lead to a driving up of the value of shares of mutual funds based on municipal bond investments. Municipal bond investments are considered attractive to holders due to favorable tax-treatment of dividends and the stability of the investment. Contact your local investment advisor for the latest developments on the Michigan municipal bond market.

       —Mark Koroi    Nov. 25 '08 - 09:16AM    #
  3. The fact that bonds have declined less than equities is not really a good thing for new bond issues. Most institutional investors consider bonds a poor investment right now because they are overvalued due to flight from equity.

       —Anna    Nov. 25 '08 - 10:51PM    #
  4. David-

    The City recently sold bonds for the PD/Courts project without any problem at approximately 4.77%. The City anticipates selling bonds soon for the underground parking garage without any problem, albeit at a slightly higher rate. The Library claims that nobody would buy its bonds. Draw your own conclusions.

    FYI, the City is not “buried in debt.” If we were, TWO Wall street firms would not have upgraded the City’s bond rating just a few months ago to one of the highest ratings available to municipal entities.

       —Leigh Greden    Nov. 26 '08 - 08:33PM    #
  5. Leigh, thanks for the info. Could you be more specific about the bond rating? What’s the full range and what is Ann Arbor’s new rating? What was the previous rating and when was it assigned (or how long was it at that level)?

    Anyone know what AADL’s bond rating is?

    Answers could help us all understand this situation better.

       —Steve Bean    Nov. 27 '08 - 12:58AM    #
  6. — wow — rational finances! whodathunkit. congratulations AADL! (btw, ‘ratings’ are a fraud, imnsho). cheerrzz.

       —toasty    Nov. 27 '08 - 01:40PM    #
  7. Thanks, Leigh! That’s what I thought. The fact that the City is in good shape, and the Library is debt-free, means that the Library should have been able to sell its bonds without problems.

    Ergo, here are my conclusions:

    1. Since the Library would not have been selling bonds until after the approval of the corresponding millage, and the vote would not have been held until May at the earliest, the present bond market should not have been an issue for the Library now at all.

    2. Maybe potential bond holders are still holding the Library’s 1999 embezzlement crisis against it, and the Library was told that it was not considered a good risk.

    As Sherlock Holmes said, “Life is full of mysteries.”

       —David Cahill    Nov. 27 '08 - 06:10PM    #
  8. David –

    I’m behind the times: I hadn’t realized you weren’t on the AADL’s Board anymore. Now that I figured that out, your hypothetical tone in this thread makes a lot more sense!

    My initial reaction was therefore to think that your approach was awfully disingenuous – wouldn’t you have known why the project was shelved? – and wonder what was up.

    As a naif, my guess was going to be that the /millage/ would be the real story, thinking that the library didn’t want to risk losing at the ballot box, but that the bond market made for a better story.

       —Murph    Dec. 2 '08 - 04:39AM    #
  9. Now I had heard that there were some serious structural questions about the existing building. Did they go away? Was I misinformed? Are we just delaying dealing with them?

       —Chuck Warpehoski    Dec. 4 '08 - 08:16PM    #
  10. By the way, I forgot to link to articles from the the chronicle and the news that came out since.

       —Bruce Fields    Dec. 6 '08 - 07:24AM    #
  11. I apologize for the delay in responding to Steve Bean’s inquiry.

    S&P upgraded Ann Arbor’s bond rating from AA to AA+. Moody’s upgraded Ann Arbor’s bond rating from Aa3 to Aa2. These ratings are considered “high quality.”

    Both of these ratings are some of the highest available to any bond issuer. However, they are not the highest available. Many state and local governments believe the ratings agencies apply a double standard that discriminates against government bond issuers by rarely assigning them the highest available ratings, despite the extremely low default rates of government entities. There’s a theory that the ratings agencies do this to drive up the fees charged by the private firms that issue the debt.

    I agree with David’s point that the present bond market should not be an issue for the library. After all, as he points out, the AADL’s bonds would not be issued until after the millage vote, and even then, after completing necessary paperwork, etc. That’s at least six months from now.

       —Leigh Greden    Dec. 8 '08 - 06:25AM    #
  12. I am a bit puzzled why we are all discussing the technicalities of the municipal bond market. I don’t think the decision had anything to do with the availability of funds or Ann Arbor’s debt rating.

    The way I interpreted the announcement was the the Board had (correctly, and prudently) decided that going to the taxpayers for money in the midst of the worst recession in Michigan in 25 and maybe 100 years was a bad idea, akin to sticking one’s finger in an electrical socket or renting oneself out as a lightning rod for political criticism.

    Assuming that the recession began in December 2007 (as the government brilliantly detected last week), and that it lasts only the average 16 months (which I doubt), and that Michigan recovers at the same speed as the rest of the national economy (which I doubt), the Library could be able to go back to the taxpayers with this proposal in as few as four to eight months.

    My guess is that it will be more like two years. I’m ok with that. I want the new library to be built and I think it is a very cost-efficient investment for the taxpayers in Ann Arbor’s competitiveness — but why not wait a year or so and see if some of the money from the Obama stimulus package makes its way to construction projects in downtown Ann Arbor?

       —Fred Zimmerman    Dec. 9 '08 - 01:11AM    #