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Bond bids hailed as signal of city's improved finances

When Buffalo enticed nine investment firms to bid this week for bonds that will finance millions of dollars in projects, experts saw a sign of the city's improved fiscal health.

Until last year, the city hadn't held a competitive bond sale for a quarter century.

City comptrollers turned to less desirable negotiated sales because of Buffalo's shaky finances.

After Morgan Stanley submitted the winning bids Tuesday for about $27.2 million in city and school district bonds, Darby R. Fishkin, Buffalo's interim comptroller, said the second successful bond auction in as many years spoke volumes.

"We're thrilled with the results," Fishkin said. "It demonstrates the trustworthiness of the city's credit and our standing in the Wall Street community."

A New York City-based municipal finance expert who has been a consultant to the city for more than three decades expressed similar views.

"Buffalo has a tremendous favorable demand in the market," said J. Chester Johnson, chairman of Government Finance Associates. "Nine bids for its latest [bond] issue is extraordinary.

Buffalo's healthy surplus, including a "rainy day fund" that can be used only for emergencies, has helped to build investors' confidence, Fishkin said. The city's credit rating is at its highest level in recent history.

Morgan Stanley offered to buy $22.4 million in city bonds at a final net interest rate of 3.57 percent.

It also submitted the winning bid of 3.67 percent final net interest for $4.9 million in bonds to finance ongoing school reconstruction projects.

While such bids normally fall within a narrow range, Fishkin and Johnson said the nine firms submitted offers that varied broadly -- from 3.57 percent to 4.82 percent.

Johnson said he believes uncertainties stemming from the State Legislature's recent passage of a limit on local property tax increases might have caused nervousness among some bond buyers.

The limit on tax levy increases could produce concerns in the investment community about some localities' ability to pay debt.

But since it encountered fiscal problems in the 1970s, Buffalo has operated under a law that requires it to use its property tax revenue to pay off its debt ahead of other expenses, Johnson said.

Last year's bond auction drew seven bidders. Of the nine companies bidding this year, four also submitted bids on school bonds.

The bonds will finance dozens of projects, including improvements at various parks, upgrades to a number of city-owned structures and demolition of decaying structures.

They include funding for citywide tree removals and plantings, plus streetscape improvements in various neighborhoods.

The city plans to purchase nearly $1 million in new fire vehicles and $675,000 in new vehicles for the Public Works Department.

e-mail: bmeyer@buffnews.com