Muni Bond Issuers, Too, Need Help After Sandy IT'S going to take a long time to get over Sandy. For homeowners, towns, hospitals, school districts - on and on - the recovery is painfully slow. Everyone wants the rebuilding effort to go faster. But that takes money - something that many communities have precious little of. Sandy is likely to weigh on local governments and authorities that are already struggling. You might think that lightening this burden would be a top priority for Washington. But given our enormous federal deficit, dollars are scarce. Of course, the federal government will send cash to cover emergency costs. But if this turns out to be even more expensive than we thought, local resources will be depleted. Compounding the distress, economic activity is also likely to slow after the storm. Measuring the financial impact of an event like Sandy is imprecise. But a 2008 study by Eric Strobl, a research fellow at the Institute for the Study of Labor in Bonn, Germany, provides one benchmark. His analysis, "The Economic Growth Impact of Hurricanes: Evidence from U.S. Coastal Counties," studied effects of storms going back to 1975. Analyzing 409 coastal counties in 19 Eastern and Southern states, he concluded that counties hit by a hurricane experienced a 0.8 percent decrease in annual economic growth initially. The year after a storm, Mr. Strobl said, these areas typically rebounded by about 0.2 percent. The net economic impact of these events, therefore, is a decline of 0.6 percent. That's no small hit, he argued, because the average annual growth rate in these counties is around 1.68 percent. As economic activity slows, of course, state and local debt issuers that rely on revenue - think bridge and tunnel authorities and transit systems - experience lower cash flows. While an analysis by Fitch Ratings of 23 such issuers in Sandy's path concluded that most have enough cash to cover potential shortfalls, Fitch also noted that federal emergency money could not be tapped to cover costs of improvements beyond predisaster status. And insurance policies don't necessarily cover flood damage. MUNICIPAL finance experts say that larger cities and bigger debt issuers will be less imperiled by Sandy over the long term. But small towns could find it hard to bounce back because their tax rolls may be permanently reduced by the storm. That's the view of Richard P. Larkin, director of credit analysis at Herbert J. Sims & Company in Iselin, N.J. "In some of these smaller towns that really got whacked, it may not make sense financially for everyone to rebuild," he said. When a small town loses a significant portion of its tax base, you wonder what will be left for it to pay its bills. There's nothing on the books that says if a city is destroyed the state will assume the debt. Municipalities clearly need all the help they can get right now. And John R. Mousseau, director of fixed income at Cumberland Advisors, an asset management firm in Sarasota, Fla., has three ideas for how to deliver much-needed assistance. First, Mr. Mousseau said, Congress should bring back Build America Bonds, the temporary program created during the credit crisis to raise money for new infrastructure projects. Almost $200 billion of these bonds were issued from April 2009 to the end of 2010 to build bridges, schools, public hospitals and housing. The federal government paid 35 percent of the interest on the bonds, and public debt issuers saved an estimated $20 billion in borrowing costs, the Treasury Department said. "Post-Sandy, you're building and rebuilding a lot of stuff," Mr. Mousseau said. Maybe you don't do it at a 35 percent subsidy, but it's an effective way to lower costs for municipal governments. And the economic multiplier is far larger than that of any transfer payment. Mr. Mousseau also urged Congress to lift the restriction barring issuers from being able to refund bonds now that mature in the years to come. This would let issuers shave costs by locking in today's lower interest rates. By law, issuers can raise money to refund noncallable bonds only once before those bonds mature. During the financial crisis, however, Congress relaxed this law, letting issuers pay off so-called refunding issues a second time. "If the Port Authority years ago issued 5.5 percent bonds to refund an older 7 percent issue, those bonds may have years till they mature," Mr. Mousseau said, referring to the Port Authority of New York and New Jersey. If Congress changed the law so that the Port Authority could refund that issue again today at 3 percent, it would save a significant amount in debt service costs. FINALLY, Mr. Mousseau said the storm's effect on public finance issuers underscored the appeal of municipal bond banks that allow small towns or school districts to raise money faster and less expensively than through usual channels. States organize bond banks as independent authorities that combine numerous local debt issues into a single large deal. Bond banks have their own overseers, and ratings agencies analyze the banks" creditworthiness, grading issues accordingly. In pooled deals, smaller issuers don't have to pay for their own bond counsels and underwriters, reducing their costs. The offerings can come to market more quickly as well. Roughly a dozen states have bond banks - Maine, Vermont and Virginia are three. New Jersey and New York do not have a bond bank; if they did, smaller debt issuers would have an easier time raising money after Sandy, Mr. Mousseau said. "In these last days of a lame-duck Congress, I hope we'll see them reach across the aisle, not only on the fiscal cliff but also on this problem that needs addressing," Mr. Mousseau added. People have been wiped out by Sandy, and it should not be business as usual. If things need to be sped up, whether it's issuing bonds or getting utility trucks in place, we've got to do it.