September 29, 2014
Reiss on Green Bonds
Law360 quoted me in Green Bond Bandwagon Promises Cash Returns For NYC (behind a paywall). It opens,
A New York City proposal to market billions in so-called green bonds could reduce debt costs for the city by enticing investors who have stampeded toward guilt-free returns elsewhere, but buyers must tread carefully lest their money ends up funding projects not seen as environmentally relevant.
New York City Comptroller Scott M. Stringer put forth a plan last week that would see the city’s capital spending program add municipal bonds for financing environmentally friendly projects to its plans to issue $30 billion in new debt over four years.
The proposal, which Mayor Bill de Blasio’s administration is studying, suggests moving quickly while there this still a focus on reinforcing the city after Superstorm Sandy and amid the strong demand for green bonds in the private sector as well as in California, Massachusetts and Washington, D.C. As soon as next year, the city could being to convert a large portion of its Municipal Water Finance Authority debt — some $1.5 billion per year — into green bonds and could allocate up to $200 million per year in Transitional Finance Authority and general obligation bonds to similar use.
“Green bonds should be another example of how New York City leads the nation in finding solutions that work,” Stringer said.
While experts in public debt investment largely see the proposal as a promotional bid to market New York City debt, they note that the city’s high national profile could make such a move profitable amid investor hunger to capitalize environmentally friendly projects.
“The big question is: How much demand would this create? One of the main points of the green bonds would be to increase demand,” said Brooklyn Law School professor David Reiss, an expert in real estate finance and community development. “If there really is pent-up demand, and New York City acts as an early mover, it might get a short-term benefit in the cost of borrowing.”
Stringer’s prediction that New York City could spark others to follow suit would also likely come true, Reiss said.
“If this is demonstrated to materially drive down borrowing costs, you’ll see others doing the same thing,” he said. “I’m a little skeptical, over the long term, that you’d have serious savings. But in the shorter term, you might.”| Permalink