State avoids big bailout for now

The Massachusetts State Treasury successfully sold $750 million in bonds Wednesday, quelling fears that the Commonwealth would have to turn to the federal government for money in the same manner troubled Wall Street firms have in recent weeks.
State Treasurer Tim Cahill approached the U.S. Treasury and the Federal Reserve Bank of Boston about lending Massachusetts money earlier this week as a precaution, Cahill spokeswoman Francy Ronayne said.
‘We were exploring this option only as a sort of last resort in case of an emergency,’ Ronayne said. ‘We don’t need money, we’re okay.’
The sale of the bonds, which the state needs to maintain everyday operations, was delayed for several weeks because the current financial crisis made credit very difficult to obtain, according to a State Treasury press release.
Ronayne said the state wanted to wait until economic conditions were more favorable before completing the transaction.
‘The markets are so volatile right now . . . and interest rates are sky high,’ she said. ‘So we put it off until we had things under complete control.’
Asking the U.S. Treasury for a large loan under the same conditions as the recent Wall Street bailout may have been a serious option if private credit had remained unavailable, Ronayne said.
‘If the markets were still frozen, our approach with the Fed would have gone further,’ she said.
Although Massachusetts was successful in finally selling the bonds, credit is still very hard to come by, Boston College finance professor Mike Barry said.
‘I think Bill Gates would have trouble qualifying for a loan at this point,’ he said.
An entity with an A-level credit rating like Massachusetts should not have to worry about getting loans under normal conditions, Boston University finance professor Mark Williams said.
‘The rating of Mass. is top-shelf,’ Williams said. ‘The fact that the [state] treasury had to get on its knees and go to the Fed . . . speaks to how significant the crisis really is.’
The commonwealth must still be careful about its finances, because one of the state’s largest industries ‘-‘- colleges and universities ‘-‘- might not be as insulated from recession as many assume, Williams said.
BU and other universities throughout the state have recently put a hold on all hiring and expansion, a sign that they are beginning to feel the effects of the crisis as well, he said.
‘These colleges are not recession-proof,’ he said. ‘We will be impacted.’