Investing for a return – in civic pride?

A loyal reader in California alerted me to an interesting opportunity back in Massachusetts. Neighboring Cambridge has turned to the crowd to raise capital funds. Check out the campaign here.

Muni bonds are a staple asset class for investors, because of their tax efficiency. They are, of course, not without risk. Just ask the holders of Detroit paper just before its $18 billion bankruptcy. The Motor City is far from alone in its financial woes. But analyst Meredith Whitney, who famously “called” the mortgage meltdown a decade ago, didn’t quite get her second act, a muni bond implosion, right. (At least, not yet.)

In any case, the opportunity for modest individual investors to buy directly into a single municipal entity is limited. And, given the concentration of risk, why would you want to invest – except where you are emotionally vested? Enter the “minibonds,” which are being brokered by a startup called Neighborly (and which thankfully isn’t using the Libyan “.ly” top-level domain name).

Cambridge is vague about what the funds are to be used for, merely saying, “The City will use minibond proceeds to support capital projects such as school building renovations, municipal facility upgrades and implementation of the Complete Streets plan.” This suggests they are general obligation bonds, which are backed by the taxing authority of the City of Cambridge. The campaign is only open to residents of Cambridge, so residents who buy the bonds are essentially lending money to themselves. But I guess they can take some civic pride in having directly supported the city’s capital projects.

Today, I signed up with Neighborly, to go through their vetting process as a mini-bond investor. It turns out my city of residence, Somerville, is on the list to issue bonds this year. Somerville’s plans: “Proceeds from the issuance will be used to increase the accessibility and quality of green spaces for community members.” That makes sense, given that 77% of Somerville is covered by impervious surfaces. It has the lowest proportion of both green and open space of any municipality in Massachusetts.

However, Somerville voters just two months ago approved a $257 million renovation of the high school. It’s the state’s most expensive school project ever and the city is on the hook for $137 million of that cost. (That’s a rendering of the school above.) Seems to me the minibond funds could be better used on that. But I’ll probably invest anyway.

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