Call it the bond market disaster that didn't happen.
That's the way bond investors should think about New Orleans on the first anniversary of Katrina. Focus on a few things that didn't happen, and be thankful.
The city didn't become a ghost town, the state didn't turn its back on the hard-hit municipality and there wasn't a wave of municipal-bond defaults.
That's very good news, because bad things like that, had they occurred, would surely have augmented the toll of human misery throughout the region for some time to come, delaying a recovery already likely to take years.
The long-term picture was never really in doubt, though, was it? Municipalities don't go out of business. Property owners tend not to abandon their property. It was the short- and medium-term prospects that were more worrisome, and those could have had an impact on the long-term outlook.
Here was a city that was 80 percent flooded. That wasn't all; the worst part was when the authorities told everyone who lived there they had to leave, and couldn't come back until they were told it was safe to do so.
Thus began a unique experiment for students of U.S. public finance: What would happen to a municipality's credit if you removed the tax base?
Open for business
Fortunately, this experiment didn't last as long as experts originally predicted. Within weeks, people were moving back into areas that were unaffected by the storm and putting their lives back together.
Perhaps the biggest surprise for all those who remember the television reports from the days after Katrina flooded New Orleans was the news that there were areas of the city that were practically untouched.
Even more fortunately -- and not to discount the impact of the disaster on the poorer neighborhoods -- these were the areas most tourists think about when they visualize New Orleans: the French Quarter and the Garden District.
Last September, did anybody really imagine that the city would celebrate Mardi Gras in 2006? It was unseemly to think about such a thing at a time when thousands were feared dead. Yet there were revelers tossing beads from balconies on Bourbon Street this year. Mayor Ray Nagin has been touring the country telling everyone that New Orleans is open for business.
There are a lot of things to complain about one year after the storm. A big bond meltdown -- and the decidedly chilling effect that would have had on the future of the city and perhaps even the municipal market in general -- isn't one of them. The state sold bonds earlier this year designed specifically to help various city entities pay debt service.
More good news on the New Orleans front came in the form of a confirmation of the city's Ba1 credit rating by Moody's Investors Service earlier this month. The rating company said the city's outlook was "stable."
"The outlook is a reflection of recent information which indicates that the city's primary revenue sources, although reduced from pre-Katrina levels, have stabilized and that signs of a sustained economy are beginning to emerge," Moody's said.
"Year-to-date sales-tax collections are approximately 70 percent of the prior year-to-date collections through May," the rating company said. Property-tax collections are running at 83 percent. "The situation is not as grim as most people feared," Moody's said.
There are a lot of challenges ahead for the city, Moody's said. They all revolve around people, or the lack of them. The population of New Orleans, 463,123 before Katrina, is now estimated at anywhere from 150,000 to 250,000.
Tourism is waning. Infrastructure needs to be rebuilt. There is a shortage of labor and housing. Yet if history is a guide, jobs won't go begging for long.
As for tourism, New Orleans has built up a lot of good will over the years. That is, lots of people have fond memories of good times there. Whatever brought them to the city will bring them back again.
Some groups will put New Orleans on their calendar to show support for an old friend. The National Association of State Treasurers, for example, is holding its big Treasury Management Conference in the city this December.
"The best way you can help in the rebuilding is to come and see for yourself the incredible vitality and charm that this unique American treasure still retains," the association said on its Web site, announcing the conference.
That sounds good. There's still a little magic to the phrase, "a couple of days in New Orleans." The city is banking on it.