Officials for Atlanta's Beltline project plan to issue bonds later this year to help pay for the loop of transit, trails and parks, but a two-year delay caused by a legal challenge may prove costly.

That's because interest rates for municipal bonds have risen sharply in recent months because of the subprime mortgage crisis, which rocked financial markets and made it much more expensive to borrow money, said Dick Layton, managing director of Wachovia Securities, which will underwrite the bonds.

The Atlanta City Council approved a bond sale of up to $200 million in late 2006 for the Beltline at an interest rate of about 5.5 percent, Layton said.

The current rate is closer to 7 percent, he said, meaning the same bond issue in today's market would be in the neighborhood of $150 million.

The 2006 bond issue was challenged by the Fulton County Taxpayers Association and by Buckhead lawyer John Woodham. Woodham took the fight to the Georgia Supreme Court, which last month agreed with his argument that the state constitution prohibited the Beltline from tapping school property tax funds. By prohibiting the use of school taxes, the court ruling effectively wiped out a projected $700 million in bond money, Beltline officials said.

The ruling, while a blow to the Beltline, ends the legal challenge and frees up the city to finally issue bonds for the massive redevelopment project. Layton is advising Beltline leaders to hold off until at least the third quarter of this year, when he expects interest rates to have dropped, though not to 2006 levels.

The bond issue will be the first of several planned over the next 25 years that are now expected to raise $1 billion. The Beltline, one of the largest public works efforts in Atlanta's history, has a projected $2.8 billion budget.

Beltline officials say they are trying to gauge the impact of the court ruling and determine ways of making up the funding gap. They referred any questions about the bond issue to Layton.

To finance the project, the city created a tax allocation district, or TAD, around the planned 22-mile loop. The TAD freezes property tax levels, tapping future increases in property tax revenue over 25 years to help pay for the Beltline.

But the credit crunch has virtually frozen the municipal bond market, Layton said, with too few lenders willing or able to come to the table to finance city, county and state projects.

"We have never seen in the municipal bond market ... this kind of chaos that we are seeing now," Layton said. "In my entire 30 years in the business, I have not seen markets behave so weird."

Layton said his team was in the process of re-evaluating the Beltline district to determine how many new projects have started construction during the two-year delay. Those projects will be added to the bond issue, he said.