NCPA - National Center for Policy Analysis

Cost of Public Projects Is Rising -- Pain Will Be Felt for Years

July 8, 2013

States and cities across the nation are starting to learn what Wall Street already knows: the days of easy money are coming to an end, says the New York Times.

Interest rates have been inching up everywhere, sending America's vast market for municipal bonds, a crucial source of financing for roads, bridges, schools and more, into its steepest decline since the dark days of the financial crisis in 2008.

  • For one state, Illinois, the higher interest rates will add up to $130 million over the next 25 years -- and that is for just one new borrowing.
  • All told, the interest burden of states and localities is likely to grow by many billions, sapping tax dollars that otherwise might have been spent on public services.

Much as home mortgage rates are making home buying a bit more costly as they rise, so, too, are the rates at which states and cities borrow money. Public officials -- and taxpayers -- may feel the effects for years.

  • Recently Georgia, Philadelphia, the Metropolitan Transportation Authority in New York and others have delayed sales of new bonds, citing the precipitous plunge in prices that is driving up interest rates.
  • Gov. Pat Quinn of Illinois attributed the extra cost to the state's failure to shore up its finances, particularly its rickety pension system.
  • Illinois has the lowest credit rating of any state, and as interest rates rise they tend to rise fastest for the weakest borrowers.

Source: Mary Williams Walsh, "Cost of Public Projects Is Rising, and Pain Will Be Felt for Years," New York Times, June 26, 2013.


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