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Mayor’s Report – October 2012

Historic Low Interest Rate for the MFA 2012 Fall Bond Issue

Mayor Ralph Drew

I am very pleased to report that on October 4th, 2012, the Municipal Finance Authority (MFA) announced that the 2012 fall debenture was successfully issued in the 10-year municipal bond market at a record low interest rate of 2.90% (a fixed rate for 10 years). By way of comparison, the bank interest rate for lending to corporate customers, which includes municipalities, is currently around 4.50%.

This announcement is good news for the financing of our water system. For those residents who have chosen not to commute their share of the capital costs, the parcel tax appearing on their 2013 property tax notices will be less than the previous estimate of $1184 per year. A revised estimate is approximately $1020 per year ($85 per month), but the final amount will only be formally determined in the spring of 2013 following the parcel tax roll review process legislated in the Community Charter.
[Update: Final parcel tax is $973 per year, which is $81 per month.]

Some people will recall that in December 2006, when Belcarra applied for a grant to construct the water system, interest rates were around 7.0% for financing municipal infrastructure. Economic circumstances since then have resulted in a steady decline in interest rates to the current historic low level. One year ago the 2011 fall MFA debenture issue for 10-year bonds had an interest rate of 4.13%, and six months ago the 2012 spring MFA debenture issue for 10-year bonds had an interest rate of 3.36%.
[Update: The 2013 spring MFA debenture issue for 10-year bonds had an interest rate of 3.15%.]

In these uncertain economic times it is impossible to know where interest rates will be in six months or a year from now. However, economists generally agree that interest rates will increase again, and that it is only a question of “when?” Regardless, a prudent course of action in not speculating with regard to interest rates appears to have been well-timed.