At a certain point, infrastructure isn’t optional. That’s what the head of municipal bond research for Bank of America Merrill Lynch told Bloomberg Business about Atlanta. It’s paid down its debt and this month, for the first time in 14 years, is asking voters to approve $250 million in new debt for desperately needed improvements.
“We have maintenance that’s been put off for years and years and years,” said Richard Mendoza, commissioner of the public works department. “The $250 million is what we are able to afford without raising property taxes.”
How much does he need to address all infrastructure issues in the nation’s ninth largest metropolitan area? $1 billion.
Like Atlanta, cities, counties, and states nationwide are taking advantage of record-low interest rates and better credit ratings to fund new public works projects. According to the Securities Industry and Financial Markets Association (SIFMA), state and local governments are expected to issue almost $10 billion more in long-term debt this year.
If that happens, says Bloomberg Business, the $3.6 trillion municipal bond market would grow for the first time since 2010. The estimated $315 billion that would be raised is impressive — until you compare it to the $3.6 trillion the American Society of Civil Engineers says is necessary to whip the nation’s infrastructure into shape over the next five years.
Get it while it’s hot
As the economy heats up, however, the cost of money is bound to rise.
SIFMA expects the federal funds rate to rise from 0.13% in 2014 to 0.75% by the end of this year. Forecasts include:
- Two-year Treasury note yield is expected to rise from 0.50% to 1.15%
- 10-year Treasury note yield is expected to rise from 2.4% to 3.25%.