City feels impact of rising interest rates
Jun. 28—MANKATO — The city of Mankato, which sells municipal bonds each year to finance millions of dollars worth of construction projects, had a historic 12-year run going.
"The last time we had interest rates above 3% was 2009," said Parker Skophammer, director of administrative services for the city.
The streak of low interest rates, going back to the Great Recession and including some years where the city borrowed money for under 2%, came to an end Monday night when the City Council approved the sale of $15.1 million of bonds.
The low bid on one set of bonds was 3.47% and on another was 2.99%. The numbers were close to the 3.22% predicted for each series in recent months, which was something of a relief to city officials anxious that the figures might soar well above estimates.
After all, the Federal Reserve in an effort to reduce soaring inflation has been aggressively pushing up rates, including a .75 point hike two weeks ago.
Doug Green, a certified municipal adviser with Baker Tilly, noted the wild swings that have occurred in the markets since the estimates were made.
"Despite a pretty volatile market, as I'm sure you know, we did have a very successful sale," Green said. "We ended up right back where we started."
The $6.81 million in general obligation sales tax revenue bonds, which will carry the 3.47% rate, will fund repairs to the civic center roof, the building's cooling system and its exterior walls, along with a new parking lot at the city's youth baseball complex. The bonds will be repaid over 16 years using proceeds of Mankato's half-percent local sales tax.
Another $8.66 million in general obligation improvement and utility bonds — which are backed by assessments, utility bills and property taxes — attracted the interest rate that was just a hair below 3%. Those funds will cover the cost of a series of mostly completed construction projects from 2021, primarily the $5.4 million Warren Street reconstruction, street and utility modernization in the Germania Park neighborhood, and a roundabout on Adams Street.
When state street aid and other local funding are added, the street projects — which also included Weaver Street, the city's share of Victory Drive and last year's alley projects and general resurfacing — totaled more than $11.5 million. The bonds will be repaid over 10 years.
A credit rating done in advance of Monday morning's bond auction maintained Mankato's AA rating, the third-highest rating available to cities.
Green indicated the city, like other university towns, falls short of the highest marks because the college students drive down average incomes. But Mankato still scores well due to its municipal fund balances, a long-term approach to budgeting and overall management.
"The things you can control are excellent," he said.
Although interest rates are on the rise, Skophammer said the city has assumed interest rates of 3.45% when calculating how much additional sales tax bonding could be supported for upcoming projects such as municipal swimming pool improvements and a youth softball complex. So, based on rates received Monday morning, he remained optimistic the city could continue to move forward on those projects.