Is this a good time for the City to take on a new $100 million debt and embark on a major capital construction project?
The Quick Answer
No. This is not a great time to start an expensive construction project with long-term debt obligations.
Interest rates on bonds are the highest they’ve been in several years and are projected to keep climbing. At the same time, uncertainty about rising inflation and unpredictable tariffs is likely to affect not only pool construction and operating costs, but also costs for other essential City services. At the same time, with wages not keeping up with inflation and government services being cut, increasing numbers of residents will be finding it harder to make ends meet.
The Details
The City's Debt Service Cost Estimates Look Overly Optimistic
Rates are already substantially higher than when the City made its financial projections for the pool project in March, 2026. Each half-percentage-point increase in rates adds over $6 million in interest to be paid on the $95 million 20-year bonds the City plans to issue in early 2028.
At the beginning of March, the staff report to the City Council stated [emphasis added]:
With inflation remaining elevated and global market volatility continuing, interest rates for both taxable and tax-exempt municipal debt also remain relatively high. Additional uncertainties, including tariffs and the potential for an economic slowdown, are expected to contribute to ongoing market volatility. For planning purposes, staff are modeling a True Interest Cost of 4.20% over a 20-year term. This assumption is intentionally conservative and reflects a rate approximately 50 basis points (0.5%) higher than anticipated at issuance. While interest rates may change between now and the planned issuance in November 2027, current projections do not indicate near-term rate increases.
(Narrator: There have been, in fact, near-term rate increases.)
Since March, the 10-year Treasury rate has increased from 4.15% (on March 6) to 5.28% (on October 2) — more than 1%. Municipal bond rates (20-year AAA-rated) have similarly increased from around 4.0% in March to 5.0% now.
Costs, Expenses, Income Are Highly Uncertain for Everyone Right Now
At the same time, rising inflation and unpredictable tariffs are likely to affect construction and operating costs.
Meanwhile, many taxpayers are struggling just to meet necessary expenses as the cost of living has risen substantially. It is a risky economic time for both the City and its taxpayers.