Topics: Municipal Finance

Summary: Rising interest rates are squeezing cash$-$strapped towns and school systems that use short$-$term borrowing to keep cash flowing while they wait for property tax dollars to come in$.$ A$-$rated cities and school districts are paying $3\mathrm{.}16\%$ for a one$-$year loan issued March $3,$ compared with $0\mathrm{.}21\%$ at the beginning of $2022.$ In places where local budgets are already burdened by inflation, rising borrowing costs add to the pressure to raise taxes or cut services.

Classroom Application: This article provides an opportunity to discuss municipal finance and the impact of rising interest rates on municipal budgets.

Questions:

$$ By how much has the cost of borrowing increased for A$-$rates cities and school districts and why?

$$ Why have some municipalities historically issued short$-$term debt?

$$ Why have municipalities significantly curtailed their short$-$term borrowing?

$$ What are tax$-$exempt money$-$market funds?