A new paper penned by Senior Advisor Michael Fenn explores a measure that could potentially help Canadian municipalities fund critical infrastructure projects amid rising interest rates.
The impact of rising interest rates, and in turn higher borrowing costs, on municipal debentures could lead to fewer infrastructure projects, less state-of-good-repair investment, and a bigger slice of property tax dollars going to debt-service costs.
This paper explores the way that a financing mechanism in widespread use across the United States could be employed to bring down the borrowing and refinancing costs facing Canadian municipalities. Tax-exempt municipal bonds – what the bond market calls ‘munis’ – allow American cities and their agencies to reduce their cost-of-capital, while encouraging investment in local and regional infrastructure projects.
As inflation and supply-chain issues drive up the cost of construction projects, is it time for Canada to re-examine tax-free municipal bonds?