This morning, the City of Seattle held auctions for a handful of bond issuances. It did very, very well, and that matters.
Two things worked in the city’s favor. First and foremost, its exceptional AAA credit rating means that there were many bidders for the bond offerings. Second, as reported this afternoon by Michael van Dyke, the city’s Director of Debt Financing, the “chaos in D.C.” this week caused the municipal bond market to tick down today.
As a result, most of the bonds they issued today went at interest rates of either 3.04% or 2.96%.
As a point of comparison, the Seattle-area Consumer Price Index (i.e. local inflation) was 3.1% in April. That’s right, the city just borrowed money at an interest rate below inflation. Or, as Council member Burgess put it, it’s “free money.” Though to be precise, it’s free money in Seattle; in other parts of the country where inflation is even lower, Seattle’s municipal bonds are a very wise, very safe investment that gives a decent return — which is why financial firms bid what they did. FYI, the nationwide CPI in April was 2.2%.
Some of the bonds issued are refinancing, i.e. the proceeds will be used to pay off previously issued bonds with higher interest rates. That is expected to lower property taxes a tiny bit next year. But more significantly, the bond refinancing will save the Seattle Chinatown International District Preservation and Development Authority (SCIDPDA) $434,000 on one of its projects — a considerable sum.
We can have a valid, robust debate about whether the city should be more aggressive in using its bonding authority to raise funds for affordable housing and other projects; there are strong arguments on both sides. But the officials who carefully protect the city’s stellar credit rating are not being irrational; the ability to borrow money cheaply is an incredibly valuable asset that saves the taxpayers tons of money over the long term, as less money goes to paying interest and more is available for infrastructure and programs.