Published in Economic Development
Amid escalating interest rates, municipalities debate when to borrow Courtesy Photo

Amid escalating interest rates, municipalities debate when to borrow

BY Sunday, December 25, 2016 04:42pm

Municipalities and state and local units of government feel anxious for myriad reasons heading into the new year, according to Mark Nettleton, an attorney focused on municipal law, land use, zoning and real estate at Grand Rapids-based Mika Meyers PLC. With a new presidential administration, clients are unclear just what may be in store for 2017, according to Nettleton. The attorney thinks all manner of issues, from trade and tax policy to business incentives, could impact West Michigan’s municipalities. 

What’s top of mind for you in the areas of municipal law and land use heading into 2017?

Anything that could potentially disrupt what I would characterize as people generally feeling more positive about the economy. I think that is driving a lot of issues at the local level in terms of real estate development. 

Does it boil down to uncertainty? 

What I see is that it’s had a significant effect on interest rates as it relates to local government borrowing. In late August, if a municipality was going to the market with a 20-year general obligation bond, they’re looking at rates of 2.75 percent and now they’re looking 4 percent plus, probably. 

What does that mean for local units of government at the moment?

Timing is everything for municipalities right now in terms of getting the best interest rate possible and there’s an end-of-the-year push for a couple deals that are trying to close to get in while the rates are good. It just impacts borrowing costs. But on a state and local level too, assuming the economy continues on an upward trend, I think you’ll see increased residential and commercial development. 

Why’s that?

The state has created a climate where it’s trying to encourage job growth and manufacturing growth. But that will result in greater demand for not only new public infrastructure but upgrades to existing infrastructure. That will really be a focus for municipalities. 

President-elect Trump has called for significant infrastructure investment. What are your thoughts on what that might look like?

I don’t think anyone at local levels is thinking that there will be manna from heaven. I think they’ll look toward increased opportunities for financing, perhaps. Through lessening of federal regulations, that might broaden the ability of state and local governments to go to market and finance structured projects. It’s really hard to say what else at this point the new administration has in mind for that infrastructure. 

With municipal clients trying to lock in some low rates and given the uncertainty with a new administration, how are you advising clients in the short to mid term?

We’re basically taking an approach of let’s get everything possible done that we can so that if it makes sense to hit the market, we can do that relatively quickly. So doing our homework, taking all the steps, dotting our i’s, crossing our t’s. Get everything ready so that when we need to move, we can. 

Overall, what do you make of the variety of economic development bills at the state level that have recently been proposed but didn’t get through this legislative session?

It’s kind of a nuanced area. There are almost a dozen pieces of legislation floating around to restrict TIF entities in what they can and cannot do. That’s been a hot-button topic for a few years. … It’s funny. On the one hand, you have the broadening of TIF legislation (to include various sales and use taxes). … On the other hand, you have the restriction on the ability to capture (revenue increases from millages) for the communities that do a nice job in terms of placemaking, which was a priority of the governor. It’s interesting, the duality of the approach. 

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