ichigan has experienced some of the worst financial and economic impacts
of the recent recession affecting the nation. During the economic slowdown,
many school districts halted major bond issues for capital campaigns
because of the impact the economic slowdown was having on taxpayers. Asking
homeowners to increase their debt millage while they were underwater on their
mortgage, unemployed or experiencing financial hardships was a difficult question
to ask the taxpayers. However, as financial markets began to correct themselves
and adjust to a new era, investors initiated a ‘flight to quality’ on their investments.
The highlight of this quality search for investing money has indirectly progressed
into an advantage for municipal bond issuers. The investors’ demand is pushing
interest rates to all time lows.
Municipal bond issuers, for the most part, have never been able to borrow from the bond markets
at rates this low. A school district can issue 30-year bonds today with an estimated cost of funds
of 3.75 to 4 percent. In 2002, the Bond Buyer 20 GO Index averaged 5.04 percent (1). Today that
average is 3.75 percent. The chart on the right shows Michigan General Obligation Yields in June
of 2002 versus current 2012 yields (2).
Is now a good time to borrow?
Michigan Association of School Boards • 1001 Centennial Way, Suite 400 • Lansing, MI 48917-8249
• For VIP information, contact Angel Davis at 517.327.5926,
1. Weekly yields released by the Bond Buyer. General Obligation Bond Yield with 20-year maturity, rated Aa2 by
Moody's Arithmetic Average of 20 bonds' yield to maturity.
2. Bloomberg provided data.
This message brought to you by William M. Roche,
Hutchinson, Shockey, Erley & Co
Roche, senior vice president of public finance, has 30 years of experience working directly with the
State of Michigan, health care providers and school districts. The Michigan Public Finance team at
HSE provides small and large districts and other municipal issuers with financial expertise in capital
planning, budgeting and debt management. For information contact Roche at 586.782.7058.