Kentucky Association of Counties

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SPOTLIGHT

Financial markets in turmoil – how could it impact your county?

Grant Satterly, KACo Director of Financing Services
It is no secret that the U.S. financial markets have suffered a recent downturn. Since Jan. 1 of this year, the Dow Jones industrial Average has dropped 4,000 points (11 percent). This is a significant decrease by any measure.

At the same time, and perhaps more importantly for counties, there has been a dramatic rise in interest rates during this same period. The yield on a Ten Year Treasury note, considered by finance markets to be the best indicator of municipal interest rates, has more than doubled to 3.21 percent as of May 9.

The primary significance for counties is twofold. 

First, since the Federal Reserve has raised overnight interest rates twice in the last 60 days, you may be seeing increases in the rates paid by your bank ranging from one-half (1/2) to three-quarters (3/4) of one percent. The Fed’s action will likely also push CD and other investment rates higher, giving counties an opportunity for a marginal increase in investment income. This is a bit of good news if you have excess funds to invest.

Second, there will likely continue to be increased borrowing costs for county governments. As the Federal Reserve moves to push interest rates higher (which they have signaled will happen over the next year or so), there will likely be a corresponding increase in borrowing costs. No one can say with any degree of certainty how high rates may go or for how long. We will simply have to see where the markets take us.

In a volatile environment, it can be difficult to determine what to do with your money and when to borrow funds, but paying attention to the advice of your professional financial advisor is your best bet. After all, that is why you hired them – let them guide you through this unusual time.   

How can KACo help?

KACo has tools to help mitigate potentially higher borrowing costs. Many counties are unable to obtain, or simply have not pursued receiving a credit rating, which puts them at a disadvantage when it comes to interest rates on bonds. The KACo Finance Corporation was created to allow counties to use its AA- credit rating to lower their borrowing rates, which could produce significant savings for your county.

If you would like more information or if you would like to see how current interest rates will affect potential payment levels, just give us a call and we will be glad to help.  You can reach Grant Satterly, Lonnie Campbell or Kelly Mittler at 1-800-264-5226.

Kentucky Association of Counties
400 Englewood Drive, Frankfort, KY 40601