Price Report: Interest Rates Spur Northern Door Municipal Development

If you go to just about any municipal board meeting in northern Door County, you’re sure to find some sort of big redevelopment project on the agenda. While Sister Bay recently wrapped up their highway and beach project, Gibraltar is planning a highway resurface and waterfront development after voting to purchase a $1.4 million property for its own beach expansion. Ephraim met with the Department of Transportation and consultants this week about highway resurfacing. The Enhance Egg Harbor initiative is looking at a grand total of $10.3 million in projects in the next five years.

While most board members laud these projects as important for their improvements in safety, economic development potential and attraction for tourists, there is one common refrain brought up at each meeting.

Interest rates are low. It is a good time to borrow.

When the Federal Reserve increased short-term interest rates in December 2015, most thought this was the beginning of the end for loose monetary policy. The 0.25 percent increase was the first in nearly 10 years, brought on by a strengthening economy and optimistic outlook for the economic future.

But a 0.25 percent interest rate at the Federal Reserve level reflected economic sentiment more than literal economic impact. It is small compared to the five percent rate seen just before the Great Recession of 2008.

After a volatile year between a presidential election and the Brexit vote, the Federal Reserve decided to hold monetary policy where it is despite a strengthening economy.

Lael Brainard, a Federal Reserve governor, used words like “prudence” and “uncertainty” when describing the approach to interest rate hikes, which the Federal Reserve will consider again when it meets on Sept. 20 and 21.

Although the rate increase is not likely for September, most banks and economists believe there will be an interest rate hike before the end of the year. The interest rate hike will trickle down to borrowing rates for individuals and municipalities and that is why people in Door County are pushing for these big projects now rather than later.

Right now, municipalities can issue bonds at around two percent. A decade ago, those rates were between five and eight percent. On projects with costs in the millions, that could result in hundreds of thousands of dollars in savings with low rates.

“Everyone is listening to what Janet Yellen [Federal Reserve chair] is saying about what she’s going to do at next month’s Fed meeting. Two years, you could see Fed funds at 3.5 percent so two percent bond issue is going to be history,” said Dave Harris in response to a resident comment at the Sept. 7 Gibraltar Town Board meeting. Harris is Harbor Commission chair for Gibraltar and Senior Vice President for the Sturgeon Bay branch of RBC Wealth Management.

“I’m a little surprised you haven’t talked about the advantages of the current financing market,” said an Egg Harbor resident at the Aug. 23 meeting about the Enhance Egg Harbor project. “There’s never been a better opportunity. You don’t know what the market’s going to be like but this is an incredibly advantageous time to borrow money. It could be that years from now it would be twice as expensive.”

Should the Federal Reserve choose to raise rates in the coming months, it will be more expensive for municipalities to borrow money, which could affect how much the municipality is willing to develop. But if towns and villages looking at big projects can lock in these low interest rates, it will likely never be cheaper than it is today.

Crop prices (Sept. 13)

Rio Creek Feed Mill – Algoma

Fox River Valley Ethanol – Green Bay

Basis: The difference between the local cash price for a commodity and the Chicago cash price (where the Board of Trade sets national futures price).

Gas Price Averages

United States: $2.18

United States one year ago: $2.34

Wisconsin: $2.20

Wisconsin one year ago: $2.42

Northern Door: $2.40

Sturgeon Bay: $2.26

Other Commodities

Gold: $1,327.40/troy ounce

Silver: $19.60/troy ounce

Oil: $45.47/barrel

Sources: aaa.com, agweb.com, gasbuddy.com, cnn.money, WM Financial Strategies, Tradingeconomics.com