- High interest rates make it more expensive for local governments to issue bonds. For example, in order to service the debt on a $1,000 municipal bond at 10 percent, the government will have to come up with interest payments of $100 per year. If interest rates were 8 percent instead of 10 percent, the government would have to pay only $80.
- Low interest rates mean cities have to set aside more money in order to save to pay future pension benefits to city workers. The lower interest rates go, the more money local governments must set aside now to pay future benefits.
- Low interest rates make it easier for businesses to borrow money and expand. If they expand operations within city limits, they hire more people and spend more money, and property values tend to increase. This may lead to higher revenue for the local government through property tax levies, income taxes and other forms of revenue collection.
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