In the second week of September, 30-year municipal bond yields reached their highest level since February 2011. The 30-year Treasury rose to 5.37 percent, a level last seen in 2007, and the 10-year to 4.97 percent, its highest since 2023. For investors, these are attractive yields. But for local governments issuing debt in this market, they represent a substantial and durable increase in the cost of every yet-to-be-financed project.
Municipal borrowing costs are not a one-time expense. A 20-year bond issued this fall locks in its interest rate until 2046; on a $35 million issue, the difference between 3.5 and 4.9 percent amounts to several million dollars in additional interest. These costs are borne by local taxpayers, without resulting in the purchase of additional pavement, pipes, or other public investments.
Wisconsin illustrates this structural incentive problem. State levy limits restrict how quickly a municipality may grow its operating levy, but debt service is exempt, and tax increment revenue does not count against the cap. Borrowing and tax increment financing are, therefore, the uncapped channels for pursuing capital projects, and the law consequently rewards financing rather than funding them. None of this implies that municipal borrowing is imprudent. Debt is appropriate for financing long-lived assets, and deferring necessary water, road, and sewer investment simply shifts higher costs onto future taxpayers.
The higher rates now faced by municipalities do not change what would otherwise be a beneficial project into a wasteful one, but they do narrow the margin for error. Much of my research measures whether public policies deliver the benefits claimed for them relative to their costs. The lesson I keep discovering is that a benefit asserted at approval and a benefit measured afterward are frequently different numbers. Therefore, two questions warrant more scrutiny than they typically receive: whether a project is a need or a want, and what the contract obligates taxpayers to do if it underperforms.
For instance, Milwaukee’s streetcar answers both questions badly. The Hop began service in 2018 and cost $128 million to build, with roughly $69 million of it from federal grants and $59 million diverted from three tax incremental financing districts. It runs two lines totaling roughly 2.5 miles through a downtown corridor already served by buses. The city justified it on economic development grounds rather than transportation necessity. In 2025, it carried 494,557 riders, 35 percent below its 2019 level of 760,321 and down over seven percent from 2024. The 2026 budget puts operating costs at $6.94 million, compared with $2.69 million from sponsorships, advertising, and operating assistance. That amounts to roughly $14 per ride at 2025 ridership on a service free to the passenger, about $8.60 of which falls on the city.
Members of the Milwaukee Common Council have recognized the problem and are nonetheless unable to address it. The federal grants which built the system effectively obligate the city to keep operating it. When an alderman moved to defund the streetcar last fall, the Department of Public Works advised that shutting it down would trigger a federal demand for roughly $48 million. He has written to the U.S. Transportation Secretary asking to be released from the obligation, without success so far. Milwaukee will likely subsidize it indefinitely because exiting costs more than continuing it at this point.
Lane County, Oregon, offers a more expensive version of the same error. In December 2023, the county committed to a contract with Bulk Handling Systems to build and operate CleanLane, a $150 million waste-processing facility. It is sized for a minimum of 120,000 tons annually—a floor the county pays against, whether or not the waste actually materializes. The same contract imposed a $12,000-per-day penalty if specific construction deadlines were not met by December 2025.
However, the county purchased the waste-processing facility site for $1.5 million before securing the permit required to use it. That permit was ultimately denied. Appeals to the state land use board, the Court of Appeals, and the Oregon Supreme Court all failed, as did a bill to override Oregon land use law. Nearly three years on, the county has no settled site, no bond issued, and a contract written for a location it cannot use. It is now pursuing construction at the Short Mountain Landfill instead, which has added both time and cost.
Both the Milwaukee and Lane County cases involve ordinary decisions made with inadequate examination of what the agreement would require if the optimistic case were to fail. In each case, the provision which mattered most received the least attention: the allocation of risk when the project underperforms. While Milwaukee guaranteed continuous operation and Lane County guaranteed a site and a schedule, neither guarantee runs in the taxpayer’s favor.
Responsible stewardship does not require that local governments stop building, only that the analysis performed before financing be commensurate with the obligation incurred. Local governments should explicitly distinguish needs from wants on the record, because the case for a discretionary amenity is easier to make when its cost is spread across two decades of debt service. In addition, projections should include a sensitivity analysis modeling the downside. Last, the exit provision should be priced before approval: where no affordable exit exists, the project should be a clearly demonstrated need rather than a plausible want.
