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lEhknuw W. <br />LEADERS IN PUBLIC FINANCE <br />OFFICES IN MINNEAPOLIS AND WAUKESHA • 501 Marquelle Avenue • Minneapolis, MN 55402 1255 • 612 339 8291 <br />VOLUME 33, NUMBER 5 <br />F ILE: Financial Specialists: Ehlers and Associates, Inc. <br />Please distribute to governing body members <br />November, 1988 <br />INTEREST RATE UPDATE <br />Tax-exempt interest rates (BBI) have not come down significantly, but have improved greatly compared <br />to taxable rates. The October 7th BBI was at 7.53% compared with 20-year U.S. Government obligation <br />yields of 9.18%, or the 861 was 82.0% of U.S. Government Obligations. At the end of May, the <br />comparison was 7.96% versus 9.35%, or the BBI was 84.8% of U.S. obligations. Tax-exempt bonds are <br />becoming more efficient. <br />EFFICIENCY OF TAX-EXEMPT BONDS <br />Credit Markets, i trade paper, published my essay arguing for increasing the efficiency (lowering <br />interest rates) of lax -exempt bonds by limiting their use and by clarifying the tax laws. In response a <br />top researcher cr a large bond underwriting firm argued that tax exemption is not an efficient <br />"subsidy". Now -ve find in September the same firm described how the reduced volume of municipal <br />bonds has dramatically increased the effici^ncy of tax exemption. <br />Recently I spent a week in Tokyo which I last visited in 1945-46 when the City was ashes. Today it is <br />mile on mile of office buildings, factories and 12.5 million people. Japanese corporations can borrow <br />money at 6%, while the government sells at 5%. They truly have done an amazing job. <br />� 4 /� �, <br />Robert L. Ehlers <br />BUILDING BETTER COMMUNITIES <br />With the drought, you might think rural communities would hesitate to take on school bond issues. In <br />mid -October several of Ehlers and Associates' clients had substantial school bond issues up for <br />election. These times require local communities to compete in the local, state and world economies. It <br />makes sense to undertake building programs In slower times. Prices are lower; quality is better; <br />interest rates are lower; and local employment and the local economy receive a boost at a critical <br />time. Repayment occurs later when, hopefully, conditions will have improved. <br />FISCAL CONSULTING -- SALES VS. SERVICE <br />A consulting firm cannot afford to support both a large sales force and provide superior service after <br />being hired. Ehlers and Associates, Inc. does not maintain an expensive sales force, therefore, you may <br />not see much of us before you interview fiscal consultants. But you see us when it counts - in planning <br />and helping you present the financing to constituents. Our clients tell us that it is reassuring to work <br />with the account executive that they interviewed for the project. <br />Carolyn Drude <br />