Below is an analysis that Jim Drawe did for each of the WiredWest towns for their borrowing options. Intuitively it would seem to make sense for a town to lock in a bond now while the interest rates are low rather than doing a borrowing on one year notes. So to test assumes that the short term interest rates increase by 0.5% per year for the next 20 years. It turns out that rolling over 1 year notes is in fact less expensive even with this extreme interest rate escalation than the other possible borrowing options. This is due to the costs of issuing bonds, performing annual audits, higher interest rates, and other bond related expenses.
The scenario included in option 1 is that the towns pay interest only on the 1 year notes for the first two years and then pay interest and 1/18 of the principal in each of the subsequent years.
The spreadsheet below shows the example of the town of Leyden. If you download the spreadsheet and open it in Excel, you can choose any town to see the analysis for that town. Macros need to be enabled. It may not work properly in all versions of Excel, however it will work correctly in the free open source LibreOffice.