Suchergebnisse

Is there evidence of a principal‐agent problem in the municipal bond industry? Do public managers, either on their own or through private sector agents, act to increase their own utility at the expense of the public? This article examines municipal bond decisions in the context of principal‐agent theory based on data collected through a random sample survey of municipal bond issuers. Principal‐agent theory is not well developed in the public sector. In the municipal bond industry, however, we have evidence that it helps explain the actions of public managers and elected officials, in particular for pay to play and the importance of interest rates vis‐à‐vis relationships. These actions carry potential costs to citizens.

Municipal bond sales require access to investors who ultimately buy the bonds. In most cases, this function is outsourced to an underwriter that acts as the financial intermediary between the bond issuer and the investor. We ask the question: how interchangeable are different underwriters? There is no organized market where municipal bonds are bought and sold. The interest rates on any particular issue can be affected by factors such as how much risk the underwriter is willing to take and underwriter reputation/certification. In this paper, we use data on Missouri local government bond sales from 2008–2011 to test whether the choice of a specific underwriter influences bond interest rates. We find that governments receive different pricing when selecting one firm versus another. This suggests that public managers should use contract management techniques to select underwriters and then evaluate the bond sale results.

As with any market, there are transaction costs associated with the sale of municipal bonds. Only a small number of studies have examined this topic, and therefore we have only a limited understanding of the magnitude and determinants of new issue municipal bond transaction costs. We use data on California municipal bond transaction costs from 2007 to 2009 to test whether scale economies exist. We find that there are considerable transaction cost scale economies for California municipal bonds and that pooling bond sales would likely save substantial amounts of money.

This article reports on research into the possible interest cost penalties when state governments impose increasingly high debt levels on their citizens. The potential effect of debt levels on borrowing costs is a material one, given the large amounts of state debt outstanding. At the same time that government borrowing is heavy, the demand for government obligations also appears to be strong. The authors examine state debt levels and borrowing costs over a six‐year period (2001–2006) and find little evidence of such an effect, despite rapidly growing debt burdens. Those concerned about state debt levels, the authors say, must look to sources other than investors for pressure to reduce debt issuance.

The issuance of debt is a complicated and time‐consuming task requiring governments to pay substantial fixed transaction costs. Conduit financings, where one entity issues debt on behalf of a government, including bond pools, where multiple governments issue debt together, are methods that offer the potential to reduce the burdens of participating governments, ideally lowering their costs. But conduit hosts have costs of their own to cover and may not be able to offer a cost advantage to their participants. In this paper we examine debt issued under the Marks Roos Act of 1985, a law created to facilitate pooling but actually used for conduit financing. We seek to determine how issuers fare using this mechanism rather than issuing by themselves. We examine issuance costs and borrowing costs (true interest cost) and find both to be significantly lower for those governments that issued by themselves.

This article describes the results of an interest cost analysis of local government debt issuance in the State of Missouri. In Missouri the vast majority of municipal bonds are sold on a "no bid" basis. We discuss the theoretical arguments for and against competition and selection. Then we determine the degree to which cost differences exist while correcting for any potential selection bias. We use data on local government general obligation bonds sold from May 2004 to May 2005 provided by the Missouri State Auditor's office. We find that this substantial lack of competition imposes significant costs on Missouri governments.

The authors explore whether citizen preferences for taxes are influenced by perceptions of the quality of government and government services. Waterford, Connecticut, was faced with a revenue crisis when the property taxes paid by a nuclear power facility in the town were significantly reduced after deregulation. On the basis of a survey of town residents, the authors find that citizens in Waterford were willing to act reasonably in response to fiscal problems. Furthermore, attitudes toward government and its services are important determinants of support for taxes.

State and local governments issue billions of dollars' worth of municipal bonds every year. At the same time, no single comprehensive measure has been available for debt managers to apply that fully captures their borrowing costs. In this article we compare a comprehensive measure called the internal financing rate with true interest cost (TIC), applying both to bond sales in Oregon in 1999. We find that the two measures produce statistically and practically different results and conclude that TIC typically understates the real cost of borrowing experienced by issuers. TIC is therefore a flawed measure for reporting results to administrators, elected officials, and the public. It is also an inappropriate measure for evaluating the performance of public debt managers.