ABSTRACT
Why study municipal debt financing and especially the bond sale? The role played by the network of institutions involved in lending funds to localities has important ramifications for the governance of cities and for their accountability, efficiency, and effectiveness. The politics and administration of municipal debt financing have enough visibility and significance that observers of these financings feel justified in pointing out possible abuses. Besides corruption associated with political campaign contributions by investment banks, a deep exploitation argument often emerges. Basic to this chapter’s analysis is the observation that exploitation can go either way. Credit market experts can exploit government finance officials’ lack of knowledge about financing. Government finance officials can also exploit the banking syndicates’ ability to finance almost anything—as long as there is a revenue stream to pay back the bonds—whether for the good of the politician’s reelection, the good of a particular group or groups of deserving local interests, or the well-being of the city or state as a whole. This chapter’s purpose is to examine the way municipal bond financings work through an understanding of the relationships of the credit market and government participants and to shed light on the exploitation argument.
