A Surplus Optimization Approach to Managing Municipal Debt

Brooks, Robert

doi:10.1177/1091142104272601

Cited by 1 publication

(2 citation statements)

References 25 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…A body of literature also exists on debt management policies and the use of various tax-exempt financing strategies including Wigger (2009), Sieg andStegemann (2009), Chalk (2000) and Monteil (2005). Brooks (2005) and Chalk (2000) for example, recognize the use of debt management as a macroeconomic tool, particularly through the use of tax-exempt bond financing options. Examining optimal debt maturity structures (e.g.…”

Section: Levinementioning

confidence: 99%

“…Examining optimal debt maturity structures (e.g. floating rate and fixed rate maturity) for U.S. state governments for fiscal years ending 1988 through 2001, Brooks (2005) finds evidence that the correlation between tax-exempt floating rates and a measure of operating cash flow is an important determinant of debt policy. Wigger (2009) further cautions that choosing the type of debt instrument may be a political tool for politicians to triumph at the polls; going so far as suggesting that governments may run a Ponzi type borrowing scheme by issuing bonds and rolling over interest and principal (p. 497).…”

Section: Levinementioning

confidence: 99%

See 1 more Smart Citation

The Impact of Debt Management Policies on Borrowing Costs Incurred by U.S. State Governments

Levine

2011

Public Finance and Management

View full text Add to dashboard Cite

This study empirically examines the impact of debt management policies on borrowing costs incurred by U.S. state governments when issuing debt in the municipal bond market. Based on positive political theory and the benefit principle of taxation, it is proposed that states that adhere to best practice debt management policies transmit signals to the credit ratings, investment community and taxpayers that the government should meet its obligations in a timely manner, resulting in lower debt costs. As a result of a multi-block multivariate regression model the implication of adhering to debt policies aimed at promoting transparency results in a borrowing cost savings in terms of true interest cost (TIC) of close to $8,000 for every $1,000,000 of debt issued (-.769, p<.10). However a comprehensive debt policy is not a significant indicator of borrowing costs. These results suggest a product of a pull push process between the economic forces of the bond market on one hand and politics on the other, pulling the administrative function toward efficiency in the former and democratic values of responsiveness and transparency in the latter. The problem lies in policies that respond to the bond market but virtually exclude any other community interest in policy making. It is recommended that openness in government and allowing taxpayers to understand government services are essential goals in ensuring responsible citizen oversight and providing taxpayers the opportunity to be less likely to propose restrictive initiatives or force dramatic political or management changes through the electoral process or bond referenda.

show abstract

Section: Levinementioning

confidence: 99%

Section: Levinementioning

confidence: 99%