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Municipal bonds save governments more than $700 billion in interest

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Staff writer ▼ | August 19, 2015
Municipal bonds
Research   ICMA and GFOA study

State and local governments would have paid $714 billion in additional interest expenses between 2000 and 2014 without tax-exempt municipal bonds.

This is according to a new white paper by the International City/County Management Association (ICMA) and the Government Finance Officers Association (GFOA).

Virtually all state and local government capital investment is financed through municipal bonds.

In 2014, state and local governments invested nearly $400 billion in capital projects, a significant slowdown in spending. Total state and local capital spending has not yet returned to pre-Great Recession totals.

Approximately 90 percent of state and local capital spending is financed by debt.

Alternative financing methods, such as pay-as-you-go and public-private partnerships, are effective for some types of capital projects, but are not a robust alternative to traditional, tax-exempt municipal bonds.

There are more than one million municipal bonds in the market today, issued by more than 50,000 units of government, and their total par value is just over $3.6 trillion.

If the federal tax exemption for municipal bonds were repealed, state and local governments would have paid $714 billion in additional interest expenses between 2000 and 2014. For a typical bond issue, this would mean $80-$210 in additional interest expenses per $1,000 of borrowed money.

Infrastructure funding is one of the most critical functions of state and local governments in the United States.

Together, these levels of government are the main funders of the public sidewalks, roads, highways, bridges, and mass transit systems that Americans use to travel to work each day, as well as the public schools, colleges, and universities in which our future workforce is educated.


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