State Constraints on Local Government Capital Financing

摘要

This report describes creative capital financing instruments (e.g., zero coupon bonds, tax - exempt commercial paper, sale - leasebacks) and presents case studies outlining changes in State laws made to permit local government use of particular creative financing techniques. 'Creative capital financing' denotes alternative ways of structuring governmental bond issues or tapping new sources of capital likely to result in lower financing costs than traditional bond issuance would under certain market conditions. In Massachusetts, for instance, the State legislature amended State laws to allow local use of either floating interest rates or letters of credit in their bond issuances. Connecticut allowed municipalities more time to refinance their short - term debt so that the lower interest rates of the short - term market could be tapped for longer periods of time. New York authorized the sale and subsequent leaseback of Suffolk County's sewer system. Another case study surveys municipal finance laws in several Midwestern States and highlights potential obstacles to creative capital financing. A final case study describes steps taken by Washington's underwriting community to circumvent their inability to sell bonds at a large discount from par. A new borrowing instrument -- the compound coupon bond -- was developed rather than amending State laws prohibiting zero coupon bonds. The report raises policy issues and implications of creative capital financing. Chapter notes, a table, and a chart explaining different types of creating financing instruments are included. (Author abstract modified).