Policy Changes and Management
Studies in Fiscal Federalism and State–local Finance series
Chapter 6: Subnational government debt financial management II: bringing an issue to market: networks and practices
Financial autonomy for state and local governments in a decentralized system is predicated on these governments’ ability to effectively and efficiently raise resources through the capital finance markets. If subnational governments lack this skill and expertise, justification for autonomous subnational financial decision making weakens. However, bringing a bond issue to market is not a quick or simple task. It is an extended process that does not begin and end on the bond pricing date. Rather, it starts with the capital budgeting process and often ends decades later when the government entity makes its final debt service payment on the bonds. In addition, capital financing is not a closed system but rather relies on the skills and counsel of many types of financial intermediaries and consultants who reside both inside and outside of government. This chapter details the management network that state and local governments rely on to bring a municipal securities issue to market. It places the debt management network in principal–agent theory identifying the potential conflicts of interest that reside in the network. Also detailed are the various specific decisions debt managers need to make that can have considerable economic implications for their securities transactions both in the short and long run. The chapter concludes with a discussion of the academic research that addresses many of these debt management decisions as a means of providing some empirical justification behind industry best practices.
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