State and Local Financial Instruments
Show Less

State and Local Financial Instruments

Policy Changes and Management

Craig L. Johnson, Martin J. Luby and Tima T. Moldogaziev

The ability of a nation to finance its basic infrastructure is essential to its economic well-being in the 21st century. This book covers the municipal securities market in the United States from the perspective of its primary capital financing role in a fiscal federalist system, where subnational governments are responsible for financing the nation’s essential physical infrastructure.
Buy Book in Print
Show Summary Details
You do not have access to this content

Chapter 10: Reducing debt service by refunding debt

Craig L. Johnson, Martin J. Luby and Tima T. Moldogaziev


This chapter provides an overview of one of the major purposes of the sale of municipal securities: to refinance bonded and non-bonded indebtedness. The chapter begins with a discussion of the purposes and types of debt refinancing. It proceeds to detail the basic analytics behind debt refinancing, and examines four principles that undergird prudent debt refinancing strategies. The chapter concludes by offering some policy recommendations for subnational governments in their debt refinancing practices. The primary reason subnational governments sell debt is to provide capital financing for projects such as the construction of roads, schools, government buildings, airports, water and wastewater systems, to name just a few typical capital projects. This debt is often structured such that the final maturity on these bonds can be decades into the future with the subnational government retiring the debt incrementally each year. Between the issuance date and final maturity on the bonds, economic conditions, operational position and policy/political preferences can change, necessitating the need to consider refinancing outstanding debt obligations. There are three reasons for a state or local government to refinance or refund its bonded indebtedness (Wood, 2008). The most common reason is to take advantage of lower interest rates, which produces interest cost savings compared to the interest paid on the previously issued bonds. This type of refunding is known as an economic refinancing whereby the government replaces higher interest rate bonds with lower interest rate bonds.

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information

or login to access all content.