Insure Your Bonds: How to Lower Financing Costs for Your City

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Local governments leveraged the municipal bond market to raise more than $200 billion for new investments in infrastructure last year alone — and there are tools out there to further lower the cost of municipal bond financing for cities.

This post was co-authored by Michael Stanton and Rasheeda Senger.

We all know the statistics. The American Society of Civil Engineers (ASCE) grades America’s infrastructure as a D+. One hundred and eighty-eight million trips are taken on structurally deficient bridges every day. As a nation, we run a $2.0 trillion 10-year infrastructure gap. And consistently, the National League of Cities’ State of the Cities report finds that infrastructure is a “top 10” issue for local leaders. In other words, America’s aging infrastructure is a huge problem.

But here are some numbers that are overlooked: America’s cities own 78 percent of the nation’s road miles, half its bridges, and 95 percent of water infrastructure. And more critically, state and local governments leveraged the municipal bond market to raise more than $200 billion for new investments in infrastructure last year alone — and more than $2 trillion in the past decade.

Municipal bonds are the driving force behind infrastructure investment in cities. They are accessible, reliable, and their tax-exempt status saves cities up to 30 percent on financing costs compared to other methods. In other words, cities know tax-exempt municipal bonds need to be a part of the solution to national infrastructure policy, and are already a vital tool in making everyday local projects a reality.

But there are tools out there to further lower the cost of municipal bond financing for cities.

Since 2013, more than 700 cities and towns of all sizes have utilized Build America Mutual (BAM) insurance to reduce interest costs on $7.9 billion of municipal bonds, saving an estimated $100 million.

When it comes to borrowing, it is no surprise that credit rating determines eligibility and terms of financing. With a double-A Rating and Stable Outlook from S&P Global, Build America Mutual works on behalf of cities to make infrastructure more affordable and investments safer. By insuring municipal bonds through BAM, cities receive higher credit ratings that in turn lowers their interest costs. NLC recognizes the role the municipal bond market plays in cities helping cities maintain today’s infrastructure and build tomorrow.

NLC has been proud to partner with BAM since its inception in 2012. As NLC’s preferred provider of bond insurance, BAM’s public finance experts have worked with cities across the country help them realize their plans to repair aging infrastructure and build new facilities to accommodate growth — financing roadways, school facilities, water and sewer utilities, and public safety investments, among others.

As the national debate pivots to infrastructure, NLC will continue to lead the fight the protect the tax-exempt status of municipal bonds, and BAM will serve as an ally in cities’ missions to provide low cost infrastructure improvements.

Build America Mutual (BAM) is a mutual bond insurance company operated for the benefit of its members — the cities, states and other municipal entities that use BAM’s financial guaranty to lower their cost of borrowing. BAM is sponsored by the National League of Cities. To learn more about municipal financing with Build America Mutual, contact Rasheeda Senger.

Featured image: A collapsed bridge in Minneapolis. (Getty Images)

About the authors:

Rasheeda Senger is the senior associate for Strategy & Partnerships at the National League of Cities. Follow Rasheeda on Twitter @LRasheeda.

Mike Stanton is head of Corporate Strategy and Communications at Build America Mutual, and has 20 years of experience in the U.S. municipal finance industry, including educating investors about how insured municipal bonds can help them support their communities’ investment needs while also providing safe and reliable earnings.

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