Paying for infrastructure in the post-recession era: Exploring the use of alternative funding and financing tools

ABSTRACT

While municipalities in the United States face many challenges, one of the most critical is an aging stock of infrastructure. Concurrent with this issue is a new fiscal reality where local governments face unfunded pension liabilities, difficulties in raising revenues, and potentially declining state and federal support. As a result, meeting infrastructure needs may require alternative strategies (e.g., green bonds or social impact bonds, public-private partnerships, or privatization) beyond traditional financing mechanisms like general obligation bonds. Though these tools are available to a wide range of governments, not much is known about how frequently they are used and why some governments choose to use them while others do not. Using a survey of local governments, this research explores the extent to which cities are already using or considering using alternative tools to meet their infrastructure needs and the factors associated with the decision to use or pursue using those tools. It finds that the factors associated with the use of these tools are dependent on the nature and type of tool, with alternative funding tools like developer fees more associated with a decline in political support for municipal bonds and alternative financing tools like green bonds associated with budgetary imbalances.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Though a lower cost of capital is theoretically possible via a green bond, some analysts argue that these have yet to materialize (Hiller, 2018). Other data indicate that green bonds have lower yields than comparable municipal bonds, potentially due to investors being willing to sacrifice returns in order to hold green bonds (Baker, Bergstresser, Serafeim, & Wurgler, 2018).

2. Other research efforts relying on these data included follow-up interviews with over 25 of these CAOs, finding that only one had not participated in completing the survey, providing greater confidence that the survey responses were not coming from other staff in the organization without pertinent expertise to address the topical issues in the survey.

3. As Norman (2010, p. 629) argues, scales developed from multiple items are actually best considered interval scales. He writes, “It is completely analogous to the everyday, and perfectly defensible … practice of treating the sum of correct answers on a multiple choice test, each of which is binary, as an interval scale.”

4. We select three response categories as opposed to four or five because our empirical approach requires us to establish a reference category and interpret the results against that category. Binning “unlikely to use” and the two “prohibited from use” response categories makes the interpretation much simpler, as we can interpret the results as being the probability of considering use or already using relative to all other options. Selecting a different response category would mean interpreting the results relative to being prohibited by an external actor or being uncertain.

5. In accordance with norms across social science, we use the language “statistically significant” when a variable has a p-value less than 0.1, but it is important to note that all but two of the relationships described in this section as statistically significant have p-values of less than 0.05 (i.e. are statistically significant at the 95% confidence level). Tables 5 and 6 have more detail on the p-values of each statistically significant relationship.

6. In addition to theory, we conducted a confirmatory factor analysis that demonstrated strong—though not perfect—support for the theoretical groupings.

Additional information

Notes on contributors

Akheil Singla

Akheil Singla is an assistant professor in the School of Public Affairs at Arizona State University. His research focuses on public financial management at the state and local level with an emphasis on municipal debt, city financial health, and how municipalities behave when they are distressed.

Jason Shumberger

Jason Shumberger is a doctoral candidate in the School of Public Affairs at Arizona State University. His research focuses on local public finance, with a particular emphasis on the property tax and how fiscal institutions affect local behavior.

David Swindell

David Swindell is the Director of the Center for Urban Innovation and an associate professor in the School of Public Affairs at Arizona State University. His work focuses primarily on community and economic development, especially related to the public financing of sports facilities and their contribution to the economic development of urban space.