More Affordable Infrastructure: Tax-Free Municipal Bonds (original) (raw)

More Affordable Infrastructure: Tax-Free Municipal Bonds, 2022

Abstract

When the bank rate rises, higher borrowing costs are sure to follow. As the market demands higher interest rates on municipal debentures, will that lead to fewer infrastructure projects, less state-of-good-repair investment, and a bigger slice of the property tax dollar going to debt-service costs? This paper explores the way that a financing mechanism in widespread use across the United States could be employed to bring down the borrowing and refinancing costs facing Canadian municipalities. Tax-exempt municipal bonds – what the bond market calls ‘munis’ – allow American cities and their agencies to reduce their cost-of-capital, while encouraging investment in local and regional infrastructure projects. As inflation and supply-chain issues drive up the cost of construction projects, are ‘munis’ an 'idea whose time has come' for Canada?

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