Understanding the Great Recession's Impact on City Bond Issuances

Understanding the Great Recession's Impact on City Bond Issuances


In the 30 cities at the center of America's largest metropolitan areas, persistent revenue shortfalls and increased demands for services are straining budgets. As a result, local leaders continue to look for ways to relieve fiscal pressures while spurring economic activity.

Policymakers have previously issued refunding bonds — a mechanism to refinance existing debt — to save money on existing debt and jump-start an economic recovery.

The current tepid municipal fiscal recovery, however, combined with federal aid to states and localities provided in response to the recession, has influenced recent borrowing decisions.

After the Great Recession, these cities refinanced existing debt at historic levels to take advantage of low interest rates, and they borrowed to speed up infrastructure projects so they could be ready to benefit from the American Recovery and Reinvestment Act, or ARRA.

To better understand how city officials managed debt in response to the Great Recession compared with previous national economic downturns, The Pew Charitable Trusts examined these cities' recent borrowing, using inflation-adjusted data from the Thomson Reuters SDC Platinum database, which includes information on bond issuances by municipal governments.

This analysis found that:

  • Collectively, the 30 cities issued $13.9 billion in refunding bonds in 2012, the largest amount in two decades. 
  • For the first time since 1991, such issuances accounted for more than half (57 percent) of the total bonds originated by these cities. 
  • In 2011, new money bond issuances in the 30 cities were at their lowest level in more than 20 years ($10.4 billion), when adjusted for inflation. These issuances remained low in 2012, increasing by just $200 million.

Pew also found that the national fiscal and economic policy responses to the Great Recession changed the way cities used debt to finance new projects, compared with past recoveries.

Federal policy interventions through ARRA — notably the Build America Bonds program and direct infrastructure grants to local governments — created incentives for cities to undertake projects during 2009 and 2010 that had been planned for future years.

Although these federal policies cleared out a number of capital projects and lowered demand for new ones in the ensuing years, the lack of new money issuances among the 30 cities in 2011 and 2012 was probably driven as much or more by revenue challenges as by a shortage of new infrastructure projects.

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