Borrowing cost implications of debt management policies on state government municipal bond issuers

Professional organizations interested in long term borrowing costs have recommended debt policies for state governments to follow in the management and issuance of bond sales. This study posed the research question: Do debt policies based on professional principles and best practices influence state borrowing costs controlling for market factors? The questions around which this research is organized are: (1) What debt management practices do professional government organizations recommend? (2) What is the impact on borrowing costs of state governments that follow best practices in debt management and decision-making? (3) What is the impact on borrowing costs of states that formulate recommended policies in debt management and decision-making? (4) What is the impact on borrowing costs of the degree to which actual debt practices follow the recommended professional policies?; This study proposed that debt obligations issued and administered in accordance with best practices recommended by professional organizations and supported in the academic literature will ensure long term financial integrity and accountability by: (1) getting the lowest possible interest rate, (2) achieving the highest possible credit rating, (3) preserving the infrastructure needs of present and future generations, and (4) maintaining reasonable debt loads that preserve government solvency without overextending taxpayers with excessive intergenerational debt.; The design included a sample of the most recent general obligation debt issued by those state level general-purpose governments in the United States permitted by constitution or statute to incur such debt. The general findings of a multi-block regression model did not support the claims made by professional organizations. There was evidence, however, that debt policies aimed at promoting transparency resulted in savings of close to {dollar}8,000 for every {dollar}1,000,000 of debt issued. A pull-push process between competing values explained the results of this study---between economic processes of the bond market on one hand, and politics on the other, pulling the administrative function toward efficiency in the former, and democratic values of responsiveness and transparency in the latter. The problem lies in policies formulated or wanted that respond to the bond market but virtually exclude other community interests in policy-making.