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Abstract: 

State bond banks finance loans of small governments (participants) by selling large issues in the municipal bond market. Interest cost savings are expected through the lower interest costs paid by participants for their loans than for their bond issues. This study estimates savings for several types of alternative participant sales using data— 24 years, 91 sales, and 1,576 loans—from the Maine, New Hampshire, and Vermont bond banks. A conservative perspective indicates that savings were generated for 87% of all loans, an average gain of 79 basis points, with 60% of all loans saving between 26 and 100 basis points.

Keywords: Bond Bank Structure; Net Interest Cost vs True Interest Cost; Non-Qualified and Bank-Qualified Issues; ALTi Models

Affiliations:  1: School of Urban Affairs and Public Policy, University of Delaware.