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Abstract: 

Since 1995 the Missouri State Auditor has completed one report and three audits looking at local government municipal bond sales in the state. Each audit made several recommendations to local governments and the Missouri legislature that were designed to improve the bond sale process, including eliminating an overreliance on sole source negotiated bond sales. As of this date, none of the recommendations has been implemented by the legislature. This paper uses data on Missouri local government bond sales from 2008 to 2011 to test whether there is an interest cost difference between competitive and negotiated bond sales. The authors find that competitive sales result in a substantial interest cost savings over negotiated sales—similar to previous findings in Missouri. Yet, negotiated sales remain the modal sales type in Missouri despite multiple rounds of recommendations from the Missouri State Auditor.

Keywords: Municipal bonds, negotiated sales, borrowing cost, Missouri State Audit

Affiliations:  1: University of Connecticut West Hartford; 2: University of Connecticut West Hartford.