Indirect Aid for Uncertain Times: The Use of State Credit Enhancement Programs

Todd L. Ely

Municipal Finance Journal, 2012, vol. 33, issue 2, 61 - 85

Abstract: In 2011, state and local governments issued nearly $300 billion in long-term debt. Only 5% of that amount was enhanced with private bond insurance, compared to almost half of all debt issued just a few years earlier. The availability of private bond insurance, which is used to lower borrowing costs and improve access to the debt markets, has declined markedly in the aftermath of the credit crisis. Existing state credit enhancement programs provide a low-cost, and increasingly important, public alternative to private bond insurance for governments. This paper provides an overview and detailed inventory of the little-known programs, as well as a consideration of the associated benefits and costs. State credit enhancement programs are not “a free lunch” but, to date, have offered tremendous value for sub-state borrowers with little direct spending by states.

Date: 2012
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