Paying for infrastructure in the post-recession era: Exploring the use of alternative funding and financing tools

Abstract

ABSTRACT While municipalities in the United States face many challenges, one of the most critical is an aging stock of infrastructure. Concurrent with this issue is a new fiscal reality where local governments face unfunded pension liabilities, difficulties in raising revenues, and potentially declining state and federal support. As a result, meeting infrastructure needs may require alternative strategies (e.g., green bonds or social impact bonds, public-private partnerships, or privatization) beyond traditional financing mechanisms like general obligation bonds. Though these tools are available to a wide range of governments, not much is known about how frequently they are used and why some governments choose to use them while others do not. Using a survey of local governments, this research explores the extent to which cities are already using or considering using alternative tools to meet their infrastructure needs and the factors associated with the decision to use or pursue using those tools. It finds that the factors associated with the use of these tools are dependent on the nature and type of tool, with alternative funding tools like developer fees more associated with a decline in political support for municipal bonds and alternative financing tools like green bonds associated with budgetary imbalances.