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Municipal Debt: Illuminating Old Puzzles, Forcing New Questions


Joy Milligan (@_joymilligan) is Professor of Law at the University of Virginia Law School.

This post continues a joint symposium with our comrades at Just Money on Destin Jenkins’s The Bonds of Inequality. Expect new posts in this series to appear on Thursdays throughout the fall.


Destin Jenkins’ compelling book, Bonds of Inequality: Debt and the Making of the American City, helps us better understand how municipal debt deepened racial and economic inequality in the United States over the last century.  Jenkins shows how the “fraternity” of those trafficking in municipal bonds and city administrators collaborated in ways that prioritized the needs of capital over those of communities, as well as the needs of whites over Blacks and other people of color. Jenkins’ book adds important elements to our understanding of the forces shaping twentieth century U.S. cities, especially San Francisco, his primary case study.  

Jenkins’ depiction of debt and its dynamics also sheds new light on questions that might otherwise remain inscrutable. For example, by pulling debt financing into closer view, his account helps explicate why public housing remained so resistant to civil rights reforms. As I and other scholars have noted in addressing public housing’s racial segregation, federal administrators resisted attempts to apply the landmark Civil Rights Act of 1964 to federally subsidized public housing. The character of the bond market helps explain that resistance.

Federal administrators posited that the Act’s most powerful weapon against segregation—Title VI authority to cut off funds to discriminatory programs—could not be used by federal officials in the public housing context. Title VI is considered one of the federal government’s most robust civil rights tools. It helped turn the tide on Southern school desegregation in the late 1960s as school districts agreed to end de jure segregation in order to maintain their access to the federal fisc. But public housing—a program resting primarily on federal funds and financial guarantees—remained largely untouched by Title VI.

In 1965, the federal Housing and Home Finance Agency explained their refusal to apply Title VI’s penalty to local housing authorities engaged in discrimination: “The sanction of cutting off annual contributions [i.e., federal subsidies] will not be used in the case of public housing violations, in that the full faith and credit of the United States are pledged to their payment as security for bonds issued for financing of the project.” Federal guarantees were the bedrock of the public housing bonds’ salability—and apparently trumped even foundational civil rights laws, such that federal subsidies could not be cut off even if they flowed to de jure segregated housing.

Jenkins’ work helps situate federal officials’ overwhelming deference to the needs of the bond market: those federal financial guarantees were understood to be inviolable because, beyond the obvious reason that many federal housing bureaucrats themselves resisted integration, markets rested on those guarantees, and the housing programs depended upon those investors. The political economy of the public housing program almost certainly depended on the political buy-in of the financier class—especially when so many other powerful forces opposed it, denouncing it as “socialism.”

Jenkins’ work calls our attention to the extractive logics that may exist below the surface of even the most “public” investments and facially redistributive programs, reminding us that the financing schemes on which they rest in may actually operate to enrich economic elites. The racial bargain that helped give birth to public housing in the Depression has seemed obvious—for liberals, the price of maintaining a coalition with Southern Democrats, whose support was necessary for such a social welfare program to exist at all, was to retain and extend Jim Crow in federal public housing. But other bargains embedded in the program’s financing, including the ways in which a financial elite could profit from its existence, have been less prominent. Perhaps bond buyers were also a necessary part of the coalition backing public housing, in ways that also entrenched Jim Crow.

That aspect of Jenkins’ history—the pervasive and opaque ways in which debt dependence configures public officials’ motives, resources, and actions—is truly eye-opening.  


Jenkins raises a key question—a call to action of sorts—throughout the book. Why does municipal debt dictate the terms of our collective investments in our infrastructure and institutions? He asks: 

“why the water systems on which we rely for daily hydration, the underground network of sewage systems that sort out toxins, and the recreational spaces in which our children play should be steeped in the municipal bond market in the first place; why it is that bondholders and raters should have so much influence over our collective social welfare.” (229)

Behind that question is an implicit counterfactual. If “municipal debt” consists of two elements—that it is cities that issue it, and that it is debt rather than accumulated capital or savings—then are there escape hatches to either element? As for the fact that it is cities that must raise the funds to support local infrastructure and programs, Jenkins seems to hint that federal investment is the necessary alternative. As to the second element, even with the federal government as lead actor, reliance on debt seems inescapable given the present political roadblocks to increasing upper-end tax rates and creating a more progressive tax code.

Given that, what might change if the federal government controlled the terms of municipal infrastructure investment (or at least provided its funding)? Would that bypass or transform any of the causal elements that warped the outcomes of municipal projects for twentieth century cities like San Francisco?

Perhaps. Jenkins’ history points to numerous problematic factors that, mediated by municipal debt, led to the racially unequal and resource-starved city. Among them: white resource hoarding and refusal to invest equitably in Black and other minority neighborhoods throughout the period of low interest rates until the 1960s; tax revolts and failed bond referenda when limited attempts were made at repair during a period of sharply rising rates; racial bias and systematic prejudice toward what qualified as a “good city” for purposes of financier assessments and official credit ratings; cities’ need to compete for limited bond funds; the cozy relationship between those profiting from bond sales (bankers, lawyers, analysts, credit raters) and their “technocrat” allies; technocrats’ failure to challenge those bankers’ visions and norms, and their facilitation of bankers’ controlling voice at particular decision points (in evaluating potential bond issues, for example); the opacity of these relationships and the public’s inability to fully see the bankers’ power; and the disappointing outcomes of democratic decision-making in bond referenda, as when voters rejected attempts at more racially equitable investment in Hunters’ Point, a historically African American neighborhood in San Francisco.

Some of these dynamics might be avoided in the federal context, at least hypothetically, and it is true that federal intervention could be freed from certain structural constraints on municipal debt, as other contributors to this symposium have wisely argued. I took seriously Jenkins’ point (which he cites to Michael Katz’ work) that we should be careful not to use history to entrench simplistic anti-federal or anti-government narratives, which tend to reinforce conservative attempts to remove the state from social provision and regulation.

Yet, as a historical matter, federal examples have decidedly mixed promise. Structural incentives and biases run across all levels of government. For example, racism, along with institutions designed in ways that lead them to be opaque to the public and favorable to elites, are omnipresent aspects of the U.S. context. It is always possible for the “fraternity” to be recreated at new levels; there is no guarantee that more democracy will act as a cure-all, as Jenkins shows by probing San Francisco voters’ refusals to approve referenda to fund more racially equitable infrastructure. The turn to the federal can perhaps offer a path out of the problems of the local, but it invites some of the same dangers that Jenkins so carefully documented.

Jenkins’ work therefore indicates that we should think carefully about how technocrats come to ally with financial elites and privilege whites over all others, and whether any reliable safeguards exist against those risks. Can institutional design, combined with watchful political oversight, assure that future federal interventions in U.S. cities will not simply reiterate the same distorting dynamics that have redistributed the benefits of municipal spending along race and class lines? Could programs be created to actively counteract those dynamics, and even to repair those harms? 

The answer to those questions may reside in the details of agency and program design. The ability of a federal entity to actively pursue social infrastructure and public goods in a way that does not prioritize capital’s needs or reproduce racial subordination might rest on factors like the statutory design of the entity, including its mission, leadership structure, proportion of the workforce who will be career civil servants, and funding sources; the identity of its leaders, especially the early leaders of a new agency, who can be path-determinative; the character of those who populate its workforce and implement its goals, influenced by their backgrounds, reasons for joining, and current incentives; the tendency for revolving doors to shape bureaucrats’ relationships and decision-making; programmatic criteria and requirements; which groups are likely to become the entity’s core constituencies; the institution’s ability to equitably engage communities impacted by its actions; and so on, through all the factors that administrative designers (and scholars) consider.  

Institutional design sounds dry. But if one believes that the less-visible mechanisms of governance (like municipal debt) operate to shape outcomes, then it is precisely such details that reformers should seek to entrench in order to secure more just outcomes going forward.  Design cannot avoid the need to constantly engage in the democratic arena. But it may help to realize and preserve democratic wins against the forces that inevitably corrode them.