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The Same System, the Same Results


Brittany Alston (@BrittanyA___) is a Deputy Research Director at The Action Center on Race & the Economy (ACRE).

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 late summer and early fall.


Destin Jenkins’s The Bonds of Inequality drives home points that many of us have experienced intimately—the current municipal finance system is racist and inherently flawed. Jenkins explores how municipal debt shaped the contours of power in San Francisco, the location of public goods and services, and the experience of inequality within the city and beyond. The racial hierarchies created by the cast of banks, technocrats, and associated acts reveal how entrenched racism is in the system. From credit ratings to pro-bank policies and agencies, these players have financialized the tools our cities rely on to fund communities. As a result, Black and Brown communities have seen unparalleled disinvestment and are left to fight for public goods and services with unseen but hefty price tags. Through his historical case study, Jenkins successfully builds the case that we must reimagine our system of municipal finance so that it is reparative and democratically controlled. 

As Jenkins tells the story, city technocrats and bond financiers, whom he dubs “the fraternity,” blurred the lines between the public and private sphere. They prioritized the interests of the financiers and deprioritized the needs of communities. In doing so, these so-called “experts” of the municipal finance system hid behind an apolitical, technocratic facade. But Jenkins makes clear that this system is highly racialized and politicized. He describes the facade as a “deracialized discourse of technocratic aggregations and euphemisms.” One representative from Standard & Poor, for example, “acknowledged that the rating agency considered race ‘only from the economic standpoint.'” The modeling schemes of bond technocrats, however, employed coded inputs based on their racist values, which, in turn, produced racist results. The percentage of non-white residents was, for instance, considered critical in evaluating the credit worthiness of a city. These models restricted non-white cities from having access to cheap debt, making it costly for cities to fund services and community development. 

It remains true today that municipal bond ratings are dominated by racist metrics that rob communities of much needed revenue. Nearly all of the cities at the bottom of the ratings scale are majority-minority. Based on ACRE and Refund America’s 2017 analysis of rating agencies and local governments, credit rating agencies cost these cities millions annually while increasing profits for banks and other private sector actors. Rating agencies—like Moody’s, S&P, and Fitch—have a huge impact on a public entity’s ability to fulfill their funding obligations to the communities they serve. Their ratings determine the creditworthiness of nearly all bond issuances for state and local governments. And poor ratings from any of the ratings agencies can cost cities money that otherwise would be used to fully fund public, community services. Light touch government regulations fail to assess the adverse impact that these agencies have on our public services and infrastructure projects. 

Such metrics open the floodgates for banks and privatizers looking to make a profit. Jenkins touches on Puerto Rico in the epilogue and how debt necessitated the colonization of the island: “the ongoing struggle in Puerto Rico against creditors who use the idea of a debt crisis to extract still more concessions, and to exercise outsized political authority over spending decisions, reminds us that the politics of municipal debt extend beyond the continental United States.” It is important to note that Puerto Rico did not come to take on record levels of debt on its own. There was always a bank willing to issue debt to Puerto Rico, well-aware of the precarious nature of the island’s finances. And the banks that underwrote Puerto Rico’s bonds did not do so at random; they recognized they could profit off the Commonwealth’s unsustainable debt burdens. This process led to a horrific display of how municipal debt can be used to circumvent democracy and further defund Black and brown communities. 

State and local governments are still fighting themselves out of toxic debt deals like the ones made in Puerto Rico. Currently, cities and states are engaged in a fight with big banks after whistleblowers came forward alleging that banks involved in selling variable-rate bonds colluded to raise interest rates on the bonds. According to a lawsuit filed by the City of Philadelphia, big banks secretly agreed to rig the rates from February 2008 to June 2016, when they controlled about 70 percent of the VRDO market (a long-term municipal bond). Similar to a variable rate mortgage, the interest rates on the bonds fluctuated. When those interest rates were low, investors could opt to sell them. The lawsuit alleges that the banks worked together to keep the interest rates high so that investors would not sell. Without sellers, the banks would have less work to do, but they could keep charging municipal borrowers tens of millions of dollars in fees each year. State and local governments in Philly, Baltimore, California, Illinois, and New York have identified the bonds in question, filed suit against the banks, and are demanding pay back for the excess fees that took revenue away from city services. This highlights yet another example of Wall Street looting our public budgets. If we want to break free of Wall Street’s long-lasting chokehold, our current municipal finance system needs restructuring. 

In order to kick Wall Street to the curb, we have to organize in support of public vehicles that can fully fund and finance our public goods and services. In Spring 2020, the Federal Reserve created the Municipal Liquidity Facility (MLF), a tool that allowed the Fed to lend directly to state and local governments. It is worth noting that the facility was not without its flaws. Its initial iteration came with parameters that would have effectively locked out Black cities throughout the country from even considering the financing. Only one of the thirty-five most Black cities met the Fed’s criteria for assistance. In its final iteration, interest rates were sky-high and most governments and public entities could not justify participating in the facility because they were able to borrow more cheaply elsewhere. While acknowledging these flaws, the tool demonstrated that our central bank is a public one, with the latent power to restructure the entire municipal finance system. A stronger liquidity facility would allow the Fed to directly lend to state and local governments at no cost, with no fees—a move which would save governments over $160 billion annually. Every year, governments and public entities wrestle with tough decisions about how they will fund their communities, and every year we absolve Wall Street of its role in siphoning money away from our public budgets. Enough is enough. It’s time to reimagine our municipal finance system and cancel Wall Street.