It’s an abiding challenge for every growing city: building and maintaining transportation infrastructure to keep pace with the needs of citizens and commerce. That investment pays significant dividends—but it can also be expensive.
That’s why many U.S. cities and communities turn to the municipal bond markets to borrow the money to fund their infrastructure needs. By taking on long-term debt at relatively low interest rates, borrowing cities can address those long-term needs without burdening citizens with ever-rising taxes that might slow economic growth.
A recent case in point is the city of Atlanta, where voters approved a $252 million package General Obligation Public Improvement Bonds on March 17 to pay for much-needed infrastructure improvements.
Thanks to that vote, the city will be able to secure more than $187.9 million in funding for transportation projects and more than $64 million in funding to improve municipal buildings and other facilities.
Making the Case for Infrastructure Investment
According to the city, the debt package approved in March will serve as a down payment on the estimated $1.02 billion in backlogged infrastructure improvements the city needs, after delaying investment in the aftermath of the 2007-2009 recession, when the city’s budgets were constrained.
Atlanta Mayor Kasim Reed pushed the bond issue not only as a solution that would improve Atlanta residents’ quality of life, but also as a necessary economic development measure.
“If we’re going to be the dominant economy in the Southeast, we have to do it,” Reed explained in a radio interview.
And voters were overwhelmingly receptive the mayor’s sales pitch—they supported the bond issue by a nine-to-one margin at the polls.
Among the improvements slated for action under the city’s plan:
- Replacing street lights to improve public safety
- Synchronizing traffic lights citywide to improve traffic flows and reduce congestion
- Resurface roads and streets
- Repair and replace outdated bridges
- Install bike lanes
- Build and repair sidewalks, curbs and curb ramps for pedestrians
In campaigning for the bond issue, supporters also emphasized that voters shouldn’t expect increases in property or sales taxes. That was likely a critically important message, as an earlier attempt to increase the city sales tax to pay for infrastructure failed at the polls.
In the case of the Atlanta bond issue, the debt is expected to be retired in 30 years, in July 2045. It’s estimated that the interest rate on the bonds will be 5.4%, with annual debt payments of $16.5 million. The mayor has pledged to pay off a portion of the debt each year by drawing on savings identified by his administration’s Waste & Efficiency Commission.
Atlanta officials say this is only the beginning. The city will ultimately need an estimated $1 billion in capital improvements, they say, and the mayor plans to push for another $250 billion in debt financing in five years. By that point, Atlanta residents should have a good sense of just what they’re getting for their money—and they may be prepared to approve another round of investment.
Investing in the Future
The challenge of funding repairs and maintenance to deteriorating infrastructure is not unique to Atlanta. According to the American Society of Civil Engineers, which publishes regular reports assessing the nation’s infrastructure, the United States as a whole needs significant investment to bring its highways, roads, bridges and other critical transportation infrastructure up to 21st century standards.
In the ASCE’s 2013 report card, they gave the existing U.S. infrastructure a “D+” grade, and estimated that the nation would need an additional $3.6 trillion in investment in repairs and upgrades by 2020.
That’s a substantial amount of money, and a good part of that needed investment will certainly be financed, as in the case of Atlanta, through municipal bond markets. Capital markets continue to be the best way to connect those with money to invest with those in need of funds to borrow. (For a primer on how muni bonds work, check out this Project Invested article from November 2014 that focused on a Minneapolis medical center project).
In the years to come, Atlanta residents will enjoy substantial benefits from that approach to investment. It’s another illustration of the vital role that capital markets have played—and continue to play—in building U.S. cities and communities.