A municipal bond issuer has a choice in how its debt is issued. With negotiated issuance, one or more underwriting firms acting together  purchase the bonds from the issuer. The issuer and the underwriter negotiate many of the terms of the issuance. With competitive issuance, bidders buy all the bonds according to take-it-or-leave-it terms proposed by the issuer in a widely circulated prospectus.

Some observers believe they have seen systematic differences in the costs to the issuer under the two methods. These perceived differences have, in turn, led to research to evaluate whether–or under what conditions–one method is superior to another.

Our research indicates a strong tendency for issuers to select the method of issuance that best suits the nature of the issue at hand, such that policies to mandate one type of issuance over the other will likely increase, rather than decrease, issuance costs.

Citation:

Fruits, E., Pozdena, R., Booth, J., and Smith, R. (2008). A comprehensive evaluation of the comparative cost of negotiated and competitive methods of municipal bond issuance. Municipal Finance Journal, 28(4):15-41.

• Oregon’s per capita state and local expenditures almost doubled between the 1998-99 fiscal year and the 2004-05 fiscal year.  The most recent data from the Census shows expenditures of $8,060 per person.
• Oregon has the 11th highest state and local expenditures in the U.S. as a share of personal income.
• Oregon’s state and local expenditures are $2.8 billion higher than statistically predicted by its income and demographics.  That amounts to $776 per person.
• Oregon’s public employee pension system and insurance payments contribute to the higher spending.  Oregon’s spending on these items accounts for 12.5 percent of total state and local expenditures.  The average among all states is 8.3 percent.  Oregon’s spending on these items would be approximately $1 billion lower if it was “in line” with other states.

The most recent study, co-authored with Randall Pozdena and published by Cascade Policy Institute, is a follow-up to earlier studies published in 2002 and 2004.

A working paper by Dr. Eric Fruits uses the prevalence of sexually transmitted infections to estimate the incidence of sexual activity among survey participants. In contrast to the self reported incidence of sex, Dr. Fruits finds that almost two-thirds of survey participants engaged in some form of sexual activity. In other words, approximately one in four survey participants who did not report any sexual experience are likely underreporting their activities.