Local government debt policies: Do they make a difference?

Date of Award


Degree Type


Degree Name

Doctor of Philosophy (PhD)


Public Administration


Bernard Jump Jr.


Local government, Debt policies, Municipal bonds

Subject Categories

Economic Policy | Public Affairs, Public Policy and Public Administration


Local government debt policies are intended to improve the quality of debt issuance and management decision-making. Detailed descriptions enumerating the important elements that a debt policy should contain have been common since A. E. Buck first discussed the subject (Buck, 1926). A "comprehensive debt policy" (GFOA, 1995) or equivalent terms have been used over the years to describe a debt policy that contained all the important provisions. Since the early years, debt policy proponents have asserted that a local government having such a debt policy would enjoy lower interest costs and achieve higher credit ratings than would otherwise be the case. However, no empirical test of these claims has been made heretofore.

Using data from the first random survey of local general-purpose governments' debt policies, this study tests those claims. A direct model using ordinary least squares to measure the impact of debt policy on interest cost is estimated. It is derived from the standard literature in this area with the addition of debt policy elements. The credit rating estimation, termed the indirect model because the influence of debt policy on interest rates through credit rating is indirect, utilized an ordered probit estimation, also consistent with the scholarly standard.

The results do not support the claims made in the name of a comprehensive debt policy. Some debt policy elements produce the expected improvements. They are those elements linked to efficiency. Other debt policy elements produce the contrary effect. While these elements are linked to legitimate public administration goals and are part of the description of a comprehensive debt policy found in the literature, the findings suggest that they contribute to goals that are in conflict with efficiency.

It is argued that this tension arises from the inherent, and unresolved, conflicts within public administration theory. The primary axis of expression in this case is the conflict between efficiency and democratic values. It is suggested that further investigation of these policies and their impact on outcomes other than efficiency would improve out understanding of the ways in which debt policy acts to balance these conflicting social goals.


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