Special Briefing on Boosting Infrastructure Investment for Global Cities: Lessons from the $4 Trillion U.S. Municipal Bond Market

America’s state and local governments finance more than three-quarters of the nation’s public infrastructure needs, while in many other countries, most capital investment funds flow from central to local governments and borrowing from banks and capital markets may be limited. This practice is in sharp contrast to the U.S., where states and municipalities are expected to borrow at least $600 billion in 2026, mostly backed by locally generated tax and fee revenues, in a $4 trillion nationwide municipal securities market that dates back to New York City’s first muni bond sale in 1812.

This Special Briefing discussed how global cities and other subnational governments may be able to adopt attributes of America’s muni-market structure and create more of a credit-driven culture to drive private investment in badly needed public infrastructure to meet the demands of population growth and climate change.

Panelists included: Emily S. Brock, Director, Federal Liaison Center, Government Finance Officers Association; Alexander Chilton, Managing Director, Morgan Stanley Fixed Income & Commodities; Sean Dougherty, Senior Advisor at Organisation for Economic Cooperation and Development (OECD) and leader of the Secretariat of the Network on Fiscal Relations across Levels of Government; Pietrangelo DiBiase, OECD policy analyst; and Paul Smoke, Director at New York University’s Center on International Cooperation (CIC) and Professor of Public Finance and Planning, NYU Wagner Graduate School of Public Service.

Moderated by William Glasgall, Volcker Alliance Public Finance Adviser and Penn IUR Fellow, and Susan Wachter, Co-Director of the Penn Institute for Urban Research and Wharton Professor of Real Estate and Professor of Finance, this briefing was the sixty-ninth in a series of sixty-minute online conversations featuring experts from the national research networks of the Volcker Alliance and Penn IUR, along with other leading academics, economists, and federal, state, and local leaders. 

Special Briefings are made possible by funding from The Travelers Institute, the Volcker Alliance, and members of the Penn IUR Advisory Board. Recordings of the entire Special Briefings series are available on the Volcker Alliance or Penn IUR websites.

Be sure to subscribe to the Special Briefing podcast, available on Apple Podcasts, Spotify, Google Podcasts, TuneIn, iHeart Radio and more.

Subscribe to the Volcker Alliance newsletter and Penn IUR newsletter for advance notice of new Special Briefings.

-----------------------------------------------------------------------------------------------------------------------------------------------------

EVENT RECAP

De Biase opened the panel with an overview of infrastructure investment trends across OECD countries and the prominence of subsidiarity: “55 percent of all public investment across the 38 OECD countries is delivered by subnational governments.” He emphasized the importance of intergovernmental coordination: “It’s essential to have strong multi-level governance mechanisms—ways to coordinate investment across levels of government.” Within the OECD countries, “subnational governments are subsidized to some extent for investment, but there are different modes, different ways that central governments do that.” He highlighted differences in infrastructure finance systems internationally, contrasting the decentralized approach of OECD countries with the centralized systems of Japan and South Korea. Importantly, however, “neither system is purely market driven,” he said.

Smoke shifted the focus to lower- and middle-income nations, where subnational borrowing levels are significantly lower—ranging from 2 percent to 4 percent of total debt compared to 12 percent in high-income countries. “There are very few bonds in most countries. It's mostly loans, and often the loans are concessional,” Smoke said. He emphasized that many developing countries face systemic challenges, such as a lack of well-organized market systems and active secondary markets. “One of the challenges for the municipal bond market is that a lot of countries lack what the U.S. has—a very well-organized market system.” Critically, the tax incentives and secondary market that underpin the municipal bond market in the U.S. are non-existent in most lower- and middle-income nations.

He further highlighted the importance of the “overall national fiscal situation” in determining the viability of subnational borrowing: “The Ministry of Finance doesn't want these contingent liabilities on their books when they already are in a rather severe debt situation,” said Smoke. “In some places,” he continued, “the overall intergovernmental fiscal system creates disincentives for borrowing. If I'm a mayor and I can get a grant from the central government or through some program that the World Bank is sponsoring, or if I can get concessional finance, why would I go to the market?”

Chilton provided a comparative view of the U.S. municipal bond market and its central role in financing infrastructure investment. “One of the beauties of the markets,” he said, “is that it does a lot of infrastructure funding for both large projects and small projects… State and local governments account for 75% of the public infrastructure spending in the United States, and about 90% of state and local capital infrastructure financing is done with debt in the municipal market.” He highlighted the strength of “local authorization” in the U.S.: “There’s a very strong system in the United States to create taxes locally, and then there is a very strong legal system to pledge those taxes to bonds.”

Chilton explained that local governments can pledge “property taxes or sales taxes or income taxes” as well as “water and sewer revenues from bill payments, or fares from riderships, or special taxes, like hotel taxes.” He emphasized that one of the strengths of the American system is “the ability to have taxation done very locally, decided very locally, so that people can decide very much where their taxes should go.” Chilton concluded, “one of the great things that we’ve been able to figure out here in the United States is how to divide the federal responsibilities from the local responsibilities, and the municipal market is very much a part of how that works.”

Brock discussed the relationship between federal tax policy and the municipal bond market. “The relationship between the federal, state, and local governments is a very important one,” she said. “The vast majority of the $4.4 trillion municipal bond market is tax exempt, and so it requires this ongoing intergovernmental pact for the federal government to continue to maintain this exemption on municipal bonds.” She noted that “since 1913, the tax exemption on income for holding municipal bonds has been maintained by Congress,” adding that the unique American system “attracts attention internationally” as a model for developed and developing nations alike.

Dougherty highlighted the importance of institutional frameworks. As a baseline, “a well-designed system with good fiscal data, with clear issuer boundaries, with predictable intergovernmental fiscal rules that allow for risks to be well priced in the market is essential,” he said. “Local taxation is really central to making intergovernmental finance work,” he continued. “If you want to really be able to have good infrastructure, you need to give the local government control over the fiscal levers and the choice about how to use those revenues.”

In the discussion that followed, Wachter opened by asking how local autonomy matters for infrastructure provision. Panelists discussed the extent to which central government controls, borrowing restrictions, and fiscal rules can influence local infrastructure investment. “Not every area or region has the same needs,” said Dougherty. “Tailoring the financial and infrastructure needs to the capacity and the development level of a jurisdiction is really critical…. That also interplays with democratic systems where voters can have full buy-in and feel ownership that their taxes are being used in a way that they can actually see.” Smoke stressed the importance of “revenue autonomy” and intergovernmental cooperation requiring a “careful allocation of responsibilities.”

Chilton pointed to federalism as the key structural underpinning of the American model, enabling “a robust system of local finance.” Panelists also discussed the delicate balance between local flexibility and national enablement. In addition to the importance of maintaining the federal tax exemption, Brock highlighted the role of local referenda in democratizing “local discussion about what infrastructure is essential at the local level.” In Korea and Japan, “there's an effort at the moment to actually give more autonomy to local governments,” said Dougherty.

Wachter shared a question from an audience member from Indonesia: “How can developing countries establish municipal bond markets while promoting financial market deepening?” Speakers stressed that successful infrastructure finance systems require strong governance, credible fiscal frameworks, and clear divisions of responsibility across levels of government. “The strengthening of local markets is important in order to develop the municipal bond market,” said Smoke. “If you have a weak capital market, if you don't have secondary trading…then it's going to be hard to develop a municipal bond market.”

Chilton highlighted three critical components of a functioning market: “The ability to create and pledge revenue, disclosure, and transparency. If you have those three things, people will show up, and will trade the bonds, and will commit capital… The market will create itself.” With these three pillars in mind, Wachter asked, “How do we get there? Is there a way forward, particularly for developing countries where the need is so great?” Dougherty responded: “The channels of revenue generation and revenue autonomy and ability to determine your tax base and actually use the tax base for the objectives that you see as a municipality, a state, or region—that's really critical.”

Panelists concluded that the U.S. municipal bond market offers important lessons for infrastructure provision. For global cities seeking to expand infrastructure investment capacity, successful systems ultimately depend on local fiscal autonomy, institutional accountability, and stable intergovernmental relationships.

-----------------------------------------------------------------------------------------------------------------------------------------------------

Emily Brock is the Director of GFOA’s Federal Liaison Center. Emily leads coalition and advocacy efforts of the Public Finance Network in Washington DC. Her advocacy includes anticipating and responding to federal legislative and regulatory activities that impact the finance functions of state and local governments and public sector entities including tax reform, municipal securities disclosure and public pension and benefit issues. Emily also serves as staff on GFOA’s Debt Committee, working with committee members to develop best practices that promote sound financial practices for local, state and provincial governments. Prior to joining GFOA, Emily was a commercial bank relationship manager at a large national bank, serving as the sole bank liaison for government and university clients. 

Alexander Chilton is a Managing Director and Head of Municipal Securities at Morgan Stanley, based in New York. He serves on the Board of Directors of the Municipal Securities Rulemaking Board (MSRB) and is Chair of its Finance Committee. He also serves as a member of the Penn Institute for Urban Research advisory board.

Prior to joining Morgan Stanley in 2015, Alexander was a Partner at Whitehaven Asset Management working on an investment fund in the municipal market. He began his career at Citigroup in the Municipal Bond Department. He holds bachelor’s degrees in both economics and engineering, and a master’s degree in engineering from the University of Pennsylvania.

Pietrangelo De Biase is a policy analyst at the OECD, where he co-leads work on subnational finance and fiscal decentralization. He advises governments on how subnational governments can raise revenues, access borrowing, and finance public investment and supports the OECD's Regional Development Policy Committee and the Network on Fiscal Relations Across Levels of Government. Pietrangelo has published extensively on subnational fiscal capacity, intergovernmental fiscal frameworks and subnational public financial management.

He previously worked on sovereign debt management, contributing to multiple editions of the OECD's Global Debt Report. He brings a practitioner's perspective from over eight years at Brazil's National Treasury, where he advised senior officials and led reforms to the federal guarantee framework for subnational governments and helped design the country's first insolvency framework for states.

Pietro holds a Master's in Policy Analysis and Engineering from Delft University of Technology and a Bachelor's in Industrial/Economics Engineering.

Sean Dougherty is a Senior Advisor at the OECD in Paris, where he has advised governments for over 20 years. He leads the Secretariat of the Network on Fiscal Relations across Levels of Government and is currently supporting efforts to apply AI in public finance. He has published widely on fiscal federalism, productivity growth, and economic development, including editing five recent books and numerous articles on emerging economies – most notably China and India. An American citizen, he holds a Ph.D. from the Paris School of Economics, a master's degree from the University of Pennsylvania, and a bachelor of science from MIT.

Paul Smoke is the Acting Director at New York University’s Center on International Cooperation (CIC).

Professor Smoke, a globally recognized expert in applied public finance and governance with a particular focus on decentralization and intergovernmental relations, has a distinguished career spanning academia, policy, and advisory roles. His research and public service engagement centers on the design, strategic implementation, and assessment of institutional, fiscal, and governance reforms, particularly at the intergovernmental and subnational/urban levels.

Professor Smoke has collaborated extensively with international development agencies, financial institutions, and government ministries worldwide. As a Professor of Public Finance and Planning at NYU Wagner Graduate School of Public Service, he teaches graduate courses on institutions and governance, decentralized development planning, subnational finance, and international development assistance. His expertise and leadership will guide CIC during this pivotal transition.