Publication Date
10-1-2024
Abstract
State and local governments across the United States issue municipal bonds to raise capital to cover infrastructure projects. Jurisdictions issue revenue bonds to fund projects ranging from improvements to public utilities and toll roads to convention centers and retirement communities. These revenue bonds often include a rate covenant, a provision in which the local government issuer assures bondholders that the user fees the project raises will adequately service the debt. These covenants generally do not reserve state and local governments the right to lower rates in the public interest, nor do they impose a restriction on how high the rates can go. Rate covenants have important equity implications because they control access to public services and facilities in ways that may undermine civil rights and fair housing goals. These limitless rate covenants allow local governments to sell out their constituents by accepting bond issue terms that disproportionately harm low-income people and people of color. States should modify their revenue bond statutes to require local governments to cap rate increases to protect the public interest. The literature has treated rate covenants in normative terms, accepting them as standard features of a revenue bond issuance. Most municipal finance scholars focus on the conflict between municipalities and their creditors, arguing that mechanisms like rate covenants hold cities accountable and prevent debtors from using their political or legal leverage to avoid full repayment. This Article is the first to focus on the intersection of race and municipal finance law and centers the relationship between municipalities and their residents. It argues that when cities are negotiating the terms of municipal debts, they should incorporate terms that take into account their obligations under civil rights law.
First Page
191
Recommended Citation
Jade A. Craig, Rate Covenants in Municipal Bonds: Selling Away Civil Rights and Fair Housing Goals, 102 Denv. L. Rev. 191 (2024).