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Alternative Debt Financing Mechanisms for Economic Development

Craig L. Johnson
State & Local Government Review
Vol. 28, No. 2 (Spring, 1996), pp. 78-89
Published by: Sage Publications, Inc.
Stable URL: http://www.jstor.org/stable/4355147
Page Count: 12
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Alternative Debt Financing Mechanisms for Economic Development
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Abstract

In an era of decreased federal and state aid, local governments have developed a complex menu of new economic development financing vehicles. This study offers decision makers guidance on the efficient use of these new techniques. The author provides an empirical analysis of the borrowing costs of municipal bonds sold to finance economic development by investigating the pricing of three types of these bonds: economic development income tax, property tax increment, and economic development lease rental. The main finding is that property tax increment bonds have a higher interest cost premium than economic development income tax bonds, when capital market conditions and issue and issuer characteristics are controlled for. This indicates that municipal issuers must incorporate borrowing costs to the government in their evaluation of the risk/benefit trade-offs inherent in different economic development financing vehicles.

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