Revenue bond issues are frequently used for financing relatively long term self liquidating projects. As a result, the average maturity of revenue bond issues is considerably longer than that of GOs. In 1965, for example, over $1 billion of the new revenue bond issues were known to have an average maturity of over 20 years, in contrast to about $700 million of GOs. This represented over 40 percent of the known total for revenue bonds, but less than 11 percent for GOs. In the absence of advanced refunding, the GOs issued in any one year are ordinarily retired sooner. The proportion of outstanding revenue bonds to total outstanding municipal debt therefore increases over time, and eventually is significantly higher than the proportion of new revenue bond issues to total municipal bond issues. The future burden to State and local governments of higher rates on revenue bond issues in turn would be greater than the burden shown by the differences in rates on new issues. The effect, however, is partially offset by the greater frequency of call provisions in revenue issues. In periods of relatively low interest rates, considerable outstanding municipal debt may be refunded. In 1963, for example, $1.4 billion of the proceeds from new municipal bond issues were used for refunding. Undoubtedly, a significant amount of this was used to refund outstanding revenue bond issues. In most years, however, the volume of refunding has been relatively small. Only $97 million of the new municipal debt in 1966--a period of unquestioned high interest rates--was for refunding. Unfortunately, data on the composition of Outstanding municipal debt by type of issue are not available. Therefore, it is not possible to determine the trends in the relationship of composition of outstanding municipal debt to the composition of new bond issues. However, the amount of refunding has been relatively small and the difference in the maturities of the two types of bonds is relatively large. This suggests that the proportion of outstanding revenue bond issues to total municipal debt will be at least as high as the proportion of new revenue bond issues to new municipal debt. Therefore, estimates of the possible savings to State and local governments stemming from commercial bank entry into revenue bond underwriting based on data for new bond issues would not overstate, and most likely would understate, the savings that would eventually accrue to municipalities over the entire life of the issues. The proportion of revenue bond financing to total municipal debt financing during the early and mid-1960's, 30 to 40 percent, was slightly higher than during the late 1950's. (See Table III-3). It is quite possible that this proportion will increase somewhat in the next few years, and it seems most unlikely that there will be a marked decline. In recognition of this, we have prepared estimates based on assumptions that revenue bonds will constitute 30, 40, and 50 percent of total municipal debt fin cing during coming years. IV. PROJECTED DEVELOPMENTS IN MUNICIPAL DEBT FINANCING The expected capital requirements of State and local governments in 1975 are estimated to be more than double the actual capital outlays 1/ in 1965. Such capital requirements are estimated to be $40.7 billion in 1975, in comparison with $20.1 billion in 1965, and the aggregate capital requirements over the period 1966 through 1975 will approach $330 billion. These requirements on the part of State and local governments, of course, will engender tremendous quantities of municipal debt financing. As in the recent past, this expansion in the capital requirements of municipalities over the next decade arises from the requirements posed by our expanding population, its increasing urbanization, and from an ever-enlarging scope of the services provided by State and local governments. As an example, the anticipated level of capital requirements for cultural and recreational purposes in 1975 is three times the actual 1965 level. (See Table IV-1). However, the requirements for most broad categories of the various public facilities largely expand pari passu with the total expansion of the capital requirements of State and local 2/ governments. 1 2 State and Local Public Facility Needs and Financing, vol. 1, pp. 14 ff. These projections of future municipal capital requirements and of future municipal debt financing are based on a rather extensive and elaborate set of assumptions, albeit reasonable. These assumptions are outlined in the two volumes of the study of State and Local Public Facility Needs and Financing. It may be noted that the projections for 1966 were not perfectly accurate. However, 1966 clearly was not a representative year. The broad outline of these future developments, nevertheless, is sufficient for the purpose of the present study. From the broad outline, possible ranges of the burden to State and local governments of higher rates on revenue bond issues can be estimated. |