The Feds are Already Here: The Federal Role in Municipal Debt Finance

18 Pages Posted: 19 May 2014 Last revised: 17 Jun 2014

See all articles by Darien Shanske

Darien Shanske

University of California, Davis - School of Law

Date Written: May 19, 2014

Abstract

Should the federal government be involved in the regulation of municipal debt finance? The answer is arguably not. But this theoretical dispute is not the focus of this Article because, in fact, the federal government already regulates municipal debt finance extensively, generally much more extensively than the states regulate their municipalities’ use of debt. The primary source of federal regulation is the securities laws. Less well-known is that federal tax law also serves as an important constraint. This Article surveys and critically evaluates these federal laws, and comes to three tentative conclusions. First, the current federal oversight “system,” unplanned and ad hoc as it is, has been effective. Second, in part because the current system has never been thought of as a comprehensive system, there are low-hanging fruit in terms of making the system work better. To the extent the federal government does not put these reforms in place, states should. Third, even an optimally operating federal overlay does not absolve the states from more careful regulation of the financial affairs of their localities, particularly as to the use of debt. Above all, what the federal government does not - and ought not - do is provide localities with the expertise to use debt optimally; this is another area where the states should focus their reform efforts.

Keywords: municipal debt, municipal securities law, tax exempt bonds, land secured debt

Suggested Citation

Shanske, Darien, The Feds are Already Here: The Federal Role in Municipal Debt Finance (May 19, 2014). 33 Review of Banking and Financial Law 795 (2014); UC Davis Legal Studies Research Paper No. 383. Available at SSRN: https://ssrn.com/abstract=2438511

Darien Shanske (Contact Author)

University of California, Davis - School of Law ( email )

400 Mrak Hall Dr
Davis, CA CA 95616-5201

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