Link to Full Document
Municipalities with higher proportions of Black residents pay higher borrowing costs to issue bonds rated by credit rating agencies compared to other cities and counties that issue within the same state and year. These higher costs are unexplained by credit risk, more pronounced in states with higher levels of racial resentment, and robust to state-tax incentives to hold municipal bonds. The findings illustrate that racial bias can increase borrowing costs, particularly in states where racial resentment is
We focus on rated bonds offered directly by U.S. cities and counties from 1990 to 2019. Controlling for credit risk, our main finding is that a one-percentage point increase in the total proportion of Black residents in a municipality is associated with a 0.44 basis point increase in total annualized costs. For example, in 2019 the municipalities in our sample raised a total of $77 billion from rated municipal offers. When we take the product of our cost estimate (0.44 basis points), each municipality’s per