September 16, 2021
Abbye Atkinson, University of California – Berkeley
Public debt in the form of municipal bonds permits municipalities to survive and to grow. Public debt is how cities and towns—hampered as they perpetually seem to be by their limited pecuniary resources—repair crumbling schools, restore failing sewers, improve public transportation, attract tourist dollars, and more. For example, the Oakland Unified School District currently broadcasts that debt, i.e., a recent municipal bond offering, will facilitate “major repairs to fix deteriorating classrooms, bathrooms, plumbing, potentially faulty electrical systems, heating, and air conditioning, and leaky roofs.” Similarly, public debt fixed significant infrastructure problems like the failing sewer system that threatened to embarrass the City of Atlanta while it was “on the world stage” during the 1996 Olympics.Public debt also facilitated Chattanooga, Tennessee’s glow up into an international model of free, public, lightning-speed broadband access.
In this sense, public debt is a public good. It is meant to function symbiotically in the polity, providing liquidity to fund present public projects that will yield returns for both municipal residents and private investors alike. Yet, as Professor Destin Jenkins tells it, public debt can also function like an invasive species. It repairs school and sewer systems, but it also tends to take over the municipal ecosystem, initiating an antagonistic parasitism in which the polity’s resources are slowly siphoned to nourish and enrich its private investors. Once the investors eat their fill, those in power then feed the strongest and most robust of the citizenry first, leaving the remaining scraps, if any, for the marginalized.It is a variety of unnatural selection, where the winners are determined by nurture rather than nature; by those with the power to create and reify this hierarchy.
Thus, what Jenkins so compellingly reveals is that public debt is first and foremost a private good. Infrastructure improvements are just a means of wealth maximization, facilitating tax-free wealth accumulation for bond investors who, in turn, consider the social well-being of residents only in relation to the investors’ own financial interests. Consequently, the welfare of this most democratic of institutions—the local polity—functionally matters only to the extent that it can produce a profit for its investors.
Viewed through this lens, municipal debt is no more than another for-profit business. And, like any other for-profit business, the bottom line governs all both positively and normatively. Indeed, the world of social welfare and the overall well-being of various stakeholders has no meaningful place in this world of financialized business. Instead, the fate of a municipality is to devolve into a mere product, ripe for exchange on the market. Commoditized in this way, very little is beyond the reach of abstraction and quantification; not the well-being of school children, not the persistence of racialized socioeconomic subordination, and not the very governance meant to be imbued with our most sacred democratic principles. Rather, municipal debt transforms the municipality from a democratic entity intended principally to work for the public good of its residents into a unit of exchange, abstract and fungible. Thus, as Miranda Joseph has observed elsewhere, public debt simultaneously destroys community even as it particularizes and shapes what remains.
Yet, how can municipalities survive if they do not sell themselves this way? As Jenkins notes, cities and towns and utility districts and all the other varied forms of municipality are structurally dependent on debt. That is to say, as a practical matter, there is no growth, and sometimes no survival, without debt, even though debt sometimes “kill[s] the watchmen” and “welcome[s its] comrades at the open gates.” Consequently, as a practical matter, failing to appease creditors, to prioritize their interests, to mold the polity according to their predilections, means no money to provide services; no money to fund growth. In turn, no money often means municipal decay. This includes the risk of becoming “minimal,” as Professor Michelle Wilde Anderson explains, with cash-starved municipalities first “cutting,” “selling,” and “(de)regulating” in order to “adapt their services, proprietary functions, and regulations to long-term declines in revenues,” before perhaps descending into complete insolvency.
Indeed, municipalities in fiscal decline risk losing relatively wealthy residents, whose tax dollars provide a backstop against default and complete insolvency. Once these residents’ flight reaches a critical mass, the municipality risks becoming a “city in distress,” namely one likely to be characterized by historically subordinated and democratically excluded “majority-minority” residents and, consequently, by disproportionate levels of “poverty and population loss.” Thus, municipalities are in significant ways forced to compete for the affections of relatively wealthy residents, because the latter’s residence within the bounds of the municipality is not guaranteed nor to be taken for granted. Indeed, as Robert Nozick once suggested, “each community must win and hold the voluntary adherence of its members.” In the burgeoning, 20th San Francisco that Jenkins surfaces, this meant positively and normatively financing a “spatial vision” intended to court and nurture “whiteness,” with all its state-subsidized financial advantage. It also meant positively and normatively nurturing racialized inequality through the city’s regressive deployment of municipal debt.
Is there a sustainable alternative to this perverse, structural dependence on privatized municipal debt? This is the elephant in the final pages of Jenkins’ story. The truth is that municipalities often struggle to provide even basic services like quality public education, transportation, and reliable sewage services with just tax dollars or other state or federal support. For example, one recent study reports that state-mandated limits on municipal tax collection “can create daunting challenges for cities and counties as they try to balance their budgets while maintaining the level of services their residents expect in the long term.” Thus, in addition to the usual types of regressive funding that Jenkins highlights (like fixed-rate transportation fees and sales taxes), these sorts of budget shortfalls lead to perverse outcomes like the adoption of other forms of regressive taxation meant to fund municipal operations. For example, as the Justice Department revealed in its investigation into the Ferguson Police Department after Officer Darren Wilson gunned down Michael Brown in the middle of the street: “Ferguson generates a significant and increasing amount of revenue from the enforcement of code provisions,” and “[c]ity officials have consistently set maximizing revenue as the priority for Ferguson’s law enforcement activity.” Moreover, as Ta-Nehisi Coates observed, “[t]he ‘focus on revenue’ was almost wholly a focus on black people as revenue.”
To some degree, then, a world unencumbered by privatized municipal debt is unimaginable without a massive overhaul of our very socioeconomic foundation. Indeed, structural dependence on public debt is a hallmark of democratic capitalist governance at all levels of government. As Professor Christine Desan has observed, our English forebearers centered the interests of private investors in the business of public monetary policy, “expand[ing] the role that investors, pursuing their own interests in profits, played in the system of modern money creation.” Indeed, the English government’s creation of the Bank of England “installed a new theory at the heart of political economy—the theory that individuals pursuing profits produced money.” One hundred years later, the American nation’s founding was similarly financed by dependence on private financial interests. Moreover, anyone who knows the lyrics of “Cabinet Battle No. 1” understands the consequent political prioritization of bondholders/creditors interests over citizens. If Alexander Hamilton was to be believed, “a punctual performance of [debt] contracts” is “the price of liberty.” If, however, it is the gospel truth that “[n]o one can serve two masters, for … he will be devoted to the one and despise the other,” the ensuing tension between privatized debt and democracy that Jenkins so expertly documents seems inevitable and irresolvable.
Factoring debt positively into the social well-being of the polity would require that the wealth accumulation of private investors not overtake the needs of the people the debt is meant to serve. One possible solution to the problem of the public interest succumbing to private interests is Professor Saule Omarova and Professor Robert Hockett’s proposal for a National Investment Authority (NIA). Omarova recently testified before the House Committee on Financial Services on the potential for the NIA to “deliberately and systematically seek to correct the deep structural roots of racial, economic, and environmental injustice and inequality.” She noted that the new federal agency would perform a more symbiotic role by “coordinating and overseeing ongoing investment in critical public infrastructure and socially inclusive and sustainable growth.” Specifically, among the initiatives that the NIA would undertake would be to “mobiliz[e] and channel public and private finance into large-scale critical public infrastructure projects,” like developing reliable modes of transportation to permit spatially isolated marginalized communities to get to work on time.
In other words, a public agency like the NIA would center broad social welfare in its fiscal mandate rather than individual wealth accumulation. For example, it could readily support infrastructure geared toward remediating racial justice. This is in stark contrast to Jenkins’ description of how Civil Rights-era racial justice measures in San Francisco presented too much risk for the “fraternity” of private bondmen and financial intermediaries to support. In their shuttered view, because “for bondholders, cities were a means of capital accumulation,” lenders could rightly “penalize” municipal borrowers who sought to implement change in the name of racial justice. Municipal bondholders’ bottom lines would not accommodate greater rights for marginalized people. Consequently, Jenkins shows how they used their power to thwart municipal efforts to respond to calls for justice. By contrast, a public agency whose mandate is to support long-term growth and to promote equality in infrastructural development, among other community-focused considerations, represents a promising alternative to the existing world of privately financed infrastructure that burdens municipal well-being.
 Destin Jenkins, The Bonds of Inequality: Debt and the Making of the American City (Chicago: University of Chicago Press, 2021), 69; John R. Fallon, “Municipal Bonds: In the Shadow of an Underfunded Pension Crisis, Puerto Rico, and A Low Interest Rate Environment,” North Carolina Banking Institute 24 (2020): 274 (“Great American achievements, such as the Erie Canal and the Golden Gate Bridge, were funded by municipal bond investors.”).
 “Measure Y Bond,” Oakland Unified School District, https://www.ousd.org/Page/20908.
 Steven P. French & Mike E. Disher, “Atlanta and the Olympics: A One-Year Retrospective,” Journal of the American Planning Association 63 (1997): 384-85.https://www.tandfonline.com/doi/pdf/10.1080/01944369708975930.
 E.g., Andy Berke andJonathan Gruber, “The Infrastructure Success Story in Chattanooga,” The American Prospect, June 17, 2021, https://prospect.org/infrastructure/building-back-america/infrastructure-success-story-in-chattanooga/. My thanks to Tejas Narechania for introducing me to this fact.
 Jenkins, The Bonds of Inequality, 152-153 (observing that “bond failures [signified] a disinterest in investing in black futures”); Ibid., 156 (describing how general use bonds funds were devoted to improving life for whites).
 Ibid., 148 (describing the “fraternity” of bankers and other white male intermediaries who functionally controlled the bond market).
 David Graeber, Debt: The First 5000 Years (Brooklyn: Melville House, 2011).
 Jenkins, The Bonds of Inequality, 49 (observing that “[i]n the memorandums and thick reports of bond dealers, schools were coded as commodities”).
 Ibid., 148 (describing statements of a banker who opined that “all black people within cities everywhere were drains on municipal funds”).
 Ibid., 223 (noting “bondholders’ ambivalence to democracy and their many efforts to protect their investments”).
 Miranda Joseph, “Making Debt,” Occasion: Interdisciplinary Studies in the Humanities 7 (2014); Jenkins, The Bonds of Inequality, 149 (“Prevailing and aspirational models made explicit that evaluations of municipal creditworthiness were more than mere reflections of racial inequality; they actively constructed it.”).
 Jenkins, The Bonds of Inequality, 211.
 Michelle Wilde Anderson, “The New Minimal Cities,” Yale Law Journal 123 (2014): 1159.
 Ibid., 1145 (observing that “[t]he presence of assets and incomes capable of contributing to public services through taxes is the most fundamental limitation on revenue generation”).
 E.g., Clayton P. Gillette, “How Cities Fail: Service Delivery Insolvency and Municipal Bankruptcy,” Michigan State Law Review (2019): 1213 (observing that “it is not clear that tax increases, even if legally available and politically plausible, will necessarily generate additional revenues” because they may “motivate those who bear the relevant burden to exit, triggering a downward spiral of property values that causes net revenues actually to decline”).
 Robert Nozick, Anarchy, State, and Utopia (Basic Books, 1974).
 Jenkins, The Bonds of Inequality, 69.
 Ibid., 218 (observing that “Fears of financial contagion became an alibi for a political project that entailed retrenchment, while protecting the structural commitment to bondholders.”)
 “Local Tax Limitations Can Hamper Fiscal Stability of Cities and Counties,” Pew Charitable Trusts, Jul. 8, 2021, https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2021/07/local-tax-limitations-can-hamper-fiscal-stability-of-cities-and-counties
 E.g., Alexandra Natapoff, “Misdemeanor Decriminalization,” Vanderbilt Law Review 68 (2016): 1059 (noting that the imposition of fines and fees as a punishment for a minor violation of the law, “functions as a kind of regressive tax, creating perverse incentives for low-level courts that increasingly rely on fines and fees to fund their own operations”).
“Investigation of the Ferguson Police Department,” U.S. Department of Justice at 9, March 4, 2015, https://www.justice.gov/sites/default/files/opa/press-releases/attachments/2015/03/04/ferguson_police_department_report.pdf.
 Ta-Nehisi Coates, “The Gangsters of Ferguson,” The Atlantic, March 5, 2015, https://www.theatlantic.com/politics/archive/2015/03/The-Gangsters-Of-Ferguson/386893/.
 Christine Desan, Making Money: Coin, Currency, and the Coming of Capitalism (Oxford University Press, 2014).
 E.g., Alexander Hamilton, First Report on the Public Credit (1790) (observing that “loans in times of public danger, especially from foreign war, are found an indispensable resource”).
 Lin-Manuel Miranda, et al., Hamilton: An American Musical (2017) (“If we assume the debts, the union gets new line of credit, a financial diuretic/How do you not get it, if we’re aggressive and competitive/The union gets a boost, you’d rather give it a sedative?”).
 Alexander Hamilton, First Report on the Public Credit.
 Robert C. Hockett and Saule T. Omarova, “Private Wealth and Public Goods: A Case for A National Investment Authority,” Journal of Corporation Law 43 (2018): 439 (“This new federal instrumentality, which we call a National Investment Authority (NIA), would be charged with the critical task of devising and implementing an ongoing and comprehensive long-term development strategy for the United States.”).
 Written Statement of Saule T. Omarova, United States House of Representatives Committee on Financial Services, “Build Back Better: Investing in Equitable and Affordable Housing Infrastructure,” last modified April 14, 2021, https://financialservices.house.gov/uploadedfiles/hhrg-117-ba00-wstate-omarovas-20210414-sd002.pdf.
 E.g., Saule Omarove, “The Other Half of the FedAccounts Plan: What Happens on the Asset Side of the Fed’s Ledger?,” Just Money Blog, last modified Nov. 19, 2020, https://justmoney.org/s-omarova-the-other-half-of-the-fedaccounts-plan-what-happens-on-the-asset-side-of-the-feds-ledger/.
 Jenkins, The Bonds of Inequality, 146-149.