Management Accounting Section Midyear Meeting

Native American Governments’ Borrowing Costs: Evidence from Municipal Bond Markets

• In Event: Government

Abstract

The United States contains sovereign tribal nations that issue municipal bonds to fund their governments’ activities. This study investigates whether these tribal governments face higher borrowing costs for municipal bonds than do other state and local governments. Comparing 362 municipal bonds issued by tribal governments to similar securities issued by state and local governments, we show that tribal governments pay significantly higher yields than state and local governments. Specifically, we find that Native American governments pay a premium of 64 to 251 basis points on their municipal debt, after controlling for several bond characteristics. Given that the average tribal (nontribal) municipal yield is 577 (288) basis points, tribal governments pay 22% to 87% higher borrowing costs than nontribal governments, which translates to approximately $79,000 to $310,000 in higher annual interest payments for the average tribal issuer. Overall our results highlight the challenges that U.S. tribal nations face in accessing capital markets and inform policymakers reviewing legislative acts intended to increase tribal governments’ access to the municipal bond market.

Authors

• Serena Loftus, Kent State University

• Sarah Shonka McCoy, The University of New Mexico

• Rui-Zhong Zhang, Kent State University