The cost of borrowing divides rich towns from poor ones

From the article:

Selling bonds—essentially issuing buyers an IOU, plus interest—is a quick way for a government to raise funds. [...] Cities get money up front, and buyers are assured that they’ll turn a profit; this win-win proposition made many postwar suburbs take the plunge into the bond market. Throughout the 1950s, as private developers rapidly constructed new suburbs, school districts in Nassau County, where Levittown is located, increased their debt load by sixfold to meet the needs of their new residents. The problem was: Not every town and city was treated the same. Credit-rating agencies saw richer locales as very likely to repay their debts and gave them sweet deals on interest rates, which meant that these towns owed less to those who’d bought their bonds. The poorer places got shortchanged.

[...] The U.S. is one of the only countries in the world where municipalities raise money primarily through bonds, and their differential treatment on the private market has quietly driven inequality across the nation. Saddled with higher interest rates on their bonds, people in poor cities and towns today pay double the amount in property taxes, often suffer higher home-foreclosure rates, and wield paltrier education budgets compared with their wealthier counterparts. Major cities face the consequences of municipal bonds, too—Chicago famously leased its parking meters to investors in order to pay off its debts—but they employ teams of bond experts to negotiate the best terms. Small cities and towns, whose bond coordinator is often a single financial manager juggling dozens of other tasks, can do less to protect themselves from high interest rates.

[...] Although municipalities in other countries can borrow from their national government—Canada regularly provides localized loans to stimulate housing construction—American cities and towns usually don’t have that luxury. Instead, they have found themselves playacting as entrepreneurs, courting private investment to fund basic services.

Over the course of a 30-year term, Glass estimates, the fees and interest on bonds add 30 to 60 percent in costs beyond the original borrowed amount. Every town pays extra, but some pay more than others. [...]

Disproportionately high property taxes are one telltale sign of a city trapped in a cycle of municipal debt, and so are weak public services—underfunded schools, underpaid teachers, aging recreation centers, sewer systems in need of an upgrade.