EJB Talks Podcast

Ruth Winecoff

EJB Talks New Faculty Spotlight: The Importance of Municipal Bonds and the Roles They Play

April 4, 2023

⁠Stuart Shapiro⁠ welcomes one of our new professors in the public policy program, ⁠Ruth Winecoff⁠. Professor Winecoff talks about the inspiration behind her research on municipal bonds, and the important role they play in our country. This is particularly true for our towns and municipalities. She discusses Dodd-Frank legislation on the heels of the Silicon Valley Bank and other recent bank failures and how different aspects of the law have impacted local governments. The two then discuss municipal bond impacts on the nation’s energy infrastructure through efficiencies for clean energy. Tune in for this and more.

Stuart Shapiro
Welcome to EJB Talks. I’m Stuart Shapiro, the interim dean of the Bloustein School, and the purpose of this podcast is to highlight the work being done by my colleagues and our alumni in the fields of policy planning and health.

We’re spending this eighth season speaking with our new faculty here at the Bloustein School. We hired 10 people in a wide array of fields as the podcast episodes this season will show. Today we’re talking to one of our new professors in the public policy program, the program nearest and dearest to my heart, Professor Ruth Winecoff. Welcome to the podcast Ruth.

Ruth Winecoff
Thanks so much for having me, Stuart.

Stuart Shapiro
So you are looking at a very interesting area, questions around municipal bonds. And before I get into the specific questions because you’ve got a lot of fascinating work on this, how’d you get interested in municipal bonds?

Ruth Winecoff
So I mean, it’s a great question. It was not a burning, you know, passion, since childhood…

Stuart Shapiro
… As a five-year-old, you weren’t like, need to study municipal bonds. ((laughing)))

Ruth Winecoff
(((Laughing))) Yeah, right. So before I started my Ph.D. and decided to be an academic researcher, I did a Master of Public Affairs at the same school, I ultimately got my Ph.D., at Indiana University’s School of Public and Environmental Affairs. And so I was coming from a bachelor’s in econ, I knew that I wanted to be in the public finance space, partly for just very practical reasons, a lot, a lot of jobs, right, like a lot of good jobs. And within that, I don’t know, it just kind of appeal. It was a niche topic a little bit cool a little bit and very highly technical. So one of the things that I really liked about my econ coursework was just that it was technical, that it was a lot of numbers and detailed, you know, mathematical work.

So I, you know, I thought I was going to be going into either working as a consultant to agencies or working within an agency itself. So yeah, I kind of wanted to be, you know, with my spreadsheets. (((laughing)))

And then it was cemented. I did a full-time internship over the summer during my master’s, and it was at a CPA firm that one of whose lines of business was consulting, municipal governments. And I did a lot in the municipal bond space. I was on calls with, you know, Standard and Poor’s for credit ratings and like, Bond auctions, and I just, I really liked it. So kept going. And our faculty, we had one of the, you know, IU has one of the sorts of like leading public or municipal bond scholars, so it was just sort of available and kept going.

Stuart Shapiro
Oh yeah, it happened to a lot of us.

Ruth Winecoff
Yeah.

Stuart Shapiro
One way or another. So for our audience who may not, you know, I don’t know that I would have certainly going into graduate school, understood the importance of municipal bonds and the role they play. Why are they such a big deal across the country?

Ruth Winecoff
Yeah. So in our system of fiscal federalism, the federal government, you know, devolves a lot of responsibility to states and localities. And in this space, in particular, two thirds of the public investment infrastructure in the United States is financed through state and local bonds, right?

Stuart Shapiro
Two thirds.

Ruth Winecoff
So yeah, two-thirds. So our hospitals, our roads, our public schools, our fire stations, just basic, all the stuff that makes us, you know, a society run, if we need a building for it, if we need something, an expensive piece of equipment to provide public goods and services, good chance, it’s coming through the municipal bond market. You know, it’s a $4 trillion market, there’s $4 trillion of municipal bonds outstanding. So not only is it important for, you know, providing those public goods and services I just mentioned, but it’s a pretty decent chunk of our financial system, in addition.

Stuart Shapiro
Yeah. Two-thirds of our infrastructure is pretty important.

Ruth Winecoff
Right.

Stuart Shapiro
So Dodd-Frank has been in the news a lot lately, mostly because of Silicon Valley Bank and the subsequent bank failures, but you’ve looked at a different aspect of it, particularly the aspect that affects the municipal bond market. Can you explain that to us?

Ruth Winecoff
Sure. Dodd-Frank, you know, as many of us know, was really in response to the 2008 financial crisis and then the consequent global recession. So our regulators and Congress took a good hard look at the financial system and wanted to try to prevent things like that from happening again. And one area there, there were definitely problems in the municipal market due to the financial crisis. And one area was that they had some of our cities had kind of overextended themselves with derivatives and fancy swaps and things. And they were doing that, you know, on the basis of advice, from an industry of municipal advisors.

So, this group of firms or individuals, were at that point, completely unregulated by the federal government. So the feds are really hands-off in terms of regulating the municipal bond market. And so Dodd-Frank was an example of them saying, Oh, maybe we’ll step in a little bit more. So basically, they said, the aspects that I’ve really looked into was they extended some, you know, professional licensing and exams to the municipal advisors involved in this. And so I took a look and said, Well, did it help? Did it make a difference? And I find that indeed, it did. Even sort of, before all the rules and regulations got finished. It would appear that the quality of municipal advice from this sector improved in a way that resulted in really significant savings, right, for municipalities issuing bonds. So…

Stuart Shapiro
I would assume much-reduced risk as well.

Ruth Winecoff
Yeah, it’s all tied up together. Right. So if they’re paying if the greater the risk, the more interest you have to pay to borrow money. Yeah.

Stuart Shapiro
Right.

Ruth Winecoff
So we think in terms of if the lower, you know if we see lower interest rates, it implies lower risk.

Stuart Shapiro
Do the, do the municipalities appreciate that this has helped them? Or is it? Oh, god, it’s harder to get advice. Because there are fewer advisors out there? Why are the Feds making it so hard for people to give us advice? Or do they see that? No, you’re actually saving money from this?

Ruth Winecoff
You know, it’s…. I’ve got a punt on that. I don’t know. And we’ve got 50,000 states and localities.

Stuart Shapiro
(((laughing)) And you don’t know what all of them.

Ruth Winecoff
(((laughing)) Yeah it’s hard to get a response from all of them.

Stuart Shapiro
Yeah, I couldn’t hypothesize either. You know, if they realize the savings, and obviously they see the benefit, but they could also be the additional difficulty of getting advice might be this sort of salient feature…

Ruth Winecoff
There were major concerns about that, like the federal regulatory burden, going to push a lot of people out of the municipal advising space. And we did see a contraction in the number. But there’s still plenty around I don’t, yeah, I think it’s I think we’re fine.

Stuart Shapiro
Got it, that’s great. All right, let’s switch gears to another piece of work of yours. There’s the tendency, in part because we just bought bonds to finance two-thirds of our infrastructure, they are a great tool to try and exercise policy influence in other areas. And so talk about the work on trying to use it to incentivize energy efficiency and what you found there.

Ruth Winecoff
Thanks. Yeah. So as just I was doing, you know, sorting through bond data early on in my Ph.D. And I started to notice all these like, kind of odd, odd things in their bond issues that didn’t make sense to me. So that’s what really got me started. There’s a program called property assessed clean energy, which actually just got approved, I think, last year in New Jersey, so keep an eye out for it. And the way that this program works is that states authorize their localities to get involved in this program, once the states have authorized then municipalities can decide whether they want to get involved or not. And basically, how it would work is so that you know, I’m Suzy homeowner, and I find out about this, this program, and I say, “Well, I’ve been wanting to put solar panels on my house, but I don’t know how to finance it, and I don’t, I don’t want to finance it upfront.” So I find out about this program, I apply for it, I get approved and my municipality issued uses their bond issuing authority, right, to issue a bond for me and maybe my neighbor or you know, other people around to pay for those upfront costs. Rather than me going to the bank and, you know, maybe my credit history isn’t so great. We don’t want to stop. We don’t want that to stop people from making energy upgrades.

So the bonds pay for the upfront, the upfront costs of the energy upgrades, and then they are paid off through that person’s property taxes. Right. And so it stays with the house. So it’s a special assessment. So this, you know, the program was first adopted in California, like so many things are. So my co-author and I were able to access information on the bonds issued in California under this program, as well as the amount of electrical energy used from the grid in our conventional energy consumption, and also, there’s reporting in California on the amount of distributed solar energy that’s, that’s produced by households. So we were able to look at, in counties where people are, you know, doing this, do we see any, any benefit. And we found that while people don’t necessarily reduce the amount of energy that they buy from the grid, the amount of solar energy went up, right?

So at least some of their energy consumption was clean. It’s called the rebound effect. It’s well known in environmental policy where, you know, you may not actually reduce your overall consumption, you may actually increase it. So we see an effect. And we’re looking forward to looking into some other areas with this program, questions of equity. Who is using this program? Is it people who actually couldn’t just go to the bank and get a loan, or is it actually opening up opportunities for people who otherwise would not have the chance to make these.

Stuart Shapiro
But, the core goal is cleaner energy, so there is some effectiveness.

Ruth Winecoff
There is some effectiveness. Yeah. And we, you know, we also, we had about 10 years of data that we were able to look at, and we’re hopeful that as things go forward, you know, it’ll become even more impactful.

Stuart Shapiro
Gotcha. So we talked before we went on the air, that you’re, you’re moving to New Jersey, and we talked about how there are more than 500 municipalities here in New Jersey. I actually was meeting with the Council of Mayors yesterday. And just as I was thinking about questions for this podcast it hit me, sort of what would you what kind of advice in the municipal bond space would you give to, mayors or town councils, particularly the small and medium-sized ones, which proliferate here in New Jersey?

Ruth Winecoff
Right, yeah. So I think what I would generally say, you know, without knowing the specifics of any particular municipality is pay attention to who you’re getting your advice and your services for. Especially small places, they really have to rely on these private sector firms, like the municipal advisors, I was talking about. You know, these places should not have in-house expertise for issuing millions of dollars of bonds, that would be ridiculous. So they need to be able to rely on advisors and attorneys and the banks even that they’re working with, to make the choices about who they’re working with carefully and to evaluate every once in a while. So sometimes you’ll just municipalities will just start working with one firm, and then they never looked back. So a little bit of a, you know, evaluating. Is this still good advice? Is this advice still serving me? I think that’s the way I would advise. Yeah.

Stuart Shapiro
Excellent. Excellent. All right. So you got excited about municipal bonds when you were a master’s student? How do you get students excited about them?

Ruth Winecoff
Our students care so much about issues around climate change and social justice issues, that once you start kind of making the connection between you know, it’s kind of easy to make the connection between just like money and these issues. Like where’s the money coming from? But there are so many fascinating ways in which municipal bonds specifically impact this. You know, we’re gonna have to put, everyone knows we’re going to have to put a lot of work into especially our coastal cities, the infrastructure, as we deal with the consequences of climate change. Our credit rating agencies Standard and Poor’s and Fitch, they evaluate, you know, the risk of different governments, and that really affects how much they have to pay to borrow. They’re starting to take into consideration Okay, well, is this city actually going to like flood every 10 years in a devastating way? And if they do, how are they going to pay off their debt?

So these things are very important. Social justice issues, you know, what parts of a city get the sweet municipal bond deals that get them lovely parks lovely safe parks to send their children to versus parts of the city that don’t, that’s all based on property taxes and sort of home values and where we’ve put people to live in our, you know. So I think making that connection for them, I think is really it’s actually pretty easy once you start. It seems like a dry technical topic, but it’s pretty easy to motivate.

Stuart Shapiro
And schools to care about education accurately, you know, these bonds finance most of what we do because of fiscal federalism and educational federalism and all.

Ruth Winecoff
Including our universities. I mean, you’re sitting in a house that’s not on a house, sorry, you’re sitting in a building,

Stuart Shapiro
It’s become like a house… ((laughing))

Ruth Winecoff
((Laughing)) You’re sitting in a building that was financed by municipal bonds. Right?

Stuart Shapiro
Right. All right. So where do you go from here? Where do you see research going?

Ruth Winecoff
So I’ll keep working on the sort of financial intermediation piece looking at those municipal advisors and things and attorneys that help issuers. I’ll definitely keep working in that space. It’s kind of near and dear to my heart. And I’m really excited about a project that actually Bloustein gave me a nice little seed grant to pursue. I’m working with co-authors at Indiana University and Arizona State. There’s anecdotal evidence that settlements for police misconduct cases for either the citizen who’s harmed or their family in the case of their death, where there’s anecdotal evidence that these settlements are being financed through the municipal bond market.

This means that A, there’s probably really minimal transparency to citizens that they even know how this is happening, because how many people get into reading all the details and a municipal bond issue? There are also just inner intertemporal equity and intergenerational equity issues, like when we issue municipal bonds, we’re paying them off for decades. So we’ve got you to know, potentially we have police agencies that are sort of able to conceal and other government agencies that are able to sort of conceal misconduct, and their citizens are paying for it way down the line. So we want to get into, okay, is this in fact happening? So we’re in the data collection stage right now. And then we want to, in addition to that, obviously, look at like, okay, is this a way, you know, if we bring this into the light, then is it a maybe a tool to incentivize police agencies to cut down on the misconduct, right? Because the consequences are so separated from them? Yeah, so I’m really excited about that avenue of research, and I’m pleased that Bloustein is helping me out with it.

Stuart Shapiro
Excellent. And, you know, I think you make municipal bonds exciting. So..

Oh, that’s what I want to hear.

Stuart Shapiro
Thank you so much for coming on today.

Thanks Stuart. It was great talking to you.

Stuart Shapiro
And a big thanks also to Amy Cobb and Karyn Olsen, who make this podcast happen. We will see you next week with another talk from another expert at the Bloustein School and until then, stay safe.

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