Columbia Business School and Tepper School of Business Propose Municipal Bond Market


MP Guru
PITTSBURGH/NEW YORK — March 10, 2011 —States and municipalities throughout the United States depend on the municipal bond market to raise funds for essential investments in America’s schools, roads and highways, hospitals, utilities, and public buildings. Evidence suggests, however, that the state and local governments that issue bonds as well as the investors who purchase bonds may pay billions of dollars each year in unnecessary fees, transactions costs, and interest expense due to the lack of transparency and liquidity in the municipal bond market. In light of these costs, The Hamilton Project at the Brookings Institution recently commissioned a paper by Andrew Ang of Columbia Business School and Richard C. Green of the Tepper School of Business at Carnegie Mellon University, to examine new strategies for reducing borrowing costs for issuers and investors. In their Hamilton Project paper, “Reducing Borrowing Costs for State and Municipalities Through CommonMuni,” Ang and Green propose the creation of a nonprofit institution, “CommonMuni,” to offer objective advice to states and municipalities; gather and disseminate information on the municipal bond market for state officials, investors, and taxpayers across the country; and coordinate market participants to ensure a depth of sellers and buyers and to enhance liquidity.

The market for bonds is illiquid, and municipal borrowers pay more in interest to compensate for this illiquidity risk. It is difficult to match buyers and sellers, and information on borrowers is difficult to findIn light of these dilemmas, Ang and Green propose that the market for municipal bonds can be improved by centralizing the collection and dissemination of financial information and coordinating borrowers to improve liquidity. Centralization would benefit both borrowers and investors.

CommonMuni could provide individualized advice, gather and disseminate information on bond issuers and transaction prices to increase transparency, and coordinate market participants to enhance liquidity in the municipal bond market. Importantly, CommonMuni could be started for a practice of the potential benefits that investors and taxpayers would reap from the program.

The model for CommonMuni’s design closely follows the successful model of Commonfund. Organizationally, CommonMuni would be established similar to many other 501(c)(3) nonprofit organizations: To hire and maintain a highly qualified and well–compensated staff, Ang and Green recommend that CommonMuni would need $25 million in seed money via private financing, in order to avoid reliance on state or federal finance.

At first, CommonMuni’s goal would be to attract an initial set of client municipalities—for example, by partnering with state treasurers associations around the United States to solicit interest and partnerships for the initial launch of CommonMuni. As more issuers see CommonMuni’s benefits, more issuers would join. As more issuers join, pooled information resources would grow and the subsequent improvements in liquidity and information would lower borrowing costs. As CommonMuni develops, it will aim to become self–financing.

About Columbia Business School

Led by Dean Glenn Hubbard, the Russell L. Carson Professor of Finance and Economics, Columbia Business School is at the forefront of management education for a rapidly changing world. The school’s cutting–edge curriculum bridges academic theory and practice, equipping students with an entrepreneurial mindset to recognize and capture opportunity in a competitive business environment. Beyond academic rigor and teaching excellence, the school offers programs that are designed to give students practical experience making decisions in real–world environments. The school offers MBA and Executive MBA (EMBA) degrees, as well as non–degree Executive Education programs. For more information, visit

About the Tepper School of Business

Founded in 1949, the Tepper School of Business at Carnegie Mellon ( is a pioneer in the field of management science and analytical decision making. The school’s notable contributions to the intellectual community include seven Nobel laureates, a Nobel Prize record that is unsurpassed by any business school worldwide. It is also among the schools with the highest rate of academic citations in the fields of finance, operations research, organizational behavior and production/operations. The academic offerings of the Tepper School include undergraduate studies in business and economics, graduate studies in business administration and financial engineering, and doctoral studies.

About The Hamilton Project

The Hamilton Project seeks to advance America’s promise of opportunity, prosperity, and growth. The Project’s economic strategy reflects a judgment that long–term prosperity is best achieved by fostering economic growth and broad participation in that growth, by enhancing individual economic security, and by embracing a role for effective government in making needed public investments. We believe that today’s increasingly competitive global economy requires public policy ideas commensurate with the challenges of the 21st Century. Our strategy calls for combining increased public investments in key growth–enhancing areas, a secure social safety net, and fiscal discipline. In that framework, the Project puts forward innovative proposals from leading economic thinkers—based on credible evidence and experience, not ideology or doctrine to introduce new and effective policy options into the national debate. For more information visit