City leadership initiative will address racial equity in bond markets

The National League of Cities and The Public Finance Initiative have launched a first-of-its-kind Bond Markets and Racial Equity Project that highlights the growing importance of impact investing and equity considerations in public finance.

Announced Thursday, the project, which is funded by a $4 million grant from the Robert Wood Johnson Foundation, is designed to gauge racial equity and income equality relative to municipal bond issuance.

“The Bond Markets and Racial Equity Project is a first-of-its-kind investigation into how public officials can center equity in bond issues in targeted ways that lead to improved social determinants in their communities,” said Clarence Anthony, NLC CEO and executive director, in a release.

According to the case study for the initiative, the goal of the project is to leverage bond market investments to disrupt historical and systemic racial inequities. To do this, PFI and NLC will identify factors in municipal bond issuance that “signal progress toward racial equity.” A project team will develop metrics, measurements, and reporting tools for cities and localities and their financial advisors to “elevate racial equity considerations in bond issuances.”

“We have an opportunity to disrupt long-held patterns of inequality and segregation and to elevate racial equity in new arenas,” said PFI’s executive director, Lourdes Germán in a statement. Germán added that initial work will involve listening to issuers, investors, and other market stakeholders in national focus groups.

Other organizations that will collaborate as partners include the Excellence in Public Finance Program at the Milken Institute, the Urban Institute, the Government Alliance on Race and Equity, and Urban American City, LLC. The Initiative for Responsible Investment at the Harvard Kennedy School’s Center for Public Leadership will serve as a subgrantee, according to the release.

The Racial Equity Project stems in part from recent unprecedented investment in public infrastructure via the recently enacted $1.2 billion federal Infrastructure Investment and Jobs Act. Lawmakers have contended that the Act will help advance equity through investments in public infrastructure that have been lacking in underserved communities.

And, while the near $4 trillion municipal bond market represents a large pool of investment capital for infrastructure projects, the project case study notes that bond issuers “often lack tools, data, and other resources to evaluate how equity is affected in projects funded by municipal bonds.”

According to the case study, this includes a lack of information on “whether equity is changing in a jurisdiction over time, in low-resource settings with the highest needs.”

“We and our partners believe that this essential lens must be developed for the public finance market, which so many communities rely on and so many investors put capital towards,” said Kimberlee Cornett, director of impact investments at the Robert Wood Johnson Foundation, in a statement.

As a result, "alongside traditional public finance criteria," the project will develop a common equity framework to help center equity across infrastructure investment areas.

“This project seeks to take what we learn and develop a program to help issuers center racial equity as a key consideration within the municipal bond market, enabling communities and investors to better understand how to effectively leverage the issuance process,” Germán said.

Anthony echoed that notion in a statement, adding, “With our key partners, we look forward to enabling more conscientious fiscal decisions, elevating bond markets as an equity vehicle, and supporting individual cities in their impact journeys.”