NLC Brief Aims to Spotlight Key Practices for Advancing Racial Equity Frameworks in Municipal Bonds

Over the past year, the National League of Cities (NLC) has partnered with the Public Finance Initiative (PFI) on a research project that convened focus groups with more than 100 public officials from cities, states, public authorities and municipal market stakeholders from 34 states.

The intent of this collaboration (along with the NLC’s exploration of other research avenues) was to “propose a new framework to enable municipal bond issuers to leverage markets as a catalyst for changing racially inequitable conditions in their communities informed by the perspective of cities, states, public authorities and other municipal bond market participants,” according to the NLC. 

Later this month, the NLC will publish a Racial Equity and Bond Markets brief, based on findings from its discussions with the PFI, that will serve as a resource for issuers seeking to learn new practices for their peers. According to the organization, the brief aims to highlight “the wide range of practices we uncovered in this area that will inform the design of the framework, and a wider program of work.” For example:

• The majority of jurisdictions that integrate racial equity in a bond issuance focus on the use of the proceeds. Novel approaches are emerging in this area across smaller to mid-size cities who are centering racial equity in other proceeds of the issuance, including investment earnings from the bonds. Innovative strategies are also emerging in large cities, where racial equity considerations are being included in funding raised from bonds together with other revenue sources to support equitable investment strategies.
• Many cities have policies, frameworks and plans that address racial equity, equity, social equity, social justice or other values in their fiscal and governance processes. Where present, this can serve as an important foundational element for a jurisdiction to create new practices that extend to municipal bond markets.
• Some cities are centering racial equity in community engagement strategies that provide avenues for residents to provide meaningful feedback with respect to infrastructure projects that are financed with bond proceeds.

The brief will also offer several examples of these practices at work in cities. With regard to the integration of racial equity via the use of proceeds, for example, the city of Chicago received a $1.887 billion allocation from the State and Local Fiscal Recovery Fund of the American Rescue Plan (SLFRF) in 2021, to respond to the negative impact of the COVID-19 pandemic.

“After engaging in extensive community engagement, the city of Chicago developed a recovery plan to guide the expenditure of its SLFRF allocation focused on making investments in the well-being of people, communities and equitable economic recovery for neighborhoods hardest hit by the pandemic,” the NLC’s Samantha Pedrosa wrote.

To amplify the SLFRF federal funding opportunity, the city proposed a $660 million general obligation bond to raise additional funding to catalyze equity-based investments in the recovery plan.

Many of the projects and strategies in the city’s recovery plan are “anchored in the racial justice principles identified by the City’s Office of Equity & Racial Justice, which seeks to advance institutional change that results in an equitable transformation in how the city does business … ” wrote Pedrosa.

The brief also underscores the importance of engaging the community as a “vital component of racial equity strategy,” citing the city of Chandler, Ariz. as a model of how community engagement can be targeted to elevate residents’ voices in significant infrastructure improvements.

For instance, volunteer subcommittees that support community engagement functions in Chandler are frequently tasked with going into neighborhoods around the city to initiate conversation around capital projects under consideration, gathering feedback from Black, Latino, Asian, indigenous and other populations of color, as well as residents with historically low rates of participation and engagement, on three levels—the authorization of the bond measures, infrastructure project needs and targeted input on equity needs.

“These examples are only a few of the strategies cities and other issuers are adopting to advance racial equity in bond issuances, highlighted in the brief,” according to the NLC.

“The framework we are creating in response to what we have learned is being developed with one guiding purpose: to enable municipal bond issuers to leverage bond markets as a catalyst for changing racially inequitable conditions in their communities, resulting in the improvement of material conditions for populations and the enhancement of material risks in their jurisdiction.”