Against a history of the increasing fiscal dominance of federal government (Philimore, 2013) we examine the Australian Government's 'White Paper on the Reform of the Federation' (PM, 2014) and the potential contribution that instruments of sub-national finance, specifically municipal bond banks, could make to a more decentralised fiscal landscape.
(2013) we examine the workings of three sub-national municipal bond banks, the Local Government Finance Authority of South Australia (LGFA), the New Zealand Local Government Funding Agency (NZLGFA) and the Municipal Finance Authority of British Colombia (MFABC).
The rudimentary mechanics of bond banks are conceptually simple; this is one element of their appeal.
This simple account of the operation of municipal bond banks by no means implies that these types of financial institutions are immune from failure, or indeed, from sophistry, in the sense that many financial institutions and specific credit instruments have been in recent memory, particularly in association with the Global Financial Crisis (see, for example, McKibbin and Stoeckel, 2010).
Nor does this simple account of the operation of bond banks reflect other putative advantages and disadvantages of these institutions (Dollery et al., 2013: 233-236).
Aligning with the general description of municipal bond banks offered above, the functions of LGFA are to develop and implement a borrowing and investment program for the benefit of councils and prescribed local government bodies, and to engage in other financial activities as determined by the Minister for Local Government in consultation with the South Australian Local Government Association (South Australian Auditor-General, 2013: 965).
Despite the fact that potions for the expansion of local government revenue have not featured in the White Paper on the Reform of the Federation process thus far, in this context municipal bond banks might provide one course of public policy, particularly to buttress own-source revenue beyond its already high levels.
Additionally, we ought to be aware that the arrangements for financial instruments such as bond banks can affect intergovernmental relations and vice versa.
Nevertheless, as we have emphasised in this paper, the theoretical simplicity of 'ideal-type' municipal bond banks does not militate against the requirement for careful design, maintenance and oversight of such institutions by higher tiers of government.
This bond bank then issues bonds for sale (i.e.: offering a return of interest paid over a specified time period of maturation) in a variety of markets: for example, municipal bonds can be issued on the 'open market'--where they compete against a range of other investment products such as shares or bonds offered by other governments.
Loans to participating entities are repaid to the bond bank according to an agreed upon schedule and these monies in turn are used to repay investors.