Responding to widespread defaults that jolted the municipal bond market of the day, new state statutes were passed that restricted the issuance of local debt. The 1873 panic and years of depression that followed put an abrupt but temporary halt to the rapid growth of municipal debt. Smaller firms followed suit as well as the stock market. Around the same time, the largest bank of the country of the time, which was owned by the same investor as that of Northern Pacific, collapsed.
Construction costs in 1873 for one of the largest transcontinental railroads, the Northern Pacific, closed down access to new capital. Railroads were private corporations, and these bonds were very similar to today's industrial revenue bonds. Years after the American Civil War, significant local debt was issued to build railroads. The debt was used to finance both urban improvements and a growing system of public education. In the ensuing decades, rapid urban development demonstrated a correspondingly explosive growth in municipal debt. cities were in debt, and by 1843 cities had roughly $25 million in outstanding debt. Officially the first recorded municipal bond was a general obligation bond issued by the City of New York for a canal in 1812. municipal bonds indicate use around the early 1800s. Borrowing by American cities dates to the nineteenth century, and records of U.S. Municipal debt predates corporate debt by several centuries-the early Renaissance Italian city-states borrowed money from major banking families. Local authorities in many other countries in the world issue similar bonds, sometimes called local authority bonds or other names.
Total municipal debt outstanding was $4 trillion as of the first quarter of 2021, compared to nearly $15 trillion in the corporate and foreign markets. municipal debt market is relatively small compared to the corporate market. Taxable equivalent yield calculations are required to make fair comparisons between the two categories. Typically, only investors in the highest tax brackets benefit from buying tax-exempt municipal bonds instead of taxable bonds. In the United States, interest income received by holders of municipal bonds is often, but not always, exempt from federal and state income taxation. A municipal bond, commonly known as a muni, is a bond issued by state or local governments, or entities they create such as authorities and special districts.
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