by Allen R. Gray
“Systemic racism is a machine that runs whether we pull the levers or not…”
— Ijeoma Oluo
When one speaks of systemic racism it is nearly impossible to fully understand its scope and complexities without first understanding its sheer magnitude and guises. Municipal bonds, for instance, are more than just a means of funding school improvement and street repairs. There are levels to the bond system that reach as high as the federal government and financial institutions and as low as a small city or college. Though, no matter how high or low the bond package may go, in the end we all—Black and white, rich and poor—will be covering the check. It doesn’t matter if we voted for it or not. It doesn’t matter if we directly benefit from the bond or not.
The essential worth of a bond can surely be measured by the morals, ethics and intent of the bureaucrats responsible for the distribution of the funds
Before the release of Dr. Destin Jenkins book “The Bonds of Inequality: Debt and the Making of the American City”, investment bankers and insidious bureaucrats seemed to be impervious to the notion that the municipal bonds used to support and develop cities, states and even universities—were a major contributor to the systemic racism affecting African Americans. That all changed when Jenkins pulled the lid off a $4 trillion market whose operation has remained clandestine over the past decades. Now, money managers, bankers, analysts, government-finance officials and others want to know what Jenkins knows about their cash cow.
One thing that Jenkins has proven after a decade spent studying financial topics and their societal effect is that with municipal bonds there are clear winners and losers.
Muni bonds were born on wall street along with variety of variety of other foreign and domestic bonds, and it is there that the financial harvest begins.
Municipal Bond Winners
Institutions like Siemens Financial Services and others sit atop the heap of those reaping the benefits.
The most prominent winners are the at-no-risk investors who can best afford it. The typical bond investor is a household that has a huge income. The muni bond is appealing, because it’s a no-risk loan that is guaranteed by city taxes; and the interest the investor earns is totally tax-exempt. It is exclusively a rich man’s game.
Municipalities win because they receive a paycheck, sometimes in the billions, to do with as they please. The specific use of the bond money is listed as a proposition prior to voting, but when the voting polls are closed, and the funds are dispersed city officials have the discretion to do as they please. The historical use of the funds has been to further enhance the part of town that needs it the least and is devoid of Blacks. Cities have the liberty to play a game of slight of hand with bond money. First, there is a proposition that is sold to voters; then there is an agenda carried out that is not in the view of unsuspecting voters.
The next group of winners are construction firms that contract to perform the tasks and services for the city. Firms owned and operated by almost solely by white men are pocketing upwards of 90% of the money—and allotted funds white men don’t ingest is consumed by shadow companies owned by their white wives.
People on the white side of town benefit from beautification and street improvement projects that tend to make their drive home that much smoother and their entertainment that much more enjoyable.
Who could ask for more?
Then there is the other side of town, where the losers are losing big.
Municipal Bond Losers
Jenkins’ research unearthed a situation that unfolded with the Jackson, Mississippi airport in 1963. Federal funds were slotted to be issued to Jackson for improvements to be made to its hub, but those funds were conditional. Jackson would have to end its segregated hiring practices at the airport. Because of those conditions, the city decided to refuse those federal funds and paid for the improvements, instead, with a municipal bond package. That meant those same Blacks Jackson, Mississippi refused to hire would then be paying for a site where they were scarcely allowed to visit let alone work.
In mid-20th century San Francisco muni bonds were used at great length to worsen racial disparities in the city. Bonds were used to broaden the city’s cultural scene and expand parks in the areas accessible mainly (or exclusively) to whites. Jenkins discovered that areas inhabited mainly (or exclusively) by Black San Francisco residents “were continuously deemed unworthy of debt.” Although, those Blacks, too, were unceremoniously responsible for paying back those loans with their taxes.
It’s common practice with muni bond lending institutions to conclude that if an area isn’t predominantly white, then that area is not worth investing in.
In 2013, Detroit, Michigan had no other resolve but to file for bankruptcy. Jenkins credits years of a continuous stream of white flight as the vehicle that dealt the detrimental blow that feel city. Now with the city mostly barren of white folk, muni bonds could not and would not be used to save the city from its financial woes. Bond capital is not merely used for parks and roads, those funds have also been used to support the safety and security of some citizens, generally done to the detriment of other citizens.
In 2014 after a police officer involved shooting of a Black teen in Ferguson, Missouri, the justice Department reported that the city depended heavily on fines and penalties to boost its finances. It was this need to generate finance that caused over-jealous, callous police officers to shoot and kill the unarmed youth. Their actions, Jenkins argues, were more about finance and segregation than safety.
The Justice Department report stated, “Many officers appear to see some residents, especially those who live in Ferguson’s predominantly African-American neighborhoods, less as constituents to be protected than as potential offenders and sources of revenue.”
Black construction companies are also on the losing end of the muni bond game. Project funds that are in essence the product of guarantees generated from the security provided by tax dollars rarely find their way into the pockets of Black businessmen. Yes, there are laws requiring a certain percentage of those tax-generated public dollars to be spent with minority-owned companies—but rich white women are also considered as “minority” business owners.
Muni bonds are not just exclusive to cities and states, colleges and universities can also borrow in the same way that a city might. Whereas white colleges stand to gain in the way a city might gain from a muni bond, Historical Black College and Universities (HBCUs) were offered a sampling of what systemic racism is all about. So much so, that in April 2021, a Congressional hearing was held to review an academic study published by researchers from Florida State University, the University of Notre Dame, Duke University and the University of Southern California.
The hearing labeled “Examining the Role of Municipal Bond Markets in Advancing and Undermining Economic, racial, and Social Justice” revealed some startling results about the creditworthiness of HBCUs. Like cities that seek a muni bond loan, colleges are also issued a credit rating that is used to provide or deny a loan. Credit ratings are also used to determine at what interest rate at which the loan will be paid back.
The study showed that states in which HBCUs paid the highest fees and interest rates also had the highest levels of “anti-Black racial animus.”
A subsequent study looked at some of the outstanding bonds existing as of April 2022. That study found that areas with predominantly Black residents were paying a combined total of roughly $900 million a year in extra interest. This is the social phenomenon known as “the Black tax.”
The authors of the 2021 Congressional study suggested that Congress make HBCU bonds tax-exempt the same way it is being done for the high-dollar investors. Congress listened to that suggestion intently…but that tax exemption for HBCUs has not happened yet…And it may never happen.
Legal scholar Stacy Seicshnaydre agrees that something must be done to monitor the distribution of muni bond funds.
“Every development project powered by public subsidies should be required to demonstrate who benefits and how; whether it is perpetuating segregation or whether it is restoring choices and opportunity denied under law in prior decades. A required equity impact statement not only inches toward remediation and repair, but also prevents infliction of further injury.”
Jenkins contends that the enormous financial windfall provided to banks, lenders and investors is being realized at the expense of those citizens who are marginalized and can least afford it. Jenkins would have us ponder this thought: If bonds are a good thing, why haven’t they been used to improve conditions in Black neighborhoods? The answer to that question is that Black neighborhoods are deemed to be unworthy of investment…But Blacks still have to pay in the end.
Moody’s Investors Service is a company that touts itself as a “champion” of diverse perspectives and as including diverse voices to make smarter decisions as to “transcend traditional silos and structures.” The company provides municipalities with the credit ratings used to determine if a city is worthy of a muni bond loan and at what interest rate. At the company’s broad behest in 2022, Jenkins provided them with suggestions on how they might update their method of rating a city’s creditworthiness.
Jenkins wrote to them that along with assessing the risks of cybercrimes, pandemics and natural disasters, Moody’s should consider a city’s “democracy risk.” He contends that if a city has restrictions on voting rights that might lead to a court case that could eventually invalidate a bond deal, that city should be issued a poor rating.
Jenkins also suggested that police misconduct should be considered in a city’s rating, because that misdeed could also lead to a court case that could cost a city millions of dollars.
On the other hand, with municipal bonds becoming the safety net of cities as of late, a lending institution that is making billions of dollars with little to no risk just might say, “Why change at all?”
This is the sum total of systemic racism. There have been and will always be winners, who are the one-percenters and white folk in general, and there have been and will always be targeted losers, who are the disregarded taxpayers that are paying for the privilege of being discriminated against.
If nothing else, Jenkins’ book provides us with a vehicle that allows us to put a face to that nebulous entity called systemic racism, the machine that runs whether we pull the levers or not.
For further insight Dr. Jenkins see: Debt That Makes And Breaks U S Cities | Destin Jenkins #MajorityReport (youtube.com)
