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ItemElectricity infrastructure threats and policy response(Georgia Institute of Technology, 2018-11-08) McGrath, Jenna K. C.The overarching research question of this dissertation is how are policymakers responding to threats to the electricity grid? The database of attacks on the United States electricity system, created and analyzed in Chapter 2, underscores that targeted attacks have been a persistent threat for the electric grid for the past nearly 50 years. In recent years, attacks have become more sophisticated and coordinated. Given this development, Chapter 3 considers how policy makers have responded to grid attacks, focusing on a more recent timeframe of seventeen years and uses risk perception theory as a guide. The results of the regression time series analysis indicate that policymakers respond to malicious attacks on the grid in terms of federal funding and allocation to grid-related improvements. There is no response associated with disruptions caused by severe weather or human or technical failures. This suggests that policymakers are perceiving malicious attacks as a threat and are stating policy priorities to address this issue in the federal budget appropriations. In addition to funding for emergency response and funding for research, federal policy, utilities have proposed measures to improve grid security. Chapter 4 addresses the adequacy of this response. The effectiveness of current grid security standards are simulated when faced with actual attack scenarios as well as possible future attacks that become increasingly more sophisticated and threatening in nature. The simulations indicate that security upgrades involving improved lighting and visibility are not effective, while improved barriers are effective. More broadly, the limited effectiveness of the proposed security upgrades suggests that there is substantial scope for research and testing, and for consideration of how utilities are securing electric infrastructure assets. Chapter 5 considers critical infrastructure as a whole, evaluating federal emergency response and management across the different critical infrastructure sectors. Here, the goal is to determine how electricity sector response compares to the policy responses to the challenges and events impacting other sectors. Analysis across multiple large incidents affecting different components of critical infrastructure shows a largely linear and consistent relationship between the impact of a disaster in terms of both human health and cost, and the sum of the public sector funding and insurance response. Attacks on the U.S. electric grid are a continuing challenge, as demonstrated in Chapter 2. In line with the prevailing risk perception literature, the analysis in Chapter 3 indicates that malicious attacks on the electric grid receive a larger response, in terms of federal R&D funding, than natural disasters or failures. This study finds that threats to national security are a driver of policy priorities and actions to both repair and improve the electric grid. Federal and state governments as well as the utilities and private sector bear significant costs when attacks occur. As concluded in Chapter 4, utility efforts to increase security are not fully public, but those that can be evaluated have significant weaknesses. Across all infrastructures, Chapter 5 demonstrates that government and private insurance payments largely pay fully for the impact of each disaster, irrespective of cause or sector, with terrorist attacks receiving emergency response funding at the same level as accidents and natural disasters. Similarly, federal research and development funding related to grid security has remained largely steady, with increases in response to large incidents irrespective of cause.
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ItemPrimary and secondary subnational debt markets(Georgia Institute of Technology, 2018-04-04) Riegel, Konul A.U.S. state and local (subnational) governments issue municipal bonds in the capital markets to finance infrastructure projects such as schools, roads, and bridges. These securities are first sold in the primary municipal bond market and subsequently resold in the secondary market. This dissertation explores the primary and secondary subnational debt markets and their impact on state and local governments. The first chapter provides background information on the municipal bond market. The second chapter estimates the market-implied marginal tax rates associated with tax-exempt debt. The third chapter estimates the effect of the secondary municipal bond market on future cost of borrowing for debt-issuing governments. The fourth chapter explores why some securities trade thousands of times in the secondary market while most never trade. The fifth chapter concludes the dissertation and discusses relevant policy implications. The size of the subnational debt has surpassed $3:8 trillion as of the third quarter of 2017. Understanding the primary and secondary municipal bonds markets and the impact of these markets on issuers can allow thousands of debt-issuing state and local governments to save billions of dollars in borrowing costs. This is important because reducing borrowing costs, in turn, can free up funds for other public services such as education and health care. Debt is a crucial part of public finances. As such, this dissertation contributes to the public finance literature, particularly in the area of public financial management research. Chapter 1: Background. The majority of state and local governments in the U.S. have debt-issuing capacity. There is quite a bit of heterogeneity in the types of issuers and financial products that are issued in the municipal bond market. The variety of market participants (underwriters, dealer-brokers, etc.) add further complexity to the debt performance outcomes of issuers. The main feature that sets the muni market apart from other capital markets is the tax exemption of interest income - most municipal bonds are exempt from federal, state, and certain local income taxes. Chapter 2: Primary Market. Eliminating or limiting tax exempt-status of municipal bonds becomes a potential policy alternative in periods of budgetary distress, given that taxes foregone due to exemption amount to billions of dollars per year to the federal government. This chapter estimates the implied marginal tax rates associated with tax-exempt munis to understand the tax-reduction benefits accrued to state and local governments. In this analysis, tax-exempt munis are matched to near-identical taxable munis, which creates a unique quasi-experimental design. Results of the Random Coefficients Model (RCM), which accounts for issuer- and issuance-level unobserved effects, show significant heterogeneity in implied marginal tax rates across issuer types (e.g. counties vs. school districts) and over time. The longstanding muni puzzle, the finding that interest on tax-exempt bonds is higher than the theory would predict, disappears for general purpose governments, once the nested structure and the product and issuer heterogeneity of the municipal bond market are taken into account. Results imply that municipal forms of government benefit the most from the tax exemption, while special districts benefit the least. Chapter 3: Effect of the Secondary Market On the Primary Market. The primary market for state and local government borrowing receives great attention yet researchers as well as subnational debt-issuing governments tend to ignore the secondary municipal bond market. However, if the primary market rewards the performance of the issuer’s outstanding debt in the secondary market, then state and local governments are neglecting an important piece of the puzzle and the potential to reduce future borrowing costs. This study combines large proprietary databases of primary and secondary market information to test whether the performance of existing debt in the secondary market affects future cost of borrowing for state and local governments. Results show that fluctuations in the secondary market prices and yields impact future borrowing costs. Further, the effect of the secondary market varies significantly by issuer. Findings imply that the secondary market contains an additional layer of real-time quality information not captured by other lagged metrics such as credit ratings. Chapter 4: Secondary Market. The municipal bond market is full of peculiarities. One such puzzling fact is that some securities trade thousands of times in the secondary market while most do not trade at all. Studies have shown that these differences in trading frequency cannot simply be attributed to transaction costs - actively traded bonds are not necessarily less expensive to trade. Understanding what accounts for such distinct patterns of trading activity can inform investors and issuers about market demand and potentially improve government debt issuance outcomes and household portfolio allocation decisions. This paper examines the dispersion of trading activity of municipal securities in the secondary market using large databases of security- and transaction-level information. Results show that safer and high quality securities tend to be taken off the market quickly and most likely absorbed into the portfolios of buy-and-hold type investors. Further, the call complexity hypothesis reveals distinct trading patterns for different trade types (interdealer trades vs. retail customer trades) as the call date approaches. Finally, there is some evidence of speculative trading in the secondary market which further contributes to the wide dispersion in trading activity among various securities. Chapter 5: Conclusion. The first set of findings show that the effect of the municipal bond tax exemption policy are substantial. Smaller municipalities benefit the most from the ability to issue tax-exempt munis. Second, I find that the secondary market contains an additional layer of real-time quality information not captured by other lagged metrics such as credit ratings. This information contained in the secondary market performance of the issuer’s existing debt has a direct impact on future borrowing costs for state and local governments. Finally, hyper-trading in secondary market for municipal bonds is explained using several conceptual frameworks, such as portfolio absorption, speculative trading, and call complexity.
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ItemThe locational patterns and socioeconomic effects of the new markets tax credit and low income housing tax credit in distressed metropolitan census tracts(Georgia Institute of Technology, 2018-01-12) Henderson, Michael JosephThis dissertation investigates the role of two federal place-based programs, the New Markets Tax Credit (NMTC) and Low Income Housing Tax Credit (LIHTC), as tools for revitalizing distressed communities. The first empirical chapter organizes low-income, high-poverty metropolitan census tracts into a typology based on their demographic, class status, built environment, and location characteristics in 2000. Principal components analysis uncovered three prominent neighborhood dimensions: class status, urbanization, and black socioeconomic isolation. These dimensions were entered into a cluster analysis, which identified ten distinct types of poor metropolitan neighborhoods. NMTC investment, LIHTC investment, and socioeconomic ascent were highly correlated across neighborhood types. This finding supports an assumption made in previous studies that developers, who play an important role in determining where subsidized projects are located, are motivated to seek out areas primed to undergo socioeconomic ascent. The neighborhood dimension describing the degree of urbanization was only baseline variable consistently related to both sources of place-based investment and future socioeconomic ascent, suggesting that developer preferences are informed by observable urbanization-related factors. These findings were then applied to the development of a model for estimating the effects of place-based investment on a neighborhood’s socioeconomic trajectory. I use a variation of propensity score matching allowing for multiple treatment conditions to compare 2000 to 2010 changes in income, poverty, unemployment, and home values between census tracts that received different combinations of investment through (a) both NMTC and LIHTC, (b) NMTC alone, (c) LIHTC alone, and (d) neither program. Findings revealed that the addition of NMTC had a positive impact on socioeconomic trajectories, while adding LIHTC-subsidized housing into a census tract could have a positive, negligible, or negative impact, depending on the comparison condition. Overall, this dissertation contributes to a better understanding of why certain types of poor places may be more likely to benefit from these types of market-driven place-based initiatives than others, and introduces a more integrated and nuanced approach for evaluating programs that operate within shared geographic space to address different facets of neighborhood poverty.