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State Rules About the Use of Net Interest Cost and True Interest Cost for Calculating Municipal Bond Interest Rates

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  • Bill Simonsen
  • Mark D. Robbins
  • Bernard Jump

Abstract

This paper looks at the constitutions, statutes, and administrative rules for the 50 states and the District of Columbia to determine the legal framework in which Net Interest Cost (NIC) and True Interest Cost (TIC) are used. It also examines the prevalence of NIC and TIC use in serial bond sales by states and municipalities and reports on a set of interviews of issuers using NIC to discover their reasons for using this measure. It discusses the conceptual framework for control and regulation of the municipal bond industry, the reasons why TIC is theoretically and practically superior to NIC, the legal framework for interest rate calculations, the interview results, and the policy implications of this research.

Suggested Citation

  • Bill Simonsen & Mark D. Robbins & Bernard Jump, 2005. "State Rules About the Use of Net Interest Cost and True Interest Cost for Calculating Municipal Bond Interest Rates," Municipal Finance Journal, University of Chicago Press, vol. 26(1), pages 1-25.
    • Handle: RePEc:ucp:munifj:doi:10.1086/mfj26010001
    DOI: 10.1086/MFJ26010001
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