Separation in the Municipal Debt Market Following GASB 34

Governmental Accounting Standards Board Statement No. 34 (GASB 34), issued in 1999 with required implementation beginning in 2002, comprehensively and substantially changed the financial reporting model for state and local governments. Evidence reported in this study supports the notion that GASB 34 implementation created meaningful separation in the municipal debt market. High financial governments delayed, and low financial quality governments accelerated, new debt issuances in anticipation of GASB 34 implementation. Following GASB 34, high financial quality governments issued less insured debt and used greater debt relative to alternative financing sources (when compared with low financial quality governments). These results both support the efficacy of GASB 34 implementation and inform ongoing GASB deliberations regarding the financial reporting model for state and local governments.