Financing Municipal Infrastructure with Seán McCarthy, CEO, Build America Mutual (BAM)

Seán McCarthy, CEO of Build America Mutual, works with cities, town and villages preparing to sell municipal bonds to finance their infrastructure plans for decades into the future, and it’s fair to say that every municipality in America will eventually enter the municipal bond market. However, for a lot of local leaders, the municipal bond market is not something they usually think about.

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Clarence Anthony, CEO & Executive Director, National League of Cities 0:07

Hello, everybody. Welcome back to Cityspeak. I'm your host, Clarence Anthony, CEO and Executive Director of the National League of Cities. Cityspeak gives listeners an insider's view of what local leadership in America means today and features conversations with government leaders and policy experts regarding the biggest issues and challenges facing America's cities, towns, and villages. And today we have a special guest who happens to be a really good friend of mine, and he is an amazing CEO of Build America Mutual, a firm that is really here to help city leaders to be able to ensure their municipal bonds so that they can get these projects done a lot quicker and more efficiently and on time. Joining me today on the pod is my friend Sean McCarthy, CEO of Build America Mutual. Good afternoon, Sean.

SPEAKER_02 1:20

Clarence, it's great to be here. Thank you for having me on uh this podcast.

Clarence Anthony, CEO & Executive Director, National League of Cities 1:24

Oh, it is great to have you on the podcast. And this is gonna be so easy, listeners, because Sean and I know each other for years. Uh I truly am an admirer of his leadership, uh, the way in which he has built built America Mutual. We're gonna just gonna call it BAM. Uh because BAM works with cities, towns, and villages preparing to sell municipal bonds to finance their infrastructure plans for decades into the future. And it's fair to say that every municipality in America will eventually enter the municipal bond market. However, for a lot of local leaders, the municipal bond market is not something they usually think about. And I can tell you that because as a former mayor, I ran for office to deal with crime. I ran for office to deal with infrastructure. But the issue of municipal bonds never came up in the campaign, Sean. So today we're going to have this conversation uh so that municipal leaders will know when they start talking about structuring uh municipal bonds, they will have some sense of what it means. But you know, the first thing I always ask my guests is about their why. Uh why do you do what you do and why have you built your career around municipal finance?

SPEAKER_02 2:56

You know, uh Clarence, it's a funny thing. I've been interested in municipal finance since I was in college. I I worked for my home state senator, Ed Muskie, in Washington, went to Georgetown University, and was very actively involved in really what was uh, you know, financing at a fundamental level of the great state of Maine. Um I started my career at E.F. Hutton, um, which uh no longer exists, but was one of the really forerunners of um uh public finance at the time. And public finance uh started out as um a branch of corporate finance, um serving municipalities and state and local governments um back in uh the 80s. Uh one of the things I have taken uh from this business, though, uh is really the joy that you can make a difference. When I'm driving down the road and I can point to a hospital or a road that I have helped finance, and I can turn around as my kids were sitting in the back of the car and say, you know what? We helped build that. You know, there's just something about that that was just um amazing. Although my youngest daughter, when I said that once, we were driving by the U.S. Tennis Center in Queens, and I said, we helped build that. And she looked at me and said, Dad, well then why don't we get tickets? I said, Well, that's not really part of it, but it's been a big uh it's been a core part of our uh business, and I think it gives you an opportunity uh to do uh good while doing well.

Clarence Anthony, CEO & Executive Director, National League of Cities 4:34

You know, it's interesting that uh oftentimes uh in your work you try to put a face on the outcome of what you do, and you use the word service a couple of times. Um how do you uh see your role and BAM uh as a service provider uh to cities?

SPEAKER_02 4:56

So, you know, it's interesting. You know, right in our uh corporate uh goals, we declare ourselves as our ultimate role is as a utility to serve the municipal cities, states, counties, towns, and villages that finance, but also to be a utility for them. So that we are here um to serve that market, the bankers that sell the bonds, the MAs that uh advise municipalities in in their role. But the key, I think, for BAM is to to lower the cost of funding and to help access the market, regardless of how small a municipality or a project is or how large it is. Oftentimes we are part and parcel of transactions that are multiple billion dollar uh transactions that are transformative.

Clarence Anthony, CEO & Executive Director, National League of Cities 5:48

I think that that is so important because one of the things that um, again, not understanding as a municipal official this market to hear you say it doesn't matter the size of the city, the potential to use uh municipal finance as a tool to achieve your goal uh for your residents and your community is there for all-sized cities. It's just not uh the New York cities. It's my hometown of 9,000 people um structuring a deal that it may cost me a lot more uh to pay that bond readiness costs, but it is in fact uh available for all cities.

SPEAKER_02 6:32

You know, you're exactly right, Clarence. You know, one of the things that people, you know, you owe uh uh fail to appreciate is the idea that uh state and local governments finance 85% of what you think of as infrastructure. So it's the roads, it's the schools, it's the hospitals, it's the town hall, it's uh it's really the financing backbone for state and local governments. And increasingly that responsibility falls on those localities and not the federal government. In fact, right after, and I would say the federal government did a great job of stepping up and providing funding when COVID hit and it was really unsure of where things were going, but that uh federal um sort of blanket around the entire uh municipal finance market has really dropped away. And so the responsibility for um putting these transactions together, repairing existing infrastructure, and bringing new infrastructure to market really falls on local government.

Clarence Anthony, CEO & Executive Director, National League of Cities 7:42

Yeah, and that's that's a very important point for our listeners. And you know, you think about the partnership uh with the National League of Cities. It started in 2012 as an enterprise partner, and um that endorsement of BAM was an important thing uh for the National League of Cities. Why did you think it was important uh to have that partnership between BAM and the National League of Cities?

SPEAKER_02 8:10

So, you know, it's a it's been integral, and uh, and of course, um Clarence, yourself has have been an active leader in uh in making this a reality. Now explain it this way Build America Mutual BAM is a different kind of company. Our stakeholders, the people who in essence own the company are the cities, towns, and villages that take our insurance. When you take our insurance, you become a member. Um we have 6,500 members now, and we have guaranteed $185 billion worth of transactions in 14 years. Um now that means that we have one thing in mind, one goal, which is to lower the cost of funds and to be the partner of the state and local governments that are taking our insurance. We are there until the last bond payment is made. And so that's a fundamental partnership that's different than partnering with uh you know a private corporation or even a public corporation. As a mutual insurance company, much like the goals for the NLC are they're paralleled in terms of making state and local government stronger, have access to the capital markets, that's our goal.

Clarence Anthony, CEO & Executive Director, National League of Cities 9:27

Yeah, and I do think that uh municipal leaders uh that are members of NLC and of the 19,000, I think they recognize who BAM is and and what you have done and uh look forward to utilizing um that coverage because it does make a difference to be able to understand this market. As we look at the last couple of years and look at the headlines around the market related to municipal bonds, 24 and 25 um was record year. Uh 26 is uh ahead of pace. What's going on with the bond market, municipal bond market, and why is it happening? And why is it important for municipal leaders to understand what's going on?

SPEAKER_02 10:15

So, you know, this comes back to the point that I made um a little bit earlier that uh uh the responsibility for uh raising funds and building essential infrastructure sits at the state and local government level. So if you compare what the growth of that market has been, in 2009, uh public construction was um about $314 billion. Compare that to last year, 2025, that same uh amount uh of commitment was $517 billion. So more than an 85% uh you know growth over that period of time, participation of state and local governments in order to make these projects a reality. So we see that continuing in 2026, where we're likely to have another record volume year. Now, that is because the demand for building these essential infrastructure and and repairing the ones that are already are there is fundamentally financed through the municipal bond market?

Clarence Anthony, CEO & Executive Director, National League of Cities 11:24

Now, um if we talk about uh the financing in the bond market and we look at what we hear in Washington, D.C. so much uh about the debt crisis facing the federal government, should city leaders be concerned that they could end up in the same position as the federal government?

SPEAKER_02 11:45

I think all good city leaders should constantly, you know, that putting your budget together is not a one-and-done affair. Um you really have to make sure that once you've approved your budget, you're you are looking and you're working with your team to make sure that uh you understand what where the revenues are coming in, whether it's property tax or income tax or special revenues that uh sales tax of certain kinds. So all of those things are the resources for you to uh uh come to the market. And so uh the issue really falls on good stewardship and leadership at the state and local level in order to identify the right projects and communicate with your taxpayers, with the the people in your community. I can't emphasize this enough. The people who are very successful at accessing the markets are great communicators of what their vision is in terms of how to they want to build schools, they want to make the roads better, uh, they want to have a better hospital. Those are the fundamental things that you know the the people in each community get behind, especially if they understand and appreciate what the what the goal is.

Clarence Anthony, CEO & Executive Director, National League of Cities 13:08

That leads me to a really important question because I think uh as we think about municipal leaders and you talked about that vision, what they're thinking about, whether it is uh a water system, a sewer system, um what should local leaders be thinking about when they are preparing their budgets every year or consider new capital plans uh and bond issues in terms of their vision and trying to achieve their goal, looking at their CAFRA, all of those things. Just talk generally. I'm gonna make so I'm gonna make you a mayor right now. I'm gonna turn you into a mayor right now and say, uh, Mayor McCarthy, what questions, how should I be thinking about achieving my goal?

SPEAKER_02 13:56

You know, I think that's a really good point. So there's two broad classes, I think, that you that uh uh as mayor you want to consider. Um the first is some projects require raising a tax to pay for the project. So um in those circumstances, part of what you need to do is educate um the community about why this is important and why they should vote for this particular tax. So that happens on a lot of particular projects. Uh, and sometimes the bigger projects have uh voter approval as uh part and parcel of what they're doing. The other part is really as a manager of the business, it's a little like, you know, um when you're sitting at your house, you say, Do I want to get a bigger house and get a mortgage? Or do I want to buy this car or that particular car? Um, you're the, you know, as mayors, you're the quarterback of the financial team. And and what you need to do is to say which things are important, which things can we afford, and where can we raise revenues or effectively spend the revenues we've got to maximize the benefit for the citizens? That's I think that's the fundamental part. And to do that, it's a it's a really unique mixture of uh short-term goals on operating uh expenses and revenues versus long-term goals for a project that you're trying to build, you know, whether it's a local convention center or it's a school. You know, all these things have a longer time frame in order to uh to get done. The interesting thing about what we do as an insurer is we're, you know, we're sort of like um your mom and dad when you graduated from college, you know. So, you know, you had a student loan and you could you didn't have a credit record on your own. Um, and so your parents co-signed that loan for you so you could uh pay for college. So your parents, just like us, we want you to be successful and uh and uh make enough money to pay off your student loan. But if you if you can't, the difference is we step up and we'll make that payment to the bondholders on a timely basis. And and our double A guarantee from standard and poor's makes a savings happen when you sell those bonds. So if you're gonna sell them at 4% on your own, on your own name as a as a single A rated uh uh state uh community, um as a double A community, you you'll save you know a half percent to a full percent. Um, and that is material in terms of you affordability for that particular project.

Clarence Anthony, CEO & Executive Director, National League of Cities 16:41

I think that's a very important note, the cost of repayment in in terms of uh you know being able to use insurance or not use insurance, or call us and let us help you think through whether you should have this uh uh bond issue assured.

SPEAKER_02 16:59

You know, and the other thing that's important to note is that you know there's a whole industry that's there to support. Not only does the National League of Cities have resources and and gives uh you know really constructive advice to their members, but also there are financial advisors, um, municipal advisors, um, and underwriters or uh or bankers that are going to ultimately sell the debt. And then they are available to small communities and to the largest communities in order to help you think through um what's the most effective way to achieve your goals in terms of what you're trying to finance. BAM is part of that, but uh the these other partners that you have available to you make up the whole community that enables you to come to market, get a transaction uh accomplished at the lowest cost possible.

Clarence Anthony, CEO & Executive Director, National League of Cities 17:54

And I'm glad you brought that up. That is uh a great industry, and they are available to you most of the time um just as advisors. Uh and uh some are hired just the FAs are just hired specifically uh to provide you advice. That's how years ago I got into the industry um and did not get the series seven. All I needed is series 63 to provide municipal advice. Uh, and it was an eye-opening experience because what it gave me to uh an opportunity to do as a public servant was to help municipal leaders to achieve their goals and come go to market and go in a safe and effective way so that they could be able to move their community forward uh with the mortgage, if you will, uh, or a car payment that they could afford. That's right. Yeah. So um that's a really good way of explaining that, and I really appreciate. I mean, we you and I talked about, you know, the vision, but one of the things um sometimes we are struggling with outside factors that we don't control in the economy. Um from your perspective, what are some of the fiscal uh issues you've been watching from the outside that can impact the market and impact the city's um desire to go into the market with the project?

SPEAKER_02 19:28

You know, these are these are issues that uh, you know, affect uh both large and small communities. And I'll give you a couple of examples. Um right now, healthcare uh and uh what the reimbursement of healthcare is for hospitals is changing pretty dramatically. And if you have a hospital in your community, uh making sure you understand what is going how these changes in reimbursement are going to affect you is fundamental. Um we talked about this a little bit before, but you know, the federal government's support, they're basically saying, look, we're a little short on money. Um you guys are on your own in terms of trying to uh uh you know manage a lot of your essential infrastructure. Well, you know, nobody's better at that, really, uh, than state and local governments. But the issues that you have to keep in mind in terms of where are we going to raise our revenues and how are we gonna effectively identify a project, get it financed at the lowest cost uh possible, and to maximize that benefit for the community. Those are all things that are change going, you know, as as the federal government relationship to state and local governments shifts. Another example of that is pension funds. You know, how much um pension, uh what your pension obligation is, and how that affects your ability to do other things and have financial flexibility is an issue that we look at in terms of credit worthiness and stability of a particular community. So these are there's a lot of different factors, but more and more these factors are coming back to the state and local government, and the reliance on the federal government for support for these issues is um, I would say, unpredictable.

Clarence Anthony, CEO & Executive Director, National League of Cities 21:27

For sure. And I think that's important uh because most of our leaders, well, I say all of our city leaders uh believe in having the ability to make local decisions. Um, you know, to see the partner there as the federal government, but they have to be able to use a tool such as uh municipal finance to achieve their goals and not always rely on the federal government to provide that support. Let me ask you one other thing. I think it's important. I hear what you're saying. If I was a mayor Or council members sitting out there, they rarely uh go into the municipal market uh or they're new to their positions. When they start this process, what should they expect uh from the FA to the underwriter to the bond insurance companies? What should they expect?

SPEAKER_02 22:23

We're usually a little later to the game. So my advice uh is to take advantage of the uh municipal bond community. You know, seek their advice and support before you even decide to go forward with your bond issues. So one of the things that uh I think is fundamental is to find an MA, a financial advisor that you're comfortable with, or a or a banker that that specializes in municipal finance, because you know the rules are very particular, and you want to also find a lawyer, uh, a bond lawyer. So if you think about it, one every bond issue has to have a bond council. And and that bond council is your advisor in terms of how to structure the transaction. The the financial advisor will help you say, this is what your financial position is. I will help you go to Standard Emporisan Moody's, the rating agencies, to achieve a rating, which will be part of the fundamental part of getting your transaction to market. So you've got a lot of people that are on your side, and quite frankly, I think they're some of the best values in the business in terms of they're charging to help you get that done, in my view, very reasonable, very pretty low cost rates. And so you, by asking other mayors or other uh people who have come to market, say, what was your experience like? Who did you work with? Did you like them? Are you comfortable with them? In each state, there'll be specialized bond councils that you should, you know, visit with a couple of them and make sure that you've got somebody who you're comfortable with getting advice from in order to uh bring your transaction to market.

Clarence Anthony, CEO & Executive Director, National League of Cities 24:11

And then the big question um, when should local leaders think about bringing uh and working with BAM?

SPEAKER_02 24:18

So BAM, you know, so here's the here's the life cycle of a transaction. You decide you want to build a new school. Um, and so you're gonna hire uh, you know, an advisor to sort of figure out where how to structure the revenue stream, how big a school should you build? Do you need one or two football fields? You know, there's a whole issue of that aspect of it. You'll then interview underwriters. So those are you know the Merrill Bam all, Merrill Lynch of the world, or Morgan Stanley or Stiefle, who who will ultimately serve to not only give you financial advice, but also to bring your deal to market. And at that point, and also to help you walk through the rating agency process, which I spoke about before, at that point when you've decided here's our transaction, here's basically what it looks like, now we'll talk to bond insurers. Now, our role is to lower your cost of funding. So once you've established what you know your credit picture looks like and how you know what your transaction is, uh, and for us, no tr no worthy transaction is too small or too large. We um we work on a wide uh variety of transactions, and you know, this in many ways, the smaller transactions are just as tough as the as the bigger ones because uh just of the inertia. Um and they all have the same complexity. So so having a team like that in in places uh is appropriate. Now, nobody uses bond insurance without saving money. That's this so know that if we're gonna guarantee your transaction, we're gonna lower the cost of debt. Now remember, um municipal finance has the advantage of, for the vast majority of transactions, being tax exempt to start with. That means you're gonna start with a lower tax, uh a lower payment that you have to make than if you had to go to the corporate market. Um that's a dramatic thing. And that's why the people who buy tax-exempt bonds are a specialized group of people. So they're they're they're uh ultimately investors like Newveen or Fidelity Um or New York Life or all kinds of people that when you look to buy a fund that's tax advantaged, that is composed of a bunch of municipal bonds. And so uh that's where those bonds will end up getting sold. Um and that is at a lower, more tax-effective rate for the investor and the lower cost that the federal government lets state and local governments appreciate, that's the real big help that they're bringing to the table, is to lower your cost of funding. And BAM, by guaranteeing your debt, lowers it even more.

Clarence Anthony, CEO & Executive Director, National League of Cities 27:11

So, Mayor McCarthy, I've got one last question to ask you. Now that you've heard this pod and you've been educated uh about uh the municipal bond market and Build America Mutual BAM, what's your next step in your city? What are you now gonna, how are you gonna use this information?

SPEAKER_02 27:34

So I, you know, as the mayor, I want to prioritize what projects are important to my community. So I'm gonna say, do we need to build a new town hall? Do we need better roads? Do we need clean water treatment? Do we need which project? What do we need more power? Which things do I need to deliver to my community that they need the most? And once you decide that, then you decide which project, then you prioritize those projects, and then you seek to uh put together a financial equation. But it starts with two things, as I said before. Mayors should tell their story. I'm, you know, if you're the mayor, you have to have goals. What am I doing to make my community better, bigger, and stronger? And and financing essential infrastructure is a key part of that.

Clarence Anthony, CEO & Executive Director, National League of Cities 28:33

And it's also uh the beginning of job creation, opportunities for businesses. I mean, there's so many um splinters that come out of this vision that one has when they identify a project, and then they have this vision about the project. The next question is how am I going to finance uh this project?

SPEAKER_02 28:54

Right.

Clarence Anthony, CEO & Executive Director, National League of Cities 28:55

And there's so many other, there's so many options that municipal leaders can look at, but clearly to get it moving, um, municipal bonding is a real good tool uh to do that.

SPEAKER_02 29:08

And it it helps me, the mayor, achieve the goals that I'm trying to serve for my community. And the one thing about BAM that's really important is we're your partner until the last bond issue. So you're gonna issue bonds that maybe is have a final maturity of 30 years. Now, the reason why they're usually long-dated like that is because that matches up with the depreciable life of the asset that you're financing. So whether, you know, a brick and mortar building that's gonna amortize over a long period of time, have value to the community for a longer period of time. And so if you think about that, we're there, you'll go through good times and bad times over 30 years. And our job is to be your partner through thick and thin until the last bond issue is paid off.

Clarence Anthony, CEO & Executive Director, National League of Cities 29:56

And that's the answer to our question. Um, when should you call BAM and why should you call BAM? Build America Mutual is a great partner of the National League of Cities. Um, but Sean McCarthy is a good friend of mine, and I appreciate all the information and education I get about uh the municipal bond market, and he is so committed, and so is his team. And um again, um I hope that all of the listeners, especially our municipal officials, include our town managers, our finance directors, and the entire utility team understand that municipal bond sales and the process is important. Who you partner with is more important. And finally, finding you a partner like BAM that can ensure uh your um bond, uh municipal bond uh financing is key to a successful um process.

SPEAKER_02 31:01

And and I just want to finally say that, you know, um we have been partners with the National League of Cities um for 14 years, and it matters. Um what the National League of Cities is doing, and Clarence's leadership in terms of making sure these issues are at the forefront and that we're here to help. Clarence's role during COVID uh was incredible. Um and what in the fight that happens between in making sure that there's funds available for municipalities, state, and the local from the federal government, that's an that's an endless fight. Um and I think uh you know our role and the NLC's role are well suited, and I can't be prouder than to be part of the overall um you know uh infrastructure that uh and and the partnership that comes from being um a family member of the NLC.

Clarence Anthony, CEO & Executive Director, National League of Cities 32:02

Well, listeners, I'm so honored to have again on uh Cityspeak uh Sean McCarthy, CEO of Build America Mutual. Thank you so much, Sean, and we appreciate your leadership.

SPEAKER_02 32:16

It's a pleasure. I really enjoyed this. And anybody who needs our help and advice, you know, just pick up the phone.

Clarence Anthony, CEO & Executive Director, National League of Cities 32:24

Thank you.

NLC 32:31

Thanks for listening to City Speak with Clarence Anthony. If you like the show, let us know. Share this episode with your friends, and make sure to subscribe. We're curious to hear what you think, what you want more of, and how we can improve. If you have feedback or an idea for a guest you'd like Clarence to sit down with, send us your thoughts at CityspeakPodcast at nlc.org. Join us next month for a new episode. Like and subscribe here or wherever you get your podcast. See you next time.