Which financing method is commonly used by state and local governments to raise money for long-lived infrastructure assets?

Bond financing is a widely utilized method for state and local governments to raise funds for long-lived infrastructure assets, such as roads, bridges, schools, and public utilities. When governments issue bonds, they are essentially borrowing money from investors, who provide the capital upfront in exchange for periodic interest payments and the return of the principal amount upon maturity.

This method is particularly suitable for infrastructure projects that require significant upfront investment but will generate benefits over many years. Bonds allow governments to spread the cost of these projects over time, aligning the repayment with the expected future benefits that citizens will derive from the infrastructure. Additionally, bonds can be attractive to investors because they often come with various tax incentives, further enhancing their appeal.

In contrast, equity financing is typically more common in the private sector, where ownership stakes in a company are sold to investors. Debt financing is a broader term that encompasses all forms of borrowing, including bonds, but does not specifically indicate the method used for long-lived infrastructure. Venture capital is generally associated with funding startups or small businesses with high growth potential and is not a suitable approach for funding government infrastructure projects.