The United States needs to increase its financing of green infrastructure to achieve a low-carbon future. Existing instruments, including the green municipal bond, have been growing quickly but need additional action to further scale up issuances. Multi-state tax reciprocity (MSTR) is a viable solution to boost the U.S. green municipal bond market. MSTR is an agreement between states that allows out-of-state green municipal bond investors to enjoy tax exemption if they buy green bonds issued in another state.

To examine MSTR, the Capstone team built a comprehensive cost-benefit analysis (CBA) model by interviewing 25 experts, surveying 14 people central to the matter, and conducting extensive market and industry research. The analysis revealed numerous risks for MSTR, the most important being politics and time constraints, which led us to also consider alternatives and complementary approaches.

Despite the risks, the CBA model indicated that the MSTR would generate hundreds of millions of dollars in value for participating states and create more than $3 for every $1 spent over a 20- year horizon. The program would also increase the overall size of the green municipal bond market by nearly 20-fold by 2037, where it would represent about 25 percent of all municipal issuances for California, New York, and participating small states. Finally, the Capstone team developed a four-phase implementation plan for MSTR, which their experts believed could be in place within the next five years.