One Sunday morning in March 1949, a group of nearly 300 people, clutching deck chairs and sleeping bags, lined up to buy new homes in what had, until recently, been a stretch of potato fields in central Long Island. They hoped to move to “fabulous Levittown,” as its developer, William J. Levitt, had branded his creation: more than 17,000 gleaming houses in an all-white community with freshly dug wells and newly paved roads. But that was the extent of the neighborhood—Levitt’s profits were in home sales, not city planning. In fact, his namesake had hardly any public infrastructure, and Levittown’s new political leaders needed to come up with money for maintenance, trash, and schools. So they took a gamble and decided to enter the municipal-bond market.Selling bonds—essentially issuing buyers an IOU, plus interest—is a quick way for a government to raise funds. You, or someone you know, probably own a U.S. Treasury bond. But institutional investors—a mix of insurance companies, mutual funds, and private-equity firms—buy bonds too, including from local governments and school districts. Cities get money up front, and buyers are assured that they’ll turn a profit; this win-win proposition made many postwar suburbs take the plunge into the bond market. Throughout the 1950s, as private developers rapidly constructed new suburbs, school districts in Nassau County, where Levittown is located, increased their debt load by sixfold to meet the needs of their new residents. The problem was: Not every town and city was treated the same. Credit-rating agencies saw richer locales as very likely to repay their debts and gave them sweet deals on interest rates, which meant that these towns owed less to those who’d bought their bonds. The poorer places got shortchanged.Municipal debt is a secret American pastime, defining—and dividing—suburbs across the United States. In his new book, Cracked Foundations: Debt and Inequality in Suburban America, the urban historian Michael Glass looks behind the marketing that attracted flocks of Americans to places like Levittown and uses debt as a lens through which to understand suburban disparities. The U.S. is one of the only countries in the world where municipalities raise money primarily through bonds, and their differential treatment on the private market has quietly driven inequality across the nation. Saddled with higher interest rates on their bonds, people in poor cities and towns today pay double the amount in property taxes, often suffer higher home-foreclosure rates, and wield paltrier education budgets compared with their wealthier counterparts. Major cities face the consequences of municipal bonds, too—Chicago famously leased its parking meters to investors in order to pay off its debts—but they employ teams of bond experts to negotiate the best terms. Small cities and towns, whose bond coordinator is often a single financial manager juggling dozens of other tasks, can do less to protect themselves from high interest rates.[Read: Liberal suburbs have their own border wall]America’s cities have been taking on debt for more than 200 years. New York City issued one of the first municipal bonds in 1817 in order to bankroll the construction of the Erie Canal. Soon after, selling bonds became a popular way for new cities to attract railroads: They would offer to subsidize the cost of building a new train stop, but they needed cash to do it. By the 1950s, as Glass shows, neglectful developers left new suburbs with little choice but to fund their expansion via the bond market. Cities have only become more reliant on that debt since—especially after President Richard Nixon slashed federal aid to cities in the early 1970s. Although municipalities in other countries can borrow from their national government—Canada regularly provides localized loans to stimulate housing construction—American cities and towns usually don’t have that luxury. Instead, they have found themselves playacting as entrepreneurs, courting private investment to fund basic services.Over the course of a 30-year term, Glass estimates, the fees and interest on bonds add 30 to 60 percent in costs beyond the original borrowed amount. Every town pays extra, but some pay more than others. The math is both simple and opaque. Whenever a local government offers a bond for sale, the three major credit-rating agencies—Moody’s, S&P, and Fitch—assess the government’s likelihood of repayment. A municipality that seems certain to repay gets a high score; one with shakier prospects gets a weaker score. Investors then set interest rates based on these assessments. Think of the grade as a credit score for your city: The worse it is, the higher your interest rate, and the more you end up paying for pretty much everything.Credit-rating agencies claim that they measure objective conditions, but they base their grades on factors—including median household income, tax revenue, and homeownership rates—that reward already-wealthy communities, and can create disparities based on the demographics of their residents. The UCLA professor Justin McBride, for example, recently sampled the credit ratings of small cities and towns across California, and concluded that the larger the white population was in a municipality, the better the credit rating that municipality received. Back in 1949, when Levittown first issued municipal bonds to fund its school system, Moody’s analysts dismissed it as an “unseasoned residential area” with “an element of insecurity,” Glass writes. Moody’s assigned Levittown a “Baa” rating, which meant that the city was a “lower-medium grade” risk that warranted a 2.7 percent interest rate.Meanwhile, Glass goes on to show, Moody’s assigned nearby Great Neck, a wealthy enclave and the site of a major manufacturing plant, an A rating, resulting in an interest rate of 2.3 percent. Nearly a decade later, when Levittown officials issued bonds yet again, Moody’s warned investors that the city was a “hazardous investment environment,” and Levittown bonds were purchased at 4.3 percent. A few months later, Great Neck once again got a better deal—bonds at 3.5 percent. These minor rate differences continued to grow over time. On, say, a 10-year, $5 million bond, Levittown might theoretically end up paying close to $600,000 more to its creditors than Great Neck would.Levittowners weren’t naive. School officials wrote to the state of New York to request public aid for construction, Glass discovered in the state’s education-department archives, but they received little support, which pushed them toward selling bonds to private buyers. By 1957, Levittown was spending 16 percent of its annual school budget on debt service, more than the salaries of all of its junior-high and high-school teachers combined. As Glass writes, “With each bond issue, Levittown and Great Neck grew further apart.”[Read: What the suburb haters don’t understand]In Long Island, Levittown—a mostly white, middle-class area—was far from the worst off. In 1976, the majority-Black hamlet of Roosevelt issued bonds to fund its schools. Roosevelt agreed to pay 11.25 percent in annual interest at a time when the median interest on other bonds was less than 7 percent. The money was a lifeline in the short term and devastating over time. To meet its debt payments, Roosevelt expected to raise its property taxes by 10 percent over the following decade. Many residents were forced to move out. Others, unable to pay, defaulted on their home. By 1980, people in Roosevelt were paying 11 percent more in property taxes than their neighbors in Great Neck were, even though Great Neck had four times more wealth. Persistent debt has only widened this gap in the decades since. Today, Glass notes, Great Neck has eight times more wealth than Roosevelt has, yet its residents pay 51 percent less in property taxes.Debt is still quietly shaping the fortunes of small cities and towns across America. Public schools in particular have become so reliant on bond sales to fund salaries and services that overall school debt more than doubled from 2002 to 2019, rising to $500 billion. These bonds can take decades for a district to pay off: In one extreme case, a California school district ponied up $34.3 million in lifetime payments on a $16.7 million bond that it had taken out in 2005—more than double the amount it originally borrowed.Disproportionately high property taxes are one telltale sign of a city trapped in a cycle of municipal debt, and so are weak public services—underfunded schools, underpaid teachers, aging recreation centers, sewer systems in need of an upgrade. Even overpolicing is downstream of these bonds. Consider, for instance, Ferguson, Missouri, which took on millions of dollars in debt in the 1960s and ’70s to fund new infrastructure projects. Those payments proved incapacitating, and within a few decades, many of Ferguson’s white citizens had fled, leaving a cohort of newly arrived Black residents to foot the bill. The city soon relied on a new revenue stream—aggressive ticketing, which so disproportionately affected Black residents that the Department of Justice investigated and, in 2015, found the practice discriminatory.[Read: The suburbs have become a Ponzi scheme]This bond debt is part of an American tradition of leaving public-service funding to private actors—and has become a primary vehicle of suburban inequality. In Disillusioned, published last year, the journalist Benjamin Herold tracks how the school district in his middle-class Pennsylvania suburb of Penn Hills ended up $172 million in debt, leading to mass furloughs, service reductions, and, inevitably, higher property taxes. Although Herold blames, in part, the “magical thinking” of the school board that approved the huge bonds in the first place, these administrators had only so many choices: Private debt has become an unavoidable part of local governance. As a solution, some advocates have suggested that the Federal Reserve lend money to school districts and municipalities at no interest (the Fed has, in the past, said it doesn’t have the authority to do this). But until other options become available, poor cities and towns will just end up further and further behind, making bets they can never win.