COLLEGE PARK, Md., July 6, 2026 /PRNewswire/ — A new paper from the University of Maryland’s Robert H. Smith School of Business argues that America’s infrastructure shortfall—estimated at $3.7 trillion over the next decade—is not primarily a funding problem, but a structural design problem.
In “Rethinking Municipal Financing: A Hybrid Institutional Capital Model for Local Infrastructure Development,” Smith MBA (finance) candidate Anton Steshenko proposes a new funding framework that could channel pension fund and insurance sector capital into local infrastructure at scale.
“The challenge is not the absence of capital, but the absence of institutional architecture capable of deploying it at scale,” writes Steshenko. Despite roughly $60 trillion in U.S. pension fund assets, most local governments—especially small and mid-sized jurisdictions—cannot access this capital because their projects are too small, too fragmented, or too risky under current structures.
Hybrid Model to Bridge the Gap
Steshenko introduces the Hybrid Institutional Capital Model (HICM), a layered financing framework that blends public credit enhancement with private institutional investment.
The model integrates four components:
- Project aggregation through local or regional intermediaries (such as green banks) to overcome the “deal-size gap” that keeps institutional investors out of small projects.
- Public first-loss capital—often 10–20% of project value—to de-risk senior tranches.
- Structured risk allocation across equity, mezzanine, and senior debt layers aligned with investor mandates.
- Institutional capital participation through standardized, investment-grade vehicles.
Steshenko notes that “public capital deployed as credit enhancement produces materially higher leverage than public capital deployed as direct lending,” citing evidence from blended-finance facilities and U.S. green banks.
Green Banks as the Missing Link
One of Steshenko’s key findings is that the United States lacks the intermediary institutions needed to translate local project pipelines into investable products. He points to the success of the Connecticut Green Bank, which has achieved a 6.7:1 leverage ratio on $463 million in public capital, and the Rockville, Maryland-based Montgomery County Green Bank (MCGB), the first county-level green bank in the nation.
Steshenko says these institutions demonstrate that relatively small amounts of public capital can unlock large volumes of private investment. “MCGB provides a partial loan guarantee—covering 20% of principal—to a participating commercial lender… The result: $2 million in private capital deployed for $200,000 in MCGB capital, a 10:1 leverage ratio.”
Such viability, he adds, is reinforced internationally, including by the UK Green Investment Bank, Germany’s KfW and Australia’s Clean Energy Finance Corporation.
Steshenko’s paper outlines a practical implementation roadmap for local governments, emphasizing:
- Intermediary creation (municipal, regional or state-partnered green banks)
- Integration with federal programs such as the Transportation Infrastructure Finance and Innovation Act, the Water Infrastructure Finance and Innovation Act, and the $27 billion Greenhouse Gas Reduction Fund
- Portfolio-level credit ratings to meet pension-fund requirements
- Long-term governance independence to maintain investor confidence
Steshenko argues that his HICM can make $5-50 million projects—the vast majority of local infrastructure needs—investable for institutional capital for the first time.
Steshenko says his paper is especially timely, given that legislation such as the Inflation Reduction Act and Infrastructure Investment and Jobs Act has injected historic levels of funding but still covers less than half of the national need. Without new financial architecture, he adds, local governments will continue to face widening gaps in transportation, water systems, clean energy and climate resilience.
Nima Farshchi, Smith’s executive director of the Office of Experiential Learning and director of the Center for Social Value Creation, says Steshenko’s work “surfaces a critical insight: the barrier to modernizing America’s infrastructure isn’t a lack of capital, but a lack of design. The Hybrid Institutional Capital Model, he says, “shows how thoughtful financial architecture can translate community-level projects into investable opportunities for institutional partners. This is exactly the kind of evidence-based, socially meaningful innovation we aim to cultivate at Smith—research that gives local governments practical tools to unlock scale, resilience, and long-term value.”
The HICM offers a scalable, evidence-based model that does not require new federal legislation—only new institutional design, Steshenko adds. “The infrastructure financing gap is large. But it is not inevitable. The Hybrid Institutional Capital Model provides a design for that architecture.”
Read the paper, “Rethinking Municipal Financing: A Hybrid Institutional Capital Model for Local Infrastructure Development,” at SSRN.
About the University of Maryland’s Robert H. Smith School of Business
The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and flex MBA, executive MBA, online MBA, business master’s, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.
Contact: Greg Muraski, gmuraski@umd.edu
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SOURCE University of Maryland’s Robert H. Smith School of Business
