For the past three years, the volume of long-term debt issued in the municipal bond market has been up, up and up some more, to a peak of $383 billion last year--an all-time high.

This year it's down, down, down. In the first three quarters of 2004, long-term bond issuance was at $267 billion by September 30--some $30 billion less than the same time period last year.

Part of the growth in the past three years came from refunding--the refinancing of high-interest debt at lower rates. This year, the Federal Reserve's tightening of interest rates has been playing out in the muni bond market to the tune of a dip of 18.3 percent in refunding issuance for the first three quarters of this year.

But that's not all that's plunged. So has money raised for new projects. New-money issuance was 10.6 percent lower in the first three quarters of this year than the same period last year.

Putting the ups and downs in perspective, Patrick Born, finance director for Minneapolis and vice-chairman of the Government Finance Officers Association's debt committee, notes that "when you look back at the huge jumps in new-money volume in 2002 and 2003, it just looks very extraordinary." Some of that extraordinary activity was issuers, lured by the low-interest environment, accelerating issuance for new projects. And some of it can be traced to states and localities turning to the capital markets to help balance operating budgets or pension obligations.

The fact that volume has turned down is, in its way, a positive sign. "State and local revenues will not sustain borrowing at 2002 and 2003 levels," Born says, "You would expect it would return to a more sustainable level."