Municipal Bond Forum
States and localities are no strangers to issuing taxable debt
Q
I would like to see a substantive forum discussion on the possibility of states and municipalities issuing new debt under taxable status.
A
James A. Klotz responds:
States and localities already issue taxable debt, and are no strangers to such issuance. Under the recently ended “Build America Bonds” program, billions were issued for public purposes specified in the federal stimulus program. In addition, governmental entities have issued taxable debt over the years for a variety of purposes including, public pension liabilities, economic development projects, stadiums, and other similar uses.
From a credit perspective, taxable municipal bonds are secured and analyzed just like their tax exempt brethren. The strength of pledged security, reserve funds, and the issuer’s financial profile all are examined to determine ability to pay.
Finally, the purchasers of such bonds usually differ from tax exempt bonds. Taxable munis are strong candidates for tax deferred retirement accounts while tax exempt bonds are viewed more as a method to earn steady returns while lessening the investor’s tax burden.
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