Sunday, June 24, 2007

Municipal Bond Investors: No Smooth Sailing Ahead

A number of issues face municipal bond investors this year. Historically, muni bond investors were content collecting the tax free income a portfolio of municipal bonds generated. This year a number of events could impact the value of muni's, events beyond movement in interest rates.
  • Last month Standard & Poor's lowered Michigan's credit rating. The state's difficulties are directly related to Detroit's automobile struggles. These type of state issues could become more prevalent. Florida is an example where the states real estate and property tax woes could have a ripple affect on municipal budgets.
  • The Governmental Accounting Standards Board requires municipalities to calculate the amount owed to retirees in "other" post-employment benefits. However, in the state of Texas, the legislature has passed a bill that allows the state and municipalities to not follow this regulation. The bill has been sent to the Texas governor for signature. Even if the Governor does not sign the bill, the GASB regulation could have an impact on municipal credit ratings.
  • The last significant issue for municipal bond investors will be the Supreme Court's decision on the Kentucky vs. Davis case to be heard in the session that begins in October. At issue is whether states have a right to tax the municipal bond interest on out of state municipal bonds. Recent posts detailing some issue surrounding this case can be found below:
Smooth Ride Is Ending For Municipal Bond Investors
By: Joe Mysak
May 30, 2007

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