Issued by states, cities, town, counties, and their agencies, municipal bonds (usually referred to as munis or tax-exempts) are free of federal tax and often from state and local tax in their state of issuance. A new municipal issue subject to federal tax was created by the Tax Reform Act of 1986. Like corporate issues, municipal bonds are categorized by the form of collateral used to back them and to raise their revenue.
General Obligation Bonds (GO Bonds)
GO Bonds represent the largest group of municipal issues. Paid back by general revenues -- secured by the government's tax revenue and its ability to impose new taxes -- these bonds are only slightly less secure than similar government issues. By law, the government is required to levy taxes in order to pay its bondholders.
Revenue Bonds
Used in the development of toll roads, bridges, or tunnels, or any revenue-producing projects, these bonds are paid off by the revenues generated from the specific development. They typically offer a higher rate of interest than GO Bonds, as payment is more narrowly backed.
Industrial Development Bonds
These specific bonds are issued by state and local governments to fund the construction of new industrial parks or plants, or any development that might attract businesses and increase leasing revenue for the state. The financial strength of the private businesses involved in the project generally determines the quality of the bond. Most are now taxable under the Tax Reform Act of 1986.
Redevelopment Agency Bonds
Used for the construction of commercial projects, these bonds are secured by part of the property taxes levied on the development.
Airport Bonds
One type of airport bond is used toward, and secured by, general operations and usage. Another riskier bond is tied specifically to facilities leased by individual airlines and is secured by the leasing contract itself.
Bond ratings are listed in Moody's Bond Record and Standard & Poor's Bond Guide. Weekly newsletters, Moody's Bond Survey, and CreditWeek (a publication of Standard & Poor's) offer more detailed information on select issues.
Since newspapers and financial journals do not carry complete information on municipal bonds, current prices, and trading data, investors must turn to specific bond publications to track these issues. The bible of bond issuance, pricing, and trading is the annual publication Moody's Municipal & Government Manual. Organized by state, city, town, and political subdivision, the compendium lists all bond issues (including, as well, information on federal agency issues) and offers information critical to bond buyers, from state tax revenues and census figures to statistics on attendance at local schools. Updates to Moody's Municipal are published in a semi-weekly newsletter that lists new and changed issues as well as call notices.
For further information, consult:
The Blue List
Standard & Poor's
65 Broadway
New York, NY 10004
(212) 770-4300
The Daily Bond Buyer
1 State Street Plaza
New York, NY 10004
(212) 303-8200
Bond Week
488 Madison Avenue
New York, NY 10002
(212) 303-3300
Moody's Municipal & Government Manual
99 Church Street
New York, NY 10007
(800) 342-5647, extension 0546
Another top reference source is Moody's Industrial Manual from Moody's Investor's Service (800-342-5647, ext. 0546). Moody's annual bound volume of its twice-weekly publication covers U.S., Canadian, and foreign companies listed on U.S. exchanges. The listings include corporate history, subsidiaries, principal facilities, products, and financial data.