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10 Cards in this Set

  • Front
  • Back
In what way are municipal securities tax exempt?
no federal interest income tax, but there is capital gains tax
Why do municipalities issue long-term bonds?
1. long-term capital project such as the construction of schools, bridges, etc...
2. long-term budget deficits that arise from current operations
What are the two types of municipal security structures?
1. tax-backed debt
2. revenue bonds
What is tax-backed debt?
debt backed by issuer's ability to level taxes
general obligation debt-
unlimited- secured by issuer's unlimited taxing power
limited- statutory limit on how much issuer can tax to service the debt
What is a moral obligation/appropriation-backed obligation?
enhances creditworthiness of bond; must be legislative approval to appropriate bonds; not legally binding
What are public credit enhancement programs?
bond is legally enforceable; usually used for debt obligations of a state's school system
What are revenue bonds?
bonds usually issued for a public project; airport revenue bonds, college and university revenue bonds, hospital revenue bonds
What are the different types of tax-backed debt and revenue bonds called hybrids?
1. insured bonds- default is insured against
2. prerefunded bonds- municipality can put debt in US trust/escrow so they have little credit risk
3. asset-back bonds- backed by dedicated revenues: sales taxes, fees
Under what criteria are municipal bonds assessed?
1. debt structure + overall burden
2. issuer's ability and politcial discipline
3. tax collection rates; how big is the base
4. socioeconomic trends- real estate values?; population growth
Why are municipal securities largely exempt from SEC regulation:
1. create harmoney among all levels of government
2. no abuses in municipal securities
3. sophisticated institutional investors usually buy them
4. not many defaults