municipal bond

Municipal Bond

A debt security issued by a state, municipality, or county, in order to finance its capital expenditures. Municipal bonds are exempt from federal taxes and from most state and local taxes, especially if you live in the state the bond is issued.

Notes:

Such expenditures might include the construction of highways, bridges, or schools. "Munis" are bought for their favorable tax implications, and are popular with people in high income tax brackets.

See also: Bond, Mello Roo's, MOB Spread, Municipal Bond Fund, Overlapping Debt, Private Purpose Bond, Take Or Pay, Whoops

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Municipal bond

State or local governments offer muni bonds or municipals, as they are called, to pay for special projects such as highways or sewers. The interest that investors receive is exempt from some income taxes.

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municipal bond

The debt issue of a city, county, state, or other political entity. Interest paid by most municipal bonds is exempt from federal income taxes and often from state and local taxes as well. The tax exemption stems from the use to which the funds from a bond issue have been devoted. Municipal bonds with tax-exempt interest appeal mainly to investors with significant amounts of other taxable income. Also called muni, municipal, tax-exempt bond. See also Bond Buyer's Index, ex-legal, 501(c)(3) bond, general obligation bond (GO), revenue bond, taxable municipal bond.

Case Study Municipal debt, like corporate debt, ranges in credit quality from investment-grade to very speculative. On November 9, 2001, bond trustee State Street Bank and Trust informed holders of $9.7 million of bonds issued by Marineland Foundation, a nonprofit corporation established by the city of Marineland, Florida, that they would receive $245 for each $1,000 of principal amount. Unfortunately for bondholders the debt was being repaid at slightly less than 25¢ on the dollar. The unrated Marineland bonds had been issued at yields of 8.5% in 1995 to institutional investors and remarketed in 1996 to individuals. Funds raised from the bond issue were used to purchase one of Florida's oldest tourist attractions. Opened south of St. Augustine, Florida, in 1937 as an underwater movie studio, Marineland opened to the public with dolphin and sea lion shows one year later. Attendance suffered beginning in the 1970s following the opening of Disney World, Sea World, Universal Studios, Circus World, and a host of other bigtime Florida attractions. Revenues at the refurbished oceanside aquarium proved too small to cover variable and fixed expenses, including interest on the debt. Marineland had been sold yet again at the time the agreement was reached with bondholders. The new owners intended to promote the attraction as a research resort where visitors could scuba-dive, hike, and learn about marine life.