Tax Free Municipal Bonds

Investing in Municipal Bonds offers individuals federal tax free interest. Muni Bonds are exempt from federal taxation. They are subject to state and local tax. Investors purchasing bonds in their own state are normally triple tax free (Federal, State, Local)

Issuers

The issuers of Municipal Securities are State and local governments or authorities. State issues are usually larger and will use either Tax and/or Revenue to support it. Most local issues, including school district bonds will use property tax as their main source of securing and paying the investors back.

Key Types of Municipal Debt

General Obligation (GO): These bonds are backed by the taxing power of the issuer. A city that is looking to raise 10 million dollars on a bond issue and secure it by raising or creating taxes, would issue a General Obligation Bond. These bonds must be issued on a competitive basis, where broker dealers will compete for the right to be the offering broker(s). The lowest interest cost to the municipality would win.

Revenue Bonds: These Municipal issues are backed by an issuers ability to generate revenue instead of taxation. Examples of revenue bonds would include:

• Transportation Bonds - Bridges, Tolls, Airports, etc. These bonds will use toll fees or other usage levies.
• Utility Bonds - Public utilities can raise energy use charges to secure the interest and principal payments.
• Hospital and Health Care Bonds - Hospital and other care patient fees can secure these issues.