A municipal bond is an intermediate- to long-term bond issued by any local government authority other than the national government, such as a city, county and state government and its agencies, as well as by enterprises with a public purpose, such as universities and public transit systems. As used in this context, “municipal” means not only a political subdivision of a state where a municipal corporation (urban unit of local government) has been established, it includes the state government itself.
A municipal note is a short-term obligation issued by a local or state governments to raise capital for improvements in infrastructure or other public purpose, commonly with a maturity from three months to three years, usually payable from a defined source of anticipated revenues. They include TANs (tax anticipation notes), BANs (bond anticipation notes), RANs (revenue anticipation notes) and GANs (grant anticipation notes). Interest and principal payments are made from the source or sources in anticipation of which they were issued or from any money otherwise legally available for the purpose.
Also called tax exempts, the interest income paid on qualifying US municipal bonds and notes is exempt from US federal taxation (the doctrine of mutual reciprocity), which is their chief attraction – by contrast, all Treasury securities are subject to federal taxation. With few exceptions, municipals are also exempt from state and local taxes in the state of issuance.
| How Financial Advisors Assist Issuers of Municipal Debt |
| 1. Choosing between the various debt instruments available |
| 2. Deciding between a competitive vs. a negotiated sale |
| 3. Communicating information to bond rating agencies |
| 4. Analyzing the debt service impacts of various repayment schedules |
| 5. Determining the short- and long-term costs of purchasing bond insurance. |
| Source: Massachusetts Department of Revenue |