Unit 3 - Municipal Securities

Question 1

What allows for municipal interest payments to not be taxed by the Fed?

Answer 1

“Doctrine of Reciprocal Immunity - established by Supreme Court decision in 1895”

Question 2

What three entities are legally entitled to issue munis?

Answer 2

State gov’ts, territorial possessions of US (eg. Virgin Islands), legally constituted taxing authorities (eg. mass transit systems)

Question 3

what are the two types of municipal issues?

Answer 3

General obligation (GO) and revenue bonds

Question 4

Define GO Bonds (general obligation)

Answer 4

munis “issued for capital improvements that benefit the entire community.” Called “full faith” b/c interest paid by taxes collected by issuer

Question 5

What are the sources of funds for GOs back by states

Answer 5

income taxes, license fees, sales taxes

Question 6

What are the sources of funds for GOs back by towns/cities/countries

Answer 6

backed by property (ad valorem) taxes, license fees, fines, etc.