Do Municipal Bonds Provide Enough Disclosure Information for Investors?

Many analysts and investor watch dog groups are saying that municipal bond issuers are not providing enough information to their investors. Issuers are only required to file an annual report but in today's market, a bond rating or the material condition of the municipality could change in months.

Bloomberg writes in an article on municpal bonds:

Annual financial reports don't provide information quickly enough, said the Sacramento, California-based Institute for Local Government, an affiliate of the League of California Cities and California State Association of Counties. Companies have to file reports at least quarterly with the SEC.

I happen to think this is a big issue.  As the credit crisis deepens, it will inevitably impact the ability of cities to finance their capital projects and their tax revenues.  Already, several municipalities have gone into default.  Bloomber further writes:

"Defaults increased to $2.44 billion in the first nine months of 2008 from $324 million for all of 2007, Miami Lakes, Florida-based Income Securities Advisor says. Vallejo, California, filed for bankruptcy after incurring a $17 million budget deficit, becoming the largest city in the state to seek protection from creditors."

Municipal bonds as an investment lost 4.84 percent this year, including reinvested interest, according to Merrill Lynch & Co. index data.

If you are a municipal bond holder be wary.  Much of the same opaqueness in disclosure occurred in the Auction Rate Security market and many investors found themselves trapped as the market disintegrated. 

Will it happen to municipals?  Who knows.  This week both California and Massachusetts went running to the government for a bailout to help them make payroll and keep civil services running.  It's not hard to imagine that as tax revenue declines and access to future borrowing is shut off, some cities and towns will fold like the once impregnable investment banks before them.

In this day and age, I wouldn't invest in anything unless I was certain of its stability.  Relying on the rating agencies wouldn't help me sleep at night either.  They've been asleep at the wheel for the last ten years and have lost my confidence. We need access to better and more timely information.

Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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