A recent Fed working paper happily points out that even as other sources of municipal tax revenue have plummeted, property taxes have held fairly steady, and the authors expect that to continue. Unfortunately, their optimistic prediction ignores the bigger picture.
The fiscally struggling state hopes that investors concerns over its troubles will be offset by their desire for yield. Governor Schwarzenegger has called a special legislative session to address a deficit now projected to be more than $25 billion over the next 18 months.
Despite still-low default rates, munis aren't nearly as solid as they've traditionally been. And thanks to the shrinkage among bond insurers, far fewer bonds are being issued with that extra layer of protection.
The developer of the Yankees Stadium parking lots may be headed for default on the $237 million in bonds that were used to finance the construction. And the Yankees are hardly alone. Sports teams around the country are struggling to attract cash-strapped fans.
As investments, municipal bonds have been traditionally seen as safe, stodgy and boring. None of those terms describe Jim Lebenthal, one of "munis" biggest fans. Now 81, Lebenthal gave up a promising career as a Hollywood correspondent to join the family business of investing in muni bonds.
