SAFETY IN NUMBERS
As stocks gyrate, international conflicts grow and oil prices continue
to rise, jittery investors are increasingly turning to tax-free
municipal bonds. They assume that, along with being an integral
part of a genuinely diversified portfolio, muni bonds are safe.
But just how safe are they?
Consider that since 1970, just 0.04% of all munis tracked by Moody's
- 18, to be exact - have defaulted. Although very low, it shouldn't
be all that surprising given that more than 99% of rated municipal
bonds carry investment-grade ratings from Moody's, and more than
half of rated municipal bonds are single-A and above.
Behind the numbers
Recently, a new survey cited by Bloomberg gives us a peek behind
these numbers. It attests to the financial health of states, which
issue tax-free bonds and provide secondary backing to local municipalities
and political subdivisions.
According to the survey, in fiscal 2006, revenues exceeded original
budget projections in 37 states, was on target in 10 states and
below projections in only two (Oregon didn't participate the survey).
It turns out that states are enjoying higher-than-expected tax
receipts - 3.4 percent more than originally projected in fiscal
2006. This figure includes sales taxes, which were 1.3 percent higher;
personal income taxes, 3.5 percent higher; and corporate income
taxes, 12.6 percent above original estimates, the survey reported.
In fact, 20 states are now considering cutting taxes, according
to the survey, which is taken twice yearly by the National Governors
Association and National Association of State Budget Officers.
Of course, the states are not without financial challenges. However,
we are pleased to pass along this survey information to our investors
so they can continue to rely on a market that provides safety, diversification
and, best of all, tax-free income.
7/28/06
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