Municipal Bond Forum

Regarding your article, “Pension Reform: A Welcome Sign for Bondholders,” the problem isn’t with pensions per se, it’s including overtime as part of the pension benefit. Police salaries in many California cities run at the $400,000 mark, while base pay is about $100,000. Pensions should be based solely on base pay. We do not need to throw out the baby with the bath water, just reform the system. A cap on pension pay, similar to the max imposed on Social Security benefits, should also be imposed.

A.

Are there some states that prohibit their municipalities from declaring bankruptcy? If so, which states, and what alternatives do such municipalities have when faced with adverse economic conditions?

N.M.

Do you foresee a municipal bond “bubble” developing as the race for after-tax yield accelerates, especially given the boomer retirement demographic starting to play out? In other words, are investors overlooking the risk to buy a good after-tax income flow?

R.B.

When I read news reports about certain bonds, I’m reminded of the importance of rating agencies. I can’t investigate municipalities. As investors looking for ways to get a decent return on our money these days, we all rely on the integrity of Moody’s, S&P, etc.

J.S., New Jersey

Since California dissolved its redevelopment agencies, issues of some cities have dropped below investment grade. On certain issues, current value exceeds costs, so common sense dictates this might be a good time to sell. Your thoughts?

N.M., New Jersey

I heard that Boston, MA, will file bankruptcy? Is this true?

M.M., Missouri

I’ve always been under the impression that general fund obligations are a city’s most secure debt. But in your article, “Most Stockton Bondholders Unaffected by Bankruptcy”, you say the city will continue to pay enterprise bonds backed by water and sewer revenues and debt secured by special assessments and special taxes. I’m confused; which bonds are more secure?

D.W., California

In your article, “Most Stockton Bondholders Unaffected by Bankruptcy”, you referred to “enterprise bonds.” If there’s a shortfall in the dedicated revenue stream of these bonds, who covers it?

P.O., Florida

I’m an avid investor in munis, primarily with FMS (Andrew Blum is excellent to work with), and I agree with much of what you say in your article, “Where the Action is.” But maybe your articles border on the optimistic? A recent article in the Wall Street Journal is a bit more sobering than the state budget/revenues report that you cited, and though the article talks about the safety of munis, the current economic conditions are certainly of some serious concern.

D.W., California

I own some Jefferson County bonds due in 2015 that are insured by Ambac. I can’t understand why, with the increasing likelihood of imminent default, they are still trading in the low to mid 90s. Should I sell, or is something afoot that would cause these serial bonds to be paid off in full in 2015?

W.L., Florida