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Bond Funds With $155 Billion Imperiled If U.S. Court Voids Law
Oct. 29 (Bloomberg)
Municipal-bond investors may be owed billions of dollars, and bond funds holding $155 billion rendered obsolete, as the result of a U.S. Supreme Court fight over state tax powers.
And that might be just the beginning of upheavals in the $2.5 trillion market in debt issued by state and local governments to pay for schools, roads, sewers and other civic works.
The justices hear arguments Nov. 5 on whether Kentucky violates the Constitution by taxing income earned on out-of- state bonds while exempting interest on ones issued by its own cities, school districts and other debt-issuing authorities. Barring such preferential treatment would force 42 states, including New York and California, to either tax their own bonds or give identical breaks to out-of-state bonds.
``It would result in a substantial reconfiguration of the municipal-bond market,'' says Gerard J. Lian, executive director of the Morgan Stanley/Van Kampen tax-exempt mutual fund group, which manages $15.8 billion. In a career spanning more than two decades in the business, ``it would rank up there as the biggest event that I can remember,'' he says.
Oct. 29 (Bloomberg)
Municipal-bond investors may be owed billions of dollars, and bond funds holding $155 billion rendered obsolete, as the result of a U.S. Supreme Court fight over state tax powers.
And that might be just the beginning of upheavals in the $2.5 trillion market in debt issued by state and local governments to pay for schools, roads, sewers and other civic works.
The justices hear arguments Nov. 5 on whether Kentucky violates the Constitution by taxing income earned on out-of- state bonds while exempting interest on ones issued by its own cities, school districts and other debt-issuing authorities. Barring such preferential treatment would force 42 states, including New York and California, to either tax their own bonds or give identical breaks to out-of-state bonds.
``It would result in a substantial reconfiguration of the municipal-bond market,'' says Gerard J. Lian, executive director of the Morgan Stanley/Van Kampen tax-exempt mutual fund group, which manages $15.8 billion. In a career spanning more than two decades in the business, ``it would rank up there as the biggest event that I can remember,'' he says.
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