Also known as:municipal bonds · muni bond · muni bonds
Written by attorneys · grounded in primary & secondary sources — see below
A debt instrument issued by a state or local government to raise funds for public projects or operations. The bond is typically repaid from the issuer's general taxing power or from revenues generated by a specific project or facility.
Sources & Authorities
How it applies
Common Examples
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Judge's Bond Holdings Trigger Discipline
Judge Miles Montgomery continued to hold and acquire municipal bonds issued by the City of Albany while presiding over a contract dispute in which the city was a defendant. The bonds created an appearance of financial entanglement with a litigant even though the judge had not ruled on any matter directly affecting the bonds. A disciplinary panel imposed sanctions because the ongoing ownership violated the duty to avoid any appearance of impropriety in pending litigation.
Voting Rights on Bond Referendum
The state of Oregon restricted voting on a proposed municipal bond issue to property taxpayers only. Non-property owners challenged the restriction as violating equal protection. The Court upheld the limitation because the bonds would be repaid solely from property taxes and the restriction bore a rational relationship to the state's interest in limiting the franchise to those directly burdened.
Select any source to read its text and confirm it supports the definition.
Cases
Dictionaries
Oregon v. Mitchell400 U.S. 112 (1970).
Local Waste Authority Favors Municipal Bonds
Oneida-Herkimer counties created a public authority that issued municipal bonds to finance waste facilities and required all local waste to be processed there. Out-of-state haulers challenged the flow-control ordinance under the dormant Commerce Clause. The Court upheld the program because the authority was a public entity using bond proceeds for a traditional local function rather than discriminating against interstate commerce.
United Haulers Association, Inc. v. Oneida-Herkimer Solid Waste Management Authority550 U.S. 330 (2007)
Mortgage Moratorium Affects Bond Payments
Minnesota extended the redemption period on mortgages securing loans used to purchase municipal bonds issued by local improvement districts. Lenders holding the bonds argued the extension impaired their contract rights. The Court upheld the moratorium as a reasonable exercise of the state's police power during an economic emergency because it preserved the underlying security for eventual payment of the bonds.
Home Building & Loan Association v. Blaisdell290 U.S. 398, 54 S.Ct. 231, 78 L.Ed. 413 (1934)
Income Tax on Municipal Bond Interest
Congress imposed a federal income tax that reached interest received by individuals on municipal bonds issued by states and cities. Bondholders challenged the tax as an unapportioned direct tax on the states themselves. The Court struck down the tax because it effectively taxed the borrowing power of the states and therefore violated the constitutional requirement of apportionment.
Pollock v. Farmers’ Loan & Trust Co.158 U.S. 601 (1895)
Corporate Dividend Policy and Bond Holdings
Ford Motor Company accumulated large surpluses that included holdings of municipal bonds rather than distributing dividends to shareholders. Minority shareholders sued to compel distribution of the accumulated earnings. The court ordered a dividend because the retention of tax-exempt municipal bond income served no legitimate corporate purpose when the company had no immediate need for the funds.
Dodge v. Ford Motor Co.170 N.W. 668
Common questions
Frequently Asked
3
Does a devise of municipal bonds to a trust lapse if the trust is revoked before the testator's death?+
Under the Uniform Probate Code, revocation of the trust before death causes the devise to lapse unless the will expressly provides otherwise. The absence of any savings clause addressing revocation means the bonds pass under the residuary clause rather than to the former trustee.
Is a disabling restraint on alienation of a beneficial interest in municipal bond income valid?+
An absolute prohibition on transfer that takes effect immediately and lasts for the entire trust term is invalid because it renders the interest inalienable from the date of the donative transfer. A protective spendthrift purpose does not save a restraint that eliminates all possibility of alienation.
What damages are available in a negligent misrepresentation action involving municipal bonds?+
Recovery is limited to out-of-pocket pecuniary loss measured by the difference between the price paid and the actual value received at the time of the transaction plus any consequential reliance expenses. Expected profits or benefit-of-the-bargain damages are not recoverable.
400 U.S. 112 (1970)Constitutional Law
…on the basis of Kolodziejski. Parish School Board of St. Charles v. Stewart, post , p. 884, where Louisiana gave a vote on municipal bond issues only to "property taxpayers." The powers granted Congress by § 5 of the Fourteenth Amendment to "enforce" the Equal Protection Clause are "the same broad powers expressed in the…