![]() ![]() Now that so many including the Fed are interested in racial justice, similar breakdowns of who holds municipal bonds would be interesting. Of a piece with the effort to restore the state and local tax deduction, the effort to bail largely blue states and cities out of their debts to largely blue high income taxpayers is just a little bit inconsistent with tax the rich and tax their wealth rhetoric.ĭaniel Bergstresser and Randolph Cohen presented a paper a while ago at a Brookings conference, measuring that 42% of municipal bond value was held by the top 0.5% of the income distribution. #MUNI BOND DEFAULTS 2020 FREE#Municipal bond defaults would primarily affect individual investors, and especially individuals who buy tax exempt municipal debt because they are looking for tax free income. The remaining municipal bonds are directly owned by individuals, or in mutual funds and exchange traded funds largely owned by individuals. Similar amounts of general obligation municipal debt reside on the balance sheets of the insurance companies, where municipal bonds are 7 percent of assets. This implies only about $130 billion of total exposure to all general obligation municipal debt by the banking sector, compared to well above $1 trillion of tier one bank capital. as of this spring, around 12 percent of municipal bonds were owned by banks. And we are not in a systemic financial crisis. Municipal bonds are illiquid and tax-exempt and thus well targeted at very wealthy high-income individuals who face high tax rates, and whose saving is thus beyond IRA, 401(k) and other tax-free investment possibilities. ![]() Whether that argument has any merit in other cases, as Josh points out it does not hold for municipal bonds in the current financial environment. The big question hanging over Washington: If we are going to help state and local governments weather the storm of their current expenses, does that mean federal taxpayers bail out the bondholders who lent state and local governments all this money?Īs in the Greek crisis, bond investors and their allies like to clam "contagion," that any losses will spark a financial crisis. Now covid comes along, people are fleeing cities, and they don't have tax revenue to fund ongoing expenses. They borrowed further by not funding their pensions. Skokie, Illinois-based Covenant in August 2021 agreed to pay $33 million to acquire the distressed community, if no higher bids emerged through a stalking horse process.Ĭovenant adds Hillside Village to its existing portfolio of 18 communities in nine states." Municipal bond investors have to share the burden in state bailouts" writes my colleague Josh Rauh, and he is exactly right.īackground: State and local governments borrowed a lot of money and blew it. Bankruptcy Court of New Hampshire approved the sale of Hillside Village Keene to Covenant Living.įaced with Covid-related pressure, Hillside Village Keene - a 222-unit life plan community - was unable to meet its obligations related to long-term tax-exempt bond debt and filed for Chapter 11 bankruptcy protection. Such consolidation is already coming to pass among providers with muni bond debt. Mitra and other senior living leaders have predicted that as financial distress comes to a head, industry consolidation will occur, with properties moving into the control of more stable owners and operators. ![]() Indeed, more “spectacular failures” are almost certain to occur in the sector, Shankh Mitra, CEO of Welltower (NYSE: WELL), said on the real estate investment trust’s most recent quarterly earnings call. While some senior living providers have expressed confidence that they can raise monthly rates to largely compensate for higher labor costs, operators that are less stable could flounder. ![]()
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