Government financing is highly complicated. There are many pieces to the puzzle that go toward funding government-financed projects such as schools, highways, and one of those pieces comes in the form of municipal bonds. Municipal bonds are a unique way to fund projects while offering benefits to those who purchase them. Keep reading to learn more about what municipal bonds are, how they work in Wisconsin, and the pros and cons of purchasing bonds.
What Are Municipal Bonds?
Municipal bonds are debt securities issued by cities, counties, states, and other government bodies in order to fund local projects and operations. In effect, the government entity sells bonds that pay for things like schools, parks, and public improvements in return for interest paid to the bondholder. The bonds have a set maturity date to return the original payment to the bondholder, and different types of municipal bonds can mature in months to years. Where many other types of bonds are secured by an asset or other guarantee, municipal bonds are issued in good faith that they will be repaid in full with interest.
Municipal bonds are mutually beneficial to the municipality from which they were issued as well as to the buyer. They allow the municipality to complete projects funded by the bonds while the buyer is guaranteed a tax-free form of income for the buyer. The length of the bond depends on the type and length of the project; for example, park construction will take less time to complete than a large public housing project.
How Do Municipal Bonds Work in Wisconsin?
Wisconsin municipal bonds work the same as other bonds with a few state-specific rules. Although many mutual bonds aren’t taxed federally, Wisconsin law states that municipal bond interest must be added to the federal adjusted gross income on your state tax return. There are some exceptions, such as bonds that fund public housing authority or Wisconsin professional football stadiums, which aren’t taxed by the state. Additionally, if you own municipal bonds purchased in a state other than Wisconsin, you may be required to pay taxes on interest with a few exceptions.
What Are the Pros and Cons of Municipal Bonds?
Municipal bonds are a low-risk investment opportunity in most cases. In addition to providing tax-free income for the purchaser, municipal bonds offer a stable investment opportunity without the risk of other types of investments. Their low-risk nature makes municipal bonds an attractive opportunity while aiding in public improvements across the state.
However, a low risk doesn’t mean no risk. There’s always a chance that a municipal bond could default. While predictable, they also may have minimal returns. Municipal bonds don’t hold up well against inflation, which could drastically lower the value of the bond.
Wisconsin Public Financing Lawyers
Does your municipality need assistance with issuing bonds? Are you curious about the complexities of purchasing municipal bonds? A public financing lawyer can walk you through everything you need to know about issuing and purchasing municipal bonds in Wisconsin. The law team at Atolles Law, S.C. specializes in public financing in Wisconsin. We are familiar with local and state tax laws to ensure a successful municipal bond for your government. Contact us for consultation to go over your public financing needs and to see how Atolles Law can help.