Louisiana Bonds (Louisiana Municipal Bonds)

By: EconomyWatch Content   Date: 4 November 2009

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Louisiana bonds or Louisiana municipal bonds are issued for financing State projects and infrastructure development. These are a safe investment alternative, besides the fact that they are exempt from federal income tax. The significance of Louisiana municipal bonds has increased, following hurricane Katrina, which paved the way for resulted in immense infrastructure damage in the State of Louisiana. 

Louisiana Bonds Commission: About

Established in 1968, the Louisiana State Bond Commission administers the acquisition of state debt. A written approval from the commission is mandatory for issuing or selling bonds, directly through the State or indirectly through an agency. Prior to the founding of the commission, the issuance of bonds was undertaken by the State Bond and Tax Board.

Some functions performed by the Louisiana Bonds Commission are:

  • Receiving request applications from various parties, such as parishes, municipalities and special taxing for incurring debt or levying taxes.

  • Reviewing applications for conformity to statutory and constitutional requirements and feasibility.

  • Conducting a special meeting for considering an agenda for the approved applications.

  • Preparing all resolutions, notices and official statements for issuance of the State debt, which includes publishing notices of bids received from underwriters who wish to purchase the bonds.

  • Printing of bonds and delivering to successful buyers.

Louisiana Municipal Bonds: Pricing Post Hurricane Katrina

Natural disasters like the hurricane Katrina are unsystematic risks which impact a municipal or state’s ability to meet its debt obligation. Due to the large scale damage of state infrastructure and adverse impact on the local tax base, Katrina led to a significant drop in the Louisiana municipal bond rates.

The insured municipal bonds in the states dropped to 1-2 percent of their value. Whereas, uninsured bonds in the area sank by 5 to 7 percent of the pre-Katrina prices. Therefore, natural calamities such as hurricane Katrina provide a lesson for investors. While purchasing the individual municipal bonds, it is advisable to opt for insured bonds. This is because even though they provide a lower yield, they automatically qualify for ‘AAA’ ratings. This rating equals safety.

For boosting and ensuring safety of investment, it is advisable to not merely restrict the funds in Louisiana bonds. Diversifying and investing in other state bonds is a smart decision.

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