Minnesota Bonds (Minnesota Municipal Bonds)

By: EconomyWatch Content   Date: 5 November 2009

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Minnesota bonds are issued by the State, through private agencies or brokers, for funding various long-term or short-term projects. Minnesota municipal bonds are generally tax-exempt, which covers Minnesota State tax as well as federal income tax.

Types Minnesota Bonds

Minnesota municipal bonds are issued in two versions, which are General Obligation (GO) bonds and revenue bonds. Both bonds can only be issued after obtaining permission from the legislature. Although both are used for State developmental purpose, only GO bonds are backed by the ‘full faith and credit’ of the Minnesota State Treasurer. This backing implies that the State may levy property tax (accumulated in the general fund) for paying the GO debt service costs. Conversely, Minnesota revenue bonds are not given preferential backing, supported only by the revenues generated from the project.

Projects Eligible for Minnesota Municipal Funds

According to Article XI in Section 5 of the Minnesota Constitution, issuing general obligation bonds (incurring public debt) is restricted to those ventures that involve acquiring or improving public infrastructure of a capital nature. In general, the Constitution requires a venture to meet four tests:

·        It must be publicly owned.

·        It must be a capital expenditure.

·        It must have a public purpose.

·        Its purpose must be clearly established in the law.

Besides, some constitutional provisions that qualify for the Minnesota bonds issue are:

·        Establish and/or maintain highways

·        Promote forestation

·        Construct, improve and manage airports or other air navigation services

·        Agricultural resource development

·        Rehabilitation of railroads, public and private

Minnesota Bonds: Private Activity Bonds

Minnesota private activity bonds are issued by a non-government establishment for purposes similar to those of the government. However, not all private activity bonds are tax-exempt. To qualify for exemption, over 95% of the proceeds of a private activity Minnesota bond must be used for a ‘qualified’ purpose, which includes:

·        Public education

·        Transportation

·        Local energy or gas facilities

·        Veteran’s mortgages

Moreover, such private activity Minnesota bonds are subject to a volume cap or ceiling on the maximum amount of issue. For 2007 and 2008, these figures were 439.204 and 441.798, respectively.

Regardless of the type, Minnesota bonds are a safe investment decision. Minnesota GO bonds have fairly impressive average ratings of Aa1, AAA and AAA by Moody’s S&P and Fitch.

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