Are Municipal Bonds Still Safe Investments?

A rash of local bankruptcies is raising questions about the safety of tax-free bonds.

The tale of Stockton, Cal., is one of two cities: the gritty agricultural town of its roots and the cosmopolitan tourist destination that it aspired to become. But like American families who borrowed to finance a lifestyle they couldn’t afford, this northern California community is now paying a heavy price for its grand ambitions. Key city buildings are in foreclosure, and businesses have folded, leaving shuttered storefronts in their wake. Three years of municipal cost-cutting has drastically reduced serv­ices, including police and fire protection, and has helped propel the city’s per capita crime rate into the nation’s top ten. In June, Stockton became the largest U.S. city in history to file for protection from creditors under the nation’s bankruptcy laws.

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Kathy Kristof
Contributing Editor, Kiplinger's Personal Finance
Kristof, editor of, is an award-winning financial journalist, who writes regularly for Kiplinger's Personal Finance and CBS MoneyWatch. She's the author of Investing 101, Taming the Tuition Tiger and Kathy Kristof's Complete Book of Dollars and Sense. But perhaps her biggest claim to fame is that she was once a Jeopardy question: Kathy Kristof replaced what famous personal finance columnist, who died in 1991? Answer: Sylvia Porter.