Bondholders Should Never Think They’re Above Taxpayers

I don’t know what bondholders expected. The $3.8 trillion U.S. municipal-debt market is scattered with so-called appropriation bonds. State and local governments large and small issue these securities with every intention to make good on them — in fact, they’re sometimes referred to as “moral obligations.” It’s not quite as strong as a general-obligation pledge or debt tied to a specific revenue stream. But in almost every case, investors get paid back in full plus some extra yield for what’s seen as little-to-no added risk. That perception needs to change. Because make no mistake about it:...

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