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Posted at 04:25 PM ET, 05/14/2012

Tax change means more D.C. residents are buying D.C. bonds


More demand now means better deals later. (Jin Lee - Bloomberg)
The District sold a bunch of bonds last week — $314 million of Income Tax Secured Revenue Refunding Bonds, Series 2012A and 2012B, to be precise. The city, like governments everywhere, sells bonds all the time so, unless you’re a muni bond trader, that’s not particularly big news.

But what’s notable is how many of those bonds were purchased by D.C. residents — nearly one-third, the Office of the Chief Financial Officer is reporting.

You’ll recall that a year ago, the D.C. Council voted to end the city’s policy of exempting the proceeds of non-D.C. municipal bonds from personal income tax — a decision that led to much moaning from investors, particularly retirees.

Now if city residents want tax-free securities in their portfolios, it’s D.C. bonds or nothing. The change remains unpopular and a number of city officials still want it reversed. But it appears that the tax move worked more or less as intended: It helped close last year’s budget gap, and now it has increased demand for District debt.

The Office of the Chief Financial Officer did not have precise data on residents’ appetite for previous D.C. bond issues, but city bond experts say that appetite increased significantly in the past year.

“This is probably more than double the orders we’ve ever received from District residents,” said David Umansky, a spokesman for the finance office. He added that it’s “reasonable to assume” that the increase is due to the tax change.

There’s no direct benefit in having more D.C. residents buying D.C. bonds, but the increase in demand should help drive down the city’s borrowing costs in future debt issues. Unless, of course, the bond tax is repealed.

By  |  04:25 PM ET, 05/14/2012

 
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