Munis, as they’re known, enable a state, county, city, housing authority or other local government to raise money for public projects — usually infrastructure. But unlike the bonds private firms sell to raise cash, the interest is free from federal income tax, meaning, in effect, that munis are federally subsidized. They are also often exempt from local taxes. These tax benefits allow issuers (also known as borrowers) to attract investors at lower rates; in financial parlance, it makes borrowing cheaper for local governments.
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