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Flashcards in 03.2 Municipal Securities Deck (60):
1

The bond counsel renders a legal opinion concerning which of the following?

I. Economic justification
II. Economic benefits
III. Tax-exempt status
IV. Legal authority to issue the bonds

A. I, II
B. II, Ill
C. I, Ill, IV
D. Ill, IV

III, IV

Rationale:
The legal opinion concerns itself with three main things legality/authority to borrow the money, tax-exempt status, exempt from the Act of 1933. If there are no doubts, the counsel renders an "unqualified" opinion.

2

Which of the following indicates a control relationship?

A. Mayor's wife bought securities from a member of the selling group
B. Lead underwriter voted for the mayor of the municipality
C. Mayor of the issuer is on the underwriting firm's board of directors
D. Lead underwriter is a registered voter in the issuing municipality

Mayor of the issuer is on the underwriting firm's board of directors.

Rationale:
Whenever somebody is in a position of authority both at the issuer and the underwriter, we've got ourselves a little control relationship that must be fully disclosed.

3

All of the following could disqualify a representative from associating with an MSRB member firm except:

A. The representative was suspended two years earlier from FINRA
B. The representative was suspended two years earlier from the NYSE
C. The representative was convicted of felony embezzlement eight years ago
D. The representative failed his Series 6 twice

The representative failed his Series 6 twice

Rationale:
Do you need a Series 6 to sell municipal securities? No, either a 52 or a Series 7. A firm might have a policy that precludes folks who struggle with exams, but, even so, why the Series 6? That's for mutual funds, variable contracts, and closed-end fund primary offerings only.

4

Interest income would be least likely to fail for a federal exemption on:

A. Bonds issued in connection with construction of a public school
B. IDB's
C. IDR's
D. Revenue bonds

Bonds issued in connection with construction of a public school

Rationale:
If you're worried about losing the tax-exempt status for interest income on a municipal, buy a GO, especially one used to finance a school. IDR/IDB is MOST likely to lose the tax- exempt status. And, many revenue bonds seem rather "inessential" to the IRS, too.

5

Your firm would like to be invited to participate in future syndicate accounts. In order to gain influence with an underwriter, you are permitted to give:

A. reasonable gifts as determined by the compliance officers of the firms involved
B. gifts not to exceed $1000 per donor per year
C. gifts not to exceed $100 per person per year
D. gifts in excess of $100 per month

Gifts not to exceed $100 per person per year

Rationale:
$100 per person per year. That means if you gave $100 to one person, you can't give any more to that person this year.

6

A general obligation bond pays a 7% coupon. A comparable corporate bond pays a 9.5% coupon. Therefore:

A. A customer in the 30% tax bracket should buy the municipal security
B. A customer in the 15% tax bracket should buy the municipal security
C. Both customers should purchase the municipal security
D. A customer in the 30% tax bracket should buy the corporate bond

A customer in the 30% tax bracket should buy the municipal security

Rationale:
A customer in the 30% tax bracket would only keep 70% of the corporate bond interest, which would be $95 times .70 or $66.50. The municipal bond would put $70 in her pocket. The 15% taxpayer would keep more on the corporate bond than the municipal bond is paying. 85% of $95 = $80.75.

7

A customer purchases an 8% municipal security @105, maturing in 20 years. After 8 years, she sells the bond @101, realizing a:

A. Capital loss of $50
B. Capital gain of $200
C. Capital loss of $20
D. Capital gain of $20

Capital loss of $20

Rationale:
If you buy a bond at $1,050, you will lose $50 at maturity, in this case over a 20-year period. So, on paper you "lose" $2.50 per year. After eight years you have lost/reduced your cost base by $20, for an adjusted cost of $1 ,030. If you sell at $1,010, you realize a capital loss of $20 per bond.

8

Which of the following must be disclosed on customer trade confirmations?

A. Price your firm paid for the bonds
B. Customer's age at time of purchase
C. Customer's age at time of sale
D. Address of the firm

Address of the firm

Rationale:
Try to eliminate three choices—the one that is hardest to eliminate is your best answer. Can we eliminate the firm's address from a trade confirmation? Probably not. And, the customer's age–is that relevant? Probably not.

9

If a firm acts as a financial advisor to a municipal issuer and wants to participate in a negotiated underwriting, all of the following steps must be taken except:

A. Disclose to issuer potential conflict of interest
B. Terminate financial advisory relationship
C. Obtain approval from bond counsel
D. Disclose all compensation to underwriter

Obtain approval from bond counsel

Rationale:
They don't need permission from the bond counsel.

10

What is true of markups/markdowns for municipal securities?

A. The 5% guideline is in effect for all retail customers
B. Dollar amount of transaction may justify a higher markup
C. Dealers are required to get the best price for their customers
D. The 5% guideline is in effect for all institutional customers

Dollar amount of transaction may justify a higher markup

Rationale:
The 5% guideline doesn't apply to municipal securities. The firm needs to get a "fair, reasonable" price–not the best price.

11

What is a broker's broker?

A. The head/lead trader for a member firm's proprietary account
B. A municipal securities professional who represents other broker- dealers
B. The registered representative opening the account for a registered representative at another firm
D. A registered representative overseeing the account of another registered representative at the firm

A municipal securities professional who represents other broker-dealers

Rationale:
The broker's broker executes trades on behalf of other broker-dealers, not public customers, usually on the secondary market.

12

Your customer is skeptical about purchasing municipal securities from you. In order to ease her concerns, you are permitted to offer:

A. A guarantee from the firm's duly authorized principal good for 90 days
B. A personal guarantee to repay any losses suffered in the first 30 days
C. A guarantee from a 10% owner of the firms' outstanding shares good for 90 days
D. The option to put the bonds back to your firm at par

The option to put the bonds back to your firm at par

Rationale:
Only a put option/puttable bond may be used to protect a customer against market loss. No other types of "guarantees" allowed.

13

A new customer has failed to provide financial information such as net worth, income, and marginal tax bracket. However, on the first meeting with you she is driving a Bentley and wearing an expensive mink coat. Therefore, you should:

A. Recommend municipal securities based on what the MSRB deems "prima facia evidence."
B. Administer the MSRB's customer suitability in lieu of fact oral exam.
C Administer the MSRB's customer suitability in lieu of fact written exam.
D. Not recommend municipal securities at this time and discuss the situation with a principal.

Not recommend municipal securities at this time and discuss the situation with a principal

Rationale:
Don't fall for fancy phrases such as "prima facia" or "in lieu of fact" just because they sound impressive. The exam often makes things like this up.

14

XYZ broker-dealership is a member of FINRA and the MSRB. XYZ violates one of the bylaws of FINRA and claims that this will have no bearing on the status of their MSRB membership. In this instance XYZ is:

A. Incorrect, since Rule G-5 clearly states that persons involved in the municipal securities business must follow the rules of any SRO to which it/they belong.
B. Incorrect, since FINRA rules always take precedence over MSRB rules.
C. Correct, since the SRO's are separate entities.
D. Correct, since the firm may use its best judgment when involved with what the SEC deems an "untenable conflict of competing regulatory authorities," or UCCRA.

Incorrect, since Rule G-5 clearly states that persons involved in the municipal securities business must follow the rules of any SRO to which it/they belong.

Rationale:
Problems with one SRO can definitely make problems for you with another. The MSRB, NYSE, CBOE, and FINRA would all probably have a problem with you if any of the other SRO's or the SEC did.

15

Which of the following is a true statement regarding MSRB rules?

A. A new apprentice must pass his/her exam within 180 days
B. A new apprentice must pass his/her exam within 90 days
C. All persons who provide municipal
quotes must be license
D. A new municipal sales representative can never continue as an apprentice beyond 90 days

A new apprentice must pass his/her exam within 180 days.

Rationale:
The apprenticeship runs a minimum of 90 days. The rep must pass her license exam within 180 days. Providing approved quotes to customers does not require a license.

16

What is typically true of the good faith deposit?

A. It is usually 1-2% of the total par value
B. It is the amount the issuer returns to the state's municipal oversight board
C. It is not returned to the losing syndicates
D. It is usually 20% of the issue

It is usually 1-2% of the total par value

Rationale:
The good faith deposit is usually 1-2% of the total par value of bonds to be offered. The losing syndicates get their deposit returned, while the issuer keeps the winning syndicate's deposit. Sort of like earnest money on a house.

17

All of the following might raise the credit rating on a GO bond except:

A. Economic diversity
B. Population has increased
C. Unemployment rates are rising
D. Unemployment rates are falling

Unemployment rates are rising

Rationale:
Rising unemployment is a bad thing. Means fewer citizens are working, making money, spending money, buying houses, paying property taxes, etc. Fewer jobs spells trouble for a GO's credit rating. Remember, it's the municipality as a whole who pays back the debt service, so we want the municipality working and making money and buying houses and paying taxes.

18

One would expect to see a flow of funds statement in the indenture for which of the following?

A. TAN
B. PHA
C. Revenue bonds
D. General Obligation bonds

Revenue bonds

Rationale:
Revenue bonds that build facilities that generate revenue. The flow of funds statement tells bondholders how revenue will be used to cover the debt service. GO bonds don't need a "flow of funds" statement, because the facility isn't supporting itself—it's being supported by tax dollars. The municipal notes (TAN, RAN, etc.) don't have flow of funds statements in their indenture for purposes of the test.

19

Your customer buys a zero coupon municipal bond on the primary market @50, maturing in 10 years. After holding the bond for six years, she sells the bond @85, realizing:

A. Gain of $50
B. Loss of $50
C. No gain or loss
D. Capital gains tax plus penalties and interest

Gain of $50

Rationale:
His principal will be accreted from $500 to $1,000 par over 10 years, or $50 per year. After 6 years (6 x $50 = $300) add $300 to his cost base to get an adjusted cost base of $800. If
he sells for $850, that's a $50 capital gain.

20

Once a municipal security has been pre-refunded, which of the following usually occur(s)?

I. Credit quality improves
II. Marketability declines
III. Proceeds Placed in escrow
IV. Proceeds used to purchase treasury debt

A. I, II, III, IV
B. I
C. I, Ill, IV
D. II, Ill

I, Ill, IV

Rationale:
Why would the marketability decline? If the credit rating increases, so does the marketability.

21

A municipal bond investor's objectives typically do not include:

A. Safety
B. Income
C. Tax benefits
D. Growth

Growth

Rationale:
Bonds are primarily for income rather than growth investors. If a customer wants "growth," recommend common stock. If the investor wants income, you usually recommend bonds. If your choices are all equities, look for the ones that pay the highest dividends, like utilities, or REITS.

22

Which of the following usually offer the highest yields?


A. Uninsured revenue bonds
B. T-notes
C. Insured revenue bonds
D. GO bonds

Uninsured revenue bonds

Rationale:
Since they're not backed by the full taxing power of the issuer, the revenue bond is usually less secure than a GO of the same issuer. Revenue bonds yield more than GO bonds as a class in both the test and the real world.

23

An account executive with discretion over an account must contact the customer before buying or selling

A. Under $10,000 of revenue bonds
B. More than $10,000 of moral obligation bonds
C. Bonds where a control relationship exists
D. More than $10,000 of revenue bonds

Bonds where a control relationship exists

Rationale:
Control relationships require lots of disclosure.

24

Insuranceisoftenattachedtoa revenue bond issue because:

A. It is required by federal law
B. It is required by all state laws
C. This increases the marketability of the bonds
D. The MSRB stipulates that all revenue bonds in excess of $5 million be insured

This increases the marketability of the bonds

Rationale:
If the bond is insured, investors won't expect such a high yield. That allows the issuer to borrow the money at lower interest rates (coupon payments) and should help the underwriters sell the bonds for more money.

25

A "re-allowance" is:

A. The largest piece of the underwriting spread
B. Paid to firms not in the syndicate or selling group
C The difference between the POP and the proceeds paid to the issuer
D. No longer allowed by the SEC or MSRB

Paid to firms not in the syndicate or selling group

Rationale:
To get the bonds sold, the syndicate might let just about any firm out there sell some bonds and make something known as the "re-allowance." It's basically a piece of the selling concession.

26

Which of the following municipalities are most likely coterminous?

A. County government and a school district
B. City government and large local manufacturing firm
C. City government and public utility companies covered under the Public Utility Holding Company Act of 1935
D. City and state governments

County government and a school district

Rationale:
Look for school districts to be coterminous (overlapping) with counties and cities. States aren't usually coterminous with anyone, and don't factor in companies at all. Only municipalities.

27

Which of the following represent(s) an accurate statement?

A. All choices listed
B. All municipal bonds pay interest that is non-tax-exempt at the federal level
C Municipal bonds are traded on a highly liquid secondary market
D. Municipal bonds are exempt from registration requirements

Municipal bonds are exempt from registration requirements

Rationale:
Municipal bonds do not trade on a highly liquid secondary market, which is why a test question might point out that they are not frequently sold short. Most municipal bonds pay tax-exempt interest but not all. Municipal bonds are not required to register under the Securities Act of 1933.

28

All of the following are typical covenants found in a trust indenture for a revenue bond except:

A. Debt limit covenant
B. Books and records covenant
C. Maintenance covenant
D. Rate covenant

Debt limit covenant

Rationale:
Debt limits are for GO bonds, not revenue.

29

All of the following taxes are used to service revenue bond debt except:

A. Liquor taxes
B. Ad valorem taxes
C. Cigarette taxes
D. Business license taxes

Ad valorem taxes

Rationale:
At the local level, "specie taxes" used for revenue bonds are all the taxes except ad valorem cigarettes, alcohol, gasoline, hotel-motel, business license.

30

All of the following are used to service general obligation debt except:

A. User fees
B. Sales Taxes
C. Ad valorem
D. Income Taxes

User fees

Rationale:
User fees = revenue. Revenue bonds.

31

Which of the following is a true statement?

A. The placement ratio indicates how many bids were accepted for the previous week for both revenue and GO bonds
B. The placement ratio indicates the total par value of municipal securities sold out of the total par value offered the previous week
C. The visible supply is the number of institutional buyers signed up to receive more than $25,000 par value of a new issue
D. The placement ratio indicates how many bids were placed the previous week for general obligation issues

The placement ratio indicates the total par value of municipal securities sold out of the total par value offered the previous week

Rationale:
Another good one to memorize. It's published in the Bond Buyer, by the way, and it tells underwriters how the whole underwriting process went last week—out of what the market tried to sell, how much was purchased/absorbed/subscribed?

32

Which of the following is a true statement?

A. The offer price is what the seller pays
B. The bid price is what a dealer will pay
C. Municipal market makers maintain bid and ask prices valid for one round lot
D. Municipal securities are frequently listed on national exchanges

The bid price is what a dealer will pay

Rationale:
Sellers don't PAY; they receive.

33

The fact that states don't tax the interest on federal government obligations and the federal government, in turn, generally does not tax the interest on state obligations is often referred to as the:

A. Dominant Domain Reform Act of 1987
B. Doctrine of reciprocal immunity
C. Anti-reciprocity protocol
D. TIF for Taft Act of 1986

Doctrine of reciprocal immunity

Rationale:
The US Government doesn't tax the interest on the states' and cities' bonds; the states and cities don't tax the interest on the US Government's bonds. They're both immune to each other's taxation, making them "reciprocally immune" as determined by a Supreme Court Decision.

34

A Morton Township GO bond yields 7.5% while a Port Authority Revenue bond yields 7.9%. This represents a difference of:

A. None of the choices listed
B. 400 basis points
C. 4 basis points
D. 40 basis points

40 basis points

Rationale:
The difference between 750 and 790 basis points is 40 basis points.

35

A municipal bond investor would be least concerned with:

A. Tax benefits
B. Income
C. Growth
D. Safety

Growth

Rationale:
In general, stock provides growth while bonds provide income. Of course, stock can pay dividend income, and bonds can appreciate in price, so—as always—do not be too rigid in your understanding.

36

In a divided account, the unsold bonds are confirmed to:

A. Syndicatemembersineithera random or FIFO basis
B. Each syndicate member based on the percentage of the firm's participation
C. Syndicate members who sold the least amount of bonds
D. The syndicate members who failed to sell them

The syndicate members who failed to sell them

Rationale:
In a divided/Western account, the only folks who end up eating bonds are the ones who couldn't sell them. Not like an undivided/Eastern account, where everybody gets a percentage of unsold bonds, regardless of who sold and didn't sell.

37

Orders credited to a specific member of the underwriting syndicate are called:

A. Member orders
B. Designated orders
C. Declared orders
D. Specified orders

Designated orders

Rationale:
The orders that have been designated to a particular member are called "designated" orders.

38

The components of the spread and the terms for operation of the syndicate would be explained thoroughly in the:

A. Underwriting agreement
B. Agreement among underwriters
C. Official notice of sale
D. Legal opinion

Agreement among underwriters

Rationale:
Since the underwriters have to come to an agreement among themselves, they went ahead and started calling that document the "agreement among underwriters." But, since everything needs at least two names, they sometimes call it the "syndicate letter."

39

A customer concerned with credit risk would least likely purchase a (an)

A. T-bill
B. GO bond
C. T-bond
D. IDR

IDR

Rationale:
IDR's are only as solid as the corporation paying the lease that backs up the debt service. You would generally rather have the full taxing power of a city or state or the US Government (even better) if you're concerned with credit risk.

40

Where would a municipal securities underwriter look for the visible supply?

A. The Bond Buyer
B. DJIA
C. Brown List
D. S&P 500

The Bond Buyer

Rationale:
The Bond Buyer is what municipal underwriters read for information on the primary market. The other choices
were just really lame-o.

41

Which of the following represents a quote for a municipal bond with a serial maturity?

A. 6.65
B. 98.20 - 98.29
C 101 1/8 - 101 7/8
D. 5.00% - 4.75%

6.65

Rationale:
Look for a one-sided quote in
terms of yield—6.65%.

42

Whatmayyoudoasa representative of a municipal securities dealer when a customer attempts to place an order for municipal securities that you feel is inappropriate?

A. Place the order as a limit or stop order
B. Place the order only after obtaining
written permission from a principal
C. Refuse the order
D. Execute the order as "unsolicited"

Execute the order as "unsolicited"

Rationale:
Customers can use their money to buy what they want, but you would also want acknowledgment that you did not solicit/recommend the purchase.

43

A 15-year bond with a 2.5% nominal yield is being re-offered by the syndicate at a yield of 3%. This bond can be described as a(an):

A. OIP (Original Issue Premium)
B. Variable Rate Demand Note
C. OID (Original Issue Discount)
D. Secondary market discount

OID (Original Issue Discount)

Rationale:
A bond purchased from the syndicate is an original issue. If the yield is higher than the nominal yield, the price is at a discount to the par value.

44

One of the covenants for a bond states, "if revenues are insufficient, the issue will be backed by the full faith and credit of the park district." This type of bond is best described as a:

A. Moral obligation bond
B. Contingency bond
C. Revenue bond
D. Double-barelled bond

Double-barelled bond

Rationale:
If both revenues and the full faith and credit of the municipality back the bonds, the bonds are called "double- barelled bonds."

45

Under a net revenue pledge, payments are made to the following in order from highest to lowest priority:

I. Surplus fund
II. Operations and maintenance fund
III. Bond service account
IV. Debt service reserve account

A. Ill, I, II, IV
B. IV, III, II, I
C. I, IV, III, II
D. II, III, IV, I

II, III, IV, I

Rationale:
Something to memorize. Not an extremely likely test question.

46

An order ticket for a municipal securities transaction must contain:

A. Whether the order is solicited, unsolicited, or discretionary
B. A statement that the name of the contra party will be provided upon request
C. Capacity in which the firm is acting
D. All choices listed

Whether the order is solicited, unsolicited, or discretionary

Rationale:
The other two choices will be listed on the trade confirmation sent to the customer. An order ticket is being used to enter an order.

47

A non-member firm that helps the syndicate place municipal bonds is able to purchase bonds from the syndicate at a discounted price known as the:

A. Production
B. Takedown
C. Spread
D. Concession

Concession

Rationale:
The concession or "selling concession" is what the syndicate concedes to the selling agents in the selling group. The total takedown is the "additional takedown" plus the "concession."

48

The estimated dollar amount of new municipal issues expected to come out over the next month can be found in the _______ and is known as the _______:

I. Bond Buyer
II. Bond Guide
III. Placement Ratio
IV. Visible Supply

A. II, IV
B. I, IV
C. I, III
D. II, III

I, IV

Rationale:

49

One of your clients asks which part of the trust indenture for a municipal revenue bond should he look to find statements concerning rates, insurance, and maintenance. The client should look in the section that deals with:

A. Flow of funds
B. Protective covenants
C. Official notice of sale
D. Ratings

Protective covenants

Rationale:
The bond covenants or protective covenants tell bondholders that rates will be charged sufficient to cover debt service; that the facility will be probably insured and maintained, etc.

50

A syndicate is about to submit a bid for a new issue of school bonds. Two of the twelve member firms suddenly object to some of the language uncovered in the official notice of sale and do not want the syndicate to submit the bid. The syndicate manager, therefore, can do all of the following except:

A. Withdraw from the bidding process
B. Allow the firms to drop out of the syndicate
C. Attempt to reach a consensus among the syndicate members and, if reached, submit the bid
D. Require he two member firms to take their share of bonds regardless of their objections

Require he two member firms to take their share of bonds regardless of their objections

Rationale:
If the two firms want out, the manager can let them out, or try to reach a consensus, or even withdraw from the process. But, the manager cant force the two firms to be part of the syndicate bid if they object to restrictions or other red flags in the official notice of sale.

51

For a bond selling at a premium current yield would be calculated as:

A. A percentage of market price
B. Of its maturity date
C. If it were called at the first legal call date
D. A percentage of par value

A percentage of market price

Rationale:
Don't let the exam distract you. Current yield is always the annual income divided by (compared to) it's current market price.

52

A municipal securities underwriter would find in the Bond Buyer the dollar amount of bonds sold the previous week out of the dollar amount offered, which is known as:

A. The visible supply
B. The absorption scale
C. The dollar amount of the bid
D. The placement ratio

The placement ratio

Rationale:
The placement or acceptance ratio tells underwriters how well the market absorbed the municipal bonds offered the previous week.

53

For a new issue of municipal bonds, the responsibility of hiring bond counsel falls to the:

A. Selling group members
B. State legislature
C. Managing underwriter
D. Issuer

Issuer

Rationale:
"State legislature" could be the answer, IF the question narrowed the focus only to municipal bonds issued by the state. "Issuer" is a better answer and, yes, you will often find an answer that works, and then the answer that works better.

54

The MSRB does not regulate:

A. Municipal Securities dealers
B. Financial advisers to issuers of municipal securities
C. Issuers of municipal securities
D. Municipal securities agents

Issuers of municipal securities

Rationale:
MSRB only regulates member firms and their principals and agents. They have no authority over, for example, California or New York City, or your local park district.

55

If ah investor purchases a "full faith and credit bond" issued by Pennsylvania, she has purchased a:

A. Revenue bond
B. Sinking fund debenture
C. Moral obligation bond
D. General obligation bond

General obligation bond

Rationale:
A general obligation bond is backed by the issuer's "full faith and credit." Note the exam will spin the same concepts in many different directions.

56

MSRB rules require that a municipal securities dealer who acts as a financial adviser to an issuer and subsequently participates in an underwriting of that issuer's securities must disclose in writing to customers to whom the securities are recommended:

A. The visible supply
B. The bond's duration
C. All choices listed
D. Any financial interest the dealer may have in an underwriting of the security

Any financial interest the dealer may have in an underwriting of the security

Rationale:

57

A notice of sale in the Bond Buyer is published by the issuer in order to:

A. Disclose any conflicts of interest
B. Attract competitive bids from underwriters
C. Comply with the Securities Act of 1933
D. Attract bids from institutional buyers

Attract competitive bids from underwriters

Rationale:
Get a free trial of the Bond Buyer, and this stuff will become a LOT easier. You will learn many testable points by looking at just a couple of notices of sale, in which the issuer is seeking competitive bids from underwriters. Whoever can get the bonds sold at the lost interest cost to the issuer wins the business.

58

If Mindy Mohr purchased a 20- year AA-rated general obligation bond at par with a 4.35% yield to maturity and sold the bond at a 2.5% yield to maturity two years later, she:

A. Realized a capital gain
B. Covered her cost of carry
C. Sold the bond short
D. Realized a capital loss

Realized a capital gain

Rationale:
Yield down, price up. That is all this question is asking.

59

A municipal bond analyst working for S&P or Moody's would likely consider all of the following to indicate that a state's creditworthiness is enhanced on its general obligation bonds EXCEPT:

A. Population has increased steadily the past two year
B. Unemployment has been decreasing
C. Assessed values have been increasing
D. The state's toll way system has raised tolls by 15%

The state's toll way system has raised tolls by 15%

Rationale:
User fees, i.e. tolls, relate to revenue bonds supported by the revenues generated by the facility. The other three relate to general obligation bonds, based on the state's overall credit score as opposed to a per-project rating for each revenue bond.

60

A municipal bond analyst would likely consider all of the following to bolster a state's creditworthiness on its general obligation bonds EXCEPT:

A. Decrease in the regional unemployment rate
B. Increase in unfunded pension liabilities
C. Increase in the collection ratio
D. Increasing population

Increase in unfunded pension liabilities

Rationale:
Unfunded pension liabilities are currently causing all sorts of problems for states, including IL, California, and others. The other three choices are positive signs. The fact that a state owes a few billion dollars more than they can actually afford to teachers and other employees is not a good thing.