At a 2024 conference focused on California’s municipal bond market, the SEC highlighted structural risks, disclosure failures, and supervisory gaps that directly affect investors. Municipal bond investors are being exposed to risks they may not fully understand.
JPAs are entities formed by public agencies, many JPA bond offerings are effectively used to finance private or quasi-private projects—including charter schools, healthcare facilities, and development ventures—without the financial backing investors often assume exists.
From an investor-protection standpoint, this distinction matters. Bonds issued through JPAs may carry higher default risk, limited recourse, and revenue streams dependent on a single project or operator. Yet investors are often sold these bonds under the broad umbrella of “municipal securities,” without clear explanations of how fundamentally different these structures are from general obligation or traditional revenue bonds.
When investors are not clearly informed that they are assuming project-level risk—rather than risk backed by taxing authority or broad public revenue—the result is a disclosure problem with real financial consequences. The SEC has publicly acknowledged that certain types of municipal bond structures—particularly conduit financings—have experienced disproportionately high default rates. For investors, this undermines the long-standing perception that municipal bonds rarely fail.
These risks are especially acute for retail investors who rely on brokers and advisors to vet offerings. If a financial professional recommends a municipal bond without adequately performing due diligence on the offering and explaining default risk, structural weaknesses, or revenue dependencies, the investor may be left holding a product they never would have purchased had the risks been fully disclosed.
Municipal bonds are often long-dated investments, with maturities stretching 20, 30, or even 40 years. The SEC has made clear that climate-related risks—such as wildfires, flooding, drought, and infrastructure stress—can materially affect an issuer’s ability to service debt tied to JPAs. For investors in these bonds, inadequate disclosure of climate for a bond tied to a utility, housing development, or public facility in a high-risk area may face declining revenues, rising costs, or insurance challenges long before maturity. If those risks are not clearly disclosed at the time of sale, investors are deprived of the ability to make informed decisions.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.