The San Francisco Chronicle's Kathleen Pender asks "How safe are California tax-free money funds?" A reader wrote in saying, "I was wondering about the relative safety of California tax-free municipal money market funds. Has the risk become much greater than a regular taxable money market fund?" The article quotes, "Peter Crane, who runs CraneData.com, says that California money market funds are as safe as ever. His reasons: One, the managers of California money funds he has spoken to say they have not owned any California general obligation debt for months.... [M]oney funds must comply with strict rules that limit their holdings of risky or illiquid securities. As the state's budget crisis has worsened, they have been avoiding California's commercial paper, forcing the state to find other buyers at higher yields.... Two, tax-exempt money funds are owned mainly by individual investors, who are much less likely than institutional investors to demand their money back all at once.... Three, most large tax-free money market funds are guaranteed by the U.S. Treasury through Sept. 18. The guarantee only applies to balances that were in the fund on Sept. 19, 2008. The guarantee program was put in place after the Reserve Primary Fund fell below $1 per share and sparked a panic that spread far beyond the fund industry." See also the Chronicle's "State's short-term debt ratings suffer."
