"The thing about municipal bond insurance, like municipal bonds, is it's not fancy," Crandall said. "It's just not sexy. It's a basic return. You get a smaller return, but you can guarantee a return. They got big returns by insuring the subprime market. It was all greed."

Now that only two bond insurers remain, competition to provide the best rates to municipalities isn't very high. The insurers can be picky and pricey because cities often don't have any other options.

Large entities, like Utah state government, Salt Lake County and Salt Lake City are more insulated from the problem because they have the highest credit ratings on their own. Utah in general is a conservative state with low debt and high bond ratings, said Jonathan Ward, vice president of Zions Bank's public finance department.

"I think it's uncomfortable for the municipalities here in Utah, but I haven't run across anyone that is in such dire straights that they have to close their door or have the state take them over or declare bankruptcy," Ward said. "Because of the conservative fiscal management (of Utah municipalities), I don't think they'll get to that point."

Still, smaller cities are more vulnerable to the bond market's fluctuations.

One reason municipal bonds are historically so stable is cities have a low chance of default. If interest rates rise, municipalities can usually raise fees, rates and taxes and spread those on to residents. Smaller cities have fewer residents to absorb the blow, and they can become stretched to capacity more easily.

The disadvantage smaller cities have makes cities like Herriman nervous. The city recently paid off one of its bonds and isn't looking to issue any bonds soon, but a looming need to add infrastructure to the city's water system has Herriman finance director Shauna DeKorver hoping the situation will soon improve.

"Right now we don't have any immediate plans to issue more bonds," DeKorver said. "We're not too concerned about it at the moment, but if things continue the way they are, we could be. ... The way the economy is right now, being able to make the debt payments would always be a concern."

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E-mail: achoate@desnews.com