As the Libor scandal unfolds, scrutiny turns to other bond markets, including the municipal bond industry’s price-setting institutions. The Municipal Market Data index (MMD) sets rates that “influence a much smaller market than Libor, but it is one that is crucial to how cities and states across America borrow money to maintain roads and bridges and provide essential services such as public education.”

The rating process has long been a black box (and ratings agencies closely protect both their methodologies and their reports, the former are secret and the latter are available only to investment agencies, making it difficult for outside parties, or even the governments being rated, to review). “[T]he market is largely controlled by big financial institutions that have resisted providing customers with information about how bonds are priced.”

But it’s not just a lack of transparency, but allegations of corruption that have prompted the current investigations:

Christopher Taylor, the executive director of the Municipal Securities Rulemaking Board until 2007, said that during his years at the agency he heard frequent complaints that the opaqueness of the M.M.D. rates allowed them to be “manipulated” by banks that hold many municipal bonds.

The scrutiny of the M.M.D. rates comes as a number of other events are drawing attention to the transparency and fairness of the municipal bond market. On Monday, three former bankers at UBS went on trial in Manhattan on charges that they had colluded to steer municipal bond transactions to specific banks in exchange for kickbacks.

With so many cities struggling to fund basic services, and facing rising costs of borrowing that exacerbate their current fiscal outlook, scrutiny of the mechanisms that control cities’ ability to borrow money couldn’t come at a more necessary juncture.

Read: Muni Rates Examined for Signs of Rigging –