The Securities and Exchange Commission is ramping up its efforts to monitor disclosure problems in the municipal bond market, worried that cities issuing municipal debt are failing to properly disclose budget problems and other issues, thus affecting the price of bonds purchased by small investors, Fox Business has learned.

The heightened scrutiny has come in recent weeks amid reports including one from prominent banking analyst Meredith Whitney that budget woes in states and cities across the country are squeezing revenues to the point that some municipalities won’t be able to make debt service payments to investors and may have to default.

While several prominent analysts who focus on the municipal debt have raised concerns about the scale of Whitney’s analysis -- namely that between 50 to 100 large issuers will default on more than $100 billion in debt in the next year -- it is clear that a continued weak economy is squeezing state and city budgets, and revenues used to pay off bond holders. As a result, credit rating agencies have been slashing bond ratings, reflecting this weakening position and ability to repay debt, while muni bond prices have fallen.

People close to the SEC say the concern among regulators there is that munis are largely held by small investors as opposed to large institutions, meaning that a significant number of defaults will hurt average Americans.

While the SEC has no direct regulatory authority over the government itself, it does regulate the government's debt sales, and the current investigation is focusing on whether budget issues are fully explained in documents that must be filed as part of any deal.

Earlier in the year, the SEC charged the state of New Jersey with fraud for failing to disclosed under-funded state pension plans, the first state ever to be charged in such a case. Market sources tell FBN that the SEC is particularly interested in states with a high degree of budget stress, such as New Jersey, New York and California.

An SEC spokesman had no comment.