Financing for Environmental Compliance
Step Seven: Select Financial Options - Types of Bonds
A bond is a written promise to repay borrowed money on a definite schedule and usually at a fixed rate of interest for the life of the bond. It is the largest source of environmental infrastructure capital/financing. It is also the most complex and expensive way to acquire funds but money is available for immediate capital needs. Legal and administrative fees can be costly and voter approval may be required. This tool is usually more cost effective for large capital projects because the fees are the same for large or small bond issue. For a full analysis of various types of bonds and related uses please reference the Guidebook of Financial Tools
Types of bonds:
- Anticipation Note
These are short term bonds issued in anticipation of a future revenue source. The interest rates on these bridge bonds are usually higher than longer-term bond instruments.
- General Obligation
This type of bond usually requires voter approval. The revenue does not come from a dedicated source but rather general receipts acquired by the community.
- Certificates of Participation
These financial instruments use the leasing of real property or physical assets as collateral for the loan.
These bonds are used when there are smaller capital requirements, generally less than $1,000 per instrument. Administrative fees are a larger percentage of the instrument due to the small face value.
The debt service is paid by revenue generated by the project being financed or other non-property tax source. This is the vast majority of bonds issued for municipal infrastructure.