Definition of Special Revenue Bond
A Special Revenue Bond is a type of municipal bond specifically designed to fund infrastructure and public projects that serve significant public purposes. Unlike general obligation bonds, which are secured by the taxing power of the issuing government, special revenue bonds are secured by specific revenue sources aside from taxes. These sources might include tolls, fees, or revenues generated from the funded project itself.
Characteristics of Special Revenue Bonds:
Project-Specific: Funds raised through these bonds are earmarked expressly for predefined projects, often related to public utilities, transportation, or educational facilities.
Non-Tax Revenue: These bonds are not payable from general tax revenues but from specified revenues generated by the project.
Secure Investment: Typically considered safer than revenue bonds like utility bonds since the funds a government pledges for bond repayments are often a legally enforceable commitment.
Legal Framework
The issuance of special revenue bonds involves adherence to various statutory requirements based on country or state regulations. For instance, in the United States, specific sections under Title IX of the United States Code outline the legal baselines for the issuance of such bonds.
Applications
Transportation: Funding for highway or bridge construction where the repayment source could be the tolls collected.
Education: Supporting the development of educational facilities, wherein the revenues might come from room and board fees paid by the students.
Utilities: Suitable for projects like water treatment plants or energy facilities where user fees support bond repayment.
It’s advisable for investors to understand thoroughly the specs of the revenue sources backing the bond as these details can impact the bond’s security level.
Conclusion
Special Revenue Bonds are crucial tools in government finance, enabling project-specific investments without directly imposing new taxes on the general populace. This bond type empowers economic upgrades and enhancements emphasizing public benefit.
