How Revenue Bonds Work

Industrial revenue bonds explained page 1 of 2 general structure industrial revenue bonds irbs are used in kansas to finance acquisition and construction of a broad variety of industrial commercial and industrial properties under k s a.

How revenue bonds work. How revenue bonds work a public referendum may be required before a revenue bond can be issued. A revenue bond is a special type of municipal bond distinguished by its guarantee of repayment solely from revenues generated by a specified revenue generating entity associated with the purpose of the bonds rather than from a tax. Tax exempt bonds normally have lower interest than equivalent taxable bonds. Revenue bonds are another type of muni bond that is backed by the revenue generated by a specific project being financed by the bond issue.

Unlike general obligation bonds only the revenues specified in the legal contract between the bond holder and bond issuer are required to be used for repayment of the principal and interest of the bonds. Revenue bonds on the other hand are bonds that are tied to a specific source of income. Revenue bonds explained. An investor must calculate the tax equivalent yield to compare the return with that of taxable instruments.

A revenue bond repays creditors from income generated by the project that the bond itself is funding such as a toll road or bridge. In other words the money raised by the bond offering directly finances the project and the project once complete generates the revenues to pay back the interest and principal on the bonds to investors. Other revenues and the general credit of the. Through the state s mrb program proceeds from bonds can be allocated to provide low interest loans to qualified borrowers.

12 1740 et seq on behalf of private businesses or non profit agencies. General obligation or go bonds are backed by the general revenue of the issuing municipality while revenue bonds are supported by a specific revenue source such as income from a toll road hospital or higher education system. Bonds have a face value usually what it is sold for initially however they also have a market value which fluctuates. A city for example might issue revenue bonds to build a new toll road and use the money from toll.

Here s how it works. These buyers are credit worthy but may have low incomes or low liquidity making it hard for them to qualify for a standard mortgage.