2.13.6. Municipal Notes
Municipal notes are short-term debt obligations, whose term may last from three months to three years; though, most often, their duration does not exceed a year. Like Treasury bills, they obligate the issuer to pay a specified principal by a certain date, and also like T-bills, municipal notes sell at a discount to par in lieu of paying interest. They are zero coupon securities, in other words. The primary purpose of municipal notes is to meet an agency’s cash flow needs in anticipation of the taxes, fees, or other sources of revenue that fund its ongoing commitments.
Municipal notes are called anticipation notes because they are issued in anticipation of an expected source of income. Anticipation notes allow a project to get underway before funding has been received.
Notes are issued by different names, depending on where the anticipated receipts are coming from, whether from taxes, grants, or fees. Like any cash advance, municipal notes are meant to smooth out cash flows until income is received. They are tax-exempt to the note holders.
Tax anticipation notes (TANs). Tax anticipation notes are issued to finance a proje