2.4.19.2. Revenue Bonds
Revenue bonds are bonds whose principal and interest payments are funded by revenue generated by the projects associated with the bonds.
Issuers of revenue bonds may be municipal governments, government agencies, or public authorities (such as the New York City Housing Authority or the Chicago Transit Authority). Public authorities are organizations formed to promote the public interest by financing, building, and operating public facilities. Revenue bonds finance airports, mass transit systems, roads and bridges, libraries, and hospitals.
Income from concessions, tolls, or user fees is put into a revenue fund. The project’s expenses are paid first out of the fund, with the remaining money going to bondholders.
Revenue might also be generated by rental or lease payments. A state may create a nonprofit authority to build a community center and then lease the facility to a local government. Since these projects only serve those in the community who use the services, users of these services are asked to pay for them, as opposed to the general taxpayer.
In addition, revenue bonds may be issued when voter approval for general obligation bonds cannot be attained. Or revenue bonds may be used to finance projects when statutory debt limitations prevent a municipality from issuing GO bonds. Because the bond payments are contingent on a project’s success and because projects funded by revenue bonds may have no access to tax revenues, revenue bonds are riskier than GO bonds and require higher yields