Airport Master Plan October 1985

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debt service to range from 1.25 to 1.5 times the annual debt service requirements. This money is required to be put in a fund to be used only for payment of the bond's principle and interest in the event that net revenue in any particular year is not sufficient to meet these pay- ments. This requires that money that might be useful elsewhere be tied up in a reserve fund and also requires that the airport earn considerable more than its debt ser- vice requirements from virtually its first year of opera- tion. Experience has shown, that many successful businesses operate at a loss for the first year or two while operating experience is gained. While this practice is quite common, it is generally not favorably received for revenue bond financing. However, in certain cases, it may be worked out. For example, if an average of the first five years of revenue and expenses will yield enough to meet the debt service payments, an arrangement can be worked out by borrowing additional capital to make pay- ments in the first few years or by paying interest only on the early serial bonds. Another possibility would be a serial repayment plan with lower payments in the earlier years and higher payments in the later years of the debt retirement program. Recently, a system of providing in- surance for revenue bonds has been developed. Although this insurance raises the total amount of bonds which must be sold, it usually makes a bond issue easier to sell and can often result in a lower net interest rate. A revenue bond should only be considered for those improvements which are revenue producing, e.g. T hangars, Maintenance hangars, supporting utilities. General Obligation Bonds General Obligation (G.O.) Bonds are bonds secured by the taxing power of the municipal authority. Their major advantage is that they carry the lowest interest rate of any type of borrowing. Thus the costs of financing are reduced considerably when this type of financing is used. A disadvantage of (G.O.) Bonds is that it is often neces- sary to request a tax increase from the taxpayers by a referendum in order to have enough money to pay for the G.O. Bonds. Voters are often understandably reluctant to vote for a tax increase. This is especially true of facilities such as airports, where, while the value to the community as a whole may be obvious, it is difficult for the individual voter to see, in terms of dollars and cents, what the airport will mean to him. 10-10