Agenda - Council - 06/23/1981 - Laserfiche WebLink

Home

Revenue bonds pledge revenues from a defined and limited source to apply debt service. Typically, only the net revenues derived from the project are pledged, rather than revenues from other sources. Net reveneus are gross revenues less the costs of operation, admini- stration and maintenance. Net revenue bonds involve no direct or indirect pledge of property tax revenues. Bond holders exclusively bear the risk of project failure. As a result, interest rates on net revenue bonds are typically higher than for general obligation bonds, and bond purchasers closely scrutinize the economics of the project. "Hybrid" bonds combine certain features of both general obligation and revenue bonds, and include so-called general obligation-revenue bonds and gross revenue bonds. General obligation-revenue bonds pledge project revenues to pay debt service. An obligation to levy property taxes arises only when revenues are insufficient to meet debt service or maintain a prescribed reserve. Interest rates on this type of bond depend largely, but not exclusively, on the same factors as general obligation bonds. Gross revenue bonds involve an indirect pledge of taxing power subject to limitations defined in the instrument authorizing their issuance. The gross revenues of the pro- ject are pledged first to pay debt service, and second to pay the costs of operation, administration and maintenance. As a practical matter, revenues will usually be sufficient to pay debt service, but may not be sufficient to pay operational costs. The issuer pledges to make up deficiences in revenues from ad valorem tax levies, sub- ject to the limitations mentioned previously. Tax revenues cannot be used to pay debt service. The security of industrial development revenue bonds is revenue from a private or nonprofit corporation under a revenue agreement, secur- ity interest in the property financed, and other payment guarantees to which the corporation or its shareholders may agree. No pledge of public money is made for the payment of these bonds. Under federal tax laws, industrial development revenue bonds cannot be issued in excess of $5 million for a project unless the project is an exempt facility, such as a pollution control facility or a resource recovery facility furnishing electricity or gas. Pollution control revenue bonds may be issued by a variety of public agencies on behalf of a private enterprise, similar to industrial development bonds. These are long-term tax-exempt revenue bonds typically secured by a pledge of certain corporate assets, as well as a long-term lease relating to the capital project for which the bonds are secured. These issues may or may not be pure revenue bonds depending on the terms of the bonds. Since pure revenue bonds do not pledge property tax revenues and involve a rigorous financial feasibility analysis when they are offered, the use of revenue bonds for proposed waste facilities is encouraged. An economic analysis of the proposed waste facility over the term of the bonds must be included in the basic financial report. The analy- sis should include a breakdown of the project's projected cash flow, anticipated revenues and costs (a profit and loss statement) and pro- jected balance sheets. The report should also include a sensitivity