Revenue Bond
What Is a Revenue Bond?
A revenue bond is a municipal bond issued by a state or local government to finance specific projects such as highways, airports, or public utilities. These bonds are repaid using revenue generated by the funded project rather than general tax funds.
Revenue bonds are commonly used to finance infrastructure.
Why It Matters
Revenue bonds allow governments to fund large projects without relying entirely on taxpayer revenue. Investors receive interest payments funded by income generated from the project.
Because repayment depends on project revenue, revenue bonds may carry more risk than general obligation bonds.
How Revenue Bonds Work
Revenue bonds finance projects that generate income.
Sources of repayment may include:
- tolls from highways or bridges
- airport fees
- utility payments
- public facility revenues
Investors receive interest payments from the project’s revenue stream.
Example
A city may issue revenue bonds to build a toll bridge. Tolls collected from drivers help repay the bondholders.
Revenue Bond vs General Obligation Bond
- Revenue bonds are repaid from project-generated revenue.
- General obligation bonds are backed by the government’s taxing power.
FAQs About Revenue Bonds
Are revenue bonds safe investments?
They may carry more risk because repayment depends on project revenue.
Who issues revenue bonds?
State and local governments typically issue them.
What projects are funded with revenue bonds?
Infrastructure such as transportation systems and utilities.
Related Terms
