Municipal Debt Flashcards
(43 cards)
Tax rules for municipal bonds:
Exempt from Fed income tax, but is subject to state AND local tax
What does the bond counsel for a muni bond do?
Examine the issue for its validity, legality, and tax exempt status. They will then issue an opinion. An UNQUALIFIED opinion is required.
All muni bonds must have legal opinions printed on the bond
General obligation bond basics:
- Backed by full faith, credit, and TAXING POWER of issuer
- Local govt. issues are backed by “ad-valorem” taxes
What is a limited tax bond?
This is a bond that has more credit risk than unlimited tax bonds because there is a limit placed on the rate that the issuer can tax citizens on
What is 1 mill, mathematically?
.001
Calculate the tax on a property with a tax rate of 7 mills, and a value of 100,000
.007 & 100,000 = $700
What is a capital appreciation bond?
A municipal ZERO coupon bond
Revenue bond basics
- backed by a specific source of revenue (no taxing power) including user fees, rents, grants, excise tax, etc
- self suppoting debt
- exempt from trust indenture act, but hard to sell w/o one
What is a bond contract?
- Contract prepared by the bond counsel
- includes bond resolution (allows sale of securites)
- will have a trust indenture
What is the job of the trustee?
To monitor the issuer’s compliance with bond contracts and protective covenants
What is the order of the flow of funds for pledged revenues?
- Revenue fund
- Operation and maintenance fund
- Sinking fund
- Debt service reserve fund
- Reserve maintenance fund
- Renewal and replacement fund
- Surplus fund
What is the revenue fund for?
All gross revenues are placed in this fund and all moneys disbursed are taken from this fund
What is the operation and maintenance fund for?
Money to run the facility are deposited from revenue fund into this fund
What is the sinking fund for?
- Moneys too meet debt service requirements are deposited
- bondholders are paid from this fund
What is a bondholder entitled to if there is a net revenue pledge?
Net revenues (not gross). Net revenues are calculated as gross revenues less operation and maintenance
What is a bondholder entitled to if there is a gross revenue pledge?
The gross revenue of the bond. They are paid before operation and maint. in this case. (These are very rare!)
What are some examples of a special tax bond?
Cigarette, liquor, and gasoline taxes secure the bond
What are some examples of a special assessment bond?
These bonds only benefit a certain portion of the community, and only the beneficiaries are taxed. An example is street lights in a particular neighborhood
What is a moral obligation bond?
Promise to pay, but there is no legal obligation
What is a double barreled bond?
Bond backed by both revenues and taxing power
What is an industrial development bond?
Bonds issued by state, city or local agency to build an industrial facility, that will be leased to a private company. Lease payments are revenue source
guaranteed by the private lessee and considered USERS liability
What are short term municipal notes used for?
Temporary financing of capital improvements or to even out cash flow. Usually 12 month maturities (3 month min to 3 year max)
What are the different types of short term muni. financing for building?
BAN - bond anticipation note
- start capital projects, secured by GO pledge
CLN - construction loan note
- used for multifam. projects
What are the different types of short term muni. financing used to pull forward anticipated income before it is actually received?
TANS - tax anticipation notes
RANS - revenue anticipation notes
TRANS - combo
GANS - grant anticipation ntotes
