revenue bond

revenue bond

or limited obligation bond

Bond issued by a municipality, state, or public agency authorized to build, acquire, or improve a revenue-producing property such as a waterworks, electric generating plant, or railroad. Unlike general-obligation bonds, which are repaid through a variety of tax sources, revenue bonds are payable from specified revenues only, usually the revenues from the facility for which the bond was originally issued. Revenue bonds typically pay interest rates higher than those of general-obligation bonds. The separation of the revenue bond obligation from a municipality's other bond obligations allows the municipality to circumvent legislated debt limits.

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A toll revenue bond is a financial promissory note usually issued to generate funds for the construction and/or operation of a public accommodation such as an expressway, bridge, or tunnel. Funds for the repayment are obtained through revenue raised through collection of tolls from users as a fare for passage.

Toll revenue bonds are more speculative than "general obligation" bonds, which are backed (or guaranteed) by tax revenues of a state or local government. Such bonds may be subject to default if toll revenues are insufficient to meet scheduled payments, although such defaults are rare. One example is the 23-mile long Chesapeake Bay Bridge-Tunnel (CBBT) in Virginia, one of the more ambitious such projects which was built in the mid-1960s. The facility was subject to increased construction costs due to weather, and disruption due to accidents caused by shipping traffic striking its bridges. The CBBT was in default of its toll revenue bonds for several years shortly after its completion, but these were repaid as traffic volume increased. Additional bridges were constructed later to reduce the likelihood of future disruption of revenue due to accidents.

See article List of toll roads for facilities financed by toll revenue bonds.

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