A revenue bond
is a special type of municipal bond
distinguished by its guarantee of repayment solely from revenues
generated by a specified revenue-generating entity associated with the purpose of the bonds. Unlike general obligation bonds
, only the revenues specified in the legal contract between the bond holder and bond issuer are required to be used for repayment of the principal and interest of the bonds
; other revenues (notably tax
revenues) and the general credit of the issuing agency are not so encumbered. Because the pledge of security is not as great as that of general obligation bonds, revenue bonds may carry a slightly higher interest rate than G.O. bonds; however, they are usually considered the second-most secure type of municipal bonds.
Revenue bonds may be issued to construct or expand upon various revenue-generating entities, including:
Generally, any government agency or fund that is run like a business, generating operating revenues and expenses (sometimes known as an enterprise fund), can issue revenue bonds.