School districts get funding by selling municipal bonds to private investors. They pay investors interest on a periodic basis, along with the bond's value at maturation, notes eHow. School districts use bond money to help construct and renovate schools, lease or buy more land, and buy equipment or other necessary capital.
Municipal bonds are debt securities issued by states, counties or cities to finance expenditures, according to Investopedia. These bonds are advantageous for investors because of their tax benefits. They also come with lower risks than stocks or corporate bonds.
School districts go through a bond election process before receiving approval for a bond sale, per eHow. A local governing body creates a resolution explaining the need for a bond sale, and voters either approve or reject the resolution. If the resolution approves, the school district hires an underwriter to deal with the specifics of issuing, marketing and selling bonds. Specific laws on bond elections, such as the vote percentage needed for approval, vary in each state.
Bonds are a great way for school districts to pay for major capital without having to take money out of their general fund, states My Texas Public School. Bonds allow for distribution of costs over time.