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Revenue Bonds

If the capital expenditure in question can be expected to deliver a reasonably predictable stream of revenue, then it can be financed with revenue bonds. These bonds are generally not obligations of the municipal or state government. Rather, they are backed by a claim on the revenues that the facility is expected to generate. Thus toll roads, parking structures, water and sewage treatment plants, airports, stadiums, and other such revenuegenerating facilities can be financed by these bonds. Facilities that do not generate revenues directly cannot be financed with revenue bonds. Given a choice, municipal governments prefer revenue bonds because such bonds are not an obligation of government and therefore are not subject to debt limits and do not require referenda. What they generally do require, as is the case with general obligation bonds, is the opinion of a bond-rating agency such as Standard and Poor or Moody's that there will be adequate revenues to pay off the bonds. Otherwise, the bonds will not be marketable.

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