7.3 Capital Asset Financing Options

Municipal bonds

• Exclusion of interest payments from taxable income (for bondholder) resulting in lower interest rates (lower cost of borrowing) for issuer

• Types of municipal bonds

  • General obligation bonds: Backed by the taxing authority of the government (strongest security pledge with low interest rates) and possibly subject to voter approval
  • Revenue bonds: Backed by the revenue generation of the capital asset and therefor resulting in higher interest rates due to risk of inadequte revenue generation

Other options

• Leasing: Useful for specialized equipment likely becoming obsolete after leasing period
• Loans: Direct borrowing on capital markets