Municipal bonds are a cost effective financing vehicle for long-term capital projects. Because bonds are issued on a tax-exempt basis, interest rates are much lower than regular taxable financings.
A Vermont municipality may issue two types of municipal bonds:
- General obligation bonds:
The bond principal and interest are secured by the full faith and credit of the issuer and supported by the issuer’s taxing authority (property taxes)
- Revenue bonds:
The bond principal and interest are secured by the revenues earned from the governmental activity being financed. Vermont statutes limit revenue bonds to certain public/municipal utilities.
General obligation and revenue bonds in most cases require voter approval.