Revenue Bonds Research Articles

Contract Design, Financing Arrangements and Public Ownership—An Assessment of the US Airport Governance Model

US airports negotiate legally binding contracts with airlines and finance large investment projects with revenue bonds. Applying insights from transaction cost economics, we argue that the observed variation in contractual and financing arrangements at US airports corresponds to the parties' needs for safeguarding and coordination. The case evidence presented reveals that public owners set the framework for private investments and contracting. We suggest that airline contracts and capital market control result in comparative efficient investments and act as a check on the cost inefficiency typically linked to public ownership.

Urban Management and Regeneration in the United States: State Intervention or Redevelopment at All Costs?

For some commentators, urban regeneration in the United States is built around a narrowly economistic or neo-liberal model of redevelopment rather than a socially inclusive or participatory ‘new regionalist’ model. In considering whether or not there is a uniformly neo-liberal ‘US model’ of urban regeneration, this paper examines a variety of urban regeneration tools currently used in the US. These include: public–private partnerships; special purpose districts; revenue and general obligation bonds; tax-increment financing of redevelopment; and community activism and engagement. Although we discern a tendency towards ‘redevelopment at all costs’, actual regeneration tools as well as the uses to which they are put vary considerably according to conditions found in specific cities and metropolitan areas. We argue that the new Obama administration heralds a more interventionist federal urban policy regime. This new regime will be constructed out of the challenges posed by the material legacy of neo-liberal forms of urban development and the desire to build sustainable and inclusive metropolitan regions around a range of new federal infrastructural and housing programmes.

Commercial Bank Underwriting of Credit-Enhanced Bonds: Are There Benefits to the Issuer?

Recent studies have expanded the commercial bank certification hypothesis to include banks acting in an underwriting capacity. This paper further develops that research by focusing on the industrial revenue bond market in which banks have the unique opportunity to simultaneously act as both credit guarantor and underwriter. When explicitly allowing for bank-issued standby letters of credit (guarantees), we find significantly greater yield spreads for those bonds underwritten by commercial banks compared to bonds underwritten by investment banks. Overall, no net benefit appears to accrue to the bond issuer when attempting to achieve joint (or double) certification benefits by employing commercial banks as both credit guarantor and underwriters except in the special case where the same bank acts as both guarantor and underwriter. This latter result is consistent with an economy of scope in monitoring and reusing information.

Analysis of Tobacco Revenue Settlement Bonds

Tobacco settlement revenue (TSR) bonds have developed quickly as a major, higher-yielding municipal bond sector. These securities derive their required debt-service revenues from cigarette manufacturers, under provisions embedded in the Tobacco Master Settlement Agreement. This article describes a methodology on the narrow but crucial topic of assessing cigarette consumption decline estimates, which is very important to the bond security. The research approach is to assess cigarette-smoking trends, via data sources apart from TSR bond official statements, and offer the results, as one among several tools, for analyzing the TSR bonds. The principal conclusion, based on the research methodology described in this article, is that the long-term cigarette smoking decline rate might be significantly steeper than the rate that has been assumed within typical TSR bond structures. <b>TOPICS:</b>Legal and regulatory issues for structured finance, security analysis and valuation

The Role and Impact of Financial Advisors in the Market for Municipal Bonds

Significantly more and more issuers of municipal bonds use the services of financial advisors during the bond issuance process. We investigate the benefits to issuers and market participants arising from the role of financial advisors in the issuance of municipal bonds. Using a large sample of 9493 tax-exempt municipal bonds, we show that financial advisors have significant impact on borrowing costs, reoffering yields and underwriter gross spreads. Our results are more pronounced for revenue bonds, particularly for negotiated revenue issues. In addition, our results show significant advantages to using a financial advisor for refunding issues supporting the view that financial advisors play important roles for more complex issues. Our results are consistent with the interpretation that financial advisors provide important and useful services resulting in monitoring and information asymmetry reduction benefits accruing to issuers and market participants.

Investment Opportunity Set, Product Mix, and the Relationship between Bank CEO Compensation and Risk-Taking

The product mix changes that have occurred in banking organizations during the 1990s provide a natural experiment for investigating how firms adjust their executive compensation contracts as their mix of businesses changes. Deregulation and new technology have eroded banking organizations' comparative advantages and have made it easier for nonbank competitors to enter banking organizations' lending and deposit-taking businesses. In response, banking organizations have shifted their sale mix toward noninterest income by engaging in municipal revenue bond underwriting, commercial paper underwriting, discount brokering, managing and advising open- and close-ended mutual funds, underwriting mortgage-backed securities, selling and underwriting various forms of insurance products, selling annuities, and other investment banking activities via Section 20 subsidiaries. These mix changes could affect firms' risk and the structure of CEO compensation. The authors find that as the average banking organization tilts its product mix toward fee-based activities and away from traditional activities, equity-based compensation increases. They also find that more risky banks have significantly higher levels of equity-based compensation, as do banks with more investment opportunities. But, more levered banks do not have higher levels of equity-based CEO compensation. Finally, the authors observe that equity-based compensation is more important after the Riegle-Neal Act of 1994.

Is There a Reason for Higher-Cost Financing?

Bonds can be issued via negotiated or competitive sales method. Research shows that bonds issued via negotiated sales method have higher interest payments and thus are more expensive. Nevertheless, the majority of the municipal bonds issues in the US are sold via negotiation. Why does this happen? Aren’t municipalities rational in choosing a more expensive method of sale? Don’t they want to save the 0.5% in interest for their taxpayers? In this paper we investigate why this phenomenon takes place. We show that lower-risk general-obligation bonds are likely to be sold competitively whereas riskier lease, revenue, special assessment, tax allocation, and limited tax obligation bonds are more likely to be sold via negotiated deal. Municipalities choose the sales method that is most beneficial to them. Credit rating and the type of bond issued determine the choice of the sales method.

Guidelines for Calculating System Development Charges

Many water utilities impose system development charges (SDCs) to pay for the costs incurred by new developments connecting to a system. This article describes the purpose of SDCs and the criteria that should be followed when developing a methodology for calculating SDCs that can help a utility determine fees that are both cost‐based and equitable. This methodology also ensures that customers are avoiding double payment, which could occur when an SDC is imposed on customers and then they are also required to pay debt service on new or existing infrastructure (including both revenue bonds and general obligation bonds).

Commercial bank underwriting of credit-enhanced bonds: are there certification benefits to the issuer?

Recent studies have expanded the commercial bank certification hypothesis to include banks acting in an underwriting capacity. This paper further develops that research by focusing on the industrial revenue bond market in which banks have the unique opportunity to simultaneously act as both credit guarantor and underwriter. When explicitly allowing for bank-issued standby letters of credit (guarantees), we find significantly greater yield spreads for those bonds underwritten by commercial banks compared to bonds underwritten by investment banks. Overall, no net benefit appears to accrue to the bond issuer when attempting to achieve joint (or double) certification benefits by employing commercial banks as both credit guarantor and underwriters except in the special case where the same bank acts as both guarantor and underwriter. This limited certification effect is further validated when the credit quality of participating banks is accounted for. This result is consistent with an “economy of scope” in monitoring and reusing information.

Bay Area Rapid Transit's San Francisco, California, International Airport Station: Assessment of Transit Patronage and Revenue Forecasts

This study examines patronage and revenue forecasts for the newly opened San Francisco International Airport (SFIA) Bay Area Rapid Transit (BART) station in California. As an outgrowth of a September 2002 analysis to determine whether a $1.50 premium surcharge at the SFIA station was sufficient to pay off revenue bonds, this study examines how a series of assumptions about BART services and fares have changed since publication of the final environmental report in 1996. Patronage and service projections are evaluated for three time periods: the 1996 final environmental document, the September 2002 analysis for the purpose of issuing revenue bonds, and an updated 2003 analysis leading up to the start of revenue service. These projections are compared with the first weeks of revenue service that began in June of this year. In general, the 1996 environmental analysis overstated projected ridership and service levels. However, based on updated analyses that took into account realistic service levels, fare increases, parking charges, and a downturn in the regional economy, the most recent projections of ridership are reasonably accurate, and projections of fare revenues are right on target. The study concludes that projected growth in patronage at the SFIA BART station may be quite reasonable, assuming a turnaround in the economy in the near future, and provides a benchmark for establishing more reasonable sets of assumptions to be used in analyzing future Bay Area rail improvement projects.

City Supplying Wholesale Water Must Stick to Contracted Rate

The Court of Appeals of Texas has ruled that a municipality's wholesale water supply contract with a nonprofit rural water supply corporation was unambiguous in providing that the municipality's debt service obligation for water revenue bonds issued by the county water supply district was to be included in determining the municipality's water cost.

Financing Distributed Generation

This paper introduces the engineer who is undertaking distributed generation projects to a wide range of financing options. Distributed generation systems (such as internal combustion engines, small gas turbines, fuel cells and photovoltaics) all require an initial investment, which is recovered over time through revenues or savings. An understanding of the cost of capital and financing structures helps the engineer develop realistic expectations and not be offended by the common requirements of financing organizations. This paper discusses several mechanisms for financing distributed generation projects: appropriations; debt (commercial bank loan); mortgage; home equity loan; limited partnership; vendor financing; general obligation bond; revenue bond; lease; Energy Savings Performance Contract; utility programs; chauffage (end-use purchase); and grants. The paper also discusses financial strategies for businesses focusing on distributed generation: venture capital; informal investors (''business angels''); bank and debt financing; and the stock market.

Financing Distributed Generation

ABSTRACT This article introduces the engineer who is undertaking distributed generation projects to a wide range of financing options. Distributed generation systems (such as internal combustion engines, small gas turbines, fuel cells and photovoltaics) all require an initial investment, which is recovered over time through revenues or savings. An understanding of the cost of capital and financing structures helps the engineer develop realistic expectations and not be offended by the common requirements of financing organizations. This article discusses several mechanisms for financing distributed generation projects: appropriations; debt (commercial bank loan); mortgage; home equity loan; limited partnership; vendor financing; general obligation bond; revenue bond; lease; Energy Savings Performance Contract; utility programs; chauffage (end-use purchase); and grants. The article also discusses financial strategies for businesses focusing on distributed generation: venture capital; informal investors (“bu...

Revenue Bonds and Religious Education: The Constitutionality of Conduit Financing Involving Pervasively Sectarian Institutions

Revenue Bonds and Religious Education: The Constitutionality of Conduit Financing Involving Pervasively Sectarian Institutions

Capital Financing of Schools: A Comparison of Lease Purchase Revenue Bonds and General Obligation Bonds

School building construction is on the rise nationwide and Texas has led the nation in outlays on school construction. We consider key factors that distinguish lease purchase revenue (LPR) bonds and general obligation (GO) bonds as debt instruments for financing school facilities in Texas. Our research shows that LPR bonds typically have a higher interest cost than GO bonds and they do not have any advantages over GO bonds in circumventing state restrictions on school district tax and debt authority. Voter approval requirements implicit in the state aid formulae supporting school bond repayments and the bond election requirements are however both less stringent in the case of LPR bonds than GO bonds.

The Competitive Impact of Commercial Bank Underwriting on the Market for Municipal Revenue Bonds

This paper examines the impact of commercial bank entry in the market for municipal revenue bonds. We show that issues underwritten by commercial banks have lower underwriter spreads but not lower yields relative to issues underwritten by nonbank investment firms. In particular, this is more significant for non-investment-grade bonds underwritten by commercial banks. Our results are consistent with the interpretation that bank entry has resulted in increased competition in the municipal revenue bond market and that the lower yields observed for bank-underwritten commercial bonds may be due to banks having private information. Overall, our results suggest that policy changes leading to the relaxation of restrictive provisions concerning bank underwriting of municipal revenue bonds have had beneficial effects.

Five-Factor Theory of Personality

Funding for municipal infrastructure projects in Europe, Asia, and Latin America has traditionally been provided by intermediaries such as governmental lenders, commercial banks, and multilateral regional banks. As governments become more and more hard-pressed to pay for projects, however, new attention is being paid to capital market debt issues based on stand-alone credits similar to U.S. municipal revenue bonds. Now both the buy side and the sell side of the capital markets are motors propelling development of the revenue bond market abroad. Full development will take several years, even in Western Europe, but there are key credit issues to be aware of now.

Federal Loan Repurchase Cancels Service Area Protection

Public Water District Number 1 of Butler County, Missouri, obtained its original funding from Farmer's Home Administration (FmHA) under a federal law authorizing federal loans to rural water systems. When FmHA was later required to sell these loans, the district opted to repurchase its own debt. The 1990 repurchase, which was financed by general revenue bonds, extinguished all debt owed by the district to the federal government. Subsequently, the city of Poplar Bluff, Missouri, in a series of annexations, extended its corporate limits and provided water service into some of the district's service areas. The district brought suit, seeking to enjoin the city from extending its water service boundaries. The trial court ruled against the district. On appeal, the district argued that it had maintained territorial protection against encroachment of its service area despite the repurchase of its federal loan. The district argued this protection had been maintained because the debt was still in existence even though it was no longer owed to the federal government. The court emphasized that the district had opted to repurchase its own debt and extinguish all obligations to the federal government. According to the court, the loan had ended and with it the service area protections of federal law. The trial court decision was affirmed.

Impact of an Aging on the Local Economy

This paper analyzes the impact of an aging on the local economy in Nagoya City, and discusses the conditions for solving the budget deficit of local finance, using an econometric model. The model is a simultaneous model of Nagoya City, for this purpose, the budget components to be carefully estimated, on one hand, and the population block to be built, using the cohort-component method, on the other hand. The analyses are based on two simulations for a prediction period of 1998-2010. These assumptions of two simulations are as follows. (1) the aging population is increasing according to the data of the cohort-component method and (2) the aging population is fixed in 1997, in both cases the other exogenous variables are fixed in 1997. From the results of simulations, we find that the gap between the expenditure and the revenue minus local bond is 852.7 billion Yen and the burden of per aged person is 3, 600, 000 Yen in 2010.

The Cash Flow Model with Float: A New Approach to Deal with Valuation and Agency Problems

In this paper we introduce a cash flow model with float to manage core issues in Corporate Finance. The float actually removes current hindrances pervading the standard cash flow model. To start with, we derive the float model and uncover its underlying financial engineering. After that, any investment decision is regarded as a synthetic portfolio made out of a revenue bond financing the investment, and a performance swap acting as a value driver. It is within the performance swap where the float lies and enhances value. Furthermore, extension to valuation is provided taking advantage of the former portfolio approach. Next, the float complex structure is displayed to proceed towards its sources and uses of cash flows. Last of all, we expand upon a normative model which makes the most of the float and spells out how an accountability precept should be functional in redressing agency problems.