What primarily secures Revenue Bonds?

Revenue bonds are primarily secured by the income generated from specific projects or sources. This means that the funds necessary to repay the bondholders come directly from the revenue produced by the project for which the bonds were issued. For example, if a city issues revenue bonds to build a toll road, the repayments to bondholders will come from the tolls collected from motorists using that road.

This characteristic distinguishes revenue bonds from general obligation bonds, which are backed by the full faith and credit of the issuing government and typically funded through taxes. In contrast, the reliance on specific revenue streams makes revenue bonds ideal for financing projects that can generate their own income, such as utilities, transportation projects, or housing developments. This specificity in revenue generation is crucial for investors as it outlines the source of their return.

While other options hint at potential funding sources, they do not provide the direct connection to revenue bonds. For example, interest from investors does not secure the bond; it is the return on investment. State and local taxes might support general obligation bonds rather than specific projects. Federal grants can provide funding for projects but are not a direct mechanism for securing revenue bonds themselves. Thus, the reliance on revenue generated by specific projects is what primarily secures revenue bonds.