What is meant by the term "principal" in the context of municipal finance?

In the context of municipal finance, "principal" refers specifically to the original amount of debt that must be repaid when a bond matures. This is the foundational concept in financing, as it represents the initial borrowed amount that a municipality has taken on to fund various projects or operate its services. When bonds are issued, they usually have a set face value, which is the principal amount.

As municipalities work to repay their debts, they focus on ensuring that they can cover this principal amount, separate from any interest that accrues over the life of the bond. The payment of the principal amount is crucial because it affects the overall financial health of the municipality and its ability to manage future obligations. Understanding this term is essential for anyone involved in municipal finance, as it is a core component of debt management and financial planning.