What secures revenue bonds in municipal finance?

Revenue bonds in municipal finance are secured by specific revenue streams generated by the project or service funded by the bonds. This means that the income produced from the specific source, such as fees from users, tolls from a facility, or sales from a service, is pledged to pay back the debt. This structure allows municipalities to finance projects without impacting their general tax revenues, as the bondholders have a claim specifically to the revenue generated by the project.

This method of securing bonds is critical for investors since it provides a clear understanding of how the bonds will be repaid. If the expected revenue does not materialize, the bondholders have limited recourse, making revenue bonds typically riskier than general obligation bonds, which are backed by the full faith and credit of the issuing municipality.

The other options, such as general taxes collected, agricultural land sales, or federal grants, do not describe the securement framework that defines revenue bonds and can be associated with different types of financial instruments or funding mechanisms within municipal finance.