Community Development Division - Bonds
The provision of public facilities and services for the benefit of all citizens in the community is one of the primary functions of local government. Local governments have developed a variety of approaches to raising the money for capital improvements. Most federal and state assistance programs for community water or sewer projects require that some portion of the project cost be shared by the community. The most common way a community can provide local match for large capital projects is through debt financing. Long-term debt financing typically is accomplished by issuing bonds, which are interest-bearing promises to pay a specific sum of money (principal amount) on a specified date or dates in the future. Borrowing allows the cost of capital improvements to be shared by those citizens who will be using the facility in future years. The debt is typically repaid by increasing the monthly charges paid by water and sewer users.
The following summary provides only a very brief overview of the "basics" of local government bonding and is condensed from the Montana Department of Commerce publication, Planning and Financing Water and Sewer Systems in Montana. Copies of the publication can be ordered from MDOC's Community Development Division. Local governments considering a bond issue should also contact bond counsel, bond underwriters, and a financial consultant for assistance in the legal, procedural, and marketing aspects of bonding.
