Issuance of Bonds

State and local governments issue bonds to finance important projects that meet social goals and benefit communities. Bonds are attractive because they provide financial flexibility. They offer governments the option of financing a project over a period of years. This avoids the need for a large, upfront lump sum of money from the general fund. In addition, the tax-exempt status of bonds allows state and local governments to borrow at reasonable interest rates. At the same time, bonds can be risky. There must be a revenue source to make payments over the life of the bond. And repaying the bond once it comes due must take precedence over all other expenses of state and local governments. Repayment of the bond often requires raising taxes.