AARP Eye Center
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 preferred interest rates. At the same time, bonds are inherently risky. Borrowing jurisdictions must repay investors back with interest. Bond payments take precedence over other expenses of state and local governments. Borrowing jurisdictions must maintain taxes over the bond's lifetime at a level sufficient to make the payments.