What are Municipal Bonds?
Bonds, are promises to pay an interest rate for certain types of authorized purchases.
If you are building a new school or community center or road, all of which may be used for decades to come, the town may:
- Fund the project with current tax appropriations
- Issue bonds to raise funds for the project over time
An Example:
Let’s take a road resurfacing project. If Teaneck spends $1,000,000 of tax money repaving a mile of roadway, current residents pay that amount, today. On the other hand, if we bond the road resurfacing project, Teaneck will pay that amount over several decades the road is used.
There are several up-sides to bonding a project. One major benefit is that residents moving into town a year or even ten years from now, (who will still benefit from these capital projects), share part of their financing.
That, in essence, is why many refer to bonding as inter-generational equity.
Is there a limit to the amount a town may bond?
Yes, as per the New Jersey Local Bond Law, a municipality may bond up to 3.5% of the equalized valuations of the taxable real estate (40A:2-6).
To see how Teaneck and other local municipalities compare, click here: Bonding: How does Teaneck compare?