Public Purpose Bond
Barron's Banking Dictionary:
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Public Purpose Bond
Bond issued by or on behalf of a state or local governmental unit that is exempt from state or local taxes under the Tax Reform Act of 1986. Qualifying issuers have taxing authority, power of eminent domain, or policing power within its jurisdiction. Such bonds may include General Obligation Bonds backed by taxing authority, revenue anticipation notes and Tax Anticipation Notes issued to cover cash flow shortfalls. They are exempt from federal taxes, including the alternative minimum tax but are subject to volume limitations on new issues of tax-exempt securities. Contrast with Private Purpose Bond.
Investopedia Financial Dictionary:
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Public Purpose Bond
This type of bond is used by municipalities to finance public works facilities and improvements. However, the vast majority of the benefit provided by the project being financed by a public purpose bond must be directed at the public at large, and not at private individuals. Public Purpose Bonds are generally employed to fund such projects as road construction and maintenance, libraries, swimming pools and other municipal facilities.
Investopedia Says:
As with all other types of municipal bonds, the interest paid from Public Purpose Bonds is exempt from federal income taxes (and often state and local taxes as well). Public Purpose Bonds were first defined in the Tax Reform Act of 1986. Municipalities that are authorized to issue this type of bond must have the ability to tax their residents, plus eminent domain or police power.
Related Links:
We give you seven guidelines to help you keep more of your money in your pocket. Tax Tips For The Individual Investor
Investing in these bonds may offer a tax-free income stream but they are not without risks. The Basics Of Municipal Bonds
Learn the rules every investor should know before buying into this "tax-free" investment. Avoid Tricky Tax Issues On Municipal Bonds
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Barron's Banking Dictionary
Dictionary of Banking Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved.
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Mentioned in
State and Local Bonds
(in banking)
General Obligation Bond
(in banking)
Industrial Development Bond
(in banking)
Municipal Bond
(in banking)
Private Purpose Bond
(in banking)
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