CPFO DEBT EXAM QUESTIONS AND
VERIFIED ANSWERS
Tax-increment Financing Bonds - ANSWER Issued to promote revitalization
of a given geographic area
- Debt is paid from the increase in property taxes generated from increased
assessed values
- Can be risky
Bond Covenants - ANSWER Promises a government makes about paying for
the bond.
Usually includes
- Rate covenants
- Additional bond test
- Operation and maintenance requirements
May be required to have a debt service reserve fund and/or bond insurance
Limited Tax Government Obligation Bond - ANSWER Sold when debt limits
become an issue.
Government pledges property tax up to an amount or secures the bond with
available general fund revenues
Liquidity Facility - ANSWER short-term financing option like a letter of credit
Capital Improvement Plan - ANSWER A plan, adopted by the board, that
identifies projects to be funded, funding sources, and project expenditures over
time.
,Private-Activity Bonds - ANSWER Bonds for which:
1. Greater than 10% of the proceeds will are used by a private entity or will
finance facilities to be used by private entity and
2. Payment of the principle of or interest on more than 10% of the balance will
be paid from or secured by private sources
Exempt Facility Bonds - ANSWER A type of private activity bond that is tax-
exempt
95% or more of the net proceeds are used to finance a facility, and use of the
facility must be available on a regular basis for general public use
Qualified 501(c)(3) Bonds - ANSWER A type of tax exempt private - activity
bond
Issued for projects of 501 @c@3 non-profit organizations such as educational
or healthcare facilities
General Obligation Bonds - ANSWER Bonds used to finance government
improvements that benefit the community as a whole
Secured by the full faith and credit and taxing authority of the issuer
Revenue Bonds - ANSWER Bonds issued to finance facilities that have a
definable user or revenue base
, Secured by a special source of funds: 1) operations of the project being financed
or 2) a dedicated revenue stream
Double-barreled bonds - ANSWER Bonds which are secured by both a
dedicated revenue stream as well as a government taxing power
Special Assessment/Special Improvement District Bonds - ANS Bonds issued
to finance improvements that benefit a specific area
Certificates of Participation (COPs) - ANS Lease-purchase agreements where
the government leases an asset over a specified time with a predetermined cost
sufficient to cover principal and interest; the lesser identifies investors to find
the asset and the investors' interest is tax-exempt
Variable-rate Instruments - ANSWER Bonds that are structured with
maturities as long as an issuer's fixed rate (example, 20-30 years), but where
interest is adjusted daily, weekly, or at some other interval
Variable Demand Rate Obligations (VRDO) - ANSWER The debt instruments
are long-term in maturity but with a coupon interest rate that is periodically
reset. The instruments include a demand or "put" feature that allows the investor
to require the repayment of debt at the time of reset or at other intervals. Issuers
normally will also buy a liquidity facility to offset the risk of use of the put
feature.
Auction Rate Securities - ANSWER Variable rate securities where the interest-
rate is reset periodically using a Dutch auction process.
Dutch auction ANS May be used with variable rate securities, investors submit
the interest-rate they require to continue to hold or to purchase securities to an
VERIFIED ANSWERS
Tax-increment Financing Bonds - ANSWER Issued to promote revitalization
of a given geographic area
- Debt is paid from the increase in property taxes generated from increased
assessed values
- Can be risky
Bond Covenants - ANSWER Promises a government makes about paying for
the bond.
Usually includes
- Rate covenants
- Additional bond test
- Operation and maintenance requirements
May be required to have a debt service reserve fund and/or bond insurance
Limited Tax Government Obligation Bond - ANSWER Sold when debt limits
become an issue.
Government pledges property tax up to an amount or secures the bond with
available general fund revenues
Liquidity Facility - ANSWER short-term financing option like a letter of credit
Capital Improvement Plan - ANSWER A plan, adopted by the board, that
identifies projects to be funded, funding sources, and project expenditures over
time.
,Private-Activity Bonds - ANSWER Bonds for which:
1. Greater than 10% of the proceeds will are used by a private entity or will
finance facilities to be used by private entity and
2. Payment of the principle of or interest on more than 10% of the balance will
be paid from or secured by private sources
Exempt Facility Bonds - ANSWER A type of private activity bond that is tax-
exempt
95% or more of the net proceeds are used to finance a facility, and use of the
facility must be available on a regular basis for general public use
Qualified 501(c)(3) Bonds - ANSWER A type of tax exempt private - activity
bond
Issued for projects of 501 @c@3 non-profit organizations such as educational
or healthcare facilities
General Obligation Bonds - ANSWER Bonds used to finance government
improvements that benefit the community as a whole
Secured by the full faith and credit and taxing authority of the issuer
Revenue Bonds - ANSWER Bonds issued to finance facilities that have a
definable user or revenue base
, Secured by a special source of funds: 1) operations of the project being financed
or 2) a dedicated revenue stream
Double-barreled bonds - ANSWER Bonds which are secured by both a
dedicated revenue stream as well as a government taxing power
Special Assessment/Special Improvement District Bonds - ANS Bonds issued
to finance improvements that benefit a specific area
Certificates of Participation (COPs) - ANS Lease-purchase agreements where
the government leases an asset over a specified time with a predetermined cost
sufficient to cover principal and interest; the lesser identifies investors to find
the asset and the investors' interest is tax-exempt
Variable-rate Instruments - ANSWER Bonds that are structured with
maturities as long as an issuer's fixed rate (example, 20-30 years), but where
interest is adjusted daily, weekly, or at some other interval
Variable Demand Rate Obligations (VRDO) - ANSWER The debt instruments
are long-term in maturity but with a coupon interest rate that is periodically
reset. The instruments include a demand or "put" feature that allows the investor
to require the repayment of debt at the time of reset or at other intervals. Issuers
normally will also buy a liquidity facility to offset the risk of use of the put
feature.
Auction Rate Securities - ANSWER Variable rate securities where the interest-
rate is reset periodically using a Dutch auction process.
Dutch auction ANS May be used with variable rate securities, investors submit
the interest-rate they require to continue to hold or to purchase securities to an
