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NYS Comptroller


The Academy for New York State's Local Officials

Capital Planning and Budgeting: A Tutorial for Local Government Officials

Module 2 - The Capital Budget

Financing: Types of Debt

Once planners determine it is prudent to issue debt for a capital project or acquisition, they must examine several factors that will maximize the local government's borrowing efficiency. With the help of a financial advisor or bond counselor, decisions must be made on whether long- or short-term debt will be issued, whether it will be issued through competitive or private sale, debt service schedules, and managing the debt.

Below is a brief overview of types of debt that can be issued for capital projects:

  • Revenue Anticipation Notes (RANs) - These may be issued in anticipation of receiving certain types of revenues, such as federal stimulus money. Their purpose is to improve cash flow in the short term based upon future receipt of defined and quantifiable revenues and can only be issued in the fiscal year in which the specific aid revenue is expected to be collected or received.
  • Bond Anticipation Notes (BANs) - These are frequently issued as temporary financing for large construction projects and can be issued once a serial bond resolution has been adopted by the governing board. These one-year notes may be renewed for up to five years.
  • Capital Notes (CNs) - These are generally issued as short-term financing and may be issued for any object or purpose for which bonds may be issued. Capital notes may be renewed, subject to the provisions of law.
  • Bonds - Serial bonds offer a longer payback period with a stable schedule of repayment over the term of the issue. Most bonds are general obligation bonds, which are secured by the full taxing power of the local government.
  • Lease-Purchases (also known as Installment Purchases) - Usually secured by the property or equipment being financed, these are purchases with payments occurring over time. They include certificates of participation (COPs).

Regardless of the type of debt used to finance a capital project, the principal and interest payments to retire the debt must be planned for in each year's budget for the life of the obligation. Similarly, periodic lease-purchase payments must be accounted for in the capital plan.

  Next: Module 3 - From Plans to Projects