Revenue Bonds

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Revenue bonds are another source of funds for transit systems.  Revenue bonds may be issued directly by a transit agency or by a state or local government and secured by repayment from the transit agency.

How Revenue Bonds Work

A public referendum may be required before a revenue bond can be issued. In most jurisdictions public transit systems are authorized by statute or ordinance to issue debt secured with a variety of revenue sources, such as motor vehicle registrations, sales taxes, property taxes, farebox revenues and anticipated grant receipts.

Authority under FTA Programs

There are two types of revenue bonds that are generally used for public transit projects in the United States: 

  • Fare Box Revenue Bonds
  • Grant Anticipation Notes

Fare Box Revenue Bonds

The Transportation Equity Act for the 21st Century (TEA-21) authorized the use of farebox revenues and anticipated grant receipts as collateral for revenue bonds.  Revenue bonds can only be backed by fare box revenues if the level of State and local funding committed to transit for the three years following the bond issue are higher than the funds that were committed in the three years prior to the bond issue.  Agencies’ must identify another source of funds for the agency’s operating expenses before issuing a revenue bond.

Sample Transit Agency Revenue Bond Issuers:

  • Bay Area Rapid Transit, San Francisco, CA.
  • Regional Transit Authority, Chicago, IL.
  • Metropolitan Atlanta Rapid Transit Authority, Atlanta, GA.
  • Metropolitan Transit Authority, Los Angeles, CA.
  • Metropolitan Transit Authority, New York, NY.
  • Port Authority of New York and New Jersey.

Grant Anticipation Notes (GANs)

Revenue bonds that are backed by anticipated grant receipts are called grant anticipation notes (GANs).  GANs were made possible by the establishment of program funding firewalls in TEA-21.  They are a source of financing for FTA programs as the principal and interest on GANs are eligible to be repaid with FTA capital funding.  In addition, the proceeds raised by a GAN can be used for the local match for a transit project.

Sample Transit Agency GAN Experience:

  • New Jersey Transit was the first agency to issued bonds backed solely or primarily by anticipated Federal formula funding in 1997.
  • Since 1997 over $3.2 billion in GANs have been issued.
    • Terms ranging from 3 to 15 years.
    • Principal ranging from $18 to $450 million.

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