Deck 14: Capital Finance and Debt Management

Question 1

Which type of bond is politically easiest to issue?

A) General obligation bonds
B) Revenue bonds
C) Full faith and credit bonds
D) Private-purpose bonds

Answer 1

B

Question 2

In the period of the late 1990s through 2018, individuals held what percentage of total outstanding municipal debt?

A) Between 5% and 15%
B) Around 25%
C) Between 30% and 55%
D) Around 75%

Answer 2

C

Question 3

Among the major types of investors in municipal bonds, which type has decreased the most over the last 50 years in terms of the percentage of municipal bond debt held?

A) Individuals
B) Insurance companies
C) Individuals
D) Banking institutions

Answer 3

D

Question 4

Which of the following attracts investors to the municipal bond market?

A) Civic pride
B) Tax-exempt earnings
C) Lower interest rates
D) Weaker equity returns

Question 5

Securitizing a future revenue stream most closely resembles which type of bond?

A) General obligation bonds
B) Tax increment bonds
C) Full faith and credit bonds
D) Revenue bonds

Question 6

What type of bond will back up the debt issue with a pledge of revenue from increased property tax revenue?

A) Tax increment bond
B) Non-guaranteed bonds
C) Tax credit bonds
D) Revenue bond

Question 7

Which of the following would not be a participant in the municipal bond market?

A) Individual investors
B) Legal advisors
C) Investment bankers
D) Local voters

Question 8

Which type of bond imposes a specific schedule of payments over a number of years?

A) Coupon bonds
B) Registered bonds
C) Serial bonds
D) Term bonds

Question 9

Which measure of a state's or local government's debt is the least meaningful?

A) Total debt
B) Per capita debt
C) Ratio of debt to income
D) All three are more or less equally useful measures.

Question 10

Since the 1970s, what was the average, cumulative default rate on public bonds?

A) About 5%
B) About 1%
C) Less than 0.5%
D) Less than 0.1%

Question 11

Which of the following is not a variant of concession contracting?

A) Build-Operate-Transfer
B) Build-Own-Operate-Transfer
C) Privatization or divestiture
D) None of these are variants of concession contracting.

Question 12

The primary source for financing large capital projects by state and local governments is borrowing from individuals and financial institutions like banks and capital market funds by issuing bonds.

Question 13

Local banks are the largest holders of local public debt.

Question 14

Few states impose a long term debt limit on their cities, towns, and school districts.

Question 15

State and local bonds can be used to finance private construction and ownership of facilities.

Question 16

Most municipal bonds are issued locally or regionally and known only to local or regional investors.

Question 17

Negotiated sales versus competitive sales of municipal bonds are more common in terms of the value of municipal bonds sold.

Question 18

One disadvantage of a public sale is that some investors, including some pension funds, cannot purchase state or municipal securities except through a negotiated sale.

Question 19

What type of public debt instrument does not pay interest but allows the investor to subtract the equivalent interest from his or her federal income tax liability?

Question 20

What do we call municipal bonds issued in small denominations?

Question 21

Except for those with large market presence, such as states and major cities, whose role is it to arrange the actual sale of municipal bonds to financial institutions?

Question 22

What type of bond pays out no interest until maturity, when both the principal and the interest are paid?

Question 23

Who are the three most notable bond evaluating organizations upon whose ratings investors rely heavily?

Question 24

What are the three sources of financing capital assets in the private sector? List and briefly describe each.

Question 25

What are the two categories of traditional long-term bonds used by public entities? List and briefly describe each.

Question 26

What are the most common ratios used to measure debt burden?

Question 27

How have state revolving loan funds to finance infrastructure such as highways and water and sewer systems, and possibly other large projects, historically obtained the initial capital to start up the fund?

Question 28

List the primary participants in the municipal bond issuing process and describe their roles.

Question 29

Discuss the role of public-private-partnerships (PPPs) in building public infrastructure and other assets, such as water treatment plants and parking garages. What are the advantages and disadvantages to state, municipal, or special purpose entities such as water authorities in turning to private companies to take over, for a specified concession period or permanently (divestiture), responsibility for building and operating a public facility?