Which bond type is associated with CFD debt limit typically 3x outstanding bonds?

Which bond type is associated with CFD debt limit typically 3x outstanding bonds?

• A. GO
• B. COP
• C. Special Tax
• D. Revenue Bonds

Answer: (C)

The key idea here is that CFD financing is built on a dedicated levy tied to the properties within the district. Community Facilities Districts issue bonds that are repaid from a special tax assessed on property owners in the CFD, not from the general fund or from a defined user fee. Because the debt service depends on that specific tax revenue, the bond structure most commonly used is Special Tax bonds (often referred to as Mello-Roos bonds in some systems). The debt limit being described as “3x outstanding bonds” reflects a prudent leverage rule tied to the predictability of that special tax revenue rather than general taxing power or unrelated revenue streams. General obligation bonds rely on the jurisdiction’s full taxing power and voter authorization; certificates of participation are lease-financed and paid from lease payments; revenue bonds are secured by a dedicated revenue stream like fees collected for a service. None of these are tied to a special tax levy in the way CFD bonds are, which is why Special Tax bonds are the correct match for the described debt limit.

The key idea here is that CFD financing is built on a dedicated levy tied to the properties within the district. Community Facilities Districts issue bonds that are repaid from a special tax assessed on property owners in the CFD, not from the general fund or from a defined user fee. Because the debt service depends on that specific tax revenue, the bond structure most commonly used is Special Tax bonds (often referred to as Mello-Roos bonds in some systems). The debt limit being described as “3x outstanding bonds” reflects a prudent leverage rule tied to the predictability of that special tax revenue rather than general taxing power or unrelated revenue streams.

General obligation bonds rely on the jurisdiction’s full taxing power and voter authorization; certificates of participation are lease-financed and paid from lease payments; revenue bonds are secured by a dedicated revenue stream like fees collected for a service. None of these are tied to a special tax levy in the way CFD bonds are, which is why Special Tax bonds are the correct match for the described debt limit.