20% Cushion Rule

20% cushion rule

Guideline that revenues from facilities financed by municipal bonds should exceed the operating budget plus maintenance costs and debt service by at least 20% to allow for unforeseen expenses.

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20% Cushion Rule

A rule of thumb for municipal bonds. Under the rule, the revenue a municipal bond raises should exceed the proposed budget of the project the bond intends to fund by at least 20 percent. This allows the bond to account for unforeseen expenses. Following a cushion rule is especially important because municipal bonds are ultimately financed by taxpayer money.