Essential Purpose Bond

(redirected from Public Purpose Bonds)

Essential Purpose Bond

A municipal bond that intends to fund the normal functions of a local government. Examples of institutions and activities that an essential purpose bond finances are municipal buildings, police cars, firefighter salaries, and so forth. Essential purpose bonds differ from private activity bonds, which are municipal bonds intended to help private business in the community. It is also called a traditional government purpose bond. See also: General obligation bond.
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Under the Tax Reform Act of 1986, Congress permitted tax-exempt municipal financing for stadiums and other sports facilities as public purpose bonds, but only where they met the new definitions in the law crafted by Congress and the Reagan administration.
Under the 1986 Act, Congress changed the definition of traditional public purpose bonds to define them as private activity bonds if more than ten percent of the use is by a non- governmental party (federal, nonprofit, or private), or if more than ten percent of the debt service is derived from or secured by private parties.
Fraser urged the committee to modify portions of the bill dealing with traditional public purpose bonds, social security taxes on state and local elected and appointed officials, and pensions:
The rules, which were temporary, were issued to implement the extraordinary changes mandated on municipal finance under the 1986 tax reform act and applied to traditional public purpose bonds issued by cities after September 1, 1986.
For the nation's municipal leaders, the veto overturned the greatest progress in six years in reversing the course of restrictions on the authority and ability of cities and towns to issue traditional public purpose bonds.

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