essential function bond

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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essential function bond

A bond issued by a municipality when funds from the bond issue are used for traditional government purposes such as government office buildings, libraries, parks, prisons, roads, and schools. The interest on municipal essential function bonds is exempt from federal income tax and is not subject to the alternative minimum tax. Also called traditional governmental purpose bond. Compare private activity bond. See also municipal bond.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.