Public Purpose Bond

DEFINITION of 'Public Purpose Bond'

This type of bond is used by municipalities to finance public works facilities and improvements. However, the vast majority of the benefit provided by the project being financed by a public purpose bond must be directed at the public at large, and not at private individuals. Public Purpose Bonds are generally employed to fund such projects as road construction and maintenance, libraries, swimming pools and other municipal facilities.

BREAKING DOWN 'Public Purpose Bond'

As with all other types of municipal bonds, the interest paid from Public Purpose Bonds is exempt from federal income taxes (and often state and local taxes as well). Public Purpose Bonds were first defined in the Tax Reform Act of 1986. Municipalities that are authorized to issue this type of bond must have the ability to tax their residents, plus eminent domain or police power.

RELATED TERMS
  1. Private Purpose Bond

    A type of municipal bond that is issued to finance a project ...
  2. Taxable Municipal Bond

    A fixed-income security issued by a local government such as ...
  3. The Bond Buyer

    The Bond Buyer is a municipal bond market daily trade publication. ...
  4. Net Debt To Assessed Valuation

    In a municipal bond issue, a ratio measuring the value of the ...
  5. Revenue Bond

    A municipal bond supported by the revenue from a specific project, ...
  6. Munifacts

    A newswire service for municipal bonds that provides information ...
Related Articles
  1. Managing Wealth

    A Look at the Pros and Cons of Muni Bonds

    Considering muni bonds? Here's a look at their pros and cons.
  2. ETFs & Mutual Funds

    Why Muni Bonds and Bond Funds are Perfect Together

    Municipal bonds and bond funds differ in several ways, which is partly why they complement each other well.
  3. ETFs & Mutual Funds

    Why You Should Invest In Municipal Bond ETFs

    These versatile instruments have become popular with investors in higher tax brackets and fill a specific niche in the wide selection of fixed-income offerings.
  4. Managing Wealth

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  5. Investing

    Should You Consider Muni Bonds?

    Municipal bonds come in two types. General obligation bonds repay their holders through taxes. They often have low interest rates, but they’re safe.
  6. ETFs & Mutual Funds

    Consider These Municipal Bond ETFs

    Though relatively low-risk, there are still some factors to consider when taking the plunge into municipal bond ETFs.
  7. ETFs & Mutual Funds

    How to Find the Best Bets in Muni Bonds

    Approach investing in municipal bonds the same as you would investing in stocks.
  8. ETFs & Mutual Funds

    4 Tax-Free Muni Bond ETFs to Consider

    Tax free municipal bond ETFs are an excellent way to build wealth slowly. Here are 4 you should consider.
  9. ETFs & Mutual Funds

    The Top 5 Municipal Bond Funds for 2016

    Understand how the addition of municipal bond mutual funds can enhance a portfolio, and learn the top-rated municipal bond funds to consider for 2016.
  10. Personal Finance

    Municipal Bond Tips For The Series 7 Exam

    Learn to distinguish between general obligation and revenue bonds to ace this test.
RELATED FAQS
  1. What do cities do with the funds generated from municipal bonds?

    Learn more about municipal bonds, including the various types of bonds issued and the purposes of municipal bond funds, such ... Read Answer >>
  2. How do the returns on municipal bonds compare to those of other bonds?

    Learn how tax-free municipal bonds may provide better returns than other types of bonds, and understand the risks of municipal ... Read Answer >>
  3. Who or what is backing municipal bonds?

    Learn about the basics of municipal bonds, including the various revenue sources that are utilized to back or secure municipal ... Read Answer >>
  4. How are municipal bonds taxed?

    Discover information about trading municipal bonds, specifically the various tax implications municipal bonds have at state ... Read Answer >>
  5. What is a triple tax-free municipal bond?

    At its core, a triple tax-free municipal bond is just like any corporate bond: it is a debt instrument, a loan given to a ... Read Answer >>
  6. Your neighbor asks you about Municipal Bonds, you would be correct in telling him ...

    The correct answer is a): The two types of Municipal Bonds (Muni-Bonds) are general-obligation (GO) bonds and revenue bonds. ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center