What is a Toll Revenue Bond

A toll revenue bond is a type of municipal security used to build a public project such as a bridge, tunnel or expressway. Revenues from tolls paid by users of the public project pay the principal and interest payments on the bond.

Typically, toll revenue bonds are issued by state transportation agencies or turnpike commissions. As with all revenue bonds, toll revenue bonds differ from general obligation bonds (GO bonds), which draw proceeds from multiple tax sources. Since toll revenue bonds rely on single stream of income, they have more risk and pay more interest than similar GO bonds.

Many toll revenue bonds mature in 20 to 30 years and are issued in $5,000 units, and most have staggered maturity dates. For this reason, these toll revenue bonds are a type of serial bond.

Breaking Down Toll Revenue Bond

Toll revenue bonds help with funding for new toll roads and for improving existing roads. One reason municipalities use toll revenue bonds is that they allow governments to diversify liabilities and avoid self-imposed limits on state or county debt.

Not all funding from toll revenue bonds goes toward concrete and asphalt. They can also fund planned infrastructure renewal projects, such as rest stops and parks that abut toll roads.

Pros and Cons of Toll Revenue Bonds

Investors use toll revenue bonds to diversify their fixed-income holdings. Many municipal-bond mutual funds, for example, sprinkle in toll revenue bonds they think offer good risk versus reward. Many target toll revenue bonds in states with healthy balance sheets and favorable economic trends, as this relates to a transportation authority’s ability to make principal payments over the long term.

Some taxpayers see toll revenue bonds as an inefficient funding means, however. The Pennsylvania Turnpike, the nation’s first superhighway, which first ran from Irwin to Carlisle, provides a case study in turnpike debt.

The Pennsylvania Turnpike originally planned to retire all its debt in 1954, once it repaid bonds used for construction. However, the Turnpike continues to collect tolls to this day; and as of 2018, it costs $55 for a passenger motorist for a one-way trip along the Turnpike’s entire span, if motorists pay in cash.

Indeed, the Pennsylvania Turnpike system added a few additional roads in recent decades. However, one reason for the continued fees along the Turnpike’s main span, critics argue, is that the Pennsylvania Turnpike Commission, and the white-collar jobs it created, would cease to exist if the debt was ever fully paid. A book called When the Levee Breaks: The Patronage Crisis at the Pennsylvania Turnpike, the General Assembly & the State Supreme Court, written William Keisling, details the Pennsylvania Turnpike’s alleged history of corruption, waste and nepotism, funded by toll revenue bonds.