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.

  1. Revenue Bond

    A revenue bond is a municipal bond supported by the revenue from ...
  2. Double Barreled

    A double barreled bond is a municipal bond in which the interest ...
  3. Catastrophe Call

    A call provision in municipal bonds that allows for the early ...
  4. Authority Bond

    An authority bond is a security issued by a corporate or government ...
  5. Net Revenue Pledge

    A net revenue pledge requires the issuing municipality of a municipal ...
  6. Bond Market

    The bond market is the environment in which the issuance and ...
Related Articles
  1. Investing

    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.
  2. Investing

    The Best Bet for Retirement Income: Bonds or Bond Funds?

    Retirees seeking income from their investments typically look into bonds. Here's a look at the types of bonds, bond funds and their pros and cons.
  3. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  4. Investing

    The Basics Of Municipal Bonds

    Investing in municipal bonds may offer a tax-free income stream, but such bonds are not without risks. Check out types of bonds and the risk factors of muni-bond.
  5. Investing

    Why Bond Prices Fall When Interest Rates Rise

    Never invest in something you don’t understand. Bonds are no exception.
  6. Investing

    Buffett Says: Invest In "Toll Bridges"

    Find a business that makes its money by charging a small sum to a high-volume consumer base on a regular basis and you just may have something intriguing.
  7. Investing

    The Basics Of Bonds

    Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.
  8. Investing

    6 Ways That Investors Use Bonds

    Learn how the stodgy stereotype of bonds can overshadow the basic and advanced uses of what these investments can do for your portfolio.
  9. Investing

    How Bonds Are Vital to a Successful Portfolio

    While bonds are a vital part of an investment portfolio, they are often ignored.
  10. Investing

    Find the Right Bond at the Right Time

    Learn about the types of bonds you should consider investing in, when you should be buying them and how to compare yields against their time to maturity.
  1. Where can I buy government bonds?

    The type of bond dictates its purchase. Federal bonds are issued by the federal government, while municipal bonds are issued ... Read Answer >>
Trading Center