Municipal bonds are debt securities issued by states, cities, counties and public authorities to finance public projects, including parking garages. Interest is often exempt from federal income tax, which lowers the cost of borrowing.
Parking projects are usually financed in one of two ways. General obligation bonds are backed by the issuer’s full faith and taxing power. Revenue bonds are repaid only from a defined revenue stream, such as the parking system’s net revenues, so investors look closely at demand, rates and operating costs.
What investors and rating agencies look at
- Coverage. Net revenue available for debt service divided by annual debt service. Bond documents usually require a minimum ratio and a rate covenant to maintain it.
- Demand. Independent parking demand and revenue studies. See financial feasibility study.
- System pledge. Whether revenues from a whole parking system, including meters and other garages, back the bonds.
- Reserves. Debt service and repair reserve funds.
People involved
- Bond counsel, who opines on the bonds’ validity and tax status, along with municipal advisors, underwriters and the parking consultant who prepares the revenue study.
The Parkonomics view
Revenue bonds turn a parking forecast into a legal obligation. Make sure the study behind them tests downside cases, such as falling demand from remote work, ride hailing or autonomous vehicles, before the city pledges its parking system to cover them.
Related terms: Bond Counsel, Financial Feasibility Study, Public-Private Partnership, Pro Forma, Tax Increment Financing, Debt Service Coverage Ratio