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What is a Bond Ordinance?

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  • Written By: Mary McMahon
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 September 2016
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A bond ordinance is a regulation which allows an agency to issue bonds for the purpose of raising money. Most people think of bond ordinances in terms of measures which are brought before the public on the ballot, allowing members of a community to vote on municipal bonds which raise money for things like transportation, schools, and other civic improvements. In this case, a bond ordinance may also be called a bond resolution. However, a local government can also pass a bond ordinance directly.

Before going into the specifics of how bond resolutions work, it may help to understand precisely what a bond is. A bond is essentially a loan which is offered in the form of a security to make it more appealing for lenders to provide money. The issuing agency promises to pay interest on the bonds it issues, and to pay back the bond at a set point in the future. Purchasers loan the issuing agency money with the understanding that they will receive a profit on their loan in the long term. Some people like to invest in government bonds because they stay stable and they are backed by government agencies, which makes them safe investments, although they do not always yield spectacular interest rates.

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In the case of a bond resolution which is brought to a vote, the issuing agency usually sets up a bond agreement with an underwriter such as a bank. The bank agrees to buy the entire bond issue, immediately raising the capital needed for the agency, and the bank in turn sells the bonds to individual investors. Voters are asked for their opinion because a bond resolution is a form of public debt, and people may have strong feelings about the services that the bond will pay for.

In addition to municipal agencies, governments, corporations, and multi-national groups can also issue bonds. There are varying styles of bond available, and bonds may be used to raise money for everything from wars to higher education. As a financing tool, bond ordinances can be quite powerful, although in some communities, voters are resistant to the idea because of misuse of funds by local agencies.

If a bond does come up for voting in your area, take the time to read the bond ordinance closely. Make sure that you understand the terms of the bond ordinance, and ask yourself how the money will be used, or what will happen if only part of the bond can be sold, causing the issuing agency to fall short. You may also want to consider overall public debt in your area, and the state of the economy; if the issuing agency will be unable to pay back the bond when it matures, you may want to consider voting against a bond ordinance.

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