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this debt with taxes, fees, or other sources of governmental revenue. It is the source of <br />repayment, or the type of collateral used, that defines the type of bond (e.g., general obligation <br />bonds, revenue bonds, or hybrids). The tax-exempt nature of many government bonds attracts <br />bondholders who are generally willing to accept a correspondingly lower rate of return on their <br />investrnent than they would expect on a comparable commercial bond. As a result, bond <br />financing can often provide State and local governments with low-interest capital. <br />Some State and local governments are required by statute to seek voter approval for certain types <br />of bond issues (e.g. GO bonds). If achieving voter approval is difficult or time-consuming, State <br />and local governments may consider issuing other types of bonds that do not require voter <br />approval, or exploring other options for capital financing, even though interest costs may be <br />higher. Some State and local governments have statutory limitations on the dollaz amount and/or <br />number of bonds that can be issued. Issuing bonds is a costly and time-consuming process, and <br />requires sound legal and financial advice. <br />Loaivs <br />A loan is the temporary provision of a specific amount of funds for an expenditure that must be <br />repaid in a set amount time, typically with interest. The rate of interest is established prior to the <br />loan. <br />Private loans, typically made by banks and other financial institutions, provide capital financing <br />for a wide variety of infrastructure projects within a range of market interest rates. Typically, <br />larger and more financially secure customers receive the best interest rates; however, <br />environmentally risky projects, such as those involving hazazdous waste, carry higher interest <br />costs. Commercial loans are widely available and very flexible, but generally will have higher <br />interest costs than tax-exempt bonds. <br />Government loan programs provide capital funds to a number of governments, non-profit <br />organizations, and private businesses. Like grants, government loans are made with very specific <br />goals in mind, often are accompanied by specific mandates, may be less than 100% of total <br />project costs, and depend on legislative appropriation. Government loans often aze made <br />available at subsidized (lower than market) interest rates for projects that meet eligibility criteria, <br />or may be interest-free (e.g., some SRF loans). Many government loan programs are targeted to <br />small, economically distressed, and/or rural areas, which need the most assistance in acquiring <br />project capital. <br />The SRF program is the largest government environmental infrastructure loan program available <br />today, faz surpassing other State loan programs. While the SRF program is funded by a Federal <br />capitalization grant (like a block grant), it effectively operates as a State loan program. <br />Loans involve fewer and lower transaction costs than bonds, and may be acquired without voter <br />approval. In addition, grants and loans from different sources may be co-mingled. <br />Government loans are subject to the availability of funds, and competition among borrowers can <br />impact project timing. Such loans may carry governmental requirements, such as the prevailing <br />wage provisions from the Davis-Bacon Act. Most Federal loans have complicated application <br />procedures and deadlines. <br />2005 MWMC Financial Plan - Appendix II Page 30 <br />