Accrual Basis of Accounting
The accrual basis of accounting is used in proprietary fund types and the pension trust fund. The accrual basis of accounting recognizes revenues when earned. Expenses are recorded when incurred. Plan member contributions to the pension trust fund are recognized in the period in which the contributions are due. Employer contributions to the plan are recognized when due and the City has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan.
Coupon interest accumulated on bond or note since the last interest payment or, for a new issue, from the dated date to the date ofdelivery. Since interest on municipal bonds is payable semi-annually, every six months, when you buy a bond in mid-term you are only entitled to the interest the bond earns after you buy it. The interest earned previously, the accruedinterest, belongs to the seller. Some first-time bond buyers think this payment is a hidden charge or fee, not realizing that they will get it back in full at the next interest payment date as tax-free interest.
The type of work performed by an organization in carrying out the program for which it is responsible.
Ad Valorem Tax
A tax based on the value of real property, most commonly real estate. The City can only use this revenue source for repaying General Obligation Bond debt and judgments against the City.
Americans with Disabilities Act.
Administrative Services Charge
An internal charge to departments for central services provided by staff departments.
A plan of financial operation, legally adopted by the City Council, providing an estimate of expenditures for a given fiscal year and a proposed means of financing them. The legal requirements for adopting a budget are set forth in the Oklahoma State Statutes (Title 11 Sections 17-201 - 17-216, known as the Municipal Budget Act).
A financing structure under which new bonds are issued to repay an outstanding bond issue prior to its first call date. Generally, the proceeds of the new issue are invested in government securities, which are placed in escrow. The interest and principal repayments on these securities are then used to repay the old issue, usually on the first call date.
Advanced Refunded Bonds
A municipality may sell a second bond issue at a lower interest rate cost, placing the proceeds of the issue in an escrow account from which the first issue's principal and interest will be repaid when due. See also ETM bonds.
American Federation of State, County and Municipal Employees.
The highest level in the City organization in which activities are carried out, synonymous with department.
A part of a lump-sum appropriation which is designated for expenditure by specific organizational units and/or for special purposes, activities or objects.
Amortization of Debt
The annual reduction of principal through the use of serial bonds or term bonds with a sinking fund.
Annual Operating Budget
The document prepared by the Budget Office and supporting staff which presents the adopted budget and supporting information. The document usually consists of: a message from the budget making authority, together with a summary of the proposed expenditures and the means of financing them; schedules supporting the summary showing detailed information on past years' actual revenues, expenditures, other data used in making the estimates and information on City services, employment and performance.
An authorization granted by a legislative body to make expenditures and incur obligations for specific purposes. An appropriation is usually limited in amount and duration.
The interest rate differential that exists when proceeds from a municipal bond - which is tax-free and carries a lower yield - are invested in taxable securities with a yield that is higher. The 1986 Tax Reform Act made this practice by municipalities illegal solely as a borrowing tactic, except under certain safe-harbor conditions..
A municipality's worth in dollars based on real estate and/or other property for the purpose of taxation, sometimes expressed as a percent of the full market value of the community.
Securities requiring interest at maturity pricing are those that do no have periodic interest payments, but rather one interest payment made at the maturity of the security. Interest at maturity formulas differ from Interest Multiplier formulas (Zero Coupon) in that the former are based on simple interest theory while the latter are based on compound interest theory. Certificates of Deposit and Interest Bearing Commercial Paper are examples of this type of security.
Authority or Agency
A state or local unit of government created to perform a single activity or a limited group of functions and authorized by the state legislature to issue bonded debt.
A law that when enacted allows the unit of government to sell a specific bond issue or finance a specific project.
The average length of time an issue of serial bonds and/or term bonds with mandatory sinking funds and/or estimated prepayments is expected to be outstanding. It also can be the average maturity of a bond portfolio.
An inordinately large amount of bond principal maturing in any single year. Also called a Term Bond.
An estimate of the funding available to carry on existing programs as established by the Office of Management and Budget for each department at the beginning of a budget cycle.
Base Point (or Basis Point)
One one-hundredth of one percent ( 1/100 % or 0.01 percent). Thus 25 basis points equal one-quarter of one percent, 100 basis points equal one percent.
A bond that has no identification of the owner of the security. It is presumed to be owned by the bearer or the person who holds it. It was much sought after because of the ease of transferring or gifting. All bonds issued prior to June 1983 were bearer bonds; since then, they have been issued in Registered Bond form. Before July 1983, municipal securities were issued for the most part in certificate form with coupons attached. Some of these so-called "bearer bonds" are still available in the marketplace. The issuer has no record of who owns these bonds. The owner clips the coupons and collects the interest from the issuer's paying agent. Transferring the bonds requires physical delivery and payment.
An offer to buy at a fixed price or yield. The price, expressed as a percentage of par, which the underwriters pay the issuer on the delivery date for a new issue of bonds. The bid price is equal to the par amount of bonds plus any premium, less any original issue discount, less underwriter's discount --- all divided by the par amount of bonds and multiplied by 100%. Accrued interest is not factored into the bid price.
Bond Anticipation Note (BANs)
These are issued when revenue is anticipated from a bond issue. To avoid poor market conditions, an issuer might delay a bond issue. Or, the issuer might want to combine several projects into one larger issue. During this process, they issue the BANs.
Bond Counsel or Bond Approving Attorney
A lawyer who writes an opinion on the bond or note as to its tax exempt status and the authenticity of its issuance. In theory their opinion is meant to assure the bond investor, but they are paid by the issuer so it is not clear who their real client is.
Bond Fund (Tax-Exempt)
A portfolio of municipal bonds sponsored by registered investment companies that offer shares to investors either through (1) closed-end funds or unit investment trusts, which offer shares of a fixed portfolio of municipal bonds; or (2) open-end or managed funds, which offer shares in a managed portfolio of municipal bonds whose size will vary as shares are purchased or redeemed.
A financial guaranty insurance policy provided by a well-capitalized, rated (claims paying ability) insurance company which pledges to make timely payments of principal and interest on a bond or bond issue in the event that the issuer is unable to pay. Insurance premiums on new issues are paid at closing from bond proceeds (as a cost of issuance) and are usually calculated as a percentage of debt service on the insured bond or bonds. For arbitrage yield purposes, a bond insurance premium may be treated as interest expense.
Bond or Note
A security whereby an issuer borrows money from an investor and agrees and promises, by written contract, to pay a fixed principal sum on a specified date (maturity date) and at a specified rate of interest.
The amount at which a bond or note is bought or sold above its par value or face value without including accrued interest.
The money paid to the issuer by the purchaser for a new issue of municipal bonds, used to finance a project or purpose for which the bonds were issued and to pay certain costs of issuance. This is equal to the par amount of bonds, plus accrued interest, less original issue discount plus premium.
Bond Year or Fiscal Year
The 12-month accounting period used in connection with an issue of bonds. Bond Year Ending refers to the last day of that accounting period and therefore defines the period. The key information if the month and day; the actual year used has no meaning in this case.
The product of the number of bonds (1 bond equals $1,000, regardless of actual denomination) and the number of years from issuance to stated maturity. Partial years are expressed in decimals. The total amount of bond years on all maturities is used in calculating the average life of an issue and the net interest cost.
A unit of debt, $1000 of principal or par amount. For 200 years municipal bonds were sold in $1000 denominations. Since the mid-1970s the minimum bond denomination has been $5000; nevertheless, "a bond" is bought, sold, referred to and priced as if it were $1000.
A system of security ownership in which the ownership is held as a computer entry on the records of a central company for its owner. The bond owner gets a computer printout as proof of ownership.
Technically a broker is a bond trader in the secondary market buying from and selling to bond dealers. Its most common usage is as a description of a bond salesperson.
A financial plan containing an estimate of proposed revenues and expenditures for a given period (typically a fiscal year). The term is also used to denote the officially approved expenditure ceilings under which a government and its departments operate. Adoption of a budget by the legislative body is an appropriation of the budgeted amounts.
Budgeted Fund Balance
The amount of the fund balance that is budgeted for use in the next year’s budget.
Comprehensive Annual Financial Report.
The terms of the indenture giving the issuer the right or requiring the issuer to redeem or call all or a portion of an outstanding issue of bonds prior to their stated maturities at specified prices.
The exercise of the right of the issuer to prepay a bond prior to the specified maturity date and demand surrender of its bond for redemption, refunding or sinking fund purposes on a specific date at a specified price. The issuer is said to "call the bonds" by giving notice in a manner described in the trust indenture.
The amount of money that must be paid to the bondholder in addition to the par amount/accreted value of the bond in order to exercise a redemption provision. Premiums are usually associated with optional call provisions. When a bond is said to be "callable on 11/1/99 at 102", the first optional call date is on 11/1/1999 and the call price is 102%, of which the 2% above par is the call premium expressed as a percentage of par (or accreted value in the case of most callable CABs).
The call price is the percentage of par (or accreted value) which must be paid to exercise a call option.
Any legal measure that reduces the probability of a bond being redeemed prior to maturity. Protected bonds include non-callable bonds, discount bonds, and deep-discount bonds.
A bond or note that is subject to redemption at the option of the issuer prior to its stated maturity. The call date and call premium, if any, is stated in the offering statement or broker's confirmation.
Capital Appreciation Bond (CAB)
A bond which pays no interest on a periodic basis, but accretes in value from the date of issuance (delivery date) to the date of maturity. CABs usually accrete to a future denomination of $5,000 and are sold at a deep discount to $5,000. However, the discounted purchase price is considered the Par Amount of the CAB maturity. CABs are sold with a stated accretion rate and accretion table which demonstrates how the interest that would be paid on a current-interest bond is instead compounded on a periodic basis, reinvesting the interest at the same rate for the life of the bond. At maturity, the investor receives the original par amount plus all the accreted interest, which together is usually a multiple of $5,000.
A one year plan for financing a program of long-term work projects that lead to the physical development of the City. The capital budget is usually enacted as part of the complete annual budget which includes other operating and capital outlays. The capital budget is based on a Capital Improvement Program (CIP).
Capital Improvement Program (CIP)
A five-year plan for financing long-term work projects that lead to the physical development of the City. Set forth in the CIP is the name of each project, the expected beginning and ending date, the amount to be expended in each year and the proposed method of financing the projects.
Expenditures of at least $7,500 that result either in the acquisition of fixed assets or property durable for longer than one year.
Capitalized Interest Fund
An amount funded by bond proceeds and used to pay interest on the bond issue for a specific period of time, usually from closing to the end of construction period of a project. This project will produce revenues necessary to pay debt service after the capitalized interest amount has been exhausted. Capitalized interest periods normally pay interest between 6 months and 3 years.
Community Development Block Grant.
Clarence E. Page Airport.
Certificates of Participation (COPs)
A form of lease revenue bond that permits the investor to participate in a stream of lease payments, installment payments or loan payments relating to the acquisition or construction of specific equipment, land or facilities. In theory the certificate holder could foreclose on the equipment or facility financed in the event of default, but so far no investor has ended up owning a piece of a school house or a storm drainage system. COPs are not viewed legally as "debt" because payment is tied to an annual appropriation by the government body. As a result, COPs are seen by investors as providing weaker security and often carry ratings that are a notch or two below an agency's general obligation rating.
Cops Helping Alleviate Police Problems.
A charge to departments receiving services from another City department. Also, see Internal Service Fund.
Council on Law Enforcement, Education and Training.
Closed End Fund
A mutual fund of a fixed-dollar amount of issues traded on one of the exchanges not at its net asset value, but priced based on perception and supply and demand. These funds can sell at a substantial discount or premium to their net asset value.
Synonymous with Delivery Date, Settlement Date and Date of Issuance. The delivery of the bonds is made to the investors in exchange for the purchase price. This is generally the date that underwriters get paid.
Consolidated Omnibus Budget Reconciliation Act. This act sets forth requirements for employers and employees with regard to health insurance following termination of employment.
The interest which is accumulated and compounded over the life of a CAB and is finally paid at the maturity of the CAB. The compounding period is usually semiannual.
Bonds whose repayment is the responsibility of the business or developer who benefits from the financing, rather than the issuer who only collects the taxes, fees or revenues and passes them on to the bondholder.
A budgeted reserve for use in unforeseen circumstances.
Services rendered to the City by private firms or other City departments. These services can include expenses such as utilities, rentals, printing, internal service charges and repairs.
A convertible capital appreciation bond is a bond which compounds interest (as a CAB does) for a fixed period of time, usually between 5 and 10 years, and then pays interest periodically like a normal serial or term bond. The conversion date is the final compounding date for the accretion period at which time the bond begins to accrue and pay interest on a semiannual basis. Convertible CABs usually accrete to an integral $1000 or $5000 denomination at the conversion date. See also Capital Appreciation Bond.
Cost of Issuance
All expenses associated with the sale of a new issue which are not part of the Underwriter's Discount. These can include legal fees, printing costs, and rating agency fees among others. Cost of Issuance can be recovered from bond proceeds, and are included in the calculation of the All-In TIC as a deduction from bond proceeds for the PV target.
The Central Oklahoma Transportation and Parking Authority, a trust of which the City is beneficiary. COTPA provides public transit services in Oklahoma City and, through contracts, in many suburban areas. COTPA also operates downtown parking garages.
The detachable part of a bond that evidences the rate of interest due and the interest payment date. In the good old days of bearer bonds, coupons were detached from the bonds and presented to the paying agent for payment just as one might cash a government check. Thus the reference to wealthy persons as "coupon clippers."
A legally binding commitment by the issuer of municipal bonds to the bondholder. An impairment of a covenant can lead to a Technical Default.
Coverage (Debt Service)
This is the margin of safety for payment of debt service on a revenue bond that reflects the number of times the actual and/or estimated project earnings or income for a 12-month period of time exceeds debt service that is payable.
The last call date on the refunded bonds in a crossover refunding. This is also the date of the last interest payment date on the refunding bonds which was defeased in the escrow.
A refunding transaction which is an economic defeasance rather than a legal defeasance since only the principal is defeased on the refunded bonds to the call date. Also, the interest on the refunding bonds is defeased until the call date on the refunded bonds, which is known as the crossover date. Before the crossover date, the issuer is paying interest on the old bonds and principal on the new bonds; afterward, the issuer pays normal debt service on the refunding bonds as the refunded bonds will be retired.
The ratio of the coupon rate on a bond to the dollar purchase price expressed as a percentage. Thus if you pay par or 100 cents on the dollar for your bond and the coupon rate is 6%, the current yield is 6%; however, if you paid 97 for your 6% discount bond the current yield is 6.186%. ( .06 divided by 97). If you paid 102 for a 6% bond the current yield is 5.88% (.06 divided by 102).
Abbreviation for the Committee on Uniform Security Identification Procedures. A bond's CUSIP is an alphanumeric identification code, usually 9 characters, assigned each maturity of a bond issue and is printed on the face of each individual bond. All Treasury, agency, and municipal bonds are assigned a CUSIP number prior to pricing.
The date carried on the face of a bond or note from which interest normally begins to accrue.
A corporation or partnership that buys, sells and maintains an ongoing position in bonds and/or notes. They are also authorized to underwrite new issues. Some large commercial banks are licensed to act as bond dealers.
The maximum statutory or constitutional amount of debt that the general obligation bond issuer can either issue or have outstanding at any time.
The ratio of the issuer's general obligation debt to a measure of value, such as real property valuations, personal income, general fund resources, or population.
Debt Service Reserve Fund
A bank trustee account established by the trust indenture and used as a backup security for an issuer's bonds. It usually amounts to one year's debt service, and can be drawn on by the Trustee in the event of an impairment of the Trust indenture.
The City's obligation to pay the principal and interest of bonds and other debt instruments according to a predetermined payment schedule.
Income that is restricted by law to expenditures for specific purposes.
Deep Discount Bonds
Bonds which bear interest at a rate well below market and accordingly are priced for sale at a substantial discount from their face value so that the yield to maturity approximates market rates. Under the July 1993 arbitrage regulations, if the original issue discount > 0.25%*(average life of term), sinking funds on excessive discount term bonds must be valued at the net present value of the interest and principal that would be paid to final maturity of the term bond discounted at the yield to maturity of the term bond. See Arbitrage Yield.
Failure to pay in a timely manner principal and/or interest when due. See Technical Default.
Termination of the rights and interests of the bondholders and extinguishment of their lien on the pledged revenues in accordance with the terms of the indenture for the prior issue of bonds. Defeasance usually occurs in connection with the refunding of an outstanding issue by the final payment (current refunding), or provision for future payment (advance refunding with an escrow account), of principal and interest on a prior issue.
Refunded bonds for which the payment of principal and interest has been assured through the structuring of a portfolio of government securities, the principal and interest on which will be sufficient to pay debt service on the refunded, outstanding bonds. When a bond issue is defeased, the claim on the revenues of the issuer is usually eliminated. See ETM bonds
The date that a bond issue is delivered to and paid for by the purchasers. Also known as settlement date, closing date, and date of issuance.
For bonds bought or sold in the secondary market, delivery -and payment - must be in three business days. For new issues, the time when payment is made to, and the executed bonds and notes are received from, the issuer. New-issue delivery takes place several weeks after the sale to allow the bonds and notes to be printed and signed.
The face or par amount - nominally $1000 or $5000 but can be $100,000 or more in the case of a note - that the issuer promises to pay at a specific bond or note maturity.
Identifies the highest level in the formal City organization in which a specific activity is carried out, synonymous with agency.
In general obligation bond analysis, the amount of debt that a particular local unit of government has incurred in its own name or assumed through annexation.
Bonds which sell at a dollar price below par in which case the yield would exceed the coupon rate. The difference between the discount price and the maturity price is subject to federal capital gains tax except in the case of Original Issue Discount Bonds.
Non-interest-bearing note sold at a discount and maturing at par. A U.S.Treasury Bill is a discount note.
In reference to the Federal Reserve Bank, this is the rate which is charged to banks when borrowing directly from the Fed. In reference to Treasury bills, this is the annual rate used to compute the discount from par when determining the purchase price of a T-bill.
Identifies the second highest level in the formal City organization in which a specific activity is carried out; several divisions may comprise a single department.
Generally a term bond that is quoted and traded in dollars rather than in yield-to-maturity. They are well known issues of well known names in the market.
Double Barreled Bonds
These are tax exempt bonds which are backed by a pledge of two or more sources. These are quite like general obligation bonds which are additionally backed by a second source of revenue. This usually increases their safety.
Securities that are exempt from state as well as federal income taxes are said to have double exemption.
A measure of the timing of the cash flows to be received from a security. A useful indicator of the relative price volatility of securities due to a change in interest rates. used in asset/liability management. Equal to: the sum of the present values of each of the cash flows weighted by the time to receipt, divided by the total of the present values of the cash flows.
Economic Development Administration.
Equal Employment Opportunity Commission.
Empowerment Zone/Enterprise Communities (EZ/EC)
U.S. Department of Housing and Urban Development programs which generate economic development in urban areas through employer wage credits, tax deductions, tax-exempt bond financing and Federal tax credits.
Emergency Medical Services Authority.
Obligations in the form of purchase orders, contracts or salary commitments that are chargeable to an appropriation and for which a part of the appropriation is reserved. Encumbrances are eliminated when paid or when an actual liability is set up.
Oklahoma City contains three Enterprise Zones which encourage job creation and capital investment in areas of economic distress. Administered by the Oklahoma Department of Commerce, the program provides communities with an economic development tool to offer state and local incentives and program priority to new or expanding business in these designated areas.
Environmental Protection Agency.
A fund set up to hold pledged money or securities used to pay debt service. Various types of escrows can be structured in Refund including a open market securities escrow, SLGS escrow, and a PV (theoretical) escrow.
The initial deposit amount to the escrow account at closing. The purchase price of the securities plus the cash deposit.
A fund that contains monies that only can be used to pay debt service.
The debt service cash flow which an escrow is structured to pay. This is the cash flow to be paid by an escrow in order for an issue to be considered defeased.
The annual discount rate that, when used in computing the present value (as of the purchase date of the escrow securities) of the securities' receipts, produces an amount equal to the present value of the aggregate purchase price of the securities. If a float contract is used in conjunction with an open market escrow, then the PV target is equal to the cost of the open market securities less the value received for the contract, and the receipt dates used are those dates when funds are disbursed from the float account instead of the actual receipt dates on the securities.
Escrowed to maturity. An advanced refunded bond. When interest rates fall, an issuer may chose to sell a new issue called a refunding issue and use the proceeds of the second issue to pay off the original issue, much the same as a home owner refinancing a mortgage in an effort to save interest costs. The proceeds of the refunding issue are used to structure a portfolio of U.S. government securities, the principal and interest payments of which exactly match the principal and interest payments of the refunded bonds. The portfolio is placed in escrow at the paying agent and the bond issue is said to be fully defeased and escrowed to maturity. In actual practice the bonds are usually called on the first call date. Because of the U.S. Treasury backing, ETM bonds are considered the safest municipal bonds available and trade on the market as a rich triple-A.
Expendable Trust Fund
See Special Purpose Funds.
The total outflow of funds represented by: (a) supplies, materials and services received for current operations; (b) payments in the form of goods or services received; (c) equipment and other assets received; (d) payment for servicing debts including interest or principal; and (e) transfers to other funds. This definition applies to all funds and to all outlay transactions.
This is a component of the Underwriters' Discount which includes expenses incurred by the underwriters in the course of processing a deal.
Different from "optional redemption" or "mandatory redemption" in that it occurs under an unusual circumstance such as destruction of the facility financed.
A financial study provide by the issuer of a revenue bond that estimates service needs, construction schedules, and most importantly, future project revenues and expenses used to determine the financial feasibility and creditworthiness of the project to be financed.
Federal Home Loan Banks (FHLB)
Supervised by the Federal Home Loan Bank Board, this agency is backs up the nations savings and loan institutions. Over 98% of the total assets of all Savings & Loans in the country are held by these banks. The FHLB's loans to member banks to augment their deposits. Simply put, the FHLB issues debt securities in the open market to loan to the S&L's who loan this money to their customer's to buy homes. Interest received by investors is free from state and local taxes but not federal income tax.
Federal Intermediate Credit Bank (FICB)
The FICB is a group of twelve banks authorized to make loans to farmers. The money is to be used for expenses, machinery, and livestock. The loans may not run for more than 10 years. These are not direct obligations of the U.S. government. They are, however, considered moral obligations of the U.S. government. Interest received by investors is free from state and local taxes but not federal income tax.
Federal Land Banks
The Farm Credit Association supervises these. Loans are made to farmers and ranchers. They are secured by mortgages made by Federal Land Banks through the Federal Land Banks Association. These are not direct obligations of the U.S. government. They are, however, considered moral obligations of the U.S. government. Interest received by investors is free from state and local taxes but not federal income tax.
Federal National Mortgage Association (Fannie Mae)
Previously, Fannie Mae was a government owned corporation. However, in 1968, it was converted to a privately held corporation whose stock trades on the New York Stock Exchange. The purpose of Fannie Mae is to buy and sell real estate mortgages. Primarily, these mortgages are guaranteed by the Federal Housing Authority (FHA) and the VA. Fannie Mae gets the resources to purchase these mortgages from private investors and from borrowing from the Treasury Department. Fannie Mae issues mortgaged backed bonds which can be purchased by investors. However, and this is the only case where this is true, the Fannie Mae mortgage backed bonds are subordinated to regular debentures. Fannie Mae bonds pay semi-annual interest and are regarded as quite safe.
Generally a bank, investment-banking company or independent consulting firm that advises the issuer on all financial matters pertaining to a proposed issue and is not part of the underwriting syndicate.
Also known as the Paying Agent. The bank, designated by the issuer, to pay interest and principal to the bondholder.
A twelve-month period of time to which the annual budget applies and at the end of which a governmental unit determines its financial position and the results of its operations. The City’s fiscal year begins July 1 and ends June 30.
Assets with a useful life in excess of one year and an initial cost equal to or exceeding $7,500. Classifications include land, buildings, machinery, furniture, equipment and construction in progress. Synonymous with Capital Outlay.
Flexible Repurchase Agreement (Flex Repo)
A taxable investment provided by banks, securities firms, and insurance companies which earn a fixed or indexed rate of interest over the term. Commonly used for the investment of project funds and reserve funds in a bond financing. The investor usually has the ability to withdraw and deposit funds as needed, subject to predetermined limits-greater flexibility usually lowers the yield. Repos are usually collateralized with government or agency securities for the benefit of the investor.
An agreement in which an issuer invests funds (float balance) between the receipt dates of open market securities and the corresponding escrow disbursement dates. The objective is to reduce 'dead time' and reduce the Escrow Cost. Also known as a Forward Supply Contract.
Floating Rate Bond
A long-term bond for which the interest rate is adjusted periodically according to a pre-determined formula, based upon specific market indicators.
Fair Labor Standards Act.
Family and Medical Leave Act.
Fraternal Order of Police.
Forward Supply Contract
An agreement to deliver open market securities or an investment contract in the future. See Float Contract.
A gross receipts tax assessed on those public utilities that are granted a franchise by the voters.
Full Faith and Credit
The pledge of "the full faith and credit and taxing power without limitation as to rate or amount." A phrase used primarily in conjunction with general obligation bonds to convey the pledge of utilizing all taxing powers and resources, if necessary, to pay the bond holders.
The amount of money remaining in a fund at the close of a fiscal year. Fund Balance as used in this document is on a budgetary basis.
An accounting entity that has a set of self-balancing accounts and that records all financial transactions for specific activities of governmental functions or specific uses of restricted revenues.
Generally Accepted Accounting Principles.
A fund used to account for all monies received and disbursed for general municipal government purposes including all assets, liabilities, reserves, fund balances, revenues and expenditures which are not accounted for in any other fund.
General Obligation Bonds (GOs)
General obligation bonds are backed by the full faith and credit of the issuer for prompt payment of principal and interest. Many bonds issued by city, county, or school district, also have the added security that they have can raise property taxes to assure payment. This guarantee is of an unlimited nature. The issuer can raise taxes as high as they want to pay the bonds. If the property tax is not paid, the property can be sold at auction giving the bond holder a superior claim above mortgages, mechanical liens, and other encumbrances. General obligation bonds are usually analyzed in terms of the size of the taxable resources. These bonds are regarded as very safe.
General Property Tax
A tax levied on real estate and personal property.
Government Human Resources System. The component of the City’s integrated computer system used to track personnel information and process payroll.
Geographical Information System.
Government National Mortgage Association (GNMAs or Ginnie Mae)
When the government split off Fannie Mae into a private corporation, it split Fannie Mae into two parts. Ginnie Mae is the second part. Ginnie Mae is wholly owned by the U.S. government. Ginnie Mae issues 'Modified Pass Through certificates'. These certificates represent an interest in a pool of mortgages. The pool includes mortgages from the VA, FHA insured mortgages, and Farmers Home Administration guaranteed mortgages. As people make their mortgage payments, the proportionate share passes through to the investor. Payments to the investor are paid monthly. Each payment the investor receives is part interest and part principal. After all, when a person pays their mortgage, they are paying part interest and part principal. The minimum denomination is $25,000. These bonds are backed by the full faith and credit of the U.S. government. The interest is subject to state and local taxes.
U.S. government securities are the safest of all the bonds in circulation. They have direct government backing or in the case of federal agencies, a moral guarantee. Most government issues trade in the secondary or capital market. Although some trade in the Money Market.
A contribution by an organization (most often the federal government) to support a particular function.
The sum total of a state's or local government's debt obligations.
Generally, all annual receipts of a revenue bond issuer prior to the payment of all expenses. Normally only Net Revenues are pledged to the repayment of bonds.
Guaranteed Investment Contract (GIC)
An investment which pays investors a stated rate of return over the term of the contract. Economically the same as a Flexible Repurchase Agreement, but different legally. Collateral may or may not be required depending on the credit of the provider.
A temporary restriction on hiring in order to achieve financial savings.
Home Investment Partnership Program.
Housing Opportunities for People with AIDS.
Housing bonds are issued by both state and local governments. They are secured by mortgage repayments on single family homes. Added protections come from, federal subsidies for low income families, FHA insurance, VA guarantees, and private mortgage insurance. Public Housing Authority (PHA) issues are no longer available. However, some do trade in the secondary market. PHA's are backed by the full faith and credit of the U.S. government.
U.S. Department of Housing and Urban Development.
International Association of Fire Fighters.
Integrated Financial Management and Planning System. Oklahoma City's integrated budgeting, accounting, personnel and payroll computer system.
Initiating Multiple Police Actions Against Criminal Targets.
Industrial Development Bonds (IDBs). Also Called Industrial
Revenue Bonds (IRBs)
The local community creates an Industrial Development Agency. Most larger communities have one form of this. The purpose of the agency is to develop industrial or commercial property for the benefit of private users. The agency raises revenue for this by issuing municipal bonds. The money raised from this type of bond issue is used to pay for the construction of the new facilities. The facilities are then leased to the corporate guarantor. The safety of an Industrial Revenue bond depends on the credit worthiness of the corporate guarantor.
The main foundations of the City, including sewer lines, water mains, streets, bridges, etc.
An organization investing in securities for the benefit of others. Insurance companies, pension funds, investment managers and mutual funds are institutional investors.
Many municipal bonds are backed by municipal bond insurance that is specifically designed to reduce investment risk. In the event of a Default, the insurance company guarantees payment of principal and interest to the investors for as long as the Default lasts. Most insured bonds carry the highest quality credit rating -AAA.
Compensation paid to a lender (investor) by the borrower (issuer of bonds) for the use of money. Usually expressed as an annual percentage rate, and most often paid semiannually, or twice a year.
Interest Day Basis
The day-counting system for the computation of interest payments on bonds and notes which pay interest more than once a year. The number of days in an interest period can be expressed in two ways: the number of actual days elapsed or the number of days elapsed if every month had 30 days.
Usually a percentage rate per annum which is applied to the principal amount of a bond for computing periodic interest.
Intermediate Range Maturities
Bonds maturing in 5 to 15 years.
Internal Service Fund
A fund established to finance and account for services and commodities furnished by one department to another department on a cost reimbursement basis. Also, see chargeback.
A firm engaged in raising capital for an issuer. Participates as the middleman in purchasing securities from the issuer and in selling the same securities to investors.
Bonds graded Baa and higher by Moody's Investors Service and Fitch Investors Service, or BBB and higher by Standard and Poor's are considered to have only minor speculative characteristics. These are considered to have a high probability of being paid and are considered "investment grade." Many fiduciaries, trustees, some mutual fund managers can only invest in securities with an investment grade rating.
The face value of a single bond at issuance.
Authorization, sale and delivery of a new issue of municipal securities.
The principal or par amount of a bond maturity.
Issue Date (See Dated Date)
The date of a bond issue from which interest starts accruing. The bondholder is entitled to receive interest from the issuer starting from this date even though the bonds may actually be delivered on a later date.
The gross dollar cost of a bond or bond issue, which is equal to its par value plus accrued interest, less OID or plus premium.
The entity that borrows money through the issuance of bonds. This can be a state, political subdivision, agency or authority in the case of municipal bonds, a corporation for corporate and Agency bonds, and the U.S. government for Treasury Bonds.
The Intermodal Surface Transportation Efficiency Act of 1991. The federal law distributing funds for highway, mass transportation, trails and other transportation purposes. Oklahoma City uses ISTEA funds for highway improvement projects and for a network of trails around the City.
Job Training Partnership Act.
A bond rated lower than Baa/BBB. Also called a high yield bond. Bonds with credit ratings below Baa/BBB are considered speculative compared with investment grade bonds. (See Investment Grade).
An opinion by legal counsel concerning the validity of a securities issue with respect to conformity to statutory authority, and constitutionality, and usually as to the exemption of interest from federal income taxation.
Letter of Credit
A form of supplement or, in some cases, direct security for a municipal bond under which a commercial bank or private corporation guarantees payment on the bond under certain specified conditions.
Level Debt Service
Principal and interest payments that, together, represent more or less equal annual payments over the life of the loan. Principal may be serial maturities or sinking fund installments.
Local Government Financial System. The financial management component of the City’s integrated computer system.
A claim on revenues, assessments or taxes made for a specific issue of bonds.
Limited and Special Tax Bonds
These bonds are payable from a pledge of the proceeds against a specific tax. This tax could be a gasoline tax, a special assessment, or ad valorem tax levied at a fixed price. Unlike general obligation bonds and their unlimited ability to raise taxes, with these bonds, the issuer is limited as to its source for the revenue to pay the bonds. These bonds are quite safe.
An account for recording specific revenues or expenditures within a fund or department.
The measure of the ease or difficulty with which securities can be bought and sold in the markets. Bonds that have many buyers and sellers, or "market - makers" and a readily available price are considered highly liquid.
The 30 year U.S. Treasury Bond is the longest bond issued by the government. It is also the most widely traded bond in the world. It is viewed as a benchmark in the industry and is commonly called the "long bond."
Maintenance and Operations Expenditures (M & O's)
Costs of services and supplies needed for a service, program or department. Under Oklahoma's Municipal Budget Act, M & O's are budgeted and accounted for under two distinct classes: “other services and charges” and “commodities.”
Oklahoma City Metropolitan Area Projects. The MAPS Sales Tax Fund was established by City ordinance on October 13, 1993. The fund was supported by a one-cent limited-purpose City sales tax approved by voters on December 14, 1993 and extended for six months on December 8, 1999. The tax expired on June 30, 1999. The MAPS Sales Tax Fund is for certain capital projects in the Central Business District and the Fair Park.
A measure of the ease or difficulty with which a security can be resold in the market.
Maturity (or Maturity Date)
The date when the principal amount of a security becomes due and payable. An issue can have multiple maturities.
Maximum Annual Debt Service
The maximum amount of principal and interest due by a revenue bond issuer on its outstanding bonds in any future fiscal year. This is sometimes the amount to be maintained in the Debt Service Reserve Fund.
Modified Accrual Basis of Accounting
The modified accrual basis of accounting recognizes revenues when both “measurable and available.” Measurable means the amount can be determined. Available means collectible within the current period or soon enough thereafter to pay current liabilities. Also, under the modified accrual basis of accounting, expenditures are recorded when the related fund liability is incurred, except for general obligation bond principal and interest which are reported as expenditures in the year due. The City uses the modified accrual basis of accounting for Governmental and Agency funds.
Money Market Funds
Where borrowing and lending for periods of less than one year takes place. Securities and other instruments traded in the money markets include federal funds; certificates of deposit; repurchase agreements; Treasury bills; commercial paper; and bankers acceptances.
Moral Obligation Bonds
These were brought out in the 1960's in New York State. These bonds were issued for a specific purpose (e.g. public housing). It was implied that in the event of a shortfall, the state would make up the difference.
Mortgage Revenue Bond
A bond backed by a lien on the monthly payments of a large pool of mortgages, usually issued by a state or local housing authority.
Bonds secured by pools of mortgages.
Debt instruments are issued by any of the 50 states, the territories and their subdivisions, counties, cities, towns, villages and school districts, agencies, such as authorities and special districts created by the states, and certain federally sponsored agencies such as local housing authorities. The funds go to support a government's general financing needs or for special projects. Municipal bonds are free from federal tax on the accrued interest and may also be free from state and local taxes if they are issued in the state of residence. For example, a resident of New York who buys a municipal bond issued by the state of New York, will not pay New York State or local taxes on it. However, if a resident of New York buys a municipal bond from a city in Connecticut, state and local tax will be owed on the accrued interest. Keep in mind that any profit realized from the purchase or sale is not exempt from tax. Only the accrued interest is tax exempt. The U.S. government's Federal Reserve system brings U.S. government, Treasury bonds issues public. There is no agency that handles municipal bond issues. However, there are brokerage firms which specialize in bringing out municipal bond issues. There are several types of municipal bonds. They are: General Obligation Bonds, Limited and Special Tax Bonds, Industrial Revenue Bonds, Housing Bonds, Moral Obligation Bonds, Double Barreled Bonds, Tax Anticipation Notes, Bond Anticipation Notes, and Revenue Anticipation Notes.
A municipal index futures contract that has been traded at the Chicago Board of Trade since June 11, 1985. The futures contract is based on an index, known as The Bond Buyer Municipal Bond Index, composed of 40 bonds which are priced at the close of trading each day. It is used primarily by professional money managers to hedge their municipal portfolios.
Municipal Notes are short term debt instruments issued by state and local authorities. Their maturities run from about 60 days to one year. They are usually available in denominations of about $25,000. A municipality uses this type of financing as an interim step in anticipation of future revenue. There are several types of municipal notes: (1) bond anticipation notes (BANs), (2) revenue anticipation notes (RANs), (3) tax anticipation notes (TANs), (4) grant anticipation notes, (5) project notes, and (6) construction loan notes. Also see TRANs.
Municipal Securities Rulemaking Board (MSRB)
An independent self-regulatory organization established by Congress in 1975 which is charged with primary rulemaking authority - under the SEC - over dealers, dealer banks, and brokers in municipal securities.
A pool of investment capital from people who share the same investment goals. Mutual funds made up of bonds do not have a fixed maturity date. The manager of a bond fund continuously buys and sells securities in an effort to maintain the best overall returns for the investors.
Net Bonded Debt
Gross general obligation debt less self-supporting general obligation debt, housing bonds, water revenue bonds, etc..
Net Interest Cost (NIC)
Generally speaking, issuers award competitive bond sales to the underwriter bidding the lowest NIC. It represents the average coupon rate weighted to reflect the time until repayment of principal and adjusted for the premium or discount.
New Issue Market (Primary Market)
A bond offering sold for the first time, also called the primary offering.
A bond that cannot be called either for redemption by or at the option of the issuer before its specified maturity date.
A security similar to a bond but with a shorter term, usually five years securities. Municipal notes often are secured by specific sources of future revenues such as tax receipts or bond proceeds.
National Pollution Discharge Elimination System.
A grouping of similar expenditure object codes that follows the structure outlined in the Municipal Budget Act, e.g., personal services, other services and charges, supplies, capital outlay and transfers.
An expenditure account such as office supplies or rental of equipment. Synonymous with line-item.
Oklahoma City Airport Trust.
Oklahoma City Environmental Assistance Trust.
Oklahoma City Metropolitan Area Public Schools.
Oklahoma City Municipal Facilities Authority.
Oklahoma City Public Property Authority.
Oklahoma City Water Utilities Trust.
Oklahoma City Zoological Trust.
Oklahoma Department of Commerce.
Oklahoma Department of Transportation.
Oklahoma Employment Security Commission.
The date on which a new offering of stocks or bonds will be available to the public.
The price, and corresponding yield in the case of bonds, at which an underwriter of securities offers them to investors in the secondary market.
Official Statement (OS) or Offering Circular (OC)
A document (prospectus) circulated for an issuer prior to a bond sale with salient facts regarding the proposed financing. There are two OSs, the first known as the preliminary, or "red herring" - so named not because it smells but because some of the type on its cover is printed in red - and it is supposed to be available to the investor before the sale. The final OS must be sent to the purchaser before delivery of the bonds.
Office of Management and Budget.
Open Market Securities (OMS)
Debt securities which are traded in the bond secondary markets. Portfolios of open markets can be structured to meet escrow requirements in advance refunding structures. For standard advance refundings, the open market securities which are allowed are direct obligations of the U.S. government: Treasury bills, notes, bonds and STRIP (zero coupons), and STRIPs issued by the Resolution Trust Corporation (Refcorp STRIPs). In crossover refundings, higher yielding open markets, such as Agency securities, are used in refunding escrows; however, use of Agency securities does not constitute a legal defeasance.
A right to retire all or part of an issue, prior to the stated maturity, during a specified period of years, often at a premium. The right can be exercised at the option of the issuer.
Original Issue Discount
A bond offered at a dollar price less than par (100%) which qualifies for special treatment under federal tax law. For tax-exempt municipal bonds, the difference between the issue price and par is treated as tax-exempt income rather than as a capital gain, if the bonds are held to maturity.
Other Services and Charges
An object class for expenditures for services (e.g., advertising, repairs, postage) and any other expenditures that do not fit in the remaining classifications.
Office of Workforce Development.
The face value or principal amount of a bond, usually $5,000 due the holder at maturity. It has no relation to the market value.The par value is the amount on which interest payments are calculated. For pricing purposes it is considered 100.
Revenue bonds that have an equal lien on the revenues of the issuer.
Paying Agent (Also Fiscal Agent)
Generally a bank that performs the function of paying interest and principal for the issuing body.
The date on which interest or principal and interest are payable on a municipal bond. Fixed rate bonds usually pay interest semiannually.
Specific quantitative measures of work performed within an activity or program (e.g., total miles of streets cleaned), or specific quantitative measures of results obtained through a program or activity (e.g., reduced incidence of vandalism due to new street lighting program).
The object class containing the costs of personnel, such as compensating City employees for salaries, wages and employee benefits (social security, retirement and insurance) for City employees, costs for travel and training reimbursements and costs of professional services such as legal, medical, training, etc.
Preliminary Official Statement (POS)
The document prepared by or for a municipal securities issuer that gives in detail the security and financial information about the issue. The Preliminary Official Statement includes all relevant material except the interest rates and prices for the securities, and is made available to prospective investors prior to the setting of the rates and prices.
The amount, if any, by which the price exceeds the principal amount (par value) of a bond. Its current yield will be less than its coupon rate.
Bonds are quoted either in terms of a percentage of par value (98 bid/99 offered) or in terms of yield to maturity (7.25% bid/7.50% offered).
Price to Call
The yield of a bond priced to the first call date rather than maturity. Usually the price of the bond is expressed as a percent.
Primary Market (See New Issue Market)
The market on which newly issued securities are sold. This includes the auction market for government bonds and the underwriting period for bonds which an underwriter purchases for resale to investors.
The face amount or par value of a bond. The principal amount of a trade is the par value of one bond times the number of bonds involved in the trade.
Related activities and projects that seek to accomplish a specific objective.
A plan of financial operation, proposed by the City Manager to the City Council, providing an estimate of expenditures for a given fiscal year and a proposed means of financing them.
Proprietary Fund Accounting
Accounting used for government operations that are financed and operated in a manner similar to business enterprises and for which preparation of an income statement is desirable.
Some bonds have a "put" feature which allows you to redeem the bond at par value on a specified date, long before its maturity date. If interest rates increase, you can cash in the bonds at any put date, recoup the principal and purchase higher-yielding bonds. Also known as an option tender bond.
Qualified Legal Opinion
Conditional affirmation of the legal basis for the bond or note issue. The average investor should avoid any but the strongest opinion by the most recognized bond approving attorneys.
A legal commitment by a revenue bond issuer to maintain rates at levels to generate a specified debt-service coverage.
Various alphabetical and numerical designations used by institutional investors, Wall Street underwriters, and commercial rating companies to give relative indications of bond and note creditworthiness. Standard & Poor's and Fitch Investors Service Inc. use the same system, starting with their highest rating of AAA, AA, A, BBB, BB, B, CCC, CC, C, and D for default. Moody's Investors Services uses Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C, and D . Each of the services use + or - or +1 to indicate half steps in between. The top four grades are considered investment grade ratings.
A term to identify funds appropriated in one fiscal year and rebudgeted in a future year to provide budget authority for expenditures; a single term to identify fund balance and reserve for prior year encumbrances. Generally used in capital and construction funds which contain projects that may require more than one fiscal year to complete.
Process of retiring existing bonds prior to maturity from excess earnings or proceeds of refunding bonds. It also refers to redeeming shares in a mutual fund by selling the shares back to the sponsor.
The collective term for the facts that describe the first and subsequent call dates, call or redemption prices and premiums, the call priority, the eligible call dates, the number of days notice required of an existing or actual bond Series. The information is available in the Official Statement or the Trust Indenture, along with the defeasance requirements of the Series. Defeasance requirements determine the type of securities that are necessary for the escrow.
The outstanding bonds replaced by new bonds during a refunding.
The issuance of a new bonds for the purpose of replacing outstanding bonds.
A non-negotiable instrument in the name of the holder either registered as to principal or as to principal and interest.
An outstanding issue that is in the floating rate or variable rate mode and is being offered in a new mode. A remarketed issue appears much like a new issue when it is being offered to maturity, except the par amount and maturity amounts are already established.
A financial transaction in which one party "purchases" securities (primarily U.S. Government bonds) for cash and simultaneously the other party agrees to "buy" them back at some future time according to specified terms. Municipal bond and note issuers have used repos to manage cash on a short term basis. (Known formally as repurchase agreements.)
Reserve for Contingencies
Appropriations for emergencies or unforeseen expenditures not otherwise budgeted.
Reserve for Prior Year Encumbrances
An amount budgeted as a revenue for a multi-year fund to provide budget authority for items encumbered in one year, but which may not actually be expensed until a future year.
Revenue Anticipation Notes (RANs)
These are issued in anticipation of revenue coming in from the federal government. Or if a local municipality issues them, they may be waiting for revenue from the state or federal government.
These are payable from the earnings of a revenue producing agency or enterprise. Examples are water, sewer, school district, airport, etc. States and their sub-divisions create certain agency's and authorities to perform specific tasks. Many times, the agency or authority has the ability to levy charges and fees for its services (e.g. the water company). These bonds are analyzed in terms of historical or potential earnings compared with the bond requirements. Usually, the yield is higher than that of a general obligation bond. This is because taxes are more secure than revenues. These bonds have built up a good record over a long period of time.
A debt service solution concept that requires a revenue cash flow in order to set an upper limit of periodic (e.g., annual) debt service. The resulting debt service, if graphed over the life of the issue, is 'shaped' like the revenue line.
A formal estimate of how much income will be earned from a specific revenue source for some future period, typically, a future fiscal year. Revenue sources, generally include taxes, intergovernmental grants, fees for services, fines and permits.
Request for Proposal.
The trading market for outstanding bonds and notes. This is an over-the-counter market, a free form negotiated method of buying and selling, usually conducted by telephone or computer. Traders buy and sell for their own inventory. As many as $2 billion of issues trade each day.
Identifies the third highest level in the formal City organization in which a specific activity is carried out; a division may consist of several sections.
The legally available revenues and assets that are used to pay the bond holders. The key component that supports debt service.
A bond of an issue that features maturities every year, annually or semiannually over a period of years, as opposed to a Term Bond, which is a large block of bonds maturing in a single year.
The date when a bond transaction must be paid.
Bonds or notes sold on an interim basis with tax-exempt securities for a period of from one to five years.
Sinking Fund Schedule
A schedule of payments required under the original revenue bond resolutions to be placed each year into a special fund, called the sinking fund, and to be used for retiring a specified portion of a term bond issue prior to maturity.
Money set aside on a periodic basis to retire term bonds at or prior to maturity.
State and local government securities used for deposit in escrow accounts in connection with the issuance of refunding bonds. Issued by U.S. Treasury on a subscription basis to municipal government entities only.
Special Purpose Funds
Funds dedicated for a specific purpose, such as a fund established to receive donations to support parks and recreation activities. In future years, these will be referenced as Special Purpose Funds (previously referred to as Expendable Trust Funds).
Stepped Coupon Bonds
A bond on which the interest rate periodically changes (increases) over the life of the bond. Sold on a yield basis.
The registration of bonds in the name of a dealer or other third party instead of the owner, usually for custodial or safe keeping purposes. This also facilitates buying and selling from the account. The bond holder gets a monthly statement of the bonds in the account.
Acronym for the U.S. Treasury zero coupon program called Separate Trading of Registered Interest and Principal of Securities. These securities are sold at a discount and redeem for their full face value at maturity. They are offered in amounts of $1,000 or more, and pay no interest (the interest is reinvested over the life of the security. STRIPS and zeroes are well suited to long-term goals as college planning and retirement savings.
A term maturity in a housing mortgage bond issue. These will be the first bonds to be called, on any interest payment date, from the proceeds of prepaid mortgages. The average mortgage is prepaid though refinancing or sale in 6.8 years. While it is likely, it cannot be guaranteed that a super sinker will be called; as a result they are priced as a long-term bond but are most likely to be a short-term maturity. It is a way to get a higher yield for a short term bond.
The object class that includes articles and items which are consumed or materially altered when used by operating activities, such as office supplies, maintenance parts and small tools, and minor equipment.
The exchange of one bond for another. Generally, the act of selling a bond to establish an income tax loss and replacing the bond with a new item of comparable value.
The gross sales concession for a bond, expressed in dollars per thousand dollars of bonds. For example, a $5.00 takedown on $1,000,000 of bonds, would result in a gross sales concession of $5,000.
Temporary Assistance for Needy Families.
Tax Anticipation Notes (TANs)
These are issued by cities in anticipation of future tax revenue. The security of the issue depends on the security and amount of the tax revenue the municipality intends to receive. Usually, these funds are used to finance current obligations.
The total resource of the community that is legally available for taxation.
The ratio of debt service to the necessary tax revenues to pay for the debt service.
Bonds exempt from federal income, state income, or state tax and local personal property taxes. This tax exemption results from the theory of reciprocal immunity: States do not tax instruments of the federal government and the federal government does not tax interest of securities of state and local governments.
Taxable Equivalent Yield
The yield an investor would have to obtain on a taxable corporate or U.S. government bond to match the same after-tax yield on a municipal bond.
Failure by the issuer to meet the requirements of a bond covenant. These defaults do not necessarily result in losses to the bond holder. The default may be cured by simple changes of policy or actions by the issuer.
The act of offering bonds to a sinking fund.
A term bond is a set of maturities that are sold as a single unit, at a single price and yield. A typical term bond has mandatory sinking fund requirements that are the maturity amounts. A bond issue may be composed of various serial and term bonds.
Issued by Puerto Rico, the Virgin Islands, etc. Interest on this debt is exempt from state income taxes because of Congressional action that provides these territories with such benefits.
The scarcity of secondary market supply or few bid or offer quotes for a particular security.
An advertisement placed for information purposes, after bonds or notes are sold, that describes certain details of the issue and lists the managing underwriters and the members of the underwriting syndicate.
Return on investment, taking into account capital appreciation, dividends or interest, and individual tax considerations. The total return is usually adjusted for present value and expressed on an annual basis.
The holding of bonds in inventory by the dealer for purposes of buying or selling.
Tax and Revenue Anticipation Note.
A payment from one City fund to another fund or to a related trust.
True Interest Cost (TIC)
The TIC is a method of calculating an issuer's borrowing interest cost, which considers the present value of the debt service payments. It is defined as the rate necessary to discount the debt service payments, compounding semi-annually, to the purchase price received by the issuer at the time of bond closing.
A government entity created by a city or group of cities to perform specific services or functions.
A bank designated as the custodian of funds and official representative of bondholders. Trustees are appointed to insure compliance with the trust indenture and represents bondholders to enforce their contract with the issuer.
U.S. Treasury Bills
Treasury bills have maturities of 3 months and 6 months. They are auctioned once every week. Once every month 1 year T-bills are auctioned. These are a direct short term obligation of the U.S. government. T-bills do not pay interest. They are purchased at a discount. For example, one might buy a $10,000 three month T-bill for $9,700. The investor would then receive $10,000 when the T-bill reached maturity in 3 months. T-bills are the only Treasury security issued at a discount. They are also the only Treasury security issued without a stated interest rate. The interest rate is determined at auction. T-bills are also offered in Book Entry form only. The investor does not receive a certificate. T-bills are also highly liquid.
U.S. Treasury Bonds
Treasury bonds are direct obligations of the U.S. government. They pay interest on a semi-annual basis. These have long term maturities. They mature in 10 years to 30 years. Thirty year T-bonds are callable beginning 5 years prior to maturity.
U.S. Treasury Notes
U.S. Treasury notes are direct obligations of the U.S. government. These notes have maturities from one year to10 years. T-notes pay interest on a semi-annual basis. T-notes always expire at par value. The different length notes are auctioned at different periods throughout the year.
The amount of fund balance that is not budgeted; available for cash flow purposes.
The general obligation bonds of smaller units of local government within a given issuer's jurisdiction.
An agreement to purchase an issuer's unsold securities at a set price, thereby guaranteeing the issuer proceeds and a fixed borrowing cost.
Underwriter's Discount ("Underwriters spread")
The differential between the price paid to the issuer for the new issue and the prices at which the securities are initially offered to the investing public. The underwriter's discount has four components:
Unit Investment Trust
A mutual fund of a fixed number (20 to 30) of different issues in a portfolio placed in a trust. Units or shares are sold in the trust and each unit receives a proportionate amount of the tax-exempt interest earned by the bonds. As the bonds mature or are called, principal is returned to the investor. Unit investment trusts, unlike other mutual funds, have a finite life.
Projected salary savings from personnel turnover. The discount is budgeted as a percentage of the budgeted salary and retirement for General Fund departments. In FY 2002-2003, the discount is budgeted in the General Fund at 3.0% of combined salary and retirement for civilian positions, and 1.5% for uniform Police and Fire positions.
Variable Rate Bond
A bond whose yield is not 1:24 PM 8/8/2003fixed but is adjusted periodically according to a prescribed formula.
Workforce Investment Act.
No entries begin with X.
This is the basis on which a bond is priced and sold. It reflects the value of the bond giving consideration to the length of time to maturity, credit quality of the issuer/guarantor, and general market conditions.
Graph depicting the relationship between yields and current maturity for securities with identical default risk.
Return available to call date taking into consideration the current value of the call premium, if any.
Investment return which takes into account the interest rate, length of time to maturity, and price paid. It is assumed that the coupon reinvestment rate for the life of the bonds will be the same as the yield-to-maturity.
A deep discount municipal bond on which no current interest is paid. Instead, at bond maturity, the investor receives compounded interest at a specified rate. The difference between the discount price at purchase and the accreted value at maturity is not taxed as a capital gain but is considered tax-exempt interest. Widely used for college savings bonds.