School District Borrowing

By Charles K. Trainor

Has your school district ever borrowed money? If the answer is yes, odds are you have participated in the almost $3 trillion municipal bond market. Lenders in this market include investment funds specializing in earning tax-exempt income for investors, investment banks, insurance companies, and high-net-worth individuals. Municipalities and school districts that want to borrow money in this market sell securities.

Securities act as IOUs or promises to repay borrowed money, usually with revenues from real estate taxes. Naturally, interest is charged on the borrowed money and is usually paid quarterly or semiannually. The sale of securities allows school districts to raise either short-term or long-term cash.

In the U.S., securities issued with maturity dates of between two and 10 years are called notes. Those with maturity dates longer than 10 years are called bonds. Some corporations have issued bonds that mature as long as 50 to 100 years into the future.

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