Business Definition for: private purpose bond

taxable debt obligation of a state or local government entity, an outgrowth of the tax reform act of 1976 (which restricted the issuance of traditional tax-exempt securities. Taxable municipal bonds are issued as private purpose bond to finance such prohibited projects as a sports stadium; as municipal revenue bonds where caps apply; or as public purpose bonds where the 10% private use limitation has been exceeded.

municipal bond issued by a state or local government, or by a development agency, to finance the private industrial projects generating tax revenues and certain public works projects. These bonds are of two types: development bonds financing the renovation or improvement of public facilities, and industrialrevenue bonds, for which a private corporation is responsible for payments to bondholders. Industrial bonds are subject to special IRS rules governing the tax exemption of interest. The tax exemption on many of these bonds, other than bonds financing airports, water treatment plants, and certain other public works related projects, was eliminated by the Tax Reform Act of 1986. Bond ratings on revenue bonds are based on the credit rating of the private corporation backing the lease or rental agreement covering the facilities, because the ultimate source of repayment is the corporation, rather than the bond issuer.

category of municipal bond as defined in the tax reform act of 1986, which is exempt from federal income taxes as long as it provides no more than 10% benefit to private parties and no more than 5% of the proceeds or $5 million are used for loans to private parties; also called public activity, traditional government purpose, and essential purpose bond. Public purpose bonds include purposes such as roads, libraries, and government buildings.