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Revenue Anticipation Note (RAN)

Revenue Anticipation Note (RAN)

What Does Revenue Anticipation Note Mean?

Revenue Anticipation Notes (RANs) are a type of municipal bond where the government gets money to finance a project and afterward repays lenders with revenue generated by that equivalent project.

Understanding Revenue Anticipation Note (RAN)

Revenue Anticipation Notes (RANs) are a form of note or short-term loan that a government as a rule repays from a named revenue source inside a period of one year. Like other municipal bonds, the interest income that RANs generate is ordinarily tax-exempt at the federal level and may likewise be exempt at the state and nearby level. This offers an advantage to those investors who need to invest in the bond market tax-productively.

Nearby governments frequently issue RANs when they need to accommodate an error between tax revenues and current costs. While governments collect taxes irregularly in lopsided sums over time, as a rule they must pay for construction and associated labor costs on a more reliable basis.

By offering RANs, a government can start critical projects without sitting tight for the revenue it hopes to receive from those equivalent projects. The revenue that the government uses to repay a RAN can emerge out of various sources relying upon the project, like sales, fees, or rate increments. Instances of enormous scope projects that substances might finance through a RAN issue are arena renovations or diversion center improvements.

RANs versus TANs and BANs

RANs are one of several governmental note categories that agencies issue to finance short-term projects, including Tax Anticipation Notes (TANs) and Bond Anticipation Notes (BANs). The distinctive characteristic of each note type is the specific pool of revenue that the borrowing government plans to draw from in repaying its debt.

Though governments repay RANs with revenue from the financed project itself, they repay TANs all the more extensively with taxes they collect in the next year. TANs are like RANs in that they generate tax-free interest income for bond investors, while permitting governments to bridge the gap between current costs and impending revenue resources.

Paradoxically, governments repay BANs with revenue from a future bond issue. With this type of note, governments basically pledge to pay down a more modest debt with funds they'll gain from taking out a bigger debt later on. This varies from the idea of RAN and TAN repayment, which governments accomplish by generating new financial assets as opposed to expanding liability.

Generally speaking, a government resorts to BANs as a stopgap measure when certain legal or compliance issues postpone it from giving bonds sufficiently fast to fund an important huge scope project.

Features

  • Like other municipal bonds, the interest income that RANs generate is normally tax-exempt at the federal level.
  • Revenue Anticipation Notes (RANs) are a form of short-term debt a government issuer as a rule repays from a named revenue source inside a period of one year.
  • An arena is one illustration of a project a government might finance through a RAN issue. Gate revenue would then be utilized to repay the note.