Anticipation notes

If a municipality needs funding for short-term purposes, it typically issues notes. Notes usually mature in 3 months to 3 years.

A municipality can issue anticipation notes when it needs to use money before it’s actually been collected. The basic idea is the same across all types:

• The municipality borrows money for a short period.
• It spends the borrowed money now.
• It repays the borrowing later using taxes, revenues, bond proceeds, or grant money expected in the future.

Here are the main types of anticipation notes.

Tax anticipation notes (TANs) let a municipality fund current spending and repay the debt with future tax collections. For example, suppose your city wants to renovate a public park but doesn’t have enough cash on hand. If property tax collections are expected in a few months, the city can issue a TAN. The city borrows the money, completes the renovations, and then uses the upcoming tax collections to repay the note. This is often described as smoothing out cash flow, because it helps the municipality cover expenses throughout the year even though taxes come in at specific times.

The same concept applies to revenue anticipation notes (RANs), but repayment comes from future revenues rather than taxes. For example, suppose your city owns a zoo and wants to expand it. The city can issue a RAN to fund the expansion and then repay the note using future revenue from the zoo.

Tax and revenue anticipation notes (TRANs) combine features of TANs and RANs. If a municipality wants to fund multiple projects but prefers to issue only one short-term debt instrument, it can issue a TRAN and repay it using a mix of future tax collections and revenue collections.

Bond anticipation notes (BANs) are issued in advance of a long-term bond issuance. For example, suppose your city plans to build a new high school by issuing a G.O. bond. Before the bond is issued, the city may need money for early costs such as architectural plans and land surveys. It can issue a BAN to cover those costs now, and then repay the BAN later using part of the proceeds from the future bond issue.

Grant anticipation notes (GANs) are issued when a federal grant is expected. A federal grant is funding provided by the federal government that doesn’t have to be repaid. For example, suppose your city has been awarded a grant to improve public transportation. Before the grant money arrives, the city can issue a GAN to cover up-front costs (such as research and planning) and then repay the note once the grant funds are received. Grants are often awarded for projects the federal government considers beneficial, such as environmentally friendly initiatives.