American Institute of Certified Planners (AICP) Practice Exam

How are Private Activity Bonds traditionally repaid?

1. Through property tax revenues

2. With receipts from private firms

3. From state budget allocations

4. Using federal grants

The correct answer is: With receipts from private firms

Private Activity Bonds are typically repaid with receipts generated from private firms. These bonds are issued by local or state governments to finance projects that are primarily used by private entities, such as infrastructure projects or development initiatives. The income generated from the projects financed by these bonds, such as tolls from a private road or fees from a facility, is what provides the revenue stream needed for repayment. When private firms use these financed projects, they contribute to the payment of the bonds through operational revenues. This structure allows governments to leverage private investment for public benefit while ensuring that the costs associated with the projects are borne by those who directly benefit from them. Other potential repayment sources, like property tax revenues or state budget allocations, are more commonly associated with publicly funded projects rather than those where the primary benefits accrue to private entities. Federal grants could play a supportive role in funding projects but do not serve as the direct mechanism for repaying Private Activity Bonds.