The choice of the particular revenue method for a public facility is quite challenging due to the tax issues and the overall burden resting with the officials who should act on behalf of the community. The short term borrowing, revenue bonds or general obligations are three options at the table and each of them definitely has certain preferences over the rest. The revenue bonds, however, are considered to be the most appropriate tool for all the goals attained by the city administration.
The presented case involved the building of the capital building that might last for certain period of time, nearly two or three years. It requires the city administration to establish the stable and efficient sources of revenue that will not delay the terms of the building and the general time framework set for it. Additionally, the administration has to bear in mind the need to repay the debt I've certain period of time and the sooner the stadium is build, the sooner the revenue will be generated to cover the debts. A revenue bond provides for the use of the funds from certain profit generating project run by the city administration. This source of money is quite stable; it does not require the city administration to rely on the third parties in the financing of the new enterprise (Elliot & Elliot, 2015). Instead, it accepts the role of the finance administrator and distributor and controls the way money are spent (Hull, 2015). The revenue bonds are also quite frequently used to build the facilities that are expected to bring in income in the future (Elliot &Elliot, 2015). Obviously, the stadium falls under this scope and the city can turn to use this particular revenue mechanism. These bonds can be issued by any governmental institutions that operates as the business entity and which can assign certain sum of money on the constant basis.
On the contrary to the revenue bonds, the general obligation by bonds are less advantageous as they cannot be repaid through the variety of tax sources (Melville, 2015). Whereas in case of the revenue bond the project is tied to the constant source of income and the money simply flow from one source to another, in case of the general obligation bonds the city administration will still have to rely greatly on the partners and hope that they will meet their promises as agreed.The latter, however, might not always enjoy the full scope of actions available to them and, as a result, the building of the stadium might be delayed due to the financial issues related to the revenue mechanisms.
The revenue bond is also more convenient in this case as it will room for using other instruments as well whereas the short-term borrowing or the general obligation bonds might not be as useful since sooner or later using them the city administration will exceed the borrowing limit set for it (Arnold, 2015). The short-term borrowing in this case is not beneficial considering the scale of the building of a stadium (Drury, 2015). The time framework for finishing this project is quite immense and, therefore, in the short term perspective the city administration would merely have no source to take money from to repay the debt (Elliot & Elliot, 2015). The revenue problem will emerge again and it would have to deal with it once more. The building of the stadium will be endangered once more and, therefore, the city administration has to consider the use of the revenue bonds only.
In conclusion, the revenue bonds are considered to be the most appropriate financing mechanism in this case. It is beneficial in terms of taxes and overall stability. The other two alternatives are either insufficient or unstable.
Arnold, G. (2015). Corporate financial management. NY: Pearson.
Drury, C. (2015). Colin Drury Management and Cost Accounting (with CourseMate and eBook Access). NY: Pearson.
Elliot J. & Elliot, B. (2015). Financial accounting and reporting. NY: Pearson.
Hull, J. (2015). Risk Management and Financial Institutions (Wiley Finance). NY: John Wiley and Sons.
Melville, A. (2015). Taxation Act 2016. NY: Pearson.