Revenue Bonds

Utility Revenue Bonds and Mortgage Revenue Bonds can be used to fund infrastructure (e.g., sewer or water system improvements) and affordable housing projects, respectively. There two types of revenue bonds:

  • Utility Revenue Bonds are municipal debt securities that are used to finance public utility projects. The utility is required to repay bondholders directly from project revenues rather than a general tax fund. 
  • Mortgage Revenue Bonds (Housing Bonds) are bonds issued by local or State housing finance agencies. Funding from the sale of these bonds is then used to finance affordable mortgages for lower-income households. These bonds are secured by the promise of monthly payments by the borrowers whose home mortgages or rents were financed through the sale of the bonds. 

Revenue bonds could be a valuable tool for funding needed infrastructure and housing, but there are certain considerations or limitations to keep in mind.

Revenue bonds versus pay-as-you-go. Revenue bonds are well suited to funding needed infrastructure repairs but can also be used to fund water and/or sanitary sewer capacity improvements. If, however, infrastructure will primarily create capacity to serve a newly developing area, care should be taken to ensure that development will materialize in a timely fashion and new ratepayers are brought online to help repay the bonds. Jurisdictions should also evaluate if existing infrastructure systems have adequate capacity and can use a “pay-as-you-go” approach that relies on connection/impact fees as the latter avoids financing costs associated with bonds. While bonding comes with added costs, it can also be a valuable tool for larger projects and if timed properly (e.g., when construction costs and/or interest rates are lower) can result in cost savings for rate payers.

Limited availability of housing bonds. State housing bonds and financing requests are subject to availability and award given the State’s volume cap allocation. In recent years, the State has received more requests to fund affordable housing than there are funds available. Currently, pending legislation (SB 5 – The Affordable Housing Bond Act of 2022) could expand bond funding significantly if passed by the legislature and subsequently by California voters on November 8, 2022. Specifically, the legislation would authorize the issuance of bonds in the amount of 6.5 billion dollars. Proceeds from the sale of these bonds could be used to fund affordable rental housing and homeownership programs. 

Relevant State Law 

Government Code Section 54300 -54700. California Revenue Bond Law.

Pending Legislation: Senate Bill No. 5 (SB 5) (2020). Housing Bond Act of 2022.


Millionaire Acres. How Do Affordable Housing Bonds Work? 

National Low Income Housing Coalition. Housing Bond Summary. 

NOVOGRADAC. Competitive Bond Landscape Leads to New Challenges with 50% Test for Private Activity Bond and 4% LIHTC Transactions.

Next City. California Bond Program Helps Cities Secure Middle-Income Housing Without Upfront Cost.

California Statewide Communities Development Authority. Financing Community-Based Public Benefit Projects. 

Bond Programs

The State’s Qualified Residential Rental Project Program can be used by developers of multi-family rental housing to construct new units or purchase and rehabilitate existing units. Projects that receive an award of bond authority have the right to apply for non-competitive 4 percent tax credits. 

The State’s Single-Family First-Time Homebuyer Program is designed to help homebuyers of single-family homes, condominiums, or townhouses use mortgage credit certificates to reduce their Federal tax liability by  applying the credit to their net tax due. State and local governmental agencies and joint powers authorities can issue both tax-exempt mortgage revenue bonds or mortgage credit certificates to assist first-time homebuyers when they purchase a home, however; participants must meet certain income limits and purchase a home that falls within the program’s purchase price limitations. 

The California Public Finance Authority’s Affordable Housing Bond Program provides for-profit and nonprofit developers access to tax-exempt bonds to finance low-income multi-family and senior housing projects. 


San Diego Housing Commission. Multifamily Housing Revenue Bonds.