What are special assessment bonds?

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AcadiFi · Accepted Answer

Special assessment bonds are a hybrid: they're municipal bonds repaid from mandatory assessments levied on a defined group of property owners who benefit from a specific improvement — new sewers, sidewalks, streetlights, drainage, special lighting districts, etc. Unlike GOs (paid from general taxes) or typical revenue bonds (paid from user fees of a project), special assessments are a lien on specific parcels based on benefit received. Structure: (1) city designates an improvement district; (2) estimates project cost; (3) apportions cost among benefiting parcels (by frontage, square footage, or benefit formula); (4) issues bonds secured by the assessment stream; (5) collects assessments annually, usually added to property tax bill. Example: Village of Birchwood Grove issues $4.8M in special assessment bonds for underground utility conversion in the Willow District (247 parcels). Each parcel is assessed $19,430 payable over 15 years at 4.1%. Credit considerations: (1) smaller, less diversified revenue base than a GO; (2) delinquencies can impair debt service — look at assessment-to-value ratio (target < 10%); (3) coverage from foreclosure proceeds; (4) whether the issuer has any 'back-up' GO pledge. Dirt bonds (Florida CDDs, California Mello-Roos) are a related, higher-risk subcategory repaid from undeveloped land assessments.

What are special assessment bonds?

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