Not every municipal borrowing is a long-term bond, and not every tax-backed bond rests on the full taxing power. Name the money that repays it.
Short-term notes, and bonds with unusual backing
A municipal note is a short-term obligation to repay principal on a set date, with interest. Notes usually mature in a year or less, and most are repaid from a defined source of money the issuer expects to receive. The note is named after that money. A tax anticipation note (TAN) waits for tax receipts, such as property taxes due at a set time of year. A revenue anticipation note (RAN) waits for other revenues. A tax and revenue anticipation note (TRAN) waits for both.
Keep reading: 3 more paragraphs (about 1 min)
A bond anticipation note (BAN) is different. It is usually issued for a capital project, such as a school or a bridge, and it is repaid from the proceeds of long-term bonds the issuer sells later. Think of it as a bridge loan. If a question names the money a note is waiting for, it has told you which note it is.
Some long-term bonds have backing with its own name. A special tax bond is secured by one or more designated taxes other than property taxes, such as a sales, fuel or cigarette tax. One named tax is a narrower promise than the issuer’s general taxing power. A double-barreled bond has two sources: a defined revenue source, such as water charges, and the full faith and credit or taxing power of the issuer behind it.
A moral obligation bond has a primary source of security plus a weaker promise. If that source falls short, the shortfall goes into the budget recommendation to the governing body, such as a state legislature. The legislature may appropriate the money, but it is not legally obligated to. Read moral as the opposite of legal: it is a promise to ask, not a promise to pay. In every case, follow the pledge, not the issuer’s name.
Exam terms (6)
- Tax anticipation note (TAN)
- Short-term note repaid from tax receipts the issuer expects to collect.
- Revenue anticipation note (RAN)
- Short-term note repaid from other revenues the issuer expects to receive.
- Bond anticipation note (BAN)
- Short-term note, usually for a capital project, repaid from a later long-term bond sale.
- Special tax bond
- A bond secured by one or more designated taxes other than property taxes.
- Double-barreled bond
- A bond backed by a revenue source and by the issuer’s full faith and credit or taxing power.
- Moral obligation bond
- A bond whose backup is a non-binding promise to put any shortfall in the budget request.
What repays it
| Repaid from | Note or bond | |
|---|---|---|
| TAN | Expected tax receipts | Short-term note |
| RAN | Expected other revenues | Short-term note |
| BAN | A later long-term bond sale | Short-term note |
| Special tax | Designated taxes, not property tax | Bond |
| Double-barreled | Revenue source, plus taxing power | Bond |
| Moral obligation | Primary source; legislature may cover a gap | Bond |
Try it: Cover the table. Name the instrument and say what repays it for each of these: a city borrowing until its sales tax arrives in March; a county starting a jail before it sells 25-year bonds; toll bridge bonds with the state’s taxing power pledged behind the tolls; road bonds backed by a cigarette tax and nothing else.
Check yourself
Try a question, then read the explanation to review the rule.
Opening your study record…
Worked example
Fenmore County has three debts outstanding: notes due in April, to be repaid from property taxes; notes paying for the design of a new hospital wing, to be repaid when 30-year bonds are sold next year; and road bonds backed only by a local fuel tax.
- The April notes wait for property taxes, so they are tax anticipation notes.
- The hospital notes wait for a bond sale, so they are bond anticipation notes. Their planned source of repayment is the later bond issue, not this year’s taxes.
- The road bonds rest on one designated tax that is not a property tax, so they are special tax bonds, not general obligation bonds.
- If fuel tax receipts fall, the road bondholders look to the fuel tax. The county’s general taxing power was not pledged to them.
- None of these labels settles the tax question. Municipal interest is generally exempt from federal income tax only if the issue meets the federal tax rules, as the previous lesson showed.
Same rule, new context
Opening your study record…
The closest contrast
Double-barreled: a binding second pledge.
Moral obligation: a promise to ask.
This decides any question about a shortfall. If the issuer’s taxing power is pledged, holders can look to it. If the backup is a moral obligation, the legislature decides whether to pay, and holders cannot make it.
Summary
- A municipal note is short-term borrowing, usually a year or less, repaid from money the issuer expects to receive.
- TAN: expected taxes. RAN: expected other revenues. TRAN: both. BAN: a later long-term bond sale.
- A special tax bond is secured by one or more designated taxes other than property taxes.
- A double-barreled bond has a revenue source and the issuer’s full faith and credit or taxing power behind it.
- A moral obligation is not binding: the legislature may fund a shortfall but is not legally obligated to.
Related practice
- Issuer type and repayment sourcePractice this
Sources
- SIE Examination Content Outline (2025) · FINRA · checked 2026-10-12
- MSRB Glossary of Municipal Securities Terms (3rd ed., August 2013) — Note; bond, revenue, tax and tax-and-revenue anticipation notes · MSRB · checked 2026-10-09
- MSRB Glossary of Municipal Securities Terms (3rd ed., August 2013) — Special tax, double-barreled and moral obligation bonds · MSRB · checked 2026-10-09
- Municipal Bond Basics (MSRB, October 2023) · MSRB · checked 2026-09-04
- Investor Bulletin: Municipal Bonds — Understanding Credit Risk (SEC Office of Investor Education and Advocacy, April 28, 2021) · SEC · checked 2026-09-04