Glossary of Municipal Securities Terms

ANNUAL APPROPRIATION PLEDGE

A pledge typically found in the bond contract for lease revenue bonds or securing a certificate of participation financing that commits the issuer or other obligor to make lease payments or other periodic debt service payments but only to the extent that funds are budgeted and appropriated on an annual basis by the issuer’s governing body. The governing body is not legally obligated to make such appropriation in any year. An annual appropriation pledge typically is used only in connection with projects that are considered to be essential to the issuer’s operations and therefore the governing body is likely to appropriate the money needed to pay debt service on an on-going basis. In many jurisdictions, this clause permits a borrowing entity to undertake a long-term certificate of participation or other lease revenue obligation financing without technically incurring debt, thereby avoiding statutory or constitutional debt limitations and referendum requirements because the lease payments are characterized as payments for use of the facilities rather than as payments on a promise to repay bonded debt. See: CERTIFICATE OF PARTICIPATION; LEASE RENTAL BOND; NON-APPROPRIATION CLAUSE. Compare: ABATEMENT CLAUSE.

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