Flow of Funds definition

The flow of funds establishes the order and priority of handling, depositing, and disbursing pledged revenues in a bond contract. Revenues that are generated by a municipal project (e.g., bridge) fill each of the funds to a prescribed level and then flow into the next one. The following are typical of most revenue bonds:

Revenue Fund – The revenue bond project account in which all receipts and income (gross revenues) are deposited and recorded.
Operating and Maintenance Fund – The revenue bond project account into which a prorated amount of the revenue is deposited to meet the costs of operating and maintaining the project. Occasionally, there is an excess of funds which allows for the creation of a reserve fund
Debt Service (Bond Service) Fund – A revenue bond project fund into which an amount of revenue is deposited that will be sufficient to pay semiannual interest and maturing principal.
The revenue bond project fund into which revenue is deposited after annual debt service is ensured. These funds are only used if the debt service fund itself is insufficient to meet annual payments.
Reserve Maintenance Fund – The revenue bond project fund into which revenue is directed in order to meet any unexpected maintenance expenses.
Replacement and Renewal Fund – A revenue bond project fund provision in the event there is a demand based on an engineer’s report to meet new equipment and repair costs.
Sinking Funds – A special fund established by issuers in which they deposit funds each year in order to redeem their bonds.
Surplus Fund – The revenue bond project fund into which excess money will be placed for use in emergencies.
Construction Fund – The revenue bond project fund into which money is allocated to use for future constructions.

Flow of Funds

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