Revenue Anticipation Note (RAN)

Revenue Anticipation Notes (RANs) are a type of municipal bond where the government borrows money to finance a project and then repays lenders with revenue generated by that same project.

Revenue Anticipation Notes (RANs) are a form of note, or short-term loan that a government usually repays from a named revenue source within a period of one year. The interest income that RANs generate is typically tax-exempt, offering an advantage to those investors who want to invest in the bond market tax-efficiently.

Local governments often issue RANs when they want to reconcile a discrepancy between tax revenues and current costs. Whereas governments collect taxes sporadically in uneven amounts throughout the year, in many cases they must pay for construction and associated labor costs on a more consistent basis. By offering RANs, a government can initiate critical projects without having to wait for the revenue it expects to receive from those same projects. The revenue that the government uses to repay a RAN can come from a variety of sources depending on the project, such as sales, fees, or rate increases. Examples of large-scale projects that entities may finance through a RAN issue are stadium renovations or recreation center improvements.

RANs are one of several government note categories that agencies issue to finance short-term projects, including Tax Anticipation Notes (TANs) and Bond Anticipation Notes (BANs). The distinguishing characteristic of each note type is the specific pool of revenue that the borrowing government plans to draw from in repaying its debt.

Whereas governments repay RANs with revenue from the financed project itself, they repay TANs more broadly with taxes they collect in the following year. TANs are similar to RANs in that they generate tax-free interest income for bond investors, while allowing governments to bridge the gap between current costs and imminent revenue resources.

By contrast, governments repay BANs with revenue from a future bond issue. With this type of note, governments essentially pledge to pay down a smaller debt with funds they’ll gain from taking out a larger debt later on. This differs from the nature of RAN and TAN repayment, which governments achieve by generating new financial assets rather than extending liability. In many cases, a government resorts to BANs as a stopgap measure when certain legal or compliance issues delay it from issuing bonds fast enough to fund an important large-scale project.