Many local governments use an innovative financing tool called a mutual improvement certificate to fund public works projects. These certificates provide tax benefits while allowing communities to make needed upgrades.
What is a Mutual Improvement Certificate?
A mutual improvement certificate is a type of short-term debt instrument issued by municipalities to pay for specific public improvements. Common projects include:
- Road, sidewalk, and infrastructure repairs
- Park upgrades
- Sewer and utility improvements
- Public lighting enhancements
The certificates operate much like bonds. However, they are paid back through special property tax assessments on those who directly benefit from the projects.
Key Advantages of Mutual Improvement Certificates
Municipalities can realize several benefits by using mutual improvement certificates:
- They are tax-exempt: Interest earned by certificate holders is free from federal, state, and local taxes. This provides savings.
- Focused payback source: Only properties enjoying the improvements are assessed, keeping the tax burden narrow and targeted.
- Fast financing: Certificates can be issued quickly since they don’t require voter approval like general obligation bonds. This enables timely completion of urgent projects.
- Contractor payment option: Contractors can accept the certificates as payment then collect assessments from property owners. This facilitates project administration.
Community Value of Public Improvements
While mutual improvement certificates must be repaid, the public upgrades they finance offer ongoing value. Some examples include:
- Improved neighborhood safety and accessibility
- Increased residential and commercial property values
- Greater community pride and desirability
- Reduced flood risk and stormwater control
- Enhanced utility reliability and capacity
In short, mutual improvement certificates allow municipalities to prudently finance projects that enrich communities both in the short and long term.