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What is a State of New Jersey bond?
A bond is a debt (similar to an I.O.U.). When you purchase a bond, you are lending money to the bond’s issuer, in this case either the State of New Jersey or an Independent Authority. In return for the loan, the State or Independent Authority promises to pay you interest during the life of the bond and to repay the face value of the bond (the principal) when it “matures,” or comes due.
What is an “Independent Authority”?
Independent Authorities are governmental agencies, legislatively created and empowered to issue tax-exempt and taxable bonds, notes, and other obligations, for the construction of capital projects. Certain of such bonds are secured by payments made by the State to the Independent Authority subject to appropriation by the New Jersey State Legislature and other bonds are not secured by such payments. The authorizing legislation for some bonds, not otherwise secured by such payments made by the State, requires the State to replenish a deficiency in the debt service reserve fund for the bonds, subject to appropriation by the State legislature.
What is a New Jersey General Obligation (GO) bond?
When you buy a General Obligation (GO) bond issued by the State of New Jersey, you make a loan to the State. The issuance of General Obligation bonds has been authorized by the voters at a general election. General Obligation bond proceeds have recently been used to fund open space, historic preservation, dredging, human services, and storm water programs. The bond you receive is New Jersey’s promise to repay the amount of money borrowed, plus interest, in a specified period of time. GO bonds are direct obligations of the State backed by the faith and credit of the State. To evaluate a particular GO bond, you should review the Preliminary Official Statement for the offering in its entirety and consult your personal financial advisor.
What is a New Jersey Appropriation-Backed bond?
Appropriation-Backed bonds are issued by a New Jersey Independent Authority (for example, the New Jersey Economic Development Authority or the New Jersey Transportation Trust Fund Authority). Appropriation-Backed bonds are used for various projects including school construction, road construction, and State facilities. Appropriation-Backed bonds are secured by payments by the State to the Independent Authority pursuant to a contract, lease or other agreement between the State and the Independent Authority in which the State agrees to make payments equal to the debt service and other costs relating to the bonds. However, such payments are subject to appropriation from time to time by the New Jersey State Legislature and the State Legislature has no legal obligation to make such appropriations. Appropriation-Backed bonds are not general obligations of the State. To evaluate a particular Appropriation-Backed bond, you should review the Preliminary Official Statement for the offering in its entirety and consult your personal financial advisor.
What is a New Jersey Independent Authority Moral Obligation bond?
Certain New Jersey Independent Authorities (for example the Higher Education Student Assistance Authority, Housing and Mortgage Finance Agency and the South Jersey Port Corporation), may issue bonds that are secured primarily by payments or revenues received by the Independent Authority and which are further supported by authorizing legislation that requires a designated official of the Independent Authority to request an appropriation from the State to replenish the debt service reserve fund (or part of such fund ) relating to the bonds to the extent the debt service reserve fund has been used to make a scheduled debt service payment on the bonds. Bonds issued pursuant to this type of authorizing legislation are referred to as Moral Obligation bonds. Any request for funds to replenish the debt service reserve fund is subject to appropriation by the New Jersey State Legislature, which has no legal obligation to make such appropriations. Moral Obligation bonds are not general obligations of the State. To evaluate a particular Moral Obligation bond, you should review the Preliminary Official Statement for the offering in its entirety and consult your personal financial advisor.
What is a New Jersey Independent Authority Non State-Backed bond?
Independent Authorities may issue Non State-Backed bonds which are bonds that are not secured by payments or the faith and credit of the State. Such bonds may be used to finance the projects of a borrower or a third party and are often secured by and repayable from revenues of the project. The State of New Jersey does not lend its credit to support these Non State-Backed bonds and they do not constitute a debt or liability of the State nor a pledge of the faith and credit of the State. To evaluate a particular Non State-Backed bond, you should review the Preliminary Official Statement in its entirety and consult your personal financial advisor.
What is a Federal Highway Reimbursement Revenue Note?
Federal Highway Reimbursement Revenue Notes may be issued by the New Jersey Transportation Trust Fund Authority (the “Authority”), an Independent Authority of the State. The Notes are secured by payments made by the Commissioner of the New Jersey Department of Transportation (“NJDOT”) to the Authority pursuant to a Reimbursement Revenue Funding Agreement. Payments under such Funding Agreement are made solely from payments received by the NJDOT from the United States government under federal highway aid programs, which payments represent federal reimbursements to NJDOT for funds advanced by NJDOT. Federal Highway Reimbursement Revenue Notes do not constitute a debt or liability of the State or any other political subdivision thereof (other than the Authority, to the limited extent set forth in the documentation authorizing such notes) and do not constitute a pledge of the faith and credit of the State or any political subdivision thereof. Debt service payments on Federal Highway Reimbursement Revenue Notes in any fiscal year of the State are subject to appropriation from time to time by the State Legislature. The State Legislature has no legal obligation to make any such appropriations. Debt service payments on Federal Highway Reimbursement Revenue Notes in any fiscal year of the State are also subject to the availability of funds to be requisitioned by NJDOT from the Federal Highway Administration and to the receipt of such funds by NJDOT. To evaluate a particular Federal Highway Reimbursement Revenue Note, you should review the Preliminary Official Statement for the offering in its entirety and consult your personal financial advisor
Can I purchase bonds directly from the State or its Independent Authorities?
No. The State of New Jersey and its Independent Authorities do not issue and sell bonds directly to investors. Bonds can only be purchased from a licensed broker-dealer, such as: your personal broker-dealer; those listed on the cover of a particular Preliminary Official Statement; or those listed on this web site in connection with a particular bond offering.
If the web site indicates that “No information regarding any bond offering is available at this time,” what does that mean?
If the web site indicates under a specific heading that “No information regarding any bond offering is available at this time,” it means that no bonds of that type are currently being displayed on this web site at this time. The State’s bonds, State Appropriation-Backed bonds, Independent Authority Moral Obligation bonds, or Independent Authority Non State-Backed bonds may be available from your broker in the secondary market. The secondary market consists of bonds already issued that are currently owned by another investor. In addition, the notation “No information regarding any bond offering is available at this time,” may not apply to various other Independent Authorities and municipalities around the State, as they may be offering bonds backed by credits other than the State.
What is an Official Statement (OS)?
There are two pertinent documents to potential investors relating to any bond sale. The first is a “pre-sale” Preliminary Official Statement (POS) and the second is a final Official Statement (OS).
A Preliminary Official Statement (POS) is the pre-sale offering document for bonds (or other securities) that is prepared by or for the issuer for a particular transaction or bond sale. The POS discloses security features, economic, financial, and legal information regarding the bond issue as well as any other material news that merits disclosure to the investor community. A POS, such as one that may be included on this web site during the course of a bond issue, contains all relevant information except for that determined on the pricing date of the bond sale (interest rates, maturity amounts, etc.).
A final Official Statement (OS) contains the pricing data in addition to all of the information contained in the POS. The OS is typically not finalized until after the results of the bond sale or “pricing.” As a result, the OS discloses the results of the bond sale or pricing and details the data that is determined on the pricing date of the bond sale such as: interest rates, maturity structures and amounts, any insurance purchased, bond CUSIPS, etc.
What does it mean when a bond or note is tax-exempt?
Tax-exempt means that, in the opinion of bond counsel, the interest the owner earns on the bond is exempt from federal income taxes and/or from the New Jersey State Gross Income Tax Act (personal income tax). You should consult your financial advisor regarding the federal income tax consequences to the investor of owning New Jersey tax-exempt bonds. Not all State or municipal bonds are tax-exempt. For additional information about the tax status of specific bonds, read the “Tax Matters” section of the POS for that particular offering. New Jersey Official Statements for GO bonds or New Jersey Appropriation-Backed bonds may be obtained by contacting the New Jersey Office of Public Finance at (609) 984-4888. Official Statements for Independent Authority Moral Obligation bonds or Independent Authority Non State-Backed bonds, may be obtained by contacting the Independent Authority issuing such bonds.
What does it mean when a bond or note is taxable?
The interest earned on most bonds issued by the State is exempt from federal and State personal income tax. However, certain programs funded by New Jersey bonds do not meet the requirements of the federal Internal Revenue Code for federal tax-exemption. The interest income on these bonds is still exempt from State of New Jersey personal income tax. Investors should consult their financial advisors to obtain comparisons between taxable State bonds and tax-exempt investment alternatives. For additional information about the tax status of specific bonds, read the “Tax Matters” section of the POS for that particular offering.
What is a Capital Appreciation Bond?
A Capital Appreciation Bond, (“CAB”) is a bond as to which interest is compounded on each applicable interest compounding date, but for which no interest is paid until the bonds mature, or if applicable, are redeemed.
What is a Federally Taxable–Issuer Subsidy–Build America Bond?
Federally Taxable – Issuer Subsidy- Build America Bonds, (“Build America Bonds”), are authorized by the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”), constituting Section 54AA of the Internal Revenue Code of 1986, as amended . An issuer is entitled to receive, on each interest payment date for which a Build America Bond is outstanding, a payment from the United States Treasury equal to 35% of the interest payable on such bonds (the “Cash Subsidy”). If the issuer does not meet certain ongoing requirements imposed under the Internal Revene Code or does not make timely application to receive the Cash Subsidy, it is possible that the Cash Subsidy for such interest payment date may not be received in a timely manner or received at all. The bond issuer is nonetheless required to make debt service payments in accordance with the terms of the bonds as described in the Official Statement. Interest on Build America Bonds will not be excluded from a bondowner's gross income, nor will a bondowner be entitled to claim any tax credit under Section 54AA of the Internal Revenue Code.
When will the interest rate be set and how will I know what it is?
The interest rate will be set on the pricing date(s) specified on the web site in connection with a particular bond issue. Interest on bonds with fixed interest rates typically is compounded and paid semiannually. Interest on bonds or notes with variable interest rates accrues at a rate which changes periodically based on specific criteria. Please contact your broker or financial advisor to obtain interest rate information or see “How do I Purchase Bonds?” for more information.
Are there risks involved in investing in bonds?
Investing in any bond carries certain risks that can vary from bond issue to bond issue. For example, such risks include, but are not limited to, credit risk and market risk. To evaluate the credit risks associated with a particular bond issue, you should review the Preliminary Official Statement of the offering in its entirety and consult your personal financial advisor.