Proceeds from bonds or notes may be used only for which of the following?

• A. To fund general operating deficits
• B. For any municipal purpose
• C. The purpose of the loan plus the cost of preparing, issuing and marketing the notes or bonds
• D. To finance private ventures

Answer: (C)

Bond proceeds are restricted to the financing of the specific project being funded and the costs of issuing the debt. This means the money should go to the project itself and to expenses tied to preparing, issuing, and marketing the bonds or notes. That mirrors the purpose stated in the bond authorization and protects bondholders by ensuring the funds are used for the public project rather than other needs.

Using proceeds to cover operating deficits would divert funds away from the intended capital purpose, and financing private ventures would constitute private use, which is generally not allowed for public bonds and can raise tax and regulatory issues. Therefore, the proper use is exactly the loan’s purpose plus the costs of issuing the debt.