1.3.1 Lease Revenue Bonds and Certificates of Participation

In lease revenue bond or certificates of participation (COPs) financing, a public agency enters into a lease with a third party (which may be a government, a nonprofit entity, or a for-profit entity). The public agency leases a building or other asset from the third party and the rent paid by the public agency is used to pay debt service on the bonds or certificates issued by that third party and sold to investors. The transactions are structured so that the rent is sufficient to pay debt service and so that the transactions fall within the Lease Exception to the constitutional debt limit. Lease revenue bonds and COPs are discussed in greater detail in Section 3.3.2.1, Lease Revenue Bonds and Certificates of Participation.