3.3.6 Enterprise Fund Debt Obligations

Debt payable from and secured by enterprise revenues is the primary financing option used for local government entities with “proprietary” enterprises that generate revenues sufficient to cover capital costs and operating expenses (to the extent required to be paid from revenues as opposed to tax proceeds). The public agency may be a department of a general purpose governmental entity accounted for separately from “general fund” activities, such as a city water utility, or it may be a special district, such as an irrigation district. A particular public agency may have multiple enterprises (e.g., a water enterprise and a power enterprise).

An enterprise may consist of an entire utility system such as a waste water system, a portion of a utility system such as a specified service area within the public agency’s jurisdiction, or even a single revenue generating facility such as a parking garage or power generation facility. The security for revenue secured debt is generally limited to a pledge of enterprise revenues; debt holders have no security interest in any physical assets. Because the debt is issued to finance facilities for an enterprise and is payable solely from the revenues of the enterprise, public agencies subject to the constitutional debt limit can rely on the Special Fund Exception. See Section 1.2.4.4, Special Fund Exception.