i.1.4.3 Understand the Difference between Funding and Financing

Financing decisions are different than funding decisions. “Funding” refers to the stream of public agency revenue that pays for or offsets the cost of an asset or service or supports repayment of debt that finances the asset. In contrast, “financing” refers to the method of paying for an asset or service, including debt financing. For example, a public agency may borrow money (the financing) to pay the cost of an asset and repay that loan from a recurring tax (the funding). The tax or source of repayment is referred to as the security for the borrowing.

A CIB should systematically identify potential funding sources and financing options and match those resources to the capital needs identified in the CIP. It should also make the difficult decisions regarding which capital needs the public agency will fund, when it will fund them, and from what resource. By its nature, the CIB may cover a shorter time horizon than the CIP and may specifically omit or ignore funding sources, financing sources, or both for certain projects that are embodied in the CIP.