What Is a Toll Revenue Bond?

What Is a Toll Revenue Bond?

5 Min.

Toll revenue bonds, a type of municipal bond, utilize toll revenues to repay both principal and coupon payments. The funds raised from these bonds support various public projects, including highways. Due to their reliance on a sole income source, they entail higher risk but offer elevated interest rates compared to general obligation bonds. These bonds usually have maturity periods of 20 to 30 years and are issued in units of $5,000.


A toll revenue bond is a type of municipal bond that funds projects using toll revenues for both principal and coupon payments. These bonds fall under the category of highway and transportation bonds, which represent a significant portion of the investment-grade bond market. However, they are less popular than general obligation (GO) bonds. Toll revenue bonds use capital from bondholders for project construction and rely on toll road revenue to repay the bondholders.

Exploring the Nature of Toll Revenue Bonds

A toll revenue bond, a type of municipal security, typically funds public projects like bridges, tunnels, or expressways, as well as infrastructure renewal like rest stops and park facilities along toll roads. These bonds ensure bondholders receive their principal and interest by a specified maturity date, with repayment coming from toll revenues collected from project users. State transportation agencies and turnpike commissions are the usual issuers of toll revenue bonds.

In contrast to general obligation bonds drawing from multiple tax sources, toll revenue bonds rely on a single income stream, carrying greater risk but offering higher interest rates. These bonds are strictly tied to associated revenues, lacking government or tax-based backing, making them vulnerable if tolls cease to exist. Municipalities also issue toll revenue bonds to diversify liabilities and circumvent self-imposed debt limits.

Key Considerations and Differentiation

Toll revenue bonds belong to the broader category of municipal revenue bonds, which constitute the majority of investment-grade bonds. Unlike conventional bonds, toll revenue bonds have varying maturity dates, often extending over 20 to 30 years, often staggered. This makes them serial bonds, with portions maturing at specified dates until the bond reaches full maturity. Typically, toll revenue bonds are issued in units of $5,000.

Toll Revenue Bonds vs. General Obligation (GO) Bonds

Not all bonds possess equal characteristics. Revenue bonds, including toll revenue bonds, carry higher risk as they lack the full faith and credit backing of the issuing government entity, rendering them unable to fulfill principal and interest payments in the absence of revenue. Surprisingly, these bonds are less favored by investors, despite nearly two-thirds of the market comprising revenue bonds.

In contrast, general obligation bonds are widely prevalent in investor portfolios, offering repayment guarantees backed by the government's taxation authority. Regardless of bond type, funds raised through bond sales can be channeled into various projects, such as infrastructure development. Bonds issued by government entities, whether local, state, or federal, usually enjoy federal income tax exemptions.

Pros and Cons of Toll Revenue Bonds

Investors seek safety and security in their investments, often combining bonds with various securities like stocks, ETFs, mutual funds, and cash accounts. Toll revenue bonds serve as a valuable tool to diversify fixed-income holdings. Municipal-bond mutual funds, for instance, incorporate toll revenue bonds for their favorable risk-reward profile. Investors typically target toll revenue bonds in states with strong financial positions and positive economic trends, ensuring the transportation authority's capability to meet long-term principal payments.

Examining Criticisms Surrounding Toll Revenue Bonds

Some taxpayers view toll revenue bonds as an inefficient funding method. A case study on turnpike debt can be seen in the Pennsylvania Turnpike, the nation's first superhighway, originally planned to retire all its construction bonds in 1954. However, it continues to collect tolls today, costing approximately $112 for a one-way trip for cash-paying passenger motorists in 2021.

Critics suggest that one reason for the ongoing tolls along the main span is the potential dissolution of the Pennsylvania Turnpike Commission and its associated white-collar jobs if the debt were fully repaid. William Keisling's book, "When the Levee Breaks: The Patronage Crisis at the Pennsylvania Turnpike, the General Assembly & the State Supreme Court," delves into allegations of corruption, waste, and nepotism funded by toll revenue bonds in the history of the Pennsylvania Turnpike.

Defining a Revenue Bond

A municipal bond, commonly referred to as a revenue bond, functions as a financial instrument deployed to finance public projects. Investors participate in these bonds with the expectation of receiving returns sourced from the earnings generated by the specific project. This revenue often originates from a variety of sources, including tolls and assorted fees collected as a result of the project's establishment.

Within the category of revenue bonds, toll revenue bonds represent one illustrative instance. Furthermore, various other types of revenue bonds exist, comprising airport revenue bonds, utility revenue bonds, and hospital revenue bonds. These bonds operate under a similar principle, wherein funds are raised to finance specific projects or operations, and repayment is facilitated through the revenue generated by those ventures. 

Revenue Bonds vs. Municipal Bonds

A municipal bond, termed a revenue bond, is employed by state or local entities to secure funds for dedicated projects, like bridges or airports. These bonds play a pivotal role in financing municipal infrastructure initiatives. Revenue bonds are issued to meet the unique financial needs of municipalities, permitting them to undertake critical public projects that enhance community development. By leveraging these bonds, governments can efficiently raise capital while aligning investor interests with project outcomes.


A municipal bond, termed a toll revenue bond, is employed to secure the necessary funding for the construction of public infrastructure projects, including bridges, tunnels, and expressways. These bonds rely solely on the income generated from tolls paid by the public for repayment of both principal and interest. Although toll revenue bonds carry heightened risk due to their reliance on a single income source, they compensate investors with higher interest rates compared to similar general operation bonds.

Toll Revenue Bond
Revenue Bond
Municipal Bond
General Obligation (GO) Bond