What is a promise made by a jurisdiction to set rates that ensure net revenues can provide a certain level of debt service?

A promise made by a jurisdiction to set rates that ensure net revenues can provide a certain level of debt service is known as a Rate Covenant. Rate covenants are legally binding agreements included in bond indentures that require the issuing jurisdiction to maintain certain rates for services provided, ensuring that those rates generate enough revenue to meet debt service obligations. This is important as it helps to assure bondholders that the issuer will prioritize revenue generation to cover the cost of debt repayment, thereby reducing the risk associated with the investment.

In contrast, a Debt Service Reserve Fund is a financial cushion set aside to make sure that debt payments can be made even in times of revenue shortfall but does not involve rate-setting itself. A Capital Budget pertains to the planning for spending on long-term assets and does not specifically refer to revenue generation for debt service. Leasing refers to a method of financing that may involve ongoing payments but does not directly relate to the promise of setting rates for rate covenants.