Which fund is budgeted as part of bond proceeds and is usually equivalent to one year of debt service?

The Debt Service Reserve Fund is designed to provide financial security for bondholders by ensuring that there are sufficient funds available to cover debt service payments, typically for the first year of the bond’s life. This reserve is crucial in demonstrating to potential investors that there are available funds to meet debt obligations, which can enhance the marketability of the bonds.

When bonds are issued, the Debt Service Reserve Fund is often established with an amount equivalent to one year of debt service payments. This means that should there be any shortfall in revenue or other funding sources, the reserve can be drawn upon to ensure that debt service obligations are met on time. This usage increases fiscal stability and can lead to better credit ratings for the issuing entity.

In contrast, low-interest loans, special district or assessment bonds, and Capital Improvement Plans (CIP) don't inherently include a reserve fund component specifically allocated for the purpose of servicing debt in the same way that the Debt Service Reserve Fund does. The other options serve different functions in financing or project management but do not fulfill the same role regarding debt service security provided by a Debt Service Reserve Fund.