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“Funding” refers to the source of monetary resources required for undertaking a project. “Financing” refers to a variety of techniques to make cash available in the near term when funding resources are not available until farther into the future. Thus, if one buys a house by making a $10,000 down payment and taking out a $90,000 mortgage, the mortgage is a source of financing but not a source of funding. All of the funding comes from the purchaser’s resources (savings or income). But some of those resources are not available until the future, so the purchaser uses a mortgage as a financing tool to make cash available today in exchange for the purchaser’s commitment to pay both principal and interest in the future. When a government uses bonds to provide cash for an infrastructure project, the bonds are a source of financing, not a source of funding. The funding for the project consists of future taxes and fees that will be used to pay off the bonds.
This refers to a system in which costs for goods and services are paid for as they arise. As special assessment revenues are received and credited to an account dedicated to the funding (in whole or in part) for a specific infrastructure improvement project, these funds can be used to pay for that project. In contrast to pay as you go, “pay as you use” refers to a system where future generations bear part of the cost of infrastructure, paying off financing over time.
Special assessment revenues are sometimes used to provide the match required for State or Federal programs. In this way, special assessments generate more funding for the project than is raised by the special assessment itself.
If the cash flow demands of an infrastructure project exceed the special assessment revenues in any particular year or set of years, anticipated future special assessment revenues are sometimes pledged to pay the debt service on bonds, loans, and other financing mechanisms that will provide the necessary cash when it is needed in the short term. Using this approach, total payments over the term of the financing mechanism will include both the principal amount of cash provided plus interest payments.
