What type of bonds are payable from proceeds of special taxes?

The correct answer focuses specifically on special tax bonds, which are designed to be repaid using the revenue generated from designated special taxes. These taxes may be levied for specific purposes, such as financing public projects like roads, schools, or infrastructure improvements.

The distinguishing feature of special tax bonds is that their repayment is directly tied to the income generated from these designated taxes, rather than general revenues or other sources. This makes them a reliable option for investors, as the funding source is more predictable and can be focused on a specific tax base.

Understanding the nature of special tax bonds helps to clarify their role in financing and how they serve to segregate revenue streams for specific projects. This classification allows issuers to target their borrowing to align with expected revenues from the special taxes, enhancing the financial viability of projects while mitigating risk for investors.