Legal Definitions - tax-anticipation warrant

A tax-anticipation warrant is a short-term debt instrument issued by a state or local government. It allows the government to borrow money immediately, using future tax revenues as collateral for repayment. These warrants are typically used to bridge temporary cash flow gaps that occur when expenses need to be paid before the anticipated tax collections (such as property taxes or income taxes) have been received.

Here are some examples to illustrate how tax-anticipation warrants are used:

• City Operations: Imagine a city that needs to pay its police force, firefighters, and sanitation workers at the beginning of its fiscal year. However, the bulk of its property tax revenue, which funds these services, is not collected until several months later. To avoid delaying essential services or payroll, the city might issue tax-anticipation warrants. This allows the city to borrow the necessary funds immediately, ensuring continuous operation. Once the property taxes are collected later in the year, the city uses that revenue to repay the warrants, plus any interest.

• School District Funding: A public school district has approved its annual budget and needs to purchase new textbooks, technology, and supplies for the upcoming school year in July. The primary source of its funding, local property taxes, is typically collected in two installments, one in the fall and one in the spring. To ensure the schools are fully equipped and ready for students on time, the district issues tax-anticipation warrants. This provides the immediate cash needed for July purchases, with the clear expectation of repaying the warrants from the property tax collections received in the fall.

• State Infrastructure Projects: A state government has authorized a major road repair and bridge construction project that requires immediate funding to hire contractors and purchase materials. While the state expects to receive significant income tax revenue later in the year, it needs capital now to begin the project without delay. To bridge this timing gap, the state issues tax-anticipation warrants, borrowing against the future income tax receipts to fund the initial phases of the infrastructure project. As the income taxes are collected throughout the year, the state uses those funds to retire the warrants.