What is the recommended method to finance a capital project with a 20-year useful life?

Using a serial bond with level debt service is a recommended method for financing a capital project with a long useful life, such as 20 years. Serial bonds are structured to have principal repayments spread out over the life of the bond, typically in a manner that allows for level or consistent debt service payments throughout the duration of the bond's term. This creates stability in the annual budgeting process, as the payments—covering both principal and interest—remain relatively constant each year.

This method is particularly advantageous for capital projects, as it aligns the financing structure with the expected benefits derived from the project over its useful life. By evenly distributing payments, it helps manage cash flow effectively and provides predictability in financial planning.

Additionally, since the project yields benefits over its lifespan, matching the repayment schedule to that life helps ensure that those who benefit from the project contribute to its financing over the same period, aligning costs with usage. This approach supports responsible fiscal management and helps to avoid large fluctuations in annual expenditures that could arise from other financing methods.