What may a municipality issue when it experiences cash flow problems?

When a municipality faces cash flow problems, it may choose to issue tax anticipation notes (TANs) as a short-term borrowing solution. These notes are specifically designed to help a municipality manage its immediate cash flow needs until it can collect tax revenues that are due.

Tax anticipation notes allow municipalities to receive cash in advance of expected tax receipts, making it easier to meet current expenses and obligations. Since municipalities often operate on a cyclical revenue basis—collecting taxes at certain periods and facing expenses year-round—TANs provide the necessary liquidity during slower revenue cycles.

This funding mechanism is particularly useful because it is based on the expected future tax collections, thus providing a reliable source of repayment. By using TANs, municipalities can avoid service disruptions, ensure timely payment of salaries and contractors, and maintain essential public services.

Other funding options, such as bond anticipation notes and revenue anticipation notes, may serve different purposes, like funding specific projects or relying on future revenue streams respectively. Nonetheless, for immediate cash flow challenges specifically tied to tax revenues, tax anticipation notes are the suitable tool.