What is an advantage of certificates of participation (COPs) for borrowers?

Certificates of participation (COPs) provide a unique financing mechanism, primarily used by governmental entities, allowing them to raise funds for capital projects without being subject to the same restrictions that traditional debt financing would impose. One significant advantage of COPs is the ability to avoid certain debt limits that might otherwise apply to a governmental borrowing.

Government entities often face statutory or constitutional limitations on the amount of debt they can incur. By issuing COPs, which are structured as a lease or an installment purchase agreement rather than traditional debt, entities can effectively bypass these limits. This allows them to access necessary funding for projects like infrastructure improvement or public facility construction without impacting their borrowing capacity under conventional debt restrictions.

The other options mentioned do not align with the primary benefits COPs offer. Increased tax liability would be a negative consequence, guaranteed income streams relate more to investors than to the borrowers, and higher interest rates typically signify a more disadvantageous borrowing scenario rather than an advantage.