A special assessment bond is repaid with revenues from a special assessment, rather than general revenues.
Most municipal bonds finance projects that benefit the general public, such as a new office building for county employees that will benefit all residents of the county. Some projects, however, primarily benefit a specific area such sidewalks or sewer lines in a particular area that comprises a local improvement district.
In the case of special assessment bonds, rather than repaying the bonds with revenue paid by the general public – sales or property tax, for example – the bonds are repaid with a special assessment. The special assessment is levied only on residents and businesses in the areas that benefit from the projects. In this manner, those benefiting from the project bear the cost, rather than the general public.