SIE Ready🏙️ Municipal Securities · Lesson 3 of 5 · 4 min
TANs, RANs, BANs: Borrowing Until the Money Arrives
⏳ Property taxes come in twice a year, but teachers are paid every two weeks. Cities bridge the gap with short-term notes.
💡 Key idea
The letter before AN names the money expected: Tax, Revenue, Bond or Grant. MIG 1 is Moody's top note rating.
🧠 Why it matters
MUNICIPAL NOTES are short-term debt, usually a year or less, repaid from money the issuer EXPECTS to receive. The name says where the money comes from (mnemonic: "Anticipation = money arriving later"): • TAN: tax anticipation note (upcoming tax collections) • RAN: revenue anticipation note (other revenue, such as state aid) • TRAN: tax and revenue anticipation note (both) • BAN: bond anticipation note (proceeds of a future long-term bond sale) • GAN: grant anticipation note (expected federal or other grants) Notes carry their own short-term ratings. Moody's uses MIG 1 (best), MIG 2 and MIG 3 for investment grade, and SG for speculative grade; VMIG ratings apply to variable-rate demand obligations. S&P uses SP-1+, SP-1, SP-2 and SP-3.
📈 In the real world
🏫 A school district needs cash in September but tax bills are due in December. It sells a TAN maturing in January, rated MIG 1. Meanwhile the county, waiting to sell 20-year bonds for a new jail, issues a BAN so construction can start; the bond sale will repay it.
📌 Takeaways
- Notes are short-term, repaid from money the issuer expects
- TAN = taxes, RAN = revenues, BAN = a future bond sale, GAN = grants
- Moody's note ratings: MIG 1 to MIG 3 investment grade, SG speculative
📖 Terms in this lesson
Municipal note: Short-term municipal debt repaid from expected taxes, revenues, grants or a later bond issue: TANs, RANs, TRANs, GANs and BANs.
MIG rating: Moody's rating scale for short-term municipal notes, MIG 1 being the highest.
✅ Test yourself
A city issues short-term notes that will be repaid from the proceeds of a long-term bond issue it plans to sell next year. What are these notes?
- Grant anticipation notes
- Tax anticipation notes
- Revenue anticipation notes
- Bond anticipation notes
Answer: D · Bond anticipation notes
A BAN is repaid from a future bond sale. TANs rely on tax collections, RANs on other revenues such as state aid, and GANs on expected grants.
Which rating is Moody's highest grade for a municipal note?
- MIG 1
- Aaa
- SP-1+
- MIG 3
Answer: A · MIG 1
Moody's rates municipal notes MIG 1 (highest) through MIG 3, with SG for speculative grade. Aaa is Moody's long-term bond scale, SP-1+ is S&P's note scale, and MIG 3 is the lowest investment-grade note rating.
Which statement about municipal notes is accurate?
- They are long-term bonds that are rated on the Aaa scale
- They are always backed by the issuer's full taxing power
- They are short-term debt repaid from expected receipts
- They are equity securities issued by local governments
Answer: C · They are short-term debt repaid from expected receipts
Notes bridge timing gaps and are repaid from money the issuer expects: taxes, revenues, grants or bond proceeds. They are short-term, use note ratings like MIG, are debt rather than equity, and are not all backed by taxing power.
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