The principal is due at the end of the contract term. Landowners also can sell or securitize IPA contracts at any point to realize the outstanding principal. The IPA financing plan won the Government Finance Officers Association Award for Excellence in 1990. How it works The day before settlement, the jurisdiction sets the rate for the interest paid to the IPA holder. The rate is typically pegged to the current return on U.S. Treasury bonds.
Jurisdictions can purchase zero-coupon bonds to cover the final balloon payments.
Instead, they yield a lump sum when the bond matures. Because zero coupon bonds cost a fraction of their face value, the public entity leverages available funds. Then the jurisdiction begins making tax-exempt interest payments twice a year. The balance of the purchase price is paid to landowners at the end of the agreement. Lump-sum payments were no longer a competitive option for farmers due, in part, to dramatic increases in land prices.