Financial Performance Guarantees: The State of Practice

Abstract Financial performance guarantees are tools for ensuring that funds needed to pay for improvements called for by development permits and approvals are available in the event a developer defaults on permit requirements. Once limited to surety bonds and cash escrows, new types of guarantees have been developed and are coming into common use. Standby letters of credit, in particular, are being used more widely and have a number of advantages. To use guarantees successfully, municipal governments must make careful decisions about a number of administrative matters. Evidence from 309 municipalities reported in this article can help local planners make the right choices.