FM: This isn't answering your point but you brought up a lot of other questions. If investor revenue streams for municipal bonds that funded utilities came from city and state taxes then what happens when the bank owns the utilities directly? Does the revenue stream continue to come from taxes or does the bank pay them? Also, does the municipal government now release its control over who it chooses to award contracts to run its former public utilities and does the bank now go into the business of contracting and managing former city and state utilities?
^^^ CB: I'd say if the municipality sold the bond, then the municipalities is still obligated to pay it off. That would be from taxes. I suppose the deal by which the utility is sold to the bank could provide for a transfer of that obligation to the bank. That would depend on the laws governing municipal bonds, the content of the bond contract between the municipality and the bond buyer, and even more what the bond buyer wants. Bondholder probably wants to keep the municipality because it has the tax revenue stream. Also, municipal bonds are famously tax-free. So, the bondholder would probably want to keep it with the municipality.
I think the transfer of ownership means exactly that the bank does the contracting and managing of the city utility.
We have a concrete example of this in Detroit with respect to the Resource Recovery facility or trash burning plant. It was built by the
City with bonds financing. It was sold to a private company (to get money for budget deficit issues as in Jordan's hypothetical). The City still had to pay off the bonds. The private company contracts and manages, though there is an "authority" in there , too. These authorities are hybrid public/private thingies.
Google Greater Detroit Resource Recovery Authority