Essential Function Bonds (or EFBs) are issued to finance the construction and substantial rehabilitation of affordable housing or other community facilities owned by state and local housing finance agencies. Although some state agencies issue EFBs as part of their efforts to expand affordable housing opportunities, local housing authorities (or LHAs) have pioneered the use of this tool. While traditionally LHAs have devoted most of their attention to operating the federally funded Public Housing and Section 8 programs, most LHAs have the legal authority needed to become involved in a wide range of housing, community and economic development activities including the construction and financing of low- and moderate-income housing. EFBs represent a promising way to access the capital needed to better serve low- and moderate-income people and communities. Recognizing the continuing need for affordable housing, a growing number of state and local housing finance agencies have issued EFBs since the 1995 Survey. The Joint Center Survey found that as of July 2002 some 64 agencies have issued a total of $2.12 billion in EFBs (Exhibit 1). Of these, there were 221 EFB bond issues outstanding totaling $1.75 billion, more than double the $740 million reported in the 1995 Survey. In addition to the increasing dollar volume, the number of state and local housing finance agencies reporting EFB use increased from 36 to 64, the number of outstanding EFB issues increased from 114 to 221 while the number of housing units financed more than doubled from 16,063 to 41,615. As part of a broader effort to reform public housing, the Quality Housing and Work Responsibility Act of 1998 authorized new ways to leverage capital and operating funds and stimulated interest in bond financing mechanisms. Several recent transactions - including a $291 million issue by Chicago Housing Authority in 2001 and an $85 million issue by the Philadelphia Housing Authority in 2002 - demonstrate the potential of these new approaches to finance public housing capital improvements.