Which of the following is a common source of capital funding for local governments?

Bonds and grants are a common source of capital funding for local governments because they provide significant financial resources needed for large-scale projects and infrastructure improvements. Bonds are a method of borrowing money from investors with the promise to repay them over a set period with interest. They allow local governments to fund essential projects like roads, schools, and utilities without needing to raise tax revenues immediately. Grants, often provided by federal or state governments or nonprofit organizations, offer funds that do not need to be repaid, making them highly valuable for financing capital projects.

The other options do not typically serve as primary sources of capital funding for local governments. Operational profits are mainly tied to day-to-day revenue and expenses, leading primarily to maintaining operations rather than funding capital projects. Merger funds usually pertain to resources from business mergers and acquisitions, which are not a common funding source for local government entities. Employee contributions may pertain to retirement or pension plans but do not constitute a source for capital project financing.