A general obligation (GO) bond is secured by an issuing government’s pledge to use all available resources — even tax revenues — to repay holders of the bond. General obligation bonds are usually used to fund government projects that will serve the public community.

What is general obligation debt?

General obligation (GO) debt is secured by the full faith and credit of the local government issuing the debt. The municipality pledges its tax revenues unconditionally to pay the interest and principal on the debt as it matures.

What is the difference between general obligation bonds and revenue bonds?

General obligation bonds are issued by municipalities are backed by the full faith and credit of the issuer. Revenue bonds are issued by municipalities and fund projects; they are backed by the revenues the projects bring in.

What is a special obligation bond?

Special obligation bonds are bonds that are payable from the pledge of revenues other than locally levied taxes.

How is a general obligation bond repaid?

These bonds are backed by the general revenues of an issuer, including taxes. Unlike dedicated tax GOs, however, they do not have a specific tax pledged to repay them. Instead, bondholders are paid from general revenues, and if those prove insufficient to cover debt service, the issuer typically must raise taxes.

What is a general obligation pledge?

A general obligation bond is a common type of municipal bond in the United States that is secured by a state or local government’s pledge to use legally-available resources, including tax revenues, to repay bondholders.

Which is safer general obligation bonds vs revenue bonds?

Bond Safety Varies by Issuer However, all other things being equal, general obligation municipal bonds are safer and less likely to default than revenue municipal bonds. The safety of general obligation municipals lies in taxes. Revenues are never guaranteed, but taxes will always be collected.

Are general obligation bonds tax exempt?

Their interest payments are usually exempt from federal income taxes, and may be exempt from state income taxes if the bond issuer is located in the investor’s home state. …

How are general obligation bonds repaid?

What is a special obligation?

Special obligations are one subset of obligations. The term “special obligation” refers to an obligation that an agent may owe to a specific group or subset of others, such as a family, community, nation, or state. Special obligations can be contrasted to general or natural duties.

What is an example of a general obligation bond?

Examples of the types of projects funded by general obligation bonds are the construction of public schools and highway systems. In simple terms that means the bonds are backed by the state or local government’s ability to tax, and to raise taxes if necessary, in order to pay bondholders.