General obligation


General Obligation Bond

In the United States, a municipal bond in which the issuing locality pledges to use all revenues at its disposal to pay bondholders, including the raising of property taxes. Should a sufficient number of residents not pay their property taxes that it impacts revenue for bondholders, the terms of the bond legally require the municipality to raise property taxes to make up the shortfall. There are two basic types of general obligation bonds. A limited GO allows for the raising of property taxes up to a certain percentage, while an unlimited GO theoretically allows the municipality to levy taxes of up to 100% of a property's value. Because an unlimited GO provides a great incentive to pay property tax on time, and because many states only allow such a bond to be issued following a vote on the matter, credit ratings agencies usually rate them higher. However, both types of GO are generally rated highly.

General obligation (GO) bond.

State and local governments issue general obligation (GO) municipal bonds and pay the interest and repay the principal from general revenues.

GO bonds are considered somewhat less risky th, and so pay slightly lower rates,an the same municipality's revenue bonds, which are backed by income from a specific project or agency.

A municipality's general revenues come from the taxes it is able to raise and money it can borrow. Those powers are sometimes described as its full faith and credit.