Description
General obligation bonds (GO bond) are municipal bonds backed solely by the credit and taxing power of the issuing jurisdiction rather than the revenue from a given project. These bonds are issued with the belief that a municipality will be able to repay its debt obligation through taxation or income from projects. They are issued with the view that a city will be able to repay its debt obligation through tax or revenue from projects. The amount of taxation available by a particular GO bond may be specified as either limited or unlimited. In the case of an unlimited GO bond, a municipality may increase property taxes accordingly to cover its payments
Instrument category
Debt financing
Implementation status
Moderate - tried and tested
Enabling conditions and success factors
- Requires good creditworthiness of municipality and ability to raise taxes.
Instrument benefits
- No assets are used as collateral.
- Such bonds usually receive strong ratings from credit rating agencies.
Challenges and risks to implementation
- If a municipality goes into default, they would not be able to raise taxes more, which would impact the instrument's reputation.
