General Obligation (GO) Bonds
General Obligation bonds are backed by the full faith and credit and taxing power of the issuing municipality. They are considered the safest type of municipal bond because the issuer pledges its entire taxing authority to repay bondholders.
How GO Bonds Are Secured
GO bonds are backed by ad valorem taxes—property taxes based on the assessed value of real estate within the municipality's jurisdiction.
Ad Valorem Tax
- "Ad valorem" means "according to value"
- Property owners pay taxes based on the assessed value of their property
- The municipality can raise property taxes to pay bondholders if needed
Types of GO Bonds
Unlimited Tax GO Bonds (UTGO)
The stronger security pledge.
| Feature | Description |
|---|---|
| Tax Authority | No limit on property tax rates |
| Security | Issuer can raise taxes as high as needed |
| Voter Approval | Usually required |
| Credit Quality | Generally higher rated |
Exam Tip: "Unlimited" means unlimited taxing power—the municipality can raise property taxes without limit to pay bondholders.
Limited Tax GO Bonds (LTGO)
A more restricted pledge.
| Feature | Description |
|---|---|
| Tax Authority | Tax rate or amount is capped |
| Security | Issuer cannot exceed the statutory limit |
| Voter Approval | Often not required |
| Credit Quality | May be rated slightly lower than UTGO |
Millage Limits:
- Limits are often expressed in "mills" (1 mill = 0.1% or $1 per $1,000 of assessed value)
- Example: A 10-mill limit means maximum tax of $10 per $1,000 of assessed value
GO Bond Credit Analysis
When analyzing GO bond creditworthiness, consider:
Economic Factors
- Population trends (growing or declining?)
- Employment diversity (one major employer vs. diversified economy)
- Property values and tax base trends
- Per capita income levels
Debt Factors
- Total debt outstanding
- Debt per capita
- Debt as percentage of assessed property value
- Overlapping debt (debt from other jurisdictions)
Administrative Factors
- Quality of financial management
- Budgeting practices
- History of balanced budgets
- Tax collection rates
Double-Barreled Bonds
Some bonds are secured by both a specific revenue source AND the full faith and credit of the issuer.
Example: A school district bond backed by:
- Revenue from state education aid
- The district's GO pledge (property taxes)
These are called double-barreled bonds because they have two sources of repayment.
Voter Approval Requirements
| Bond Type | Voter Approval |
|---|---|
| Unlimited Tax GO | Usually required |
| Limited Tax GO | Often not required |
| Revenue Bonds | Typically not required |
Key Point: The need for voter approval can delay issuance of UTGO bonds, but it also signals strong public support for the project.
An unlimited tax general obligation bond is backed by:
Which of the following is a factor used to analyze the creditworthiness of a general obligation bond?
A "double-barreled" municipal bond is:
4.3 Revenue Bonds
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