what is General Obligation Bonds

**General Obligation (GO) Bonds: A Comprehensive Overview** 1. **Definition and Security**: - General Obligation (GO) bonds are a type of municipal bond where the repayment is guaranteed by the full faith, credit, and taxing power of the issuing government entity. - They are secured by the promise of the local government to levy taxes or use other available resources to repay the debt, even if no specific project revenue is allocated for their repayment. 2. **Types of GO Bonds**: - The two primary types are Limited-Tax GO bonds and Unlimited-Tax GO bonds. - Limited-Tax GO bonds allow for the levying of property taxes within a statutory limit to meet debt service obligations. - Unlimited-Tax GO bonds permit the levying of property taxes at any rate necessary to cover the debt, potentially up to 100%, with the consent of taxpayers. 3. **Function and Use**: - GO bonds are issued to fund public projects that may not generate revenue directly, such as schools, roads, parks, and government buildings. - They serve as a means for local governments to raise funds for projects that benefit the public community, with the assurance that the government's taxing power supports the bondholders. 4. **Payment Mechanisms**: - The payment of principal and interest on GO bonds is typically derived from the issuer's general funds, which include income and property taxes. - In the event of default, bondholders may compel the government to levy taxes or make a legislative appropriation to meet its obligations. 5. **Legal and Market Considerations**: - The issuance of GO bonds is often subject to state or local laws and may require voter approval, depending on the jurisdiction. - Credit rating agencies and investors consider the strength of the pledge, with unlimited-tax pledges generally perceived as stronger and thus potentially allowing for lower interest rates. 6. **Financial Implications**: - GO bonds are a significant component of the overall debt burden of a state or local government, and their repayment is often a continuous appropriation rather than a separate budget item. - The structure of GO debt repayment is determined by the State Treasurer’s Office at the time of bond issuance, considering factors like the taxable status of the bonds and market conditions. Understanding GO bonds is crucial for investors and financial analysts alike, as they provide insight into the financing strategies of local governments and the security of the investments made in these bonds.