General Obligation Bonds

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General Obligation Bonds

General obligation bonds are debt instruments issued by states and local governments to raise funds for public works. What makes general obligation bonds (or GO bonds for short) unique is that they are backed by the full faith and credit of the issuing municipality. This means that the municipality commits its full resources to paying bondholders, including general taxation and the ability to raise more funds through credit. The ability to back up bond payments with tax funds is what makes GO bonds distinct from revenue bonds, which are repaid using the revenue generated by the specific project the bonds are issued to fund (fees from a public parking garage, for example).

GO bonds fund projects for the whole community

GO bonds give municipalities a tool to raise funds for projects that will not provide direct sources of revenue—roads and bridges, parks and equipment, and the like. As a result, GO bonds are typically used to fund projects that will serve the entire community; revenue bonds, on the other hand, are used to fund projects that will serve specific populations, who provide revenue to repay the debt through user fees and use taxes.