A new municipal issue subject to federal tax was created by the Tax Reform Act of 1986. Like corporate issues, municipal bonds are categorized by the form of collateral used to back them and to raise their revenue.
Bonds represent the largest group of municipal issues.
By law, the government is required to levy taxes in order to pay its bondholders. Revenue Bonds Used in the development of toll roads, bridges, or tunnels, or any revenue-producing projects, these bonds are paid off by the revenues generated from the specific development. They typically offer a higher rate of interest than GO Bonds, as payment is more narrowly backed. These specific bonds are issued by state and local governments to fund the construction of new industrial parks or plants, or any development that might attract businesses and increase leasing revenue for the state. The financial strength of the private businesses involved in the project generally determines the quality of the bond.