# Understanding General Obligation Bonds: Types and Comparison With Revenue Bonds

## What Is a General Obligation Bond?

A general obligation bond (GO bond) is a type of municipal bond primarily relying on an issuing government's credit and taxation ability for its backing, rather than revenue from a specific project. With no assets held as collateral, GO bonds reflect confidence in a municipality’s capacity to meet its financial obligations via tax revenue. Distinguished from revenue bonds, GO bonds provide local governments with a means to fund public projects like roads and bridges without being tied to project revenue.

### Key Takeaways

*   General obligation (GO) bonds are municipal bonds guaranteed by the issuer's credit and taxing power rather than a specific project's revenue.  
    
*   GO bonds do not rely on assets as collateral and their repayment is backed by the ability to levy taxes.  
    
*   There are limited-tax and unlimited-tax general obligation pledges, determining the issuer's capacity to raise taxes for debt repayment.  
    
*   Local governments use GO bonds to finance public projects such as roads and parks, benefiting communities.

## How General Obligation Bonds Work

A general obligation (GO) bond is secured by an issuing government's pledge to use all available resources — even tax revenues — to repay holders of the bond.

Local governments may pledge to levy property taxes to meet their obligations to bondholders. For example, since property owners avoid losing their stake on their respective properties because of unpaid property tax bills, [credit rating agencies](https://www.investopedia.com/terms/c/creditrating.asp) rate general obligation pledges with strong credit qualities and assign them high investment-grade ratings. If the property owners are not able to pay their property taxes on or before the designated due date, the government is legally allowed to increase the property tax rate to make up for any delinquencies. On the designated due date, the general obligation pledge requires the local government to cover the debt with its available resources.

GO bonds help local governments fund projects like roads, parks, equipment, and bridges. GO bonds typically fund government projects that serve the public.  

## Exploring Different Types of General Obligation Pledges

State law sets the grounds on which local governments can provide and issue general obligation bonds. A general obligation bond may either be a limited-tax general obligation pledge or an unlimited-tax general obligation pledge.

A limited-tax general obligation pledge asks the issuing local government to raise property taxes if necessary to meet existing debt service obligations. However, this increase is bound by a statutory limit. With limited-tax general obligation pledges, governments can still use a part of already-levied [property taxes](https://www.investopedia.com/terms/p/propertytax.asp), use another stream of income, or raise property taxes to an amount equating to existing debt service payments to answer its debt obligations.

An unlimited-tax pledge is like a limited-tax pledge, but the government can raise property taxes to very high levels, up to 100%, to cover taxpayer delinquencies. Residents must first agree to increase property taxes to the necessary amounts required for the bonds.

## The Bottom Line

General obligation (GO) bonds stand out as a reliable form of municipal bond, underpinned by the issuing government's credit and taxing authority rather than specific project revenues. Unlike revenue bonds, GO bonds don’t rely on collateral for payment and offer flexibility in funding through either limited or unlimited tax pledges. They serve as vital tools for municipalities to fund public projects, such as roads and parks, often enjoying high credit ratings due to the municipality's ability to adjust taxes to fulfill debt obligations. Understanding the distinction between limited-tax and unlimited-tax general obligation pledges is crucial for anyone looking to invest in or evaluate municipal financing.