Question

What is the difference between General Obligation and Revenue bonds?

Answer 1

General obligation bonds are bonds which are issued by the government authorities and has the backing of the taxing power of the government authorities. The bonds are issued with a trust that the bonds will be repaid including the principal and the coupons payments through the various taxes taken by the municipality. These are not based on the revenue stream from a particular projects. Various types of taxes such as property tax, sales tax and others are used to repay the debts.

Revenue bonds on the other hand are bonds in which the debts are repaid by the revenue which flows from the various projects run by the municipality. It is not dependent on the taxing power of the authority. The examples are stadiums or toll which provides regular and approriate amount to cover the debt payments.