Which municipal bond type is secured by the issuer's general taxing power?

Which municipal bond type is secured by the issuer's general taxing power?

• A. General obligation
• B. Revenue
• C. Debenture
• D. Mortgage bond

Answer: (A)

Raising funds from taxes behind the bond means the issuer promises to use its power to levy taxes to pay debt service, not tied to a specific project’s revenues. That pledge is what makes a general obligation bond secure by the issuer’s general taxing power—the issuer’s full faith and credit backs the debt. Because taxes come from a broad base, these bonds are generally seen as safer than those tied to a single revenue source, and many places place legal limits on how much debt can be issued (sometimes requiring voter approval for new debt). The other types aren’t backed by the overall tax base: revenue bonds are repaid from the income of a particular project (like tolls or utilities), mortgage bonds are secured by a lien on real property, and debentures are typically unsecured and rely on the issuer’s credit rather than tax receipts.

Raising funds from taxes behind the bond means the issuer promises to use its power to levy taxes to pay debt service, not tied to a specific project’s revenues. That pledge is what makes a general obligation bond secure by the issuer’s general taxing power—the issuer’s full faith and credit backs the debt. Because taxes come from a broad base, these bonds are generally seen as safer than those tied to a single revenue source, and many places place legal limits on how much debt can be issued (sometimes requiring voter approval for new debt).

The other types aren’t backed by the overall tax base: revenue bonds are repaid from the income of a particular project (like tolls or utilities), mortgage bonds are secured by a lien on real property, and debentures are typically unsecured and rely on the issuer’s credit rather than tax receipts.