A general obligation (GO) bond is a municipal bond backed by the full faith, credit, and taxing power of the issuing governmental entity — a state, county, city, or school district. The issuer pledges to raise taxes (or use any available revenue) as necessary to pay debt service. This pledge makes GO bonds among the safest municipal securities in terms of credit quality, as tax increases provide a backstop for payments.
GO bonds are divided into limited tax (property tax is the primary backing, subject to rate caps) and unlimited tax (the issuer can levy taxes at any rate needed to service the debt — the strongest pledge). Voter approval is typically required for GO bond issuance, reflecting the commitment of taxpayer resources.
The debt service is paid from general tax revenues, primarily property taxes in the case of local governments, or income and sales taxes for state GOs. Because repayment does not depend on the success of a specific project, GOs are generally more creditworthy than revenue bonds, resulting in lower yields.
The debt burden of a municipality — measured as total debt per capita or as a percentage of assessed property values — is a key metric in GO bond credit analysis. Excessive debt relative to the tax base is a warning sign.
> Exam tip: On the Series 7 and related exams, remember the key contrast: GO bonds → taxing power; revenue bonds → project revenues. GO bonds require voter approval in most jurisdictions; revenue bonds typically do not. Unlimited tax GO bonds are the strongest pledge. Know that overlapping debt (from multiple issuing authorities covering the same taxpayers) must be considered in assessing the true tax burden.