What is a 'General Obligation Bond - GO'

A general obligation bond (GO) is a municipal bond backed by the credit and taxing power of the issuing jurisdiction rather than the revenue from a given project. General obligation bonds are issued with the belief that a municipality will be able to repay its debt obligation through taxation or revenue from projects. No assets are used as collateral.

BREAKING DOWN 'General Obligation Bond - GO'

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

At the local government level, pledges may include a pledge to levy property taxes to meet the local government's obligation on the bond holders. For example, since property owners avoid losing their stake on their respective properties because of unpaid property tax bills, credit rating agencies 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 debt with its available resources.

General obligation bonds also serve as a way for local governments to raise funds for projects that create streams of income for things such as roads, parks, equipment and bridges. General obligation bonds are usually used to fund government projects that will serve the public community.

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 bounded by a statutory limit. With limited-tax general obligation pledges, governments can still use a part of already-levied property taxes, 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 general obligation pledge is similar to the limited-tax pledge. The only difference is that the local government is asked to increase property tax rates to necessary levels - up to a maximum of 100% - to cover delinquencies from taxpayers. Local residents must first agree to increase property taxes to necessary amounts required for the bonds.

RELATED TERMS
  1. Double Barreled

    A municipal general obligation bond in which the cash flows are ...
  2. Obligation Bond

    A municipal bond used to secure a mortgage on property or other ...
  3. Obligation

    The responsibility to meet the terms of a contract. If an obligation ...
  4. Housing Bonds

    Debt securities issued by state or local governments to raise ...
  5. Federally Guaranteed Obligations

    A federally guaranteed obligation is debt that is backed by the ...
  6. Municipal Bond

    A debt security issued by a state, municipality or county to ...
Related Articles
  1. Financial Advisor

    Treasury Bills

    Learn more about this government debt obligation and how it can fit into your portfolio.
  2. Investing

    The Basics Of Municipal Bonds

    Investing in these bonds may offer a tax-free income stream but they are not without risks.
  3. Investing

    Your Property Tax Assessment: What Does It Mean?

    The amount of a property tax bill is based on the property’s value, the exemptions it qualifies for, its use and the local property tax rate.
  4. Investing

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  5. Investing

    Explaining Government Bonds

    A government bond is a debt security a government issues.
  6. Financial Advisor

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  7. Investing

    What's a Tax-Efficient Investment for a Large Sum?

    Here's how to invest a large sum, such as assets from a profit-sharing plan, with a mind toward tax efficiency.
  8. Investing

    4 Tax-Free Muni Bond ETFs to Consider

    Tax free municipal bond ETFs are an excellent way to build wealth slowly. Here are 4 you should consider.
  9. Investing

    Why Muni Bonds and Bond Funds are Perfect Together

    Municipal bonds and bond funds differ in several ways, which is partly why they complement each other well.
  10. Investing

    5 Basic Things To Know About Bonds

    Learn these basic terms to breakdown this seemingly complex investment area.
RELATED FAQS
  1. Where can I buy government bonds?

    The type of bond determines where you can purchase it, so you need to decide which type of bond you would like to purchase ... Read Answer >>
  2. Who or what is backing municipal bonds?

    Learn about the basics of municipal bonds, including the various revenue sources that are utilized to back or secure municipal ... Read Answer >>
  3. How are municipal bonds taxed?

    Discover information about trading municipal bonds, specifically the various tax implications municipal bonds have at state ... Read Answer >>
  4. What are some safe fixed-income investments?

    Learn what types of fixed income securities provide investors with safe options for protecting principal and providing steady ... Read Answer >>
  5. Why do zero coupon bonds tend to be volatile?

    Learn why the price of zero coupon bonds is volatile and why some investors may wish to hold them in retirement accounts ... Read Answer >>
  6. Can Mutual Funds Only Hold Bonds?

    Find out which mutual funds include only bonds in their portfolios. Learn why some funds invest in different types of bonds ... Read Answer >>
Hot Definitions
  1. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  2. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  3. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  4. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
  5. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  6. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
Trading Center