What describes general obligation bonds in a municipality?

General obligation bonds are a type of municipal bond that is issued by a government entity and are secured by the full faith and credit of the issuing municipality. This means that the bonds are backed by the government’s ability to levy taxes to pay bondholders. When a municipality issues general obligation bonds, it pledges to use tax revenues, typically property taxes, to ensure that the bondholders receive their principal and interest payments as promised.

This structure provides a high level of security for investors, as the municipality is obligated to raise taxes if necessary to meet its repayment commitments. The assurance of payment through government taxation is a fundamental characteristic of general obligation bonds, linking them directly to the municipality's taxing power.

While general obligation bonds are often used to finance specific public projects, such as infrastructure improvements, they are not exclusively limited to this purpose. Additionally, the requirement for voter approval can vary based on local laws and specific projects, making that option less definitive compared to the strong backing of taxes that defines general obligation bonds.