What is a General-Obligation Bond? A Comprehensive Legal Overview

Q: Are general-obligation bonds safe investments?

While generally considered safer than other types of bonds, they are not entirely risk-free and depend on the issuer s financial stability.

Q: Do I need voter approval to issue a general-obligation bond?

In many cases, yes. Some states require voter approval before issuing these bonds.

Definition & Meaning

A general-obligation bond is a type of municipal bond issued by a government entity, typically a state or local government. The bond is financed through the issuer's general revenue, rather than a specific revenue source or fund. Unlike other bonds that may be secured by specific assets or collateral, general-obligation bonds rely solely on the issuer's ability to levy taxes to repay the bondholders. These bonds are often referred to as obligation bonds or full-faith-and-credit bonds, reflecting the issuer's commitment to meet its financial obligations.

Table of content

Legal Use & context

General-obligation bonds are commonly used in public finance to fund various projects, such as infrastructure development, schools, and public facilities. In legal practice, these bonds are relevant in areas such as municipal finance and public law. Individuals or entities interested in investing in municipal bonds may encounter legal documents and forms related to bond issuance, which can be managed using templates from US Legal Forms.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Example 1: A city issues a general-obligation bond to fund the construction of a new public library. The bond is repaid using property taxes collected from residents.

Example 2: A state government issues general-obligation bonds to finance road improvements across the state. The bonds are backed by the state's ability to levy income and sales taxes (hypothetical example).

State-by-state differences

State	Voter Approval Required	Tax Revenue Source
California	Yes	Property taxes
Texas	No	Sales and property taxes
New York	Yes	Income and property taxes

This is not a complete list. State laws vary, and users should consult local rules for specific guidance.

Comparison with related terms

Term	Description	Key Difference
Revenue Bond	A bond backed by specific revenue sources.	General-obligation bonds are backed by general tax revenues, not specific assets.
Municipal Bond	A broad category of bonds issued by local governments.	General-obligation bonds are a specific type of municipal bond.

Common misunderstandings

What to do if this term applies to you

If you are considering investing in general-obligation bonds, it is essential to research the issuing entity's financial status and the specific terms of the bond. Users can explore US Legal Forms for templates related to municipal bond transactions, which can help simplify the process. If you have complex questions or concerns, consulting a legal professional is advisable.

Find the legal form that fits your case

Browse our library of 85,000+ state-specific legal templates.

This field is required

Quick facts

Typical fees: Varies by issuer.
Jurisdiction: State and local governments.
Possible penalties: Default on payment can lead to loss of credit rating.

Key takeaways

Frequently asked questions

What is a general-obligation bond?

A general-obligation bond is a municipal bond backed by the issuer's ability to levy taxes, rather than specific assets.