General Obligation and Revenue Bonds

¶ … bonds or General Obligation Bonds are when an issuer, city, or state issues a bond that is guaranteeing repayment of said bonds by any means necessary, meaning the issuer will use any level of taxation power at its disposal to assure the money is paid back (O'Hara & Wesalo Temel, 2012, p. 42). Along with this idea, the full taxing power, faith, and credit of the issuer are used to back the bonds. So the revenues from each kind of tax like sales taxes, gas, property, and corporate taxes will be used to guarantee bonds. Hence the name general obligation bond because the issuer is generally obliged.

When an issuer has a problem with paying someone back, they must "through any means necessary" gain the funds to pay back the money. This means as mentioned before, raising taxes or other avenues or raising capital. Those that issue GO bonds are school districts, towns and cities, and finally, states. While this may seem like a good a preference for someone wishing assurance of being paid back, there are other options.

Revenue bonds, unlike GO bonds, rely on other modes of revenue collection than taxation and therefore can be an easier means of getting money back. Hospitals, power systems, water systems, and transportation systems are common issuers of revenue bonds. A good example of said issuers is New York City's MTA or Metropolitan Transportation Authority. If the MTA needs money to buy buses, improve the track system, or build more train stations, they begin the process of issuing bonds in order to make capital investments. Paying back the bonds come from the revenue the MTA makes from its customers.

A revenue bond would be my preference because people tend to avoid paying their taxes. This is seen all the time through online shopping to evade sales tax and not filing tax returns. It seems more reliable in this economy to elect to accept a revenue bond since the issuers tend to make money fairly easy and can pay back faster.

A public offering of municipal bonds is a multi-step process. For example, the first step involves deciding whether an issuer should even issue bonds. This is because bonds mean long-term debt commitment and forces the community to make payments to the ones holding the bonds for several or many years. In the case of a GO bonds, local governments must undertake a comprehensive evaluation of every proposed debt issue before committing to actually selling bonds.

The next step is determining the need for specialized services. That means consulting specialists like an engineer, a bond counsel and so forth. It is of great importance to secure competent specialists and can save the community money through quality construction, quality assessment, depending on which consultant one requires. Then it finally moves into obtaining public support for GO issues. The public must approve the issuing of GO bonds and often issuers will use the services of a fiscal advisor in order to help in getting public support (Feldstein & Fabozzi, 2008, p. 112). Things like bond elections are typically held around the same time as general or primary elections.