 Personal Finance Powerpoint Presentation, General Obligation Go Bond, prepare to get financially fit by practicing personal finance. Most of this information comes from Investopedia General Obligation Go Bond, which you can find online. Take a look at the references, resources, continue your research from there. This by James Chen, updated August 17th, 2022. In prior presentations, we've been taking a look at investment goals, investment strategies, and tools keeping those in mind. We're now asking the question, what is a general obligation bond? General Obligation Bond Go Bond is a municipal bond backed solely by the credit and taxing power of the issuing jurisdiction rather than the revenue from a project. General Obligation Bonds are issued with the belief that a municipality will be able to repay its debt obligations through taxation or revenue from projects no assets are used as collateral. So typically when we're investing in a bond, it's kind of like a note. We are the one basically loaning the money for a promise of bond that we're are going to be receiving. It's similar to renting. For example, if you were to rent a place rent an apartment, then you got to pay rent on the place. The interest is similar to the rent on the bond. So we're the ones that are renting the money. We're going to get interest on it. Obviously the risk then involved would be that the person that you loaned the money to defaults because we're giving the money to a municipality. We're hoping that it's fairly secure in that case and that we have a fairly secure investment, not as secure. You would think to investing in federal bonds for the United States government, for example, because those bonds are also backed up by the word of the government and possibly even a printing press. If it was necessary to go down to that, but still possibly having more security than other types of investments or some types of corporate bonds, for example, so a go bond may be contrasted with a revenue bond in the context of the munis. We can contrast or compare and contrast in the area of the municipal bonds, the revenue bonds and the go bonds. So understanding general obligation bonds, a general obligation go bond is secured by an issue in government's pledge to use all available resources, even tax revenue to repay holders of the bond. So you've got this kind of promise. A promise is only as good as the person making the promise. You're hoping because it's a municipality that it's a pretty secure promise and your return is secure to some degree. At the local government level, pledges may include a pledge to levy property taxes to meet the local government's obligations on the bondholders. So if you're looking at a government level, the local government level, how are they generating revenue? They might be generating revenue through some kind of taxation possibly through the property taxes, which in part could be used to pay back their obligations. So for example, since property owners avoid losing their stakes on their respective properties because of unpaid property taxes, credit rating agencies rate general obligation pledges with a strong credit qualities and assign them a high investment grade ratings. So when we think about basically how strong or secure is this investment, we can look at the ratings that will be applied to them. That's one way that we can kind of compare and contrast the security of one bond to the other. So 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 the debt with its available resources. General obligation bonds are also served 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. So clearly these kind of things are something that oftentimes the state governments are required for. And notice it's interesting to note when you're thinking about this stuff, what is the federal government doing? What is the state government doing? And so when you look at the state and local, they're typically going to be doing the stuff like the parks, the equipment, the bridges, the roads, unless you're talking about interstate commerce, which when you get into the roads that might go into the federal kind of things, the federal tax, the federal tax system is primarily an income tax on the state and local. There's going to be multiple, whatever system they think is best for the implication of the tax, which might include, of course, the property taxes could be in place and so on. 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. So a general obligation bond may either be limited tax general obligation bond or an unlimited tax general obligation bond. 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 bound by a statutory limit. With limited tax general obligation pledges, governments can still use a part of already levered 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 percent to cover delinquencies from taxpayers. So residents must first agree to increase property taxes to the necessary amounts required for the bonds.