General obligation bond

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A general obligation bond is a common type of municipal bond in the United States that is secured by a state or local government's pledge to use legally-available resources, including tax revenues, to repay bondholders.^[1]

Most general obligation pledges at the local government level include a pledge to levy a property tax to meet debt service requirements, and holders of general obligation bonds then have a right to compel the borrowing government to levy that tax to satisfy the local government's obligation. Because property owners are usually reluctant to risk losing their holding from unpaid property tax bills, credit rating agencies often consider a general obligation pledge to have very strong credit quality and frequently assign them investment grade ratings. If local property owners do not pay their property taxes on time in any given year, a government entity is required to increase its property tax rate by as much as is legally allowable in a following year to make up for any delinquencies. Between the taxpayer delinquency and the higher property tax rate in the following year, the general obligation pledge requires the local government to pay debt service coming due with its available resources.