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 bond holders.
Most general obligation pledges at the local government level include a pledge to levy a property tax to meet debt service requirements, in which case holders of general obligation bonds 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 due to 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. In the interim 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.
Read more about General Obligation Bond: Types of General Obligation Pledges
Famous quotes containing the words general, obligation and/or bond:
“The reputation of generosity is to be purchased pretty cheap; it does not depend so much upon a man’s general expense, as it does upon his giving handsomely where it is proper to give at all. A man, for instance, who should give a servant four shillings, would pass for covetous, while he who gave him a crown, would be reckoned generous; so that the difference of those two opposite characters, turns upon one shilling.”
—Philip Dormer Stanhope, 4th Earl Chesterfield (1694–1773)
“No obligation to do the impossible is binding.”
—Marcus Tullius Cicero (106–43 B.C.)
“Man’s characteristic privilege is that the bond he accepts is not physical but moral; that is, social. He is governed not by a material environment brutally imposed on him, but by a conscience superior to his own, the superiority of which he feels. Because the greater, better part of his existence transcends the body, he escapes the body’s yoke, but is subject to that of society.”
—Emile Durkheim (1858–1917)