Double-Barreled Bonds: Combining Project Revenues with General Taxing Power
A municipal water authority issues bonds to expand a reservoir facility. The debt service is primarily payable from water utility user fees, but the bonds are also fully backed by the general taxing power (ad valorem property taxes) of the sponsoring city if water revenues prove insufficient. How are these securities classified, and what is their default risk profile?
Double-barreled bonds have dual backing: facility user fees PLUS general taxing power. Because they commit municipal taxes as a backstop, they are classified as GO debt.
Complete Analysis & Legal Rationale
Double-barreled bonds combine the revenue generation of a revenue bond with the ultimate credit backstop of a General Obligation bond. The debt is primarily serviced by user revenues from the facility (water fees, tolls, bridge revenue). If those revenues fall short, the municipality is legally obligated to levy ad valorem taxes to meet debt service. Because taxing authority is pledged, double-barreled bonds must adhere to municipal debt limits and voter approvals.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Double-barreled bonds have dual backing: facility user fees PLUS general taxing power. Because they commit municipal taxes as a backstop, they are classified as GO debt.
Fails to adhere to municipal bond rules regarding B.
Fails to adhere to municipal bond rules regarding C.
Fails to adhere to municipal bond rules regarding D.
Official Standard: Double-barreled bonds combine the revenue generation of a revenue bond with the ultimate credit backstop of a General Obligation bond. The debt is pri