4.2 General Obligation (GO) Bonds
General Obligation bonds fund non-revenue-generating civic projects (schools, parks, town halls, roads). Debt service is paid from general taxes, making property valuation and tax collection efficiency the key credit drivers.
Key FINRA Exam Takeaways
- Backed by the full faith, credit, and taxing power of the municipality.
- State GO bonds are backed by state income and sales taxes.
- Local/Town GO bonds are backed by ad valorem (property) taxes.
- Require voter referendum approval and are subject to statutory debt limits.
- Property tax assessment: 1 mill = $0.001 (0.1% or $1 per $1,000 of assessed value).
Ad Valorem Taxes and Millage Rates
Ad valorem taxes are assessed on real estate market value multiplied by the assessment ratio. Tax = Assessed Value × Millage Rate. A home with $300,000 market value assessed at 80% = $240,000 assessed value. At a tax rate of 20 mills (0.020), annual property tax is $4,800.
Debt Limits and Referendums
Because GO bonds are paid by taxpayers, municipal charters set statutory debt limits. To issue GO debt beyond these ceilings, the issuer must conduct a public voter referendum.
A municipality wishes to build a new public high school and finance construction through a bond issue. Which bond type will the city issue, and what authorization is required?