What type of bonds are backed by taxing power?

General obligation bonds are backed by the taxing power of the issuing municipality. This type of bond represents a promise by the municipality to repay bondholders with revenues generated from taxes levied on residents and businesses within its jurisdiction. Because they are backed by the full faith and credit of the government, general obligation bonds are generally considered lower risk and thus typically offer lower interest rates compared to other bond types.

These bonds are often used to finance projects that benefit the public, such as schools, parks, and infrastructure improvements. The commitment to repay is secured through the municipality's ability to levy taxes, making them a reliable source of funding for essential public services and capital projects. This distinctive feature differentiates general obligation bonds from revenue bonds, which are only repaid from specific revenue sources generated by the project they finance.