Which bonds require the local government to fulfill its financial responsibilities?

General Obligation Bonds represent a financial obligation of the issuing local government and are backed by the full faith and credit of that government. This means the municipality pledges to use its taxing power to meet the debt service on the bonds. In practice, this means that the local government is responsible for ensuring that sufficient funds are generated, often through taxation, to pay back the bondholders. This level of security makes General Obligation Bonds typically seen as lower-risk investments compared to other types of bonds.

In contrast, Revenue Bonds are specifically tied to the revenue generated by a particular project or service, such as a toll road or a utility. The repayment of these bonds depends solely on the cash flows generated from the specific revenue source, rather than the general taxing authority of the municipality. Tax Exempt Bonds are a category of bonds that can include both General Obligation and Revenue Bonds but do not, by their nature, impose financial obligations on the government. Short-term Bonds, usually designated for financing short-term needs or projects, do not inherently require a government to fulfill ongoing financial responsibilities in the same way as General Obligation Bonds.