What do general obligation bonds guarantee?

General obligation bonds are a type of municipal bond that are backed by the full faith and credit of the issuing municipality. This means that the municipality is obligated to use its taxing power to ensure that bondholders receive their payments. The correct answer encompasses several important aspects of what general obligation bonds guarantee.

Payment by the municipality through a government tax highlights that the primary source of repayment for these bonds is tax revenue. Since these bonds are secured by the taxing authority of the municipality, they are generally considered to be stable and low-risk investments.

Payment by all people in the community reflects the concept of collective responsibility for paying the bonds. Since taxes are levied on the residents, the financial burden of repaying the debt falls on the entire community, making it a shared obligation.

The option referring to the ability to pay off a revenue-producing capital improvement indicates that funds from general obligation bonds may be used for various projects, including those that generate income for the municipality, even if they aren’t strictly revenue bonds. This flexibility allows municipalities to finance a wide range of public projects, such as schools, parks, and infrastructure improvements.

Considering these points, the comprehensive nature of general obligation bonds, which includes guarantees on payments by the municipality, the shared responsibility of community members, and