What Is The Difference Between General Obligation Bonds & Revenue Bonds?
/The two most common types of municipal bonds are general obligation bonds and revenue bonds. General obligation bonds are typically repaid by ad valorem taxes levied by state or local governments. Typically California school and community college districts utilize general obligation bonds to finance their capital projects. Revenue bonds are typically repaid by the revenue generated by the project such as tolls from a toll road.
General obligation bonds are generally considered to be more secure than revenue bonds because state and local governments have the ability to generate as much tax revenue as required to repay the bonds while revenue bonds are restricted by the revenue generated by the project. As a result, general obligation bonds typically have a higher credit rating than revenue bonds. Since revenue bonds typically have lower credit ratings, they will have a higher overall borrowing cost for the issuing municipality compared to general obligation bonds.