General Obligation Bonds vs. Revenue Bonds

Key Takeaways

• Both General Obligation (GO) bonds and Revenue Bonds allow governments to finance large projects.

• GO bonds are backed by taxpayers.

• Revenue Bonds are repaid by income generated from the project.

• Understanding who repays the debt is the key to understanding the difference.

Why It Matters

When you hear about a bond issue, knowing who is responsible for repayment helps you understand the financial risk and how the project will be funded.

The Basics

A General Obligation (GO) bond is backed by the full faith and credit of the government. If necessary, tax revenues may be used to repay the debt. GO bonds are commonly used for projects that benefit the entire community, such as schools, roads, libraries, and public safety facilities.

A Revenue Bond is repaid from revenue generated by the project itself, such as water bills, parking fees, or airport revenues. Taxpayers generally are not responsible for repayment unless additional guarantees are provided.

Bottom Line

Ask one question: Who repays the debt?

If the answer is taxpayers, it is generally a General Obligation bond. If the answer is the project’s own revenue, it is generally a Revenue Bond.