Municipal Bonds and Notes that are backed by the taxing power of a municipality are General Obligation bonds - GO. These debt obligations can be state or local issued.

Each of these municipalities can use the taxes at their disposal and authorization to raise the money needed to pay off the bond interest and the principal.

Taxes used to back General Obligation (G.O.) bonds include:

• Income Tax
• Sales Tax
• Gas Tax
• Sin Tax
• Property Tax
• School Tax

GO Bonds are considered safe because of the taxing power and are generally rated higher by the rating agencies. There are two primary types of General Obligation issues: State and Local.

Local Issues G.O. Municipals

These issues would normally include School district debt. When a local area like a town is looking to improve, add or spend money on a school, they can go to the investment banking community and borrow money on a bond issue.

The money raised for the bonds would go towards the spending and improvements they wish to make. The town would then raise taxes locally (usually through property tax levies) and set that increased revenue aside, using it to meet interest payments and pay down the debt as it matures.

Non local or State Issued General Obligation Bonds

If the state of Ohio is doing a bond issue, they will use non-property taxes as their primary resource for dollars. States will normally use other taxes such As: Income, Sales and other non local taxes.

Since a municipality relies on the taxes it can raise, the town must have a healthy tax base at their disposal - or at least healthy enough to support the bond and garner a good rating.

A rating company will examine the following before isuuing a credit score on the bond:

• Debt per capita
• Income per capita
• Property values or assessed valuations
• Population Growth

All of these factors are important to see if the area that is supporting the bond issue has enough tax revenue potential to give the bond a healthy credit rating.

Other Definitions:

Overlapping Debt - When a local tax base overlaps the tax base of another, it is known as overlapping debt. An example of this could be two towns sharing the resources of a school, where both areas are paying taxes to support the same facility or services.

Ad Valorem Tax - The name of the property tax that residential and commerical residents are taxed at is called the Ad Valorem Tax.

Competitive underwriting - All General Obligation bonds must be underwritten on a competitive basis. This means that the issuer must offer a competitive bidding process open to broker dealers, where the best price (lowest interest cost) wins.

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