What type of bond is commonly used by municipalities to raise capital for projects?

General Obligation Bonds are indeed a common financing method used by municipalities to raise capital for projects. They are backed by the credit and taxing power of the issuing municipality, which gives them a high level of security for investors. Because these bonds are secured by the municipality’s full faith and credit, they typically feature lower interest rates compared to other types of bonds. Municipalities can use the funds from these bonds for essential public projects such as building schools, roads, and other infrastructure improvements.

The key aspect of General Obligation Bonds is that they do not generate revenue directly, such as through user fees or service charges. Instead, they are repaid through general tax revenues, which can include property taxes, sales taxes, and other forms of municipal income. This underlying security allows municipalities to borrow large sums for critical public services and infrastructure investments.

While Revenue Bonds, another type of bond, are also used to finance projects, they are specifically tied to the revenue generated by those projects, such as tolls from a highway or fees from a public utility. The nature of General Obligation Bonds makes them a more broadly applicable financing tool for various types of municipal projects.