Municipal Securities

A debt obligation issued by a state, its political subdivisions, or their agencies/authorities (counties, cities, towns, school districts, special districts) to finance public projects or operations. Interest is generally exempt from federal income tax.

A municipal bond backed by the full faith, credit, and taxing power of the issuer. Debt service is paid from the issuer's general revenues, primarily taxes, rather than from a specific project's income.

A municipal bond payable solely from the revenues (user fees, tolls, charges) generated by the specific facility or project it finances. It is not backed by the issuer's taxing power, so the project's income is the only source of debt service.

GO bonds generally carry lower default risk because they are backed by the issuer's taxing power and broad general revenues, whereas revenue bonds depend on a single project's income stream.

Ad valorem (property) taxes are the primary backing for local GO bonds. Cities and counties levy property taxes on real estate; the rate is expressed in mills (mill rate).

State GO bonds are usually backed by income taxes, sales taxes, and excise taxes rather than property taxes, since property taxes are typically reserved for local governments.