What are general obligation bonds or G.O.s?
With general obligation bonds, the issuer is using its taxation power to back the interest payments and ultimate repayment of the bonds. For instance, when a state, city, county, township, school district issues general obligation bonds, the entire taxation power of the issuing government is backing the bonds. This mean that if the municipality runs into any financial difficulty, it will need to raise taxes in any form that it can to the point that bondholders can be paid back. Many states, including California, have it written into their constitutions that bondholders of state-backed debt must be paid before any money can be used for any other obligation. In California, bondholders of the state are the second in line after the needs of K-12 education. Local municipalities back their general obligation bonds with property taxes as this is usually the sole method of taxation available to most small towns. If a local government has a financial problem, it must raise its property taxes to
