General obligation bonds vs. revenue bonds: What’s the difference?

Almost all municipal bonds are either general obligation or revenue bonds. Both forms of debt are issued by local and state governments in order to fund capital projects and public works. The difference between the two is that revenue bonds are directly attached to a revenue-generating project that will pay the bondholders back, such as a toll road, an airport, or a utility. A general obligation bond, on the other hand, is used for non-revenue-generating projects, such as schools, parks, or general infrastructure. These bonds are repaid using general funds, which are typically collected from property taxes. At times, a general obligation bond may be accompanied by a property tax hike in the municipality.

What do general obligation bonds pay for?

General obligation bonds are used to pay for a wide variety of municipal projects, including street and sidewalk improvements, new school buildings and school improvements, highways, parks, and almost any other capital project that a state, town or city might budget for that is not a direct source of revenue.

How are general obligation bonds paid back?

Municipal bonds can have maturities anywhere from one to 30 years, although a 10-, 15-, or 20-year maturity is typical for a general obligation bond. Like other forms of fixed income, the bond pays interest at a stated interest rate, usually at six-month intervals. The full principal is repaid when the bond has matured. General obligation bonds can be traded on the open market. The price of the bond will fluctuate depending on the creditworthiness of the municipality and prevailing interest rates.

General Obligation Bonds | The Motley Fool

General Obligation Bonds

By Jeremy Bowman – Updated Feb 22, 2025 at 10:30 AM EST

Key Points

GO bonds fund municipal projects like schools and parks, repaid by local taxes.
Unlimited GO bonds with dedicated taxes are considered most secure.
Recent GO bond defaults are rare, boosting investor confidence despite past bankruptcies.

General obligation bonds, or GO bonds, are municipal bonds that aren’t directly connected to a specific revenue-producing project. While revenue bonds are attached to a project, such as a utility, an airport, or a toll road that generates revenue to pay back bondholders, general obligation bonds are typically used for infrastructure projects that don’t directly generate revenue.

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An infographic explaining the types of general obligation bonds and their differences. — Image source: The Motley Fool

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Instead of direct revenue, the municipality’s ability to tax is used to secure GO bonds. Sometimes a community might raise property taxes or local income or sales taxes in order to pay back bondholders.

In the article below, we’ll discuss how local governments raise money for GO bonds, the different kinds of general obligation bonds, and answer commonly asked questions about this type of bond.

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General Obligation Bonds FAQs

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About the Author

Jeremy Bowman has been a contributing Motley Fool stock market analyst, covering technology, consumer goods, and macroeconomic trends since 2011. Before The Motley Fool, Jeremy was a newspaper reporter, restaurant manager, and English teacher abroad. He holds a bachelor’s degree in English from Colorado College and a master’s degree in business administration from American University. One of his Motley Fool headlines was briefly featured on Late Night with Stephen Colbert.

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