As you’ve seen, general obligation (G.O.) bonds typically require voter approval before they can be issued. For example, you might see a G.O. bond proposal to fund a new public park on your ballot. If voters approve it, taxes may increase to cover the debt service. That potential tax increase is one reason voters may oppose G.O. bonds.
Another concern is cost uncertainty. A public park project could end up costing more than expected, which can make voters hesitant to approve the bond. If the municipality thinks the tax impact could jeopardize public support, it may choose to issue a limited tax bond instead.
A limited tax bond is a type of G.O. bond that can draw only on a predetermined amount of tax revenue. Because the issuer is limited to that set tax allotment, it can’t simply raise taxes beyond the limit to make bond payments. That limitation increases risk for bondholders, since the issuer has less flexibility if it runs into financial trouble. At the same time, it limits the tax burden on taxpayers, who ultimately decide whether a G.O. bond should be issued.
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