Limited tax bonds

As we’ve discussed, general obligation (G.O.). bonds require voter approval to be issued. You might see a favorable G.O. public park bond on your voting ballot, but your taxes will increase if it passes. This is generally why people vote against G.O. bonds. Also, it’s possible the public park may cost more than expected. If costs could prevent public approval of the project, the municipality may issue a limited tax bond.

A limited tax bond is a type of G.O. bond that only has access to a predetermined amount of taxes. Therefore, the issuer doesn’t have any incentive to raise taxes if they are facing challenges paying off the bond. These bonds come with additional risk to bondholders as the issuer can’t increase taxes if they face financial difficulties. However, it ensures limited taxation to the taxpayers, who ultimately decide if a G.O. bond should be issued.