General Obligation v Revenue Bonds

Britannica concise answers offers the following definitions for Revenue Bonds and GO Bonds:

Revenue bonds are issued by a municipality, state, or public agency authorized to build, to acquire, or improve a revenue producing property such as a waterworks, electric generating plant, or railroad. Unlike general-obligation bonds, which are repaid through a variety of tax sources, revenue bonds are payable from specified revenues only, usually the revenues from the facility for which the bond was originally issued. Revenue bonds typically pay interest rates higher than those of general-obligation bonds. The separation of the revenue bond obligation from a municipality's other bond obligations allows the municipality to circumvent legislated debt limits.

General Obligation Bonds:

A general obligation bond is a common type of municipal bond in the United States that is secured by state or local government's pledge to use legally available resources, including tax revenues, to repay bond holders.

Most general-obligation pledges at the local government level include a pledge to levy a property tax to meet debt service requirements, in which case holders of general-obligation bonds have a right to compel the borrowing government to levy that tax to satisfy the local government's obligation. Because property owners are usually reluctant to risk losing their holding (homes or businesses) due to unpaid property tax bills, credit rating agencies often consider a general obligation pledge to have very strong credit quality and frequently assign them investment grade ratings. If local property owners do not pay their property taxes on time in any given year, a government entity is required to increase its property tax rate by as much as it legally allowable in a following year to make up for any delinquencies. In the interim between the taxpayer delinquency and the higher property tax rate in the following year, the general obligation pledge requires the local government to pay debt services coming due with its available resources.

The full faith and credit of taxpayers is pledged with G O Bonds. Revenue Bonds allow cities and counties to get around legislated debt limitations and cost everyone more money. Urban Renewal agencies operate with REVENUE BONDS when they go into debt.

With all 0f the above in mind, the city of Los Angeles is the latest California casualty of this recession. Los Angeles will run out of money on or about May 5th, 2010. It can happen here as well if we don't keep our financial house in order.