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What Are General Obligation Bonds? Reactions to “Diversity and Default Risks of Municipal Bonds” by Robert Doty  


Author:  W Bartley Hildreth.


Source: Volume 34, Number 02, Summer 2013 , pp.89-98(10)




Municipal Finance Journal

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Abstract: 

Robert Doty’s conference session was moderated by Bart Hildreth, whose discussion paper is provided here. Hildreth writes, “Robert Doty makes us confront another overstatement. This time, it is about our misuse of that little topic called ‘general obligation’ bonds. Again, too many of us have been too cavalier in our definition of general obligation bonds. Doty throws water in our collective face by calling to our attention a distinction between ‘general obligation securities’ and ‘general fund securities.’” Hildreth describes an exercise that he undertook after reading Doty’s paper. He went through 30 years of papers, books, and other writing on municipal bonds, more than 20 different documents in all, authored by a range of writers including law professors, attorneys, SEC staffers, and finance professors. Hildreth looked across these documents for their description of “general obligation” and noted, almost across the board, that these authors describe “GO” using the familiar language of the “full faith and credit” pledge. He noted that none of the references he consulted considered the existence of a statutory lien on taxes, which is turning out to be extremely important in the context of recent municipal bankruptcies.

Keywords: General obligation securities, general fund securities, full faith and credit pledge, liens, historical definition of GO bonds

Affiliations:  1: Georgia State University.

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