There are two main types of municipal bonds:  General Obligations and Revenue Bonds

General Obligations or “G.O.’s, are backed by the full faith and taxing power of the municipality issuing the bonds.

Such bonds would be for general funding projects, schools, and locally owned utility systems.  Should the muncipality run into a short fall in revenues to pay the obligation, then they will raise taxes to pay for the debt.

Theoretically municipalities can raise taxes to what ever they need to pay their debt.  In practical purpose, this in not generally done.

Revenue municipal bonds are issued by agencies sanctioned by the state or municipality.  These bond are backed solely by revenue generated by the particular function of that agency.   For example,  hospitals are often funded through municipal bonds and are guaranteed ONLY by the revenues and profitability of that hospital.

Water bonds, turnpike (toll roads), airports, nursing homes, colleges, and sports complexes are just some of the types of revenue bonds.

Remember, if the purpose of the revenue bond FAILS, then interest and principal may not be paid.

G.O.’s are considered the safer of the two types of bonds.