Essential purpose revenue bonds are issued for projects that have a very steady and predictable income stream, such as water and sewer systems. Non-essential service revenue bonds are issued for projects that have a much less predictable income stream. These include a wide variety of projects, from new golf courses to hospitals.
With general obligation bonds, a governing entity provides a full-faith and credit pledge to bondholders. This means a municipality pledges any legally available funds and taxing power for debt service payments. Typically, general obligation bonds are paid from "ad valorem" property taxes. A classic example involves bonds issued for improvements to a local school district. A local government can raise property taxes if it needs to increase revenue to cover debt payments.
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It's also important to know that corporate or municipal bonds are "rated" by rating agencies. As with grades in school, bonds rated with the letter "A" are considered better quality than those rated with the letter "B." But, just as two teachers may have differing standards for what constitutes an "A," so, too, do the rating agencies.
For example, the state of Connecticut is currently AA-rated. But the ratio of state pension liabilities to revenue is much higher than it is for other states with similar ratings. Additionally, smaller municipalities may find it more difficult than larger ones to make up revenue short-falls.