Tax-backed debt obligations, Financial Management

Tax-backed debt obligations are the debt instruments issued by counties, states, cities, towns, special districts and school districts. These are secured by some form of tax revenue and are classified into three types. They are as follows:

  1. General Obligation Debt: General Obligation Debt is a municipal security secured by the taxing and borrowing power of the municipality issuing it. In fact, they are backed by the credit and taxing power of the issuing jurisdiction rather than the revenue it receives from a given project in hand. This is the feature, which influences the investor to invest in these securities.

In addition to above back up, certain identified fees, grants and special charges also secure some of the general obligation securities. These are the amounts, which provide additional revenue to the State outside the purview of the general fund. Due to this dual nature of the revenue sources, these securities are also known as double-barreled in security.

  1. Appropriation-Backed Obligations: Appropriation-Backed Obligations are securities issued by agencies or authorities of several States to meet their entity obligations. These securities are backed up with the appropriation of funds from the State general tax revenue. The state legislature should approve this appropriation of funds from the state's general tax revenue. However, the state's obligation is not binding. When a debt obligation is backed by such non-binding pledge of tax revenue, it is known as moral obligation bonds. The moral obligation pledge helps in enhancing the creditworthiness of the issuer. Lease-backed debt is another type of appropriation-backed obligation.

  2.  Debt Obligations Supported by Public Credit Enhancement Programs: A moral obligation is a form of credit enhancement provided by the state. This obligation of the state is neither legally enforceable nor legally binding. However, the public credit enhancements can be made legally enforceable if the state or a federal agency guarantees the issue or when there is an obligation to automatically withhold and deploy state aid to pay any defaulted debt service by the issuing entity.

Posted Date: 9/8/2012 6:54:53 AM | Location : United States







Related Discussions:- Tax-backed debt obligations, Assignment Help, Ask Question on Tax-backed debt obligations, Get Answer, Expert's Help, Tax-backed debt obligations Discussions

Write discussion on Tax-backed debt obligations
Your posts are moderated
Related Questions
Q. What is the function of Dividend policy decision? Dividend policy decision: the third major decision of the financial management of the decision related to the dividend poli

What action(s) should be take place if analysis of pro forma financial statements reveals positive trends?  Negative trends? While analyzing the pro forma statements, managers fre

Types of Bonds 1. Secured Versus Unsecured Bonds 2.  Senior versus Subordinate Bonds 3.  Registered and Unregistered Bo

Would there be positive interest rates on bonds in a world with absolutely no risk no default risk, maturity risk, and so on? Why would a, borrower be willing to pay and a lender d

Stream of Expected Returns Investment returns can take many forms. An investor must consider all these forms to evaluate an investment option accurately. A brief description of

Suppose a company is quoting swap rates as follows:  7.75 - 8.10 percent yearly against 6-month dollar LIBOR for dollars and 11.25 - 11.65 percent yearly against six-month dollar L

how I can use this website?

1. CompuSystems was supposed to pay a manufacturer $19,000 four month ago and another $14,000 two months from now.  CompuSystems is proposing to pay $10,000 today and the balance i

Q. Explain Compound Value of an Annuity? Compound Value of an Annuity: - Annuity demotes to the periodic flows of equal amounts. FV = A {(1+i)n - 1}/i Instance: - Mr. X i

Uses of operating cycle in business