Tax-backed debt obligations, Financial Management

Assignment Help:

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.


Related Discussions:- Tax-backed debt obligations

Valuation methods, Valuation Methods: 2 - Year Method Perpetual ...

Valuation Methods: 2 - Year Method Perpetual Growth Method Constant Growth Method Zero Growth Method Growth Phases Valuation Model:  'Constant Growth Met

Explain life insurance in detail, Question 1 Insurance is protection again...

Question 1 Insurance is protection against possible financial loss. Explain life insurance in detail Question 2 Mutual funds are a composite of stocks, bonds, and securities,

Analysing performance through ratios, Analysing performance through ratios ...

Analysing performance through ratios Ratios are an effective way of analysing financial statements. A ratio is 2 figures compared to each other and can either be in absolute te

Define finance function and discuss its nature, Q. Define Finance Function ...

Q. Define Finance Function and discuss its nature and scope Ans. Meaning of Finance: - Finance is defined as the provision of funds at the time when it is required. The role of

Define defined benefit and defined contribution pension plan, Compare and c...

Compare and contrast a defined benefit and a defined contribution pension plan. In a defined benefit plan, retirement benefits are defined by a formula that generally considers t

Explain the book building guidelines, Question 1 Describe the functions...

Question 1 Describe the functions of merchant banking and functions of financial intermediaries Question 2 What do you understand by book building and Green shoe option

The authority and duties of shareholders, The authority and duties of membe...

The authority and duties of members (shareholders) Members and shareholders shall together and severally protect, conserve and actively exercise the supreme authority of the co

Financing costs incorporated into capital budgeting analysis, How are finan...

How are financing costs generally incorporated into the capital budgeting analysis process? Financing costs are generally captured in the discount or hurdle rate while doing NPV

Display profit diagrams for long stock and for short stock, Question: (...

Question: (a) A stock currently sells for $80 and a put option with an exercise price of $80 currently sells for $2. Find the percentage gain to an investor in the common stock

Effect on stock valuation, Effect on Stock Valuation Until the 1960s, c...

Effect on Stock Valuation Until the 1960s, common stocks were viewed as a good instrument against loss caused by inflation. Also, before 1960, stocks were not providing full he

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd