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

Analyze the practice of democracy, Question 1: Analyze the practice of ...

Question 1: Analyze the practice of democracy as advocated by the early Greek political thinkers. Question 2: To what extent can Man live peacefully with each other wi

Explain the currency trading at a discount, What is meant by a currency tra...

What is meant by a currency trading at a discount or at a premium in the forward market? Answer:  The forward market includes contracting today for the future purchase or sale o

International bonds, International bonds are divided into two c...

International bonds are divided into two categories namely, foreign bonds and euro bonds. Foreign bonds are issued by a borrowing company in another

Financial Managemente.., Madhuban group manufactures a product. The followi...

Madhuban group manufactures a product. The following particulars are as follows: 5 Monthly demand 1000 units Cost of placing an order Rs. 100 Annual carrying cost per unit Rs. 15 N

Pros and cons of simulation technique, Pros and Cons Simulation techniq...

Pros and Cons Simulation technique allows experimentation with a model of the real life system. Whenever experimenting with the system itself is risky and/or costly, simulation

Explain the fixed and floating rates, Question 1 Globalization is a pro...

Question 1 Globalization is a process of international integration that arises due to increasing human connectivity as well as the interchange of products, ideas and other aspe

Aim of finance function, AIM OF FINANCE FUNCTION The fundamental aims ...

AIM OF FINANCE FUNCTION The fundamental aims of a modern finance function are: Acquiring enough funds when required at lower cost. Proper use of funds in projects w

Explain the incremental cash flows of a capital project, Explain what is me...

Explain what is meant by the incremental cash flows of a capital project. Incremental cash flows are defined by the change in total firm cash inflows and cash outflows which ca

Regulatory requirements for debentures, The following guideline...

The following guidelines are applicable for the issue of Fully Convertible Debentures (FCDs), Partly Convertible Debentures (PCDs) and Non-conve

Investment banker, The Role of Merchant Banker The issuer appoints the ...

The Role of Merchant Banker The issuer appoints the Merchant Banker (or Investment Banker) to undertake the issue activity. A Merchant Banker performs multiple functions during

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