When a state, city, hospital, or any issuer issues a bond, The issuer expects to pay back the borrowed money and interest at some point in the future. The issuer guarantees re-payment of the money in one of two basic ways:
- Taxation, such as income taxes, property taxes, sales tax, etc.
- Revenues, by collecting revenues from the project financed with the bonds.
General Obligation (GO) Bonds: When a state, city, or other issuers issue general obligation bonds, this means the issuer is guaranteeing repayment using any means necessary. The issuer is going to use any taxation power in its authority to make sure the bonds are paid back. Typically most cities use sales tax and property tax (ad valorem) taxes to repay the bonds. The reason it is called a general obligation bond is that the issuer is generally obligated. If the issuer has any problem paying off the bonds and interest, taxes must be raised or the issuer has to come up with the money.
Revenue Bonds distinguish themselves from general obligation bonds through their method of payment. Unlike GO bonds that rely on Taxation, revenue bonds are guaranteed by specific revenues. the most common issuers of revenue bonds are transportation systems, hospitals, power systems, water systems, and other local authorities that generate revenue from providing services to the public.
A Millage Rate is the tax rate used to calculate local property taxes. The millage rate represents the amount per every $1,000 of a property”s accessed value. Millage is based on the Latin word for a “thousandth.” That means 1 mill is equivalent to 1/1000th. Applied to property taxes that mean a 1 mill rate equivalent to $1 in taxes per $1,000 in assessed value. If your property is worth $100,000, you will pay $100 in taxes.