American Institute of Certified Planners (AICP) Practice Exam

General Obligation Bonds are repaid using what type of revenue?

1. Private donations

2. Tax revenue of the government

3. Interest earned on investments

4. Revenue from state grants

The correct answer is: Tax revenue of the government

General Obligation Bonds are designed to be repaid using tax revenue collected by the government. These bonds are a way for municipalities or governmental entities to raise funds for public projects, such as schools, infrastructure, and parks. The backing of these bonds comes from the taxing power of the issuing authority, meaning that they are typically repaid through the general tax base, including property taxes, sales taxes, or income taxes, depending on the issuer's structure. This connection to tax revenue gives investors confidence that the bonds will be repaid, as the government has a reliable source of funds to do so. Private donations, interest earned on investments, and revenue from state grants might support specific projects or initiatives but are not reliable sources of repayment for General Obligation Bonds, as these bonds fundamentally rely on the tax revenues generated by the government entity responsible for their issuance.