General Obligation Bonds vs. Revenue Bonds: What's the Difference?
We’ve discussed school bonds and city/county bonds as things that affect property tax rates through the I&S component. But not all government bonds work this way — there’s an important distinction between general obligation (GO) bonds and revenue bonds that determines whether a particular bond actually relates to your property tax bill at all. For expert advice and loan quotes related to property taxes, contact American Finance and Investment Co., Inc. (AFIC).
General Obligation (GO) Bonds: Backed by Property Taxes
A general obligation bond is backed by the issuing entity’s full taxing power — meaning the entity pledges to use property tax revenue (through the I&S rate) to repay the debt if needed. This is the type of bond we’ve discussed in our school bond and city/county bond articles — and the type that requires voter approval through a bond election in most cases.
Revenue Bonds: Backed by a Specific Revenue Source
A revenue bond, by contrast, is repaid from a specific, dedicated revenue source — not general property tax revenue. Common examples include:
- Water/sewer utility revenue bonds: repaid from water and sewer usage fees charged to customers
- Toll road revenue bonds: repaid from toll collections
- Airport revenue bonds: repaid from airport-related fees and revenues
Because these bonds aren’t backed by property tax revenue, they generally don’t directly affect your property tax rate — though they might affect the fees you pay for the relevant service (water bill, tolls, etc.), which is a different kind of cost than property tax.
Why This Distinction Matters to You
If you’re trying to understand whether a specific bond or infrastructure project relates to your property tax bill, this distinction is the key question: is this a GO bond (potentially affecting your I&S tax rate) or a revenue bond (affecting a different fee or charge, not property tax)?
Voter Approval Requirements Differ
Generally, GO bonds backed by property tax revenue require voter approval through a bond election (as discussed in our prior articles), while revenue bonds — since they don’t pledge property tax revenue — may not require the same voter approval process, depending on the specific type and issuing entity.
A Practical Example
If your city is building a new water treatment plant funded by revenue bonds repaid through water bills, this might not appear as a property tax-related bond election — but if your city is building a new fire station funded by GO bonds, this likely would appear as a bond election affecting your property tax rate.
Where This Gets Complex: Mixed Financing
Some projects use a combination of funding sources — GO bonds for part of a project, revenue bonds for another part, plus other funding sources entirely. Understanding the specific financing structure of any given project may require looking at the entity’s official documentation rather than assuming based on the project type alone.
The Bottom Line for Property Tax Purposes
When evaluating how government borrowing affects your property tax bill specifically, focus on GO bonds and their impact on the I&S rate of applicable taxing units. Revenue bonds, while they represent real government borrowing, generally work through different financial channels.
Manage Your Property Taxes with AFIC
Understanding which financial mechanisms actually flow through to your property tax bill — versus other types of fees and charges — helps you make sense of your overall tax situation.
American Finance & Investment Co., Inc. (AFIC) has helped Texas property owners understand and manage their property tax obligations for over 80 years. See if you qualify for a property tax loan.
Frequently Asked Questions
A bond backed by the issuing entity’s full taxing power, generally repaid through property tax revenue (the I&S rate).
A bond repaid from a specific, dedicated revenue source — like water/sewer fees or tolls — rather than property tax revenue.
Generally not directly — though it might affect a different fee (your water bill, for example).
Often not the same voter approval process, since they don’t pledge property tax revenue — though this can depend on the specific type and entity.
The issuing entity’s official documentation generally specifies the financing structure, which can include a mix of bond types.
