Full-Faith-and-Credit Bond

full-faith-and-credit bond

See general obligation bond.

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Full-Faith-and-Credit Bond

In the United States, a municipal bond in which the issuing locality pledges to use all revenues at its disposal to pay bondholders, including property taxes. If so many residents do not pay their property taxes that it impacts revenue for bondholders, the terms of the bond legally require the municipality to raise property taxes to make up the shortfall. There are two basic types of full-faith-and-credit bonds: a limited bond allows for the raising of property taxes up to a certain percentage, while an unlimited bond theoretically allows the municipality to levy taxes of up to 100% of a property's value. Because an unlimited bond provides a great incentive to pay property tax on time, and because many states only allow such a bond to be issued following a vote on the matter, credit ratings agencies usually rate them higher. However, both types are generally rated highly. It is also called a general obligation bond.