Obligation Bond
Categories: Ethics/Morals, Credit
See: Moral Obligation Bond.
Your town has a stretch of road downtown widely derided as "pothole alley." It's become a real danger. As such, your city councilmembers have bravely stepped up to fix the problem. They've put an action item on this year's agenda to protect its citizens against the damage caused by this menace. Specifically, they want to put up a series of signs that read: "Beware of Potholes." (A low-grade solution, sure...but filling potholes costs real money.)
One problem: even with the relatively low cost of the signs, your town's government has no money in the budget to buy them. They need some way to raise cash.
One option? Issue a general obligation bond.
A general obligation bond represents one of the two main types of debt instruments municipalities can use to raise money. The other is called a revenue bond. It's backed by revenue from a specific project. So...if your town wanted cash to run a haunted hayride, it could issue a revenue bond backed by the cash earned from selling hayride tickets.
However, in cases where no specific revenue is attached to the project (like putting up "Beware of Pothole" signs), local governments issue general obligation bonds. Instead of a particular revenue stream, these debt instruments are backed by the government's overall tax and credit authority. It will use the funds it collects from local taxes to keep up with interest and principal payments.
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Finance: What is a Moral Obligation Bond...7 Views
Finance allah shmoop what is a moral obligation bond So
one of our writers totally messed this one up and
we started a video about promises to pay dentists So
a moral obligation bond is one that gets paid because
well you have good morals or you feel morally obligated
to pay hey if you don't necessarily legally have to
pay it but you're morally obligated Teo do so let's
think about this Hospitals universities do gooder projects of all
shapes and sizes that is on a lone dusty highway
west of omaha a tiny city wants to build a
trucker parking hub with excellent hot dogs clean ish showers
and a mud flap emporium They need three million bucks
to build this thing for the kindly loving truckers while
it's still human beings doing nothing and well on their
own city can't afford it the state realizing how good
this depot would be for commerce in business coming into
and out of the state they decide to guarantee the
bonds of that little city The city is backing it
without reams of paper a forest full of paper sign
contracts or any other major structural legal limits in practice
The bonds air publicized as a gift to the area
and they create extreme embarrassment to the politicos who backed
it Should that bond ever fail That is whoever's managing
the facility and supposed to collect the you know shower
tuition from the truckers stops collecting it and or the
truckers find somewhere else to go with mohr cleanest showers
or this is a municipal moral obligation bond but the
term applies to bonds that are not government backed as
well The holy rollers church of greater baltimore is raising
money to replace all the stained glass windows that have
been broken by you know errant baseball's from the neighboring
field They get each of their congregants toe loan the
church three grand and no they're not passing contracts along
with the collection plate there's nothing in writing saying that
the church will use that money to replace the windows
they promised or because the members let the church get
their dough back The church has a moral obligation to
pay back the money that they were loaned to make
good on their promise and if they default well they'll 00:02:10.823 --> [endTime] have to answer to the big guy in charge