Series 7: 3.5.1 Analyzing General Obligation Bonds

3.5.1  Analyzing General Obligation Bonds

In evaluating general obligation bonds, the first thing to look at is the overall financial health of the issuing municipality. High property values that are growing over time are one indicator of a healthy local economy. A diversified economic structure that can weather an economic downturn is another. A growing, high-income population indicates an ability to increase taxes, as does a rising trend in property values.

The state of a municipality’s debt is another important indicator of credit risk. How diversified is the source of tax revenue, and how great is the current tax burden on the community? What sources of new debt are on the horizon, and how high is the debt burden in relation to its debt limit, if it has one? If the municipality’s debt is approaching its statutory limit, what flexibility does it have to increase or work around that limit? Does the community have a history of being open or hostile to the prospect of new taxes?

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