What is the main characteristic of Limited Tax General Obligation Bonds?

Limited Tax General Obligation Bonds are primarily characterized by their backing from legally available general fund revenues. This means that the repayment of these bonds is contingent upon specific and limited revenues that a municipality can levy; therefore, the taxing authority of the issuing entity is restricted.

Unlike unlimited tax general obligation bonds, which are secured by the full taxing power and the ability to levy taxes without limitation to repay the bonds, limited tax bonds rely on a more defined revenue stream. This constrains the issuer's ability to ensure repayment, as it can only raise taxes up to a certain limit and only within the confines of legally permissible revenues.

For example, if a city issues limited tax bonds to finance improvements that are vital for public services, it must operate within its financial limits regarding how much additional tax revenue can be collected. This feature tends to classify the bonds with a higher risk compared to unlimited tax bonds, because the revenue source may not always be entirely predictable.

The other options reflect characteristics related to different types of bonds or financial instruments, rather than specifically to Limited Tax General Obligation Bonds. Understanding this concept is crucial in public finance, as it helps stakeholders assess the risk and structure of debt issuances by municipalities.