Which bond type has no debt limit?

Which bond type has no debt limit?

• A. COP
• B. GO
• C. Special Tax
• D. Revenue Bonds

Answer: (A)

Debt limits apply to the issuer’s direct indebtedness. A Certificate of Participation is a lease-financing arrangement: investors own a portion of the lease payments rather than the asset itself, and the issuer’s obligation is to make lease payments rather than to pledge its full faith and credit or tax revenue. Because of this lease structure, COPs are not counted as direct debt in the same way as general obligation bonds, so they typically have no debt limit. General obligation bonds are backed by taxing power and usually fall under statutory debt limits. Revenue bonds and special tax bonds are secured by dedicated revenue streams or specific taxes, so they’re not tied to the general debt limit in the same way as GO bonds, though they depend on the availability of those revenues for repayment.

Debt limits apply to the issuer’s direct indebtedness. A Certificate of Participation is a lease-financing arrangement: investors own a portion of the lease payments rather than the asset itself, and the issuer’s obligation is to make lease payments rather than to pledge its full faith and credit or tax revenue. Because of this lease structure, COPs are not counted as direct debt in the same way as general obligation bonds, so they typically have no debt limit. General obligation bonds are backed by taxing power and usually fall under statutory debt limits. Revenue bonds and special tax bonds are secured by dedicated revenue streams or specific taxes, so they’re not tied to the general debt limit in the same way as GO bonds, though they depend on the availability of those revenues for repayment.