Municipal bond

A municipal bond (often shortened to muni) is a debt instrument issued by state and local governments, or publicly owned corporations under the authority of such, generally to borrow money for new or renovated infrastructure.

The term is not used to describe borrowings by the Federal government.

Types of bonds

There are two general types of municipal bonds: general obligation and revenue.

A general obligation bond is guaranteed by the taxing power and authority of the issuer, which can be unlimited or limited depending on the jurisdiction. These are the most common types of bonds, and are primarily funded by a property tax assessment. An example use for these bonds is to expand a jail.

A revenue bond is guaranteed only by expected revenues; as such, the possibility of default is greater. An example use for these bonds is an airport authority issuing them to renovate a passenger terminal; the facility charges (and other revenue from concessions, parking, etc.) are pledged to pay the bonds.