GENERAL OBLIGATION (GO) BONDS - 6842

(Renumbered: 02/2025)

 

Definition:  General Obligation (GO) bonds are a form of long-term borrowing in which the state issues municipal securities and pledges the full faith and credit of the General Fund for repayment.  Bonds are repaid over many years through semi-annual debt service payments.  The California Constitution requires that GO bonds be approved by a majority vote of the public and sets repayment of GO bond debt before all other obligations of the state except those for the public school system and public institutions of higher education.

 

Key statutory authorities:  Article XVI, Section 1 of the California Constitution prohibits the Legislature from creating debt or liability exceeding $300,000 without a majority vote by the people, except in the case of war. 

 

Government Code, Title 2, Division 4, Part 3 (Section 16650 et seq.) sets out the statutory framework for GO bonds.  The statutes for individual GO bond measures are placed programmatically in the associated codes (e.g., education authorizations are located in the Education Code).

 

Key Highlights

1. GO bond debt is a major component of the overall bond debt burden of the state. The most commonly used measure of debt is annual debt service as a percentage of General Fund revenues.
   
   
2. GO bond debt repayment is continuously appropriated and therefore not included as a separate appropriation in the annual Budget Act.
   
   
3. Debt service consists of both principal and interest payments.
   
   
4. GO bond debt repayment structure is determined by the State Treasurer’s Office (STO) at the time bonds are sold based on a variety of factors including the taxable status of the bonds and bond market conditions.
   
   
5. The California Constitution authorizes GO bonds with up to 50-year maturities, but federal tax requirements and market practice usually dictate that bonds be issued no longer than 30 years. In addition, certain bond acts may further limit maturities.
   
   
6. Finance surveys departments semiannually to determine their projected cash flow needs for GO bond-funded programs.
   
   
7. To meet projected cash flow needs, GO bond Finance committees, created in respective bond acts, must authorize the sale of new money and refunding bonds, as well as the use of interim financing as authorized in law.
   
   
8. The STO is the agent for sale and trustee for state GO bonds.