tax-exempt bond issued by a municipality or state financing authority, secured by revenues from the project financed, plus a nonbinding pledge by the state legislature. In the event that project revenues are insufficient to meet debt service payments, the legislature is authorized to step in and appropriate funds in the future to cover principal and interest payments to bondholders. The state's commitment to service the bonds is moral, rather than contractual, as legislatures have no legal obligation to do so if the original obligor defaults.
tax-exempt bond issued by a municipality or a state financial intermediary and backed by the moral obligation pledge of a state government. The state's obligation to honor the pledge is moral rather than legal because future legislatures cannot be legally obligated to appropriate the funds required.
tax-exempt bond issued by a municipality or a state financial intermediary and backed by the moral obligation pledge of a state government. (State financial intermediaries are organized by states to pool local debt issues into single bond issues, which can be used to tap larger investment markets.) Under a moral obligation pledge, a state government indicates its intent to appropriate funds in the future if the primary obligor, the municipality or intermediary, defaults. The state's obligation to honor the pledge is moral rather than legal because future legislatures cannot be legally obligated to appropriate the funds required.
