Policy Library
General obligation bonds for affordable housing
Overview
Municipal bonds are debt instruments issued by cities, counties and states to raise money from capital markets for public purposes, including affordable housing. Governments issue three main types of bonds: general obligation bonds, revenue bonds, and private activity bonds.
General obligation (GO) bonds are repaid from state or local general funds or a dedicated tax. These bonds are backed by the full faith and credit of the issuing entity, such as a city, county, or state. This means the government promises to use its authority to collect taxes if needed to ensure bondholders are repaid. General obligation bonds often require approval by a majority of voters.
Revenue bonds are repaid from the income generated by the project financed by the bond, or by another specific revenue source such as a sales tax or highway toll. Because they are not backed by the full faith and credit of the issuing entity, revenue bonds are not subject to debt limits and are considered to be riskier investments than general obligation bonds.
Tax-exempt private activity bonds (PABs) are bonds issued by a state or municipal authority on behalf of a qualifying project that has a public benefit, but is carried out by a private entity, such as a hospital or airport. The private entity must pay back the government, either with proceeds from the project or another source of revenue. Interest earned on qualified investments is exempt from federal income tax. Today, private activity bonds are typically paired with the Low Income Housing Tax Credit (LIHTC) and used for multifamily housing. For a deeper dive into private activity bonds and how they interact with the Low Income Housing Tax Credit, see our brief on private activity bonds.
Using general obligation bond proceeds for housing development can be challenging, as many jurisdictions require a special election to authorize a bond issue. Once issued, however, the proceeds from general obligation bonds for housing are usually structured to allow flexible use. They can be allocated to fill financing gaps, support state and local affordable housing programs, or address other specific goals.
Investors’ interest income from general obligation and other municipal bonds is usually exempt from federal and sometimes state income tax. Typically, because the municipality is perceived as a stable borrower and the interest is tax-exempt, general obligation bonds can be used to raise capital at relatively low interest rates.
General obligation bonds provide a large amount of money upfront, rather than a smaller annual funding stream, and so may be more appropriate for jurisdictions seeking to make a significant investment in a specific project or group of projects. This section describes key considerations for local jurisdictions considering a general obligation bond issue.
Approach
The process for approving a general obligation bond issue varies by state and is governed by the state constitution. In many cities, towns, and counties, once the city or county board approves a measure to issue general obligation bonds for housing, a special election or referendum is held to determine whether the public approves the proposed bond issuance. Affordable housing may be the only activity authorized for proceeds of a particular bond or may be one of several activities authorized. The bond issuance might also include allocations for transportation improvements, public parks, and other uses eligible for funding from the proceeds. The timing of a special election or referendum is often influenced by both practical and political factors. For example, decision-makers may consider whether an affordable housing bond is more likely to pass if it appears on the ballot with other issues, or if competing measures could reduce its chances of approval.
In preparing a ballot measure, sponsors of the bond issue will need to make a series of decisions, including the amount requested and the time period over which the proceeds will be allocated. Cities, towns, and counties also need to determine what revenue source(s) will be committed to repay the bonds. The funds may be raised through a special dedicated tax levy — such as a tourism tax — a temporary surcharge added to an existing tax payment like higher property taxes, or by committing existing tax revenue or general fund dollars. The approach that is most likely to be successful in a public vote will vary depending on local dynamics and priorities. Upon issuance, rating agencies and prospective bondholders will pay close attention to the committed funding source and will focus on projecting out whether the bond can be repaid by the municipality using that source.
Smaller cities and towns may want to consider working with their state or county on a bond issuance if their local capacity is not sufficient to warrant one, or if local political processes make a broader bond issuance more likely to succeed.
Eligibility
Many jurisdictions use general obligation bonds to capitalize a housing trust fund or to provide funding to support an existing housing program. In this case, the eligible uses will be governed by policies applicable to the housing trust fund or the program being funded. Because general obligation bond issues result in a limited, one-time infusion of capital, they are also well-suited for raising revenue for a specific new initiative.
Feasibility
Some jurisdictions limit the amount of outstanding general obligation bond debt a municipality can carry at any given time. In these places, primary consideration should be given to whether capacity exists under the ceiling for additional bond issues. If not, it may be necessary to delay the referendum until other obligations have been satisfied.
As mentioned earlier, general obligation bonds typically require approval by the general public. In some jurisdictions, the approval margin to approve a bond must be greater than in other elections. For example, Kansas City, MO, requires a supermajority of four‐sevenths or two‐thirds (depending on the date the election is held) of qualified voters to approve general obligation bonds.
Finally, the jurisdiction’s bond rating will have practical implications for the feasibility of using general obligation bonds as a low-cost strategy to fund affordable housing activities. The interest on bonds is typically not subject to federal income tax (and sometimes not state income tax), making them an attractive investment for bond purchasers and a relatively low-cost tool to generate revenue. However, interest rates vary depending on the city’s bond rating. Jurisdictions whose ratings have been downgraded following budget shortfalls, unfunded pension obligations, or other financial challenges may be required by investors to pay comparatively high interest rates. Therefore, in soft markets or jurisdictions with a weak long-term financial outlook, a general obligation bond may not be an easily accessible revenue source.
Other considerations
Limits on bond debt
States and local governments typically limit general obligation bond debt as either (a) a percentage of assessed or full property value, (b) a per‑capita or dollar cap, or (c) a formula tied to revenues, often with separate “affordability” policies on top of constitutional limits.
Limits based on a percentage of taxable value are most common at the local level and are often imposed by state constitutions or statutes. For example, New York City’s general debt limit is set by the New York State Constitution at 10 percent of the full valuation of all real estate in the city, using a five-year average. Philadelphia’s debt is capped by the Pennsylvania State Constitution at 13.5 percent of the value of its assessed taxable real estate, using a ten-year average.
State constitutions can also limit the purposes for which a city may issue bonds, although most states now permit the use of general obligation bonds for affordable housing.
Risks for taxpayers
As a growing number of cities turn to general obligation bonds to finance affordable housing programs, it is important to understand the risks these bond issuances pose to residents. Because general obligation bonds are backed by the municipality, if the committed revenue source does not raise sufficient money to pay back the bond, the municipality will be required to raise taxes on residents to pay back the debt, if necessary.
Revenue bonds backed by specific income sources, such as fees rather than a municipality’s general taxing power, may help avoid this risk. Cities are not obligated to raise taxes to repay revenue bond debt, and therefore, these do not count against state debt limits. However, cities may include additional taxing mechanisms or a commitment of tax revenue if the specific income source does not yield the returns expected by bondholders.
In November 2023, voters in Boulder County, CO, approved Ballot Initiative 1B, with about 71 percent voting to approve the extension of an affordable housing revenue bond. This county initiative would extend the existing 0.185 percent affordable housing sales and use tax for an additional 15 years, with the revenue going to cities such as Longmont to fund the construction, maintenance, and renovation of affordable housing. Although structured as a countywide revenue bond rather than a single‑city general obligation bond, it functions similarly for mid‑size jurisdictions by providing a predictable, voter‑authorized revenue stream for capital projects. Following the 1B extension, Boulder County and its municipal partners spent 2024 determining allocations to individual jurisdictions; Longmont will receive an estimated $2.8 million per year in 1B funds in 2025, 2026, and 2027 for affordable housing development. Funds are intended to support new construction and preservation of deed‑restricted homes consistent with local housing strategy and regional affordability goals.
In 2022, voters in Las Cruces, NM, approved the issuance of $6 million in general obligation bonds dedicated to affordable housing. The city plans to use the funds raised for a variety of strategies, including gap financing for tax-credit projects, land acquisition, and the preservation of existing affordable units. Approximately 800 housing units were planned for construction over a three-year period.
In May 2022, voters in San Antonio, TX, approved a $1.2 billion bond package that included funding for infrastructure projects, new fire and police stations, library upgrades, and $150 million specifically devoted to various affordable housing strategies. These strategies included direct funding, indirect funding by way of land acquisition, and financial tools. In 2021, the City Charter was amended, permitting bond funds to be used for affordable housing. The Housing Bond is one of a variety of funding streams outlined in the city’s Strategic Housing Implementation Plan, which aims to produce or preserve a total of 28,094 affordable units. Half of these units will be designated for households earning less than 30 percent of the Area Median Income (AMI). Additionally, three-quarters of the units will be reserved for households earning less than 50 percent AMI. However, the Housing Bond can also support projects that serve households with incomes up to 120 percent AMI.
In November 2019, voters in Durham, NC, approved a $95 million affordable housing general obligation bond as part of a five‑year Affordable Housing Investment Plan. The bond is repaid through a dedicated property tax rate increase of 1.6 cents per $100 of assessed value. Bond funds will be allocated for “brick and mortar” projects, enabling the city to earmark $65 million of its local and federal funds for reducing homelessness, neighborhood stabilization, and more. Explore our in-depth case study, which highlights projected outcomes, expected benefits, and initial implementation.
In November 2020, voters in Raleigh, NC, overwhelmingly approved an $80 million affordable housing bond, the largest in the city’s history, with about 72 percent of voters in favor. The city described it as a general obligation bond dedicated to expanding and preserving affordable housing opportunities over a five‑year period, funded by a moderate property tax increase. The bond was structured to support several key areas, including: gap financing for Low Income Housing Tax Credit (LIHTC) developments, preservation of naturally occurring affordable housing, production of income‑restricted ownership units, and targeted assistance in “equity” or high‑opportunity areas. According to a dedicated public tracker, as of early 2026, the city had spent nearly $60 million (79 percent) of the bond, funding the creation of 911 affordable units through public-private partnerships and LIHTC gap financing, the acquisition of land for more than 565 units, and homebuyer assistance or home repairs for an additional 155 units.
In November 2024, 84 percent of voters in Baltimore City, MD, voted in favor of a general obligation bond issue to secure up to $20 million over two years. These funds must be used exclusively for affordable housing, but there is flexibility in how they can be spent. Eligible uses include acquiring, preserving, or building affordable housing; providing rental assistance; offering housing counseling; issuing project finance loans — whether forgivable or fully amortizing — or grants; and supporting the city’s Affordable Housing Trust Fund. The city decides which specific projects will be funded by general obligation bonds each year during its regular capital improvement planning process. The bond debts are backed by the full faith and credit of the city, meaning that bondholders will be repaid through property taxes and the city’s general revenues, including payment from the city’s general fund if necessary.
Related resources
Economic impact
- Economic Impact of the 2013 and 2018 General Obligation Bonds for Affordable Housing in Austin Through 2021, Civic Economics and Housing Works Austin (June 2022) – This analysis estimates the economic multiplier effect of bonds issued for affordable housing in Austin, Texas, in 2013 and 2018. The brief also provides a general framework for other cities to assess the potential impact of general obligation bonds on their local economies.
- 2024 Affordable Housing General Obligation Bond Report, Mayor’s Office of Housing and Community Development, San Francisco – This presentation describes the economic and policy rationale for San Francisco’s 2024 General Obligation Affordable Housing Bond, including a discussion of jobs, construction activity, and ongoing local spending tied to bond‑funded projects.
Logistical guidance based on a local example
- Process for 2022 Affordable Housing Bond — Buncombe County, NC — This webpage includes the proposed project selection process and oversight measures for a $40 million bond for affordable housing approved in 2022. The page also links to a presentation to the Board of Commissioners, which provides a basic timeline of the process.
- 2026 Bond Development, Austin, TX — This webpage provides an overview of Austin’s development process for its 2026 General Obligation Bond Program, which began in December 2024. The Austin City Council formed a Bond Election Advisory Task Force, supported by city staff and including an Affordable Housing Working Group, to identify and prioritize projects for a 2026 referendum. Austin’s process includes opportunities for community engagement and consideration of potential project scoping and cost estimation.
General obligation bonds can be used to generate funding for affordable housing trust funds. Learn more about housing trust funds here.
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