What type of tax is used to repay general obligation bonds for municipal capital improvements?

The correct answer is related to the specific funding mechanism used to repay general obligation bonds issued by municipalities for capital improvements. General obligation bonds are debt securities backed by the full faith and credit of the issuing municipality, meaning that the government promises to repay the bonds, typically through tax revenues.

Real property tax is indeed the primary source of revenue used to pay back these bonds. It is levied on real estate properties within the municipality, providing a stable revenue stream that is directly tied to property ownership in the area. When a municipality issues general obligation bonds, the expectation is that they will be able to collect sufficient real property tax revenues to meet their repayment obligations, making this type of tax the most appropriate and common choice for this purpose.

In contrast, sales tax, local industry special tax, and private investors do not serve the same role in the context of funding general obligation bonds. Sales tax is collected on goods sold within the jurisdiction, but it is not as directly linked to municipal infrastructure as property tax. A local industry special tax might be applicable in specific cases but lacks the broad application that real property tax provides as a general funding source. Lastly, private investors with limited ownership typically would not be involved in the repayment structure for municipal bonds, as they pertain