Financial Industry Regulatory Authority (FINRA) Practice Exam

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To issue general obligation bonds above its statutory debt limit, what must a municipality obtain?

  1. No approval needed

  2. Federal government approval

  3. State senators' approval

  4. Voter approval

The correct answer is: Voter approval

To issue general obligation bonds above its statutory debt limit, a municipality must obtain voter approval. General obligation bonds are backed by the full faith and credit of the issuing municipality, meaning they are repaid through tax revenues. Due to the potential increase in tax burdens that could arise from issuing bonds that exceed the statutory debt limit, most states require direct voter consent to ensure that taxpayers are informed and have a say in this significant financial decision. This process not only promotes transparency and accountability within local government but also protects taxpayers from unforeseen financial liabilities.

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