What kind of bonds are generally funded by user fees and are riskier than GO bonds?

Revenue bonds are typically funded through user fees collected from the services provided by the projects they finance, such as toll roads, bridges, or utilities. Because these bonds rely on the income generated by specific revenue sources rather than the broader taxing power of a municipality, they are considered to have a higher risk compared to general obligation (GO) bonds. GO bonds are backed by the full faith and credit of the issuing municipality and its ability to raise taxes to meet its obligations, making them generally safer for investors.

Investors in revenue bonds must assess the viability of the project and its ability to generate sufficient revenue to cover interest and principal payments. If the project does not perform as expected, there may be a risk of default on these bonds, showcasing their higher risk profile. This characteristic is what distinguishes revenue bonds from GO bonds, which have more assured repayment sources.