What is a common characteristic of moral obligation bonds?

Moral obligation bonds are unique financial instruments designed to help state and local governments raise funds while maintaining flexibility in repayment. A key characteristic of these bonds is that they usually require legislative approval for any payment. This means that if the issuer, typically a government entity, runs into financial difficulties and is unable to make the scheduled payments on the bonds, the legislature has the option to step in and allocate funds to cover those obligations.

This legislative action is not an automatic guarantee, but it is expected that lawmakers will act in the interest of maintaining the issuer's creditworthiness and reputation. Hence, the necessity for legislative approval creates a system of accountability and oversight regarding the bond payments, reflecting the “moral” aspect of these bonds, rather than a legally binding commitment like standard revenue or general obligation bonds.

The other aspects mentioned, such as being backed by the full faith and credit of the issuer or requiring a referendum for defaults, do not align with the typical characteristics of moral obligation bonds, as they are fundamentally underpinned by the optional nature of legislative support rather than unconditional legal obligations or the necessity of voter approval.