Limited tax bonds do provide collateral or security to bondholders, typically in the form of the taxing authority's commitment to levy and collect taxes to repay the bond. These bonds are backed by the full faith and credit of the issuing government entity, such as a municipality or a county.

The taxing authority pledges a specific limited tax revenue stream, such as property taxes or sales taxes, to repay the bondholders. This revenue stream serves as collateral, providing assurance to investors that there is a dedicated source of funds to meet the bond's principal and interest payments.

In the event of default, bondholders have a claim on the specified tax revenue, and the issuing entity is legally obligated to use the designated tax revenue to repay the bondholders. This provides a layer of security for investors, as they have a priority claim on the specified tax revenue ahead of other obligations of the government entity.

However, it is important to note that the security of limited tax bonds is contingent upon the ability of the issuing entity to generate sufficient tax revenue. If the tax revenue falls short, it could impact the timely repayment of the bond and potentially expose bondholders to greater risk. Therefore, assessing the financial health and revenue-generating capacity of the issuing entity is crucial when evaluating the security of limited tax bonds.