What is a bond?
A general obligation bond is long-term borrowing in which a city pledges its full faith and credit (taxing power) to repay the debt over a specified term. The purpose of a bond issue is to borrow money to finance major capital projects. A capital project is generally defined as a project expected to have a useful life of 10 years or more which is estimated to cost in excess of $100,000. Since the City has a Standard & Poor's "AAA," Moody's Investors Service "Aaa," and Fitch IBCA Inc. "AAA" credit ratings (the highest ratings possible), Greensboro is offered the lowest possible interest rate on bond issues.
Why issue bonds?
There are three ways to finance the construction of major capital projects - use current revenues, capital reserve funds (setting aside money over time), and the issuance of bonds (borrowing money to be paid back in the future). Bond financing is often used for capital projects that are above and beyond the scope of the annual operating budget and are for facilities that will be used for many years in the future. Since most cities have few reserve funds set aside for major capital projects, it is necessary to issue bonds to build major projects. This process is similar to a family decision on how to purchase and finance a home or vehicle.
How is the debt on bonds repaid?
Citizens authorize an increase in the property tax to repay the debt on bonds when they are approved in a referendum. The repayment of bonds is spread out over a number of years, so costs are shared by current and future taxpayers. This provides for more equitable funding by all taxpayers who will benefit from the bond projects. When bonds are issued, taxes increase for citizens to pay the debt.
Are there additional financial implications?
In addition to actual costs associated with the payment of bonds, new facilities must have funds for staffing, maintenance and operations. It may also cost more money to operate improved and enlarged facilities, as well.
What is the procedure for a bond issue?
- The City Council sets priorities based on citizen concerns and selects bond issues and amounts.
- The City of Greensboro then files an application with the NC Local Government Commission for the authority to issue bonds.
- The City Council holds a public hearing to receive citizen input on the proposal to issue bonds. Based on citizen comments, Council may remove items or lower dollar amounts.
- The Council then submits its action to the Voting Rights section of the US Justice Department for clearance.
- A bond referendum is held for citizens to vote and decide on each of the specific issues on the bond ballot. If the voters reject a bond issue, the project cannot be funded as planned. If the voters approve a bond issue, the City can move forward with the project.
When are bond referendums held?
Bond referendums can be held only as follows:
- At the same time as any other state or county general election
- At the same time as the primary election in any even-numbered year
- At the same time as any other election requiring all precincts in the county to be open
- At the same time as a municipal general election, if the bond referendum is within the jurisdiction of the city. (GS 163-287)
Since other elections are already set up at these times, more voters are likely to participate in bond referendums.
For more information, call the Financial and Administrative Services Department at 336-373-2077.