Bond Issues Represent Voter-Approved Investments In Our Future
What follows is a blog that I posted to The Greater Wilmington Business Journal at the end of July just before the county went to the bond market to secure $92 million of voter-approved bonds for public education – both the school system and the community college. For the record, we had a very good day in the market. We’ll write about that after the bonds close.
Included as one of New Hanover County’s strategic objectives is providing superior public education and workforce development. To deliver on this objective, we must plan and have the appropriate resources. In November 2014, the voters of this county approved obtaining resources to help advance the county in superior education and workforce development by authorizing the issuance of $160 million in debt for New Hanover County public school facilities. The authorization is in addition to $164 million approved by the voters in 2008 for Cape Fear Community College facilities.
The county will deliver on what the voters approved by borrowing $92 million of what are called general obligation bonds. The name means that we promise bond buyers that the money we borrow from them will be repaid, with a guarantee based on the county’s ability to raise funds from taxes. When voters authorized the county to borrow money using the general obligation bonds, they essentially agreed that property taxes could be raised to pay for these bonds.
Included in New Hanover County’s 2015-16 budget was a two-cent property tax increase that will be used specifically to start a debt service fund to repay the county’s bonded debt. A large portion of this bonded debt was borrowed to pay for major investments in education in our county through the construction of new classrooms and education facilities.
Here’s what the upcoming $92 million of general obligation bonds will be buying:
For the New Hanover County Schools, up to $52 million of bonds authorized in a 2014 referendum will be sold this year to fund construction and renovation of school facilities. In several cases, old elementary school buildings will be completely replaced with new, more functional facilities that will be better suited to 21st-century education. The funding will also provide the citizens with a new elementary school that will provide more classroom space to educate our young children.
At Cape Fear Community College, up to $40 million in new money will fund construction of the Advanced and Emerging Technology facility on CFCC’s North Campus. This facility will provide much needed classroom, lab and training space. These are the last bonds to be sold that were authorized in a 2008 referendum. Previously issued bonds for the community college are paying for the Humanities and Fine Arts Center, nearing completion on the downtown campus, and have already built the Union Station building, a much needed student parking deck, and other facilities.
Why does the county take on debt, instead of paying for everything from current funds?
It’s similar to why most families assume a long-term debt to be able to invest in a home. Few could afford to buy a house on a “pay as you go” basis, which is why mortgages are an essential part of most households’ financial plans. For the same reason, public investments in real estate – acquiring land, constructing new public buildings, and upgrading and renovating existing buildings – usually cost more than would be feasible to raise from taxpayers in any one year.
Current economic conditions, with historically low interest rates, make the present an especially smart time to use debt financing to spread out the costs of needed facilities.
In the case of both the public school and community college bond issues, the debt will be repaid over 20 years. That term – two-thirds the length of the typical home mortgage – and low interest rates help to reduce the total interest paid. The average debt service, which is the principal and interest the county will pay each year, is estimated at just a bit more than $6.1 million for these new bonds. We’re expecting to pay slightly more than 3 percent interest on them.
So what does this $92 million debt mean to New Hanover County’s residents and taxpayers? Spread out over the whole population, that debt will amount to approximately $428 per person in 2016, after all the bonds have been sold.
Another way to look at this is how the $92 million debt relates to the assessed value of property in the county. That’s a useful comparison, because these bonds will be paid off largely from taxes on property. Next year, this latest round of bonds will equal approximately three-tenths of a percent of the assessed value of taxable property in New Hanover County.
When it comes to the county’s budget, the great majority of each year’s tax bill goes directly to current public services, but an important fraction repays debt. The amount that will be spent on the debt service for the $92 million in 2016 will be just over 2 percent of the county’s total operational expenditures.
Adding it all up, the county’s total debt service in the current 2015-16 budget year is $52.4 million. As new bonds are sold, and old ones are paid off, that total will fluctuate, peaking at $57.6 million in 2017, falling off for two years, then totaling $59.2 million in 2020 after the last of the authorized public school bonds are sold.
A very detailed breakdown, itemizing each bond issue’s impact on each year through 2020, can be found by searching the fiscal year 2015-16 Adopted Budget. The county manages many priorities with a confined amount of revenues to accomplish the objectives that have been adopted by the board of county commissioners to advance our community. At times it is necessary to raise revenues through debt, and the county does this responsibly within the limits it has set for itself in its debt management policy. This allows for responsible and strategic growth to move our county forward.