Wake County is growing at unprecedented rates, adding about 35,000 people to its population each year (on average, 98 people per day are moving here and being born here). One reason people move here is because we have a national and international reputation as being a high quality place in which to live, work and raise a family. Given the current and projected growth, we need to plan now to build the facilities we will need in the future to maintain Wake County’s high quality of life. Bonds are a way to get the money immediately to finance these projects and then repay the bonds over a longer period of time, much like a home mortgage. General obligation bonds carry the lowest interest rate, so they will cost less to repay than other types of loans and will be the lowest cost to the taxpayer.
Why would the County want to issue bonds to pay for these programs?
Bonds are a commonly used financing tool that allow the County (or other entity) to borrow money and repay it – with interest – over a long period of time, typically 18-24 years. This is similar to someone taking out a mortgage to buy a house. Most people do not have enough money to pay cash for a house or a car, so they borrow money and repay it with interest, while they are using their house or car. In the same way, the County would issue bonds – in effect, borrow the money up front – and then repay that debt over several years. Because the facilities will be used over a number of years, this way of paying for them is a fair and equitable way of sharing the cost with current and future residents as we continue to grow.
What are bonds?
Bonds (in this case, municipal bonds) are “documents” that the County would issue with a promise to repay the entire amount borrowed, plus interest. Generally, municipal bonds are issued in amounts of $5,000. These bonds appeal to investors because the interest they earn is exempt from federal and state income taxes. We are seeking to issue general obligation bonds, which are backed by the full faith and credit of the County. This means that we repay the bonds with money from the property taxes, which makes the bonds tax-exempt and considered safe as an investment. Other types of bonds that local governments might use are revenue bonds, which are repaid with money from the fees that citizens pay for services (such as water and sewer services).
How much interest will the County have to pay?
That depends on market conditions at the time the bonds are issued. Wake County has a distinct advantage in issuing bonds because our credit rating is so good. We have the best possible credit rating, known as “triple A” or “AAA,” which means that we are considered by investors to be very low risk (they can count on us paying back the principal and interest). A number of factors make up the credit rating, but essentially it reflects our sound financial health. We realize that taking on more debt will change our cash and debt ratios, but after comparing our potential debt ratio to other AAA counties, we believe that issuing the bonds would not affect our credit rating.
Can I buy the bonds that would be issued after the referendum?
That depends. These bonds will be competitively bid, so we don’t know who will win the right to sell the bonds. Generally, these are groups of large banks and brokerage houses that join together to sell the bonds. If you are a client of the consortium that wins the bid, you may be able to buy the bonds.
Will the County need to raise my taxes to pay for these bonds?
Yes. The County cannot repay these bonds, if they are approved, without a tax increase. A property tax increase of 2.25 cents will be needed for the principal and interest payment on the bonds, along with operating costs associated with the new facilities. This increase would mean that for every $100,000 of assessed property value, a taxpayer would pay an additional $22.50 per year in taxes. If your home is assessed at $200,000, your property tax bill would go up $45 per year.
What happens if voters do not approve these bonds?
The County would have to consider a number of alternatives. It is apparent that we need to expand Wake Tech, build more libraries and preserve more open space in order to maintain the quality of life in our rapidly growing community. The Board of Commissioners, with input and recommendations from staff and the community, would need to decide whether to raise taxes to pay for the new facilities, cut current services or find other methods of borrowing money – or use a combination of these approaches.
Read more in our "Frequently Asked Questions" section. |
Learn more about each:
Wake County Public Libraries:
$45 million
Wake Technical Community College:
$92 million
Wake County Open Space:
$50 million |