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Spotsylvania County Home : Bond Referendum
Bond Referendum 2006
Bond Basics 101
On November 7, 2006, Spotsylvania voters will decide on one bond referendum question on General Obligation School Bonds, as follows:
“Shall the County of Spotsylvania, Virginia, contract a debt and issue its General Obligation School Bonds in the maximum amount of Sixty Four Million Three Hundred Forty-Six Thousand, Six Hundred Ninety-five Dollars ($64,346,695) to provide funds, together with other available funds, to undertake a program of School Capital Improvement Projects, including but not limited to, the construction of new public school facilities, renovation and expansion of existing schools, construction of a maintenance facility, land acquisition of future school sites, technology upgrades and other general capital improvement projects as required?”
IF the County were to borrow the entire $64.3 million proposed in the 2006 School Bond referendum question, it is estimated that the annual debt service cost would be $5.4 million, which is equivalent to an approximate $.04 on the real property tax rate at current assessed value. The following information will address the bond issuance process.
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Bond Referendum Brochure (pdf)
Why have Bond Referendum questions?
With the importance of weighing economic conditions, debt capacity and other timely financial issues in mind, Spotsylvania’s Board of Supervisors established the County’s Debt Referendum Policy, effective April 21, 2005, which states: “All new facility construction projects or acquisitions that exceed available budgeted funds shall be subject to voter referendum, unless financed through revenue-supported mechanisms (i.e., water/sewer revenue bonds).”
State statutes require voter weigh-in, through referenda, for General Obligation Bonds issuance. However, even when the voters grant the authority to the Board of Supervisors to contract debt, this does not necessarily mean that debt will be contracted. Voter approval gives the Board the authority to issue bonds, but does not automatically mean that the Board will do that because many factors are considered in the final decision. Following a “yes” vote on a bond referendum question, the Board is still required to budget and appropriate funds. And, all bond spending decisions have financial implications.
A Close-To-Home Example
Nothing is free. There is no free money. As an example: family members can apply to a credit card company to increase their spending limit (granting the ability to increase their borrowing). Even with an approved limit increase, they don’t have to spend up to that limit, they just have the credit card company authorization to do so if they choose. Obviously, there will be monthly bills as that family must pay back the money borrowed (through the credit card).
Similarly, bond issuance will result in County and taxpayer obligations to pay back what was borrowed. This is why it is so important for voters to voice their opinions on proposed bond referendum questions – because of the potential future financial obligations incurred by County taxpayers, should the Board deem it prudent to issue bonds. In essence, in the bond referendum process, citizens act as “the credit card company” if they authorize the increased potential spending limit through bond question approval. Whatever amount is borrowed must be repaid.
Explaining Bonds
A municipal bond is simply a debt instrument issued by a state or local government with the purpose of raising capital funds through borrowing.
There are two traditional types of municipal bonds:
A general obligation bond is a municipal bond secured by the full faith and credit of the municipality, which generally refers to the taxing and borrowing power of the municipality. Examples of projects that are commonly funded by general obligation bonds are school constructions and improvements. General obligation bonds are said by many financial experts to be one of the most economical means of funding capital projects, in combination with funding from other sources. There are other funding alternatives but since the County has a strong credit rating, this is a less expensive alternative and provides maximum flexibility with regard to refinancing in the future.
A revenue bond is a bond issued generally in cases where the bond will fund a project that will itself generate revenue upon completion (and effectively pay for the bond), or the bond is to be repaid from a pledge of specific revenue-producing undertakings. An example of a project that could be funded by a revenue bond would be a toll road. This bond does not generally require a referendum for issuance.
When is the money spent?
Bond authorization does NOT automatically translate into bond issuance or appropriation. The Board of Supervisors examines economic conditions, the budget and other factors when weighing and voting on individual bond issuance decisions. Approval of a bond referendum question is only the first step of the process, which may or may not move forward.
Spotsylvania County’s Current Bond Ratings
Several bond rating agencies in New York review the County’s financial position and assess it based on criteria including: economy, finances, debt and management.
The County is rated by the major bond rating agencies as follows:
Moody’s -- Aa3 -- Obligations rated ‘Aa’ are judged to be of high quality and are subject to very low credit risk; the modifier 3 indicates a ranking in the lower end of the generic rating category.
Standard & Poor’s -- AA- -- An obligation rated ‘AA’ differs from the highest-rated obligations only in small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.
Fitch -- AA- -- Very high credit quality ‘AA’ ratings denote expectations of very low credit risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
In sum, the County’s bond rating is strong. As a general rule, the higher the bond rating, the lower the borrowing interest. Higher bond ratings indicate strong fiscal management.
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