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A bond referendum gives voters the power to decide if the Town should be authorized to borrow funding for capital projects with General Obligation (G.O.) bonds that are backed by a pledge of the full faith and credit, the taxing power, of the Town. G.O. bonds are debt instruments authorized by the public that can be issued by the Town during a 7-year period (which can be extended to 10 years). The Town will pay back the principal and interest over time, similar to a home mortgage, from the general funds of the Town.
Under North Carolina law, a local government holding a referendum for the purpose of issuing general obligation (G.O.) bonds must specify general categories of capital projects for which bond proceeds may be used. Within these categories, a local government may identify specific projects that are intended to be funded by the bond proceeds. The Town has identified potential transportation projects that will have a significant impact on safety, congestion and travel time, in addition to projects that allow the Town to leverage its funds to advance the construction of these projects. However, due to the lengthy process involved with identifying, designing, and implementing transportation projects, as well as the lack of finalized cost and other project information available at the time of the bond referendum, the specific projects identified in the bond proposal may change over time. The question that the actual bond referendum therefore asks of voters is whether the local government is authorized to use the G.O. bonds as a financing tool for the general category of projects up to the amount specified in the question.
If citizens vote in favor of the bond financing question on the November 6th ballot, the Town will have the authority to issue up to $24 million in general obligation (G.O.) transportation bonds over seven years. If the Town is not ready to issue bonds within seven years, the Town may ask for a three-year extension from the North Carolina Local Government Commission.
The Town of Cornelius is in good financial health. However, the Town does not have enough cash available to pay for all of these capital projects while still sustaining the high level of service our citizens expect, and while maintaining fund balance levels that are in line with the Town’s Fund Balance Policy. Using a debt instrument, such as bonds, allows citizens to pay for substantial capital projects over the useful life of the assets. Another consideration for using multi-year financing instead of cash is the equity factor: future citizens of Cornelius pay for a portion of the new projects that they will benefit from.
Also, since all of the identified potential projects are partnerships with NCDOT and occur within NCDOT right-of-way, the Town does not have any collateral to obtain pay-as-you-go financing. This means that bond debt is the only financing available for these projects.
In the current fiscal year, one penny on the tax rate is worth about $540,000 in tax revenue annually for the Town.
The Town is required to adopt an annual budget that is balanced, meaning estimated expenses cannot exceed estimated revenues. The Town Board approves an annual budget including revenues and spending plan, including making annual debt service payments. That annual budget document will provide for repayment of the bonds. The Town’s largest revenue source is property taxes; therefore, approval of these bonds could directly impact the Town tax rate.
According to the Town’s financial forecast, if the bond proposal is approved and is issued as currently anticipated in two phases, the Town estimates that the property tax rate may increase by 1 cent as a result of the bonds starting in FY20. However, many factors influence if and how much the tax rate might change, such as future interest rates and timing regarding exactly when the bonds are issued. Additionally, revenue and expenditure changes, legislative changes and operational decisions will impact the Town’s tax rate in future years regardless of whether the bonds are approved.
View the chart below to see what a penny increase at the Town’s current tax rate would cost based on different property values.
Property Value Cost per Month Cost per Year
$150,000 $1.25 $15.00
$300,000 $2.50 $30.00
$450,000 $3.75 $45.00
$600,000 $5.00 $60.00
The Town has identified several potential transportation projects proposed with the bond that voters are being asked to consider. If the voters do not approve the bond proposal, then the majority, if not all, of these projects may not occur and may be delayed for as much as 20-plus years. If the bond proposal does not pass, the Town will determine which projects, if any, it can proceed with. As these projects are partnership projects with NCDOT, it is highly likely that NCDOT will also not proceed with the majority of these projects and project elements, as well.
No. The bond vote is a vote on whether the Town may specifically use general obligation (G.O.) bond financing; it is not a vote on the property tax rate. The Town Board may raise or lower the property tax rates each year depending on the amount of revenues the Board believes is necessary to meet the operational and capital needs of the municipal government.
Bond rating agencies, such as Standard & Poor’s, Fitch, and Moody’s issue a debt rating on each bond issue. The Town currently has a rating of AAA from Standard & Poor’s (S&P) on its current bonds. In Standard & Poor’s current opinion on the Town’s ability to repay this debt, S&P notes Cornelius’ financial strengths, including how quickly existing debt is paid off. Based on Cornelius’ overall financial condition, debt rating agencies are expected to recognize the Town’s financial ability to continue to make its debt service payments.
The potential projects are partnership projects with NCDOT. NCDOT estimates that construction for some of these projects could begin as early as 2020.