During this election cycle, many decided to offer general obligation bonds to pay for schools, streets and sidewalks, parks and recreation, water systems, and many other items.  While many might argue that these items are a function of government, should debt be issued to fund these initiatives?

General obligation bonds are a general obligation of the citizens of the taxing jurisdiction.  So while they offer the lowest interest rate of available debt vehicles, they are supported by all the taxing power of the local government.  According to North Carolina law, a general obligation pledge is not subject to the $1.50 per $100 valuation property tax rate limitation*.  So will property taxes increase to pay for these bonds?

Iredell County has already said property taxes will increase nearly 9 percent, Raleigh will increase taxes by more than 4 percent, the town of Blowing Rock will increase theirs 3 percent per year for the next 10 years, and the city of Hickory said the rates will increase but did not give an amount.  While cities and counties are not required to increase their property taxes to pay for the bonds, most eventually increase property tax rates to pay for the increased debt service.  This is what Cabarrus County said about their bonds,

General Obligation bonds are low-interest loans often used by municipalities to finance capital (building and repair) projects that are above-and-beyond the scope of the annual operating budget. They are secured by the County’s tax rate, which the County pledges to levy in order to provide for the repayment of the debt.”

When local governments are spending “above-and-beyond the scope of the annual operating budget”, it is hard not to believe that all bond referendums eventually lead to a property tax increase.  In total, bonds passed during the November 4th election will increase local county and municipal debt by over $1 billion.

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*General Statute 153A-149(b)(2) for counties; General Statute 160A-209(b)(1) for cities