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Text2011 Bond Referendum FAQs
What are bonds?
Why referendums?
What is the cost of
borrowing?
What are the
benefits from the county’s Triple-A rating?
Will these bonds cause a
tax rate increase?
What
percentage of my taxes goes toward paying for the bonds?
What is the county’s
total bonded indebtedness?
Can the bonds on the Nov. 2 ballot be used for projects other than
transportation improvements?
Why
put forth additional referendums if there are still unsold bonds?
Q: What are bonds?
A: Bonds are a form of long-term borrowing used by most local governments to finance public facilities and infrastructure. Bond financing makes it possible to build facilities and infrastructure with capacities based on future population estimates and to spread the cost over the useful life of the facilities. This kind of financing allows the cost of a facility to be spread over a number of years so that each generation of taxpayers contributes a proportionate share for the use of these long-term investments.
Q: Why referendums?
A: Because bonds constitute a future obligation of the county, Virginia law requires that voters in Fairfax Countyapprove bonds through a referendum. You have the opportunity to vote either YES or NO on the questions. If the majority votes YES, then the Fairfax County Board of Supervisors will be authorized to sell bonds in the future to generate the funds for a range of school construction projects as needed. The County currently plans to use the proceeds from this $252,750,000 bond referendum to finance the capital costs associated with capacity enhancements, renovations, and infrastructure management for the Fairfax County Public Schools. If the majority votes NO, the county cannot issue general obligation bonds to finance these projects, but may seek other forms of financing.
Q: What is the cost of borrowing?
A: Borrowing always entails interest costs. Since the interest earned by holders of municipal bonds is exempt from federal taxes, interest rates for these bonds generally are lower than the rate charged for private loans. Because of our county’s reputation for sound financial management, Fairfax County has the highest credit rating possible for a local government: Triple-A from Moody’s Investors Service Inc.; from Standard & Poor’s Corp.; and from Fitch Ratings. As of October 13, 2011, Fairfax County is one of only eight states, 39 counties, and 34 cities to hold a Triple-A rating from all three rating agencies. For this reason, Fairfax County’s bonds sell at low interest rates, even compared with other tax-free bonds.
Q: What are the benefits from the county’s Triple-A rating?
A: The county’s Triple-A rating also makes the cost of borrowing very low for the county. The county’s policy of rapid debt retirement and strong debt management guidelines serves to keep debt per capita and net debt as a percentage of estimated market value of taxable property at low levels. Since 1978, the county has saved over $486.3 million on bond and refunding sales as a result of the AAA rating.
Q: Will these bonds cause a tax rate increase?
A: The bond program, as designed, will not contribute to an increase in your tax rate. Fairfax County has adopted a prudent financial management policy designed to protect its Triple-A rating. It calls for the county’s net long-term debt to not exceed 3 percent of the total market value of taxable real and personal property in the county. It also provides that annual debt service (the cost of principal and interest payments) be kept below 10 percent of annual combined general fund spending, and that bond sales shall not exceed an average of $275 million per year or $1.375 billion over 5 years.
For Fiscal Year 2012, the county’s actual net long-term debt is 1.18 percent of the market value of all taxable real and personal property. Debt service costs in Fiscal Year 2012 are 8.8 percent of the combined general fund disbursements. The Fiscal Year 2012-2016 Capital Improvement Program adopted by the Fairfax County Board of Supervisors on April 26, 2011, anticipates issuance of an average of $253 million of bonds per year. This policy is expected to keep debt service at approximately 9.0 to 9.5 percent of general fund disbursements, which will maintain a balance between operating expenses and long-term capital needs.
As long as debt service remains a constant or near-constant percentage of general fund disbursements, the county’s debt for acquisition and construction of public facilities would not cause any increase in the property tax rate. If the county was to eliminate or reduce the amount of bonds sold annually and continue to pay off outstanding debts, this ratio would decrease and possibly allow a decrease in tax rates, but it could also necessitate stopping all or most capital construction. If capital construction continued on a pay-as-you-go basis out of current tax revenues, expenditures would be limited to a much shorter timeframe which could necessitate tax rate increases or a significant reduction in other county services.
Q: What percentage of my taxes goes toward paying for the bonds?
A: Over the past 20 years, the share of taxes used to pay debt service has fluctuated from 7.5 percent to a high of 9.3 percent. Currently, the rate is about 8.8 percent and is projected to be 9.0 to 9.5 percent based on current market and revenue forecasts even with passage of the bond referendum.
Q: What is the county’s total bonded indebtedness?
A: As of July 14, 2011, the total of general obligation bond and other tax-supported debt from FY 2012 through FY 2042, or for the next 30 years, is $2.61 billion in principal and total interest payments on the outstanding debt is $0.91 billion. Over the next five years, $1.4 billion or approximately 39 percent of the total debt is scheduled to be paid off.
Q: Can the bonds on the Nov. 2 ballot be used for projects other than transportation improvements?
A: Proceeds of the sale of bonds authorized for a specific purpose may not, by law, be used to finance projects for any purpose other than the purpose specified in the referendum question. In other words, the proceeds of the sale of transportation bonds may not be used to finance other projects, such as libraries or storm drainage projects.
Q: Why put forth additional referendums if there are still unsold bonds?
A: Fairfax County bond packages are planned to fund specific projects. This means that all previous bond authorizations were planned for or are obligated to specific projects. These projects often take several years to complete, thus leaving outstanding or un-issued bonds. Bonds are sold only as the money is needed. Prudent financial management dictates bonds should not be sold until the actual cash is required.
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