Learn more about why the county uses bonds to pay for capital facilities, how the money may be used and more.
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 based on future population estimates and to spread the cost equitably 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.
The bond program is designed not to contribute to an increase in your property tax rate. Fairfax County has adopted a prudent financial management policy designed to protect its triple-A bond rating. Under the program, the county’s net long-term debt is not to exceed 3% 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% of annual combined general fund disbursements, and that bond sales shall not exceed an average principal amount of $300 million per year or $1.5 billion over five years.
For FY 2022, the county’s projected net long-term debt is 1.13% of the market value of all taxable real and personal property. Debt service costs in FY 2022 are projected to be 7.8% of total general fund disbursements. The FY 2022-2026 Capital Improvement Program adopted by the Fairfax County Board of Supervisors on April 27, 2021, anticipates the issuance of an average of $300 million of general obligation bonds per year. Of this amount, approximately $180 million (60%) is for Fairfax County Public Schools, and $120 million (40%) is for the county. This policy is expected to keep debt service at or slightly above 9% of general fund disbursements, which will maintain a balance between current operating expenses and long-term capital needs.
Proceeds of the sale of bonds authorized for a specific purpose may not, by law, be used for any purpose other than the purpose specified in the referendum question. In other words, the proceeds of the sale of parks bonds, for example, may not be used to finance other projects, such as transportation projects. The county would be permitted to issue bonds for any purpose described in the ballot questions.
Virginia law requires that voters in Fairfax County approve general obligation bonds through a referendum. You have the opportunity to vote either YES or NO on a question. If a majority votes YES on a question, then the Fairfax County Board of Supervisors will be authorized to sell bonds for the purpose described in the ballot question. If a majority votes NO on a question, the county cannot issue general obligation bonds to finance the purpose described in the question unless authorized in another referendum.
Borrowing always entails interest costs. Since the interest earned by holders of municipal bonds is usually exempt from federal taxes, interest rates for these bonds generally are lower than the rate charged for private loans. Fairfax County has the highest credit rating possible for any government: triple-A from Moody’s Investors Service Inc.; from S & P Global Ratings; and from Fitch Ratings. If the $360 million bond is approved by Fairfax County voters in November 2021, the County anticipates selling $180 million for FCPS annually in the bond market. The estimated first year of debt service for the $180 million is $14.4 million, and would double to $28.8 million following the second year $180 million bond sale. These figures assume a conservative three percent interest rate with the final interest rate subject to future market conditions at the time of the bond sale. In addition, the County amortizes its general obligation bond debt with level principal over a twenty year period to provide for a rapid payoff, which means that the debt service payments gradually decrease over the amortization period. This is a best practice acknowledged by the bond rating agencies. As of January 2021, Fairfax County is one of only 13 states, 49 counties and 33 cities to hold a triple-A bond rating from all three rating agencies. For this reason, Fairfax County’s bonds sell at relatively low interest rates compared to other tax-exempt bonds.
The county’s triple-A bond ratings lower the county’s borrowing costs. The county’s policy of rapid debt retirement and strong debt management guidelines serve 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 $972.42 million on bond and refunding sales as a result of the triple-A ratings when compared to industry benchmarks of other municipal bond issuers.
During the past 20 years, the share of taxes used to pay debt service has fluctuated from 7.46% to 8.67%. For FY 2022, it is projected to be 7.80% and is projected to remain at or slightly above 9% based on current market and conservative revenue forecasts while assuming passage of the 2021 bond referendum this fall for public schools.
As of July 2021, the total of general obligation bond and other tax-supported debt outstanding from FY 2022 through FY 2044 is $2.78 billion in principal and $0.76 billion in interest. During the next five years, $1.54 billion, or approximately 44% of the total debt, is scheduled to be paid off.
If capital construction was financed on a pay-as-you-go basis out of current tax revenues, expenditures would be paid for in a much shorter time frame, which could necessitate tax rate increases or a significant reduction in other county services. Bonding spreads the cost of major projects of general benefit to the county over future years and ensures that both current and future residents and users share in the payment. Without bond funding, capital improvement budgeting is less predictable.
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 a number of years to complete. Bonds are sold only as the money is needed, resulting in substantial amounts of authorized, but unissued, bonds. Prudent financial management dictates that the proportionate amount of bonds be sold to coincide with the annual cash flow requirements for construction costs associated with the respective capital projects.