How much will the Town borrow in bonds?
If citizens vote in favor of both bond financing issues on the October 8 ballot, the Town will have the authority to borrow up to $225 million in general obligation (GO) bonds over 7 years with the ability to seek Council and state authority to extend that borrowing authority to 10 Years.
Why general obligation (GO) bonds?
GO bonds are the least costly financing option available to the Town for these projects. Given the Town’s excellent credit rating and financial management, Cary can borrow money at low interest rates and issuance costs, thus saving Cary taxpayers millions of dollars over the repayment period. The Town will have up to 10 years to issue the bonds and 20 years to pay back the bonds after the funds are borrowed.
Why doesn’t the Town use cash instead of debt to pay for these projects?
The Town of Cary is in excellent financial health. However, the Town does not have enough cash available to pay for these important projects while still sustaining the high level of service our citizens expect, and maintaining fund-balance levels that are required by law and directed by the Town Council. In addition, financing these projects over 20 years allows future citizens who will also benefit from the projects to contribute towards paying for them.
Is the payment plan structured like a home payment: same payment amount for the life of the debt?
No. The annual debt payment for the bonds decreases over time.
What is the current (July 2019) interest rate for using GO Bonds compared to other types of financing options available for these types of projects?
The Town issued general obligation bonds on July 16, 2019 and received a very favorable average interest rate of 2.18% for 20 years. The other type of financing that the Town would consider for the transportation and parks projects – Limited Obligation bonds (asset-backed debt) – would have a higher interest rate of 2.38%.
If these bonds are approved, will the Town be able to stay under the Council’s 15% debt ceiling?
Yes. Currently, debt service is running about 10% of annual operating expenses, so there is enough debt capacity remaining for these bonds.
What is the Town’s current debt service?
Cary’s current general fund debt service is approximately $17.2 million a year.
What are the property tax rate implications of these bonds?
Over the 7-to-10-year period that the Town will issue the bonds, we expect the tax base will grow so that our current tax rate generates more revenue, existing debt payments will decrease, and other revenues and operating expenses will change. Because of all of these changes, the amount and timing of tax increases remains to be determined, however we are confident that future tax increases will be required to support operations, maintenance and capital projects to manage Cary’s transition from a growing community to a maturing community.
What are the property tax rates of other cities and towns in Wake County?
For Fiscal Year 2020 (effective July 1, 2019), adopted property tax rates for Cary and surrounding municipalities are as follows:
Cary – 0.35
Morrisville – 0.39
Raleigh – 0.4382
Fuquay-Varina – 0.4325
Apex – 0.415
Knightdale – 0.43
Holly Springs – 0.4825
Rolesville – 0.48
Wake Forest – 0.52
Garner – 0.56
Wendell – 0.49
Zebulon – .592
For additional comparison, Chapel Hill’s tax rate is 0.544 and the City of Durham’s is 0.5317.
So, will my tax rate go down as the debt payment goes down?
Maybe. Council sets the tax rate each year and it can go up, down, or stay the same regardless of whether or not voters approve the bonds.
What were the funds used for from the 2012 bond referendum, and how much is left?
The 2012 referendum authorized the Town to use GO financing for transportation, parks, and fire projects. The Town has issued all of the bonds totaling $80 million that were authorized in 2012. All of the funded projects are either complete or well underway.
What happens if the bonds don’t pass in October?
If the bond referendum does not pass in October, the projects will likely not move ahead within the next five to ten years.
If voters don’t approve the bonds, does this mean that the Council will be prevented from raising property tax rates in the future?
No. The bond vote is a vote on whether the Town may specifically use general obligation bond financing; it is not a vote on the property tax rate. The Council may raise or lower the property tax rate each year depending on the amount of revenues the Council believes is necessary to meet the operational needs of the local government.
If these bonds are approved by the voters, how will the additional debt be viewed by bond raters in light of Cary’s existing debt?
Town officials expect that bond raters will view Cary’s debt levels as moderate and manageable given the Town’s financial position and Cary’s continued, proactive attention to planning for and managing growth and community needs. In June 2019, Cary was rated AAA by Fitch Ratings, Moody’s Investor Service and Standard and Poors. Moody’s noted “The outlook further reflects the expectation of continued sound financial operations.”
If the bonds are approved, how quickly could the projects begin?
Immediately. While the Town of Cary is in excellent financial health, the Town does not have enough money in its savings account to be able to pay for these extra projects. The Town does have enough funds to start construction on some of the projects that are already under design, and will then have the authority through a reimbursement resolution to be reimbursed from the bond proceeds once they are issued.
If the bonds are approved, what will be the interest rate the Town pays when the bonds are sold?
While it’s not possible for us to predict what interest rates will be, we can say that if we were to sell general obligation bonds this fall, we would expect the average interest rate to be more than 2 percent but less than 3 percent based on the rate of 2.18% that the Town received from a bond sale on July 16. Had the bonds been sold last September, the rate would have been 3.25%, so changing market conditions do impact the rate the Town receives when selling bonds.