At this time of year, as we move into budget season, I think it’s a good idea to remind folks of a local government’s authority to issue “two-thirds” general obligation bonds.
Under North Carolina law, a local government can issue general obligation bonds in a fiscal year – without the need for voter approval – for up to two-thirds of the net amount by which you paid down your general obligation bond debt in the prior fiscal year. So for example, if in the 2013-14 fiscal year you had a net reduction in your general obligation debt of $900,000, then in the 2014-15 fiscal year you can issue new general obligation bonds for up to $600,000.
It’s a fairly simple bond authorization process, although it does require a public hearing and LGC approval. In my experience the LGC staff will work with folks who want to use this financing approach to find a cost-effective way to issue the bonds. There’s a wide range of purposes for which you can use two-thirds bonds, and you don’t have to use the two-thirds bonds for the same purposes for which the old bonds were issued. Two-thirds bonds can often be structured with a 20-year repayment period.
Often people think their two-thirds bond capacity is too small to be of any use. But consider whether you might have a small project for which you were going to use your cash, or that maybe you were going to finance a different way – would two-thirds bonds help there? Or perhaps you have a large project for which two-thirds bonds might be an effective way to provide part of the funding. Finally, be sure to think about using two-thirds bonds with any other general obligation bonds you might be issuing, whether for new money purposes or for a refunding.
Please let us know if we can answer any questions for you about two-thirds bonds. You might also be interested in this article by Kara Milonzi of the School of Government staff, which addresses some other issues about two-thirds bonds. And by the way, I’m supposed to direct you to look at our disclaimer page as well.