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1. What is a bond?

A general obligation bond is long-term borrowing in which a city pledges its full faith and credit (taxing power) to repay the debt over a specified term. A revenue bond is a long-term borrowing in which a city pledges the revenue of the project being funded to repay the debt over a specified term.

The purpose of a bond issue is to borrow money to finance major capital projects. A capital project is generally defined as a project expected to have a useful life of 10 years or more which is estimated to cost in excess of $100,000.

2. Why issue bonds?

There are 3 ways to finance the construction of major capital projects - use current revenues, capital reserve funds (setting aside money over time), and the issuance of bonds (borrowing money to be paid back in the future). Bond financing is often used for capital projects that are above and beyond the scope of the annual operating budget and are for facilities that will be used for many years in the future. Since most cities have few reserve funds set aside for major capital projects, it is necessary to issue bonds to build major projects. This process is similar to a family decision on how to purchase and finance a home or vehicle.

3. How is the debt on bonds repaid?

Citizens authorize an increase in the property tax to repay the debt on bonds when they are approved in a referendum. The repayment of bonds is spread out over a number of years, so costs are shared by current and future taxpayers. This provides for more equitable funding by all taxpayers who will benefit from the bond projects. When bonds are issued, taxes increase for citizens to pay the debt.

4. Are there additional financial implications?

In addition to actual costs associated with the payment of bonds, new facilities must have funds for staffing, maintenance and operations. It may also cost more money to operate improved and enlarged facilities, as well.

5. When are bond referendums held?

Bond referendums can be held at any time of the year but most cities hold bond referendums during a regular election period. Since other elections are already set up at that time, more voters are likely to participate in the bond referendum.

6. What is a bond rating?

A bond rating is an evaluation by a rating company of the probability that a particular bond issue will default. The City of High Point is rated by three national credit rating agencies and one state rating agency.