A new law provides greater transparency for citizens when it comes to the actual cost of indebtedness associated with bond referendums. House Bill 248 — The Taxpayer Debt Information Act — says that when a bond initiative is put on a city or county ballot, it must now include a statement informing voters that the debt includes interest — and that taxes could be raised to satisfy payment of both the principal and interest on the debt. The new law also requires that the estimated interest amount be included along with the principal amount of the bond request.
General Obligation bonds give politicians the authority to issue new indebtedness, but the taxpayers — who are responsible for actually paying it back — are often the least informed as to the true cost. “As a county commissioner for many years,” said Representative Debra Conrad during floor debate on April 18, “I had to consider adoption of bond orders for many projects and was concerned that only the bond principal amount was emphasized during the bond adoption process and on the ballot question with little or no mention of the interest paid on the bonds, which as you know is a considerable amount.”
Key stakeholders were brought together to provide input during the crafting of the bill. These included the North Carolina League of Municipalities, the North Carolina Association of County Commissioners, the Bonds Council, and representatives from the North Carolina Treasurers Office, which oversees the bond process. The bill was not opposed by any of the stakeholders and received unanimous approval when it went before the House Finance Committee.
In every step of the bond order process — from the time the finance officer introduces the bond order, to the filing by the clerk and submission to the local government commission, to the publication of the bond order, to its potential adoption by elected body, and then its second publication — a statement indicating the estimated total amount of interest that will be paid on the principal amount over the expected term of the bonds will be disclosed, along with a summary of the assumptions upon which the estimate is based.
The amount of interest must be an estimate, because there are many variables that can come into play once the bond referendum passes: there is a seven year window in which the bond could be issued, interest rates could change over time, the bond rating of the local government entity could change, or a large school bond could be issued in segments.
Also included throughout the process is a statement that the validity of the bonds is not subject to challenge on the grounds that the actual interest when issued is different from the amount that is estimated. This was added to address concerns the Bonds Council had about potential lawsuits which might have caused them to be more apprehensive about writing a clear letter for the issuance of the bonds.
While these measures are positive ones to ensure more transparency, only a small percentage of the voting public might be informed by these first steps. The most important change is to the actual ballot question presented to the voters. Until now, it’s been very brief and mentioned only the principal amount and the general purpose of the bond.
House Bill 248 requires that when a bond initiative is put on a city or county referendum, it must include a statement saying that the debt to be approved by the taxpayers includes interest, and that taxes could be raised to satisfy payment of both the principal and interest on the debt. This will help ensure that voters understand the true cost of a bond when it appears on the ballot for voter approval.
HB248 passed both unanimously in both houses and was signed into law by Governor McCrory on June 26, 2013.
For more information on General Obligation Bonds and the issuing of state debt, please click here.