If you max out your credit card and you are trying to pay your way out of a giant mountain of debt, it’s probably not a good idea to make your monthly payment and then, as soon as it’s received, turn around and borrow back two-thirds of the money you just paid. You know, it slows your debt reduction down to a trickle, means you’ll be in debt longer, and means you will be paying interest on more money for a longer period of time.
The Guilford County commissioners probably wouldn’t do that with their own finances, but it appears as though that’s exactly what they are going to do with Guilford County taxpayer’s money. They haven’t voted to do so yet, however, based on a recent work session discussion, the propensity of the current board to spend and spend, and on the history of the board on this matter, county residents are likely to see it happen next year.
At a recent afternoon work session of the Guilford County Board of Commissioners, the board and staff spent time talking about using “two-thirds bonds” to pay for a new round of county projects – including park upgrades and other capital work.
Two-thirds bonds aren’t new – but they rarely get much public attention because the voters don’t have a say and county officials don’t go out of their way to publicize the issuance of the under the radar bonds.
Under North Carolina law, counties in the state can issue bonds equal to two-thirds of the amount of debt they’ve paid off in the previous fiscal year – without putting that new borrowing on the ballot. The rule, which dates back decades, was originally designed to give local governments a limited way to keep construction moving between voter-approved bond referendums. The money still has to be spent on capital projects – not salaries or daily operations – but it doesn’t require public approval, and, even though the big pile of money approved was meant for school bonds, two-thirds bond money raised off of those bonds doesn’t have to be used for that purpose.
County finance staff told the board that, based on the amount of bond debt being retired this year, Guilford County could legally issue roughly $45 million in new two-thirds bonds next year. Staff suggested that some of that borrowed money might be used for parks renovations which don’t fall under the massive school construction plan voters approved in 2020 and 2022.
The reason the county will soon have this borrowing capacity is simple: Guilford County is finally starting to make payments on its enormous stack of voter-approved school bonds – about $2 billion in principal, which is expected to cost county taxpayers roughly $3.1 billion by the time the interest is factored in. Each time a portion of that debt is paid down, the county can, by law, borrow two-thirds of that amount again for something else.
As stated above, if that sounds a little like someone maxing out a credit card and then re-borrowing part of what they just paid off, well, it’s not far from the truth. A person who sends the bank $300 on a $9,000 balance, then immediately charges $200 again, literally never really gets out of debt. That’s because the new balance becomes $8,900: They’ve only reduced their debt by $100, not $300 – and they’ll continue paying interest on nearly the full amount.
And Guilford County’s situation isn’t very different: Under the two-thirds rule, local governments can keep repeating that pattern time and again. Debt goes down a little, and new debt goes right back up.
In the past, county officials have often described the practice as a “routine” way to finance smaller projects between big voter-approved bond issues. Critics of the funding method, however, see it as a big loophole and an end run around voter say – a way to keep borrowing without asking taxpayers first.
Either way, it increases Guilford County’s overall debt load at a time when Guilford County is already facing the largest long-term obligation in its history.
For perspective, the county’s $3.1 billion school-bond commitment doesn’t exist in a vacuum. There are also outstanding bonds for other capital work. All this adds to the annual debt-service line in the county budget – money that has to be paid every year before a single county vehicle is purchased or a single employee is hired.
The new discussion about two-thirds bonds comes as county leaders continue talking about a need for another giant school bond in the next few years because, due to inflation, even that $3.1 billion in debt isn’t going to cover all of the promised school projects.
Interest rates remain higher than they were just a few years ago, which means new borrowing could cost more than older debt issued when the rates were near zero. Even so, county officials seemed interested in the idea of taking on another $45 million next year for projects that otherwise might have to wait.
The mechanics of the process are straightforward. Once staff identifies eligible projects – such as the new parks master plan with a proposed $2 million treehouse included in it – the board of commissioners votes to approve a resolution authorizing the debt. The proposal then goes to the Local Government Commission (LGC) in Raleigh, a state oversight body that reviews all local bond issuances to make sure the county or city has the financial capacity to repay them. If the LGC signs off, the county can sell the bonds – usually to institutional investors – and then begin spending the proceeds.
Unlike general-obligation bonds, which have to be approved by voters, there’s no campaign, no public hearing requirement and no referendum.
The entire decision rests with a majority of the nine county commissioners.
Supporters argue that this flexibility allows the county to maintain and improve facilities without waiting years for another bond referendum. They say voters have already signaled trust by electing the commissioners who make these decisions.
Skeptics argue that trust is precisely why there should be limits – and why the ballot box exists in the first place.
Each new bond issue – whether voter-approved or not – adds to the total debt service Guilford County must pay each year.
The county’s debt obligations already stretch decades into the future, and taking on even more may limit flexibility and increase financial risk if the economy weakens or if interest rates rise further.
Commissioners haven’t voted yet on specific two-thirds bond projects to be funded next year, however, based on the past two decades, when the board has gotten under a money crunch, as it is now, both Democratic-led and Republican-led boards have turned to this tried-and-true non-voter approved method of financing.
Every time voters approve a general obligation bond at the ballot box for a specific amount of money for a specific purpose, they open themselves up to a future in which the board borrows tens of millions of dollars more for whatever capital projects catch the board’s fancy.
