Fast-rising interest rates are good for treasury bond buyers but they’re absolutely terrible for counties whose voters just approved $1.7 billion school bond referendums.
In May, Guilford County voters approved a historic school bond referendum that managed to do a very rare thing – create concern among North Carolina Local Government Commission members, a state financial oversight commission that, among other things, makes sure local governments in North Carolina are able to pay off the debt they accrue.
The Local Government Commission, or LGC, eventually signed off on the referendum. However, that $1.7 billion in debt continues to grow in cost for Guilford County taxpayers.
The $1.7 billion school bond referendum was never really a $1.7 billion referendum because it has to be paid back with interest. So, it was always a given that the total payback would come in north of $2 billion. However, what wasn’t factored in was that, after years of rock-bottom interest rates, those rates would increase dramatically in 2022.
The county may not issue the first of those bonds for two years and there’s no telling what interest rates could be then, but even recent increases have added hundreds of millions of dollars to the total payback cost.
Guilford County plans to issue the bonds with a 20-year maturity in three tranches in the coming years. It’s not clear how much the interest rate increases will cost county taxpayers in the end. However, even in the past year the extra cost – because the principal amount is so huge – has grown astronomically.
When the Guilford County Board of Commissioners began pushing for the giant school bond in mid-2021, some rough guesstimates were that the county would be paying perhaps a 2.5 percent interest rate on the bonds – roughly, the rate the county got when it issued part of a previous $300 million school bond that passed in November of 2020.
But as interest rates have climbed, so have those estimates. There are too many factors involved to project an accurate number, however, it’s looking now that the county is more likely to get a rate closer to 4.5 percent than the 2.5 percent some county officials initially anticipated.
Using simplified amortization, at 2.5 percent the county would pay $462 million and change in interest, while at 4.5 percent the interest payments could total $881 million, an extra, $419 million. Again, that’s a simplified guestimate, and no one knows what interest rates will be in the future when the county actually issues the bonds. However, as they say, $419 million here, and $419 there – pretty soon it starts to add up to real money.
Elections do have consequences. Any regrets yet?
And our fearless leaders either didn’t think about rising interest rated (lol) or they are simply out of touch with reality.
You know the council ” brain trust” doesn’t have a clue! Cha ching cha ching!
Not to worry, we don’t have to pay it now. Our children will pick up the tab with wuffless dollars.
Take it outta that absurd total you clowns voted for! Better yet, just cancel the bonds an don’t issue them. Teach the School Board & GCS Administration what fiscal responsibility looks like!
Why does the term “bait and switch” come to mind.
Just Sayin, you hit the nail dead on the head. Fire the Superintendent and all the members with a “D” behind their name. They don’t care because it’s not their money