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Introduction: The County bond funds, Funds 200 and 201, are usually reported in Volume 2 of the County budget (e.g., http://www.fairfaxcounty.gov/dmb/fy2011/adopted/volume2.zip). In November 2011, citizens will be voting on a bond referendum of approximately $250M. A referendum is needed if the bond is to be guaranteed by a promise that real-estate taxes will be increased, if necessary, to pay back the loan. The purpose of this report is to present an analysis of the bond fund and its rationale.
Summary: Borrowing money costs money (the interest). Is the loan worth the cost? The County pays an average interest of 4.73% for its bonds[1]. Other fees are also incurred[2], although we have not seen the amounts enumerated. The total amount the County currently owes is approximately $2.4B The County’s reserve funds (rainy-day funds) do not realize a return on investment exceeding 4.73%; therefore, repaying the bonds should be a higher priority than building reserves. The County could pay off the debt in ten years if its operating expenses were cut 7% and the saving used to pay the debt. The operating cost would thereby be reduced in future years because there would be no interest costs.
From a taxpayer’s point of view, whether or not the bonds are beneficial depends on the individual taxpayer’s financial situation. Individual taxpayers realize an economic gain from the bonds if their mortgage rate, or borrowing rate, exceeds 4.73% or their return on investments exceeds 4.73%. In these two circumstances, the taxpayer is, in effect, borrowing at the County bond rate to pay off a debt having a higher interest rate or to invest at a rate that exceeds the bond rate.
Our analysis is purely financial. We did not investigate whether the projects being funded are justifiable or whether the reprogramming of funds (switching from the voted-upon projects to other projects) is justifiable. We also did not investigate whether the amount covered by bond referendums, which averages $275M, is justified on the basis of the refurbishing of existing County buildings. We did notice that the rate of increase in indebtedness is more than twice the rate of increase in population, County workers, and other measures of County growth. The complete report is attached. Click on the attachment name (064 Analysis ...) to display the report.
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