Chapel Hill passed five bonds in November, what happens now?

In the November election, Chapel Hill voters approved five bond referendums allowing the Town of Chapel Hill to borrow up to $44 million. The Town plans to invest the money into local infrastructure projects. 

Peter Norman, UNC economics professor, said general obligation bonds are essentially loans that are borrowed by a municipal government that are typically paid back through tax revenue.

Since 2009, the Town has been setting aside a fraction of existing property tax payments to develop a fund to help pay back debt and interest payments, Town of Chapel Hill Business Management Director Amy Oland said. Oland said the fund will assist in paying back the bonds. 

The debt fund serves as a funding mechanism that allows the Town to borrow money in the future, Oland said. Oland said this means the Town will not need to increase property taxes in order to pay back the money borrowed through the bonds. 

“The nice thing about that [debt fund] is that we’ve built this into our model, it’s a long-term forecasting model, and so we’ve built up this ability to issue these bonds over this period of time and we will have the capacity to make those payments," Oland said. "There won’t be any negative financial impacts because we’ve already built that into our plans."

Chapel Hill Town Council Member Melissa McCullough said the Town has a very high bond rating, meaning it can borrow more money with a lower interest rate. She said the Town’s issuance of the bonds will not impact Chapel Hill’s financial health and credibility, as long as the money is paid back on time. 

Oland said the bonds are the most cost-effective method for the Town to borrow money because they have low interest rates and are risk-averse. 

However, the approval of the referendums only grants the Town the authority to issue the bonds and does not necessarily grant the Town the money, Oland said. To have the money deposited into the Town’s accounts, they must undergo a rigorous and prescribed process through the state, she said. 

Oland said Town staff will have to go to the Town Council three times for approval and fill out a lengthy application that must be approved by the Local Government Commission (LGC), which operates under the state treasurer's office. 

The Town must be particular about how the bonds are issued and how the projects are cast, Oland said. 

The bonds will be issued in three installments over a period of six years, Oland said. The Town’s debt fund will grow over time, as it is currently unable to pay back the entire $44 million outlined by the bonds. 

Oland said if the bonds are approved by the Town Council and the LGC, they will be issued in three phases. Around $13 million will be issued in the Spring of 2025, between $10 million and $15 million in 2027 and between $10 million and $15 million in 2029 or 2030. 

Oland said the infrastructure investment projects are not entirely planned and will be developed over the next six years, in alignment with the bond issuance schedule.

The sequence of the projects’ implementation will depend on the community’s priorities, the Town Council’s priorities and the Town’s capacity to issue the bonds themselves, Oland said. She said the projects can change as the community’s priorities shift, yet the funds they require cannot change.

One disadvantage of the general obligation bonds, Oland said, is the interest cost the Town will accumulate. She said it is very common to borrow to complete large-scale projects, such as those outlined by the bond referendums, that cannot be financed by the Town’s annual funds. 

“The expenses are getting kind of similar to what they would need to do on a yearly basis, so that’s why I don’t think that it’s a good idea to borrow,” Norman said. 

McCullough said that without borrowing, such long-term projects would take longer to be completed. She also said that costs of the materials needed to complete the projects are increasing over time, so borrowing and spending money sooner rather than later will be more effective. 

“If we borrow money at the most affordable level, we can get these things done sooner,” McCullough said.

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