North Carolina commission approves $1 billion of local bonds

BY SourceMedia | MUNICIPAL | 09/26/22 01:15 PM EDT By Chip Barnett

The North Carolina Local Government Commission approved about $1 billion of bond requests for various municipalities last week while postponing a vote on almost $1.7 billion of school bonds for Guilford County.

The commission is chaired by state Treasurer Dale Folwell and is made up of staff from his office. Bond and financing requests must be approved by the LGC and it examines whether the amount of money that municipalities want to borrow is reasonable for proposed projects and confirms that they can pay it back.

There were three major school bond issues on Thursday's agenda, with the LGC giving the green light to Wake County's request for $883.9 million of general obligation bonds and Johnston County's $177 million of GOs. Both of these bond packages will go before the voters on Nov. 8.

Wake County plans to build five new schools and design another one. Major renovation or replacement of another seven schools is being considered with the costs estimated at about $664.7 million. The rest of the proceeds would go to the Wake Technical Community College. A tax increase of 1 cent per $100 of property valuation is expected.

School officials in Johnston County said it has the fastest growing population in the state. The county wants to build two new schools, two additions and acquire land, which could lead to closure of about half of the district's 186 mobile classrooms. No tax increase is expected.

The commission put Guilford County's request for approval of a $1.7 billion GO bond package approved by voters in May on hold.

The Guilford County School System wants to build three new schools, demolish and rebuild 19 schools, renovate 12 schools and spend about $363 million for safety and technology upgrades. School officials said buildings in some areas are overcrowded and are badly deteriorating. The school system now has 126 schools and more than 300 buildings.

No tax increase is expected. While voters approved the $1.7 billion of bonds in May, they rejected a referendum to raise sales taxes to pay for it. A separate $300 million bond package had already been approved in 2020.

The LGC voiced concerns about the county taking on more debt and how it would be paid back. LGC members also asked whether declining enrollment trends justified the need for a new bond issuance. In postponing its decision, the commission directed county officials to respond in 10 days with enrollment numbers.

The LGC approved Raleigh's request to issue $275 million of GOs for a variety of parks and recreation projects. The financing will be paid back with a property tax increase of 4 cents per $100 valuation.

The LGC also approved a request from Charlotte to issue $226 million of GOs. The issue would consist of $146.2 million for streets and roads, $29.8 million would be used for neighborhood improvements and $50 million would be used to build low- and moderate-income housing projects.

Separately, the commission gave its approval for Charlotte to sell $125 million of storm water fee revenue bond anticipation notes to repair, replacement and improvements to storm water facilities, which will let it stay in compliance with state and federal requirements.

Fayetteville received approval to issue $97 million of GOs for public safety improvements, streets and sidewalks and the rehabilitation of multifamily and single-family housing.

Wake Forest received approval to sell $75 million of GOs to build, extend, reconstruct and widen streets and sidewalks. Some of the proceeds would go toward parks and recreations, greenway improvements and a parking deck as part of a public-private partnership for a mixed-use retail/residential site. A property tax increase of 3 cents per $100 valuation is anticipated.

The LGC denied New Hanover County's application for $80 million in financing that would go toward a public-private partnership to build a mixed-use development in downtown Wilmington called Project Grace. The request was rejected after a motion for approval failed to get a second.

The county's plan, which also included building a new library and museum, had been under scrutiny from the LGC due to the financing agreement under which the county would sell the land to the developer and then lease it back.

North Carolina's stock of affordable housing is not keeping pace with population growth, Folwell has said, a situation made worse by rising home prices and corporate investors becoming more active in the single-family home market.

In fiscal 2022, the LGC approved $418.5 million in financing for affordable housing, greenlighting 22 multifamily housing projects for nine locations. This allowed 2,993 apartment units to be built or renovated at 17 low-income sites and five senior living low-income complexes around the state.

The financing represents only projects for which construction has started. The figure does not include GOs which have been approved but not yet issued.

On Thursday, the LGC approved financing requests from the Durham Housing Authority, the Greensboro Housing Authority, the Raleigh Housing Authority, the Wake County Housing Authority and Inlivian, the housing authority in Charlotte.

"We are in a volatile economic environment still struggling to recover from the government lockdowns during the COVID-19 pandemic. On top of that we are entering a recession amid record inflation. Low-income North Carolinians and seniors on fixed incomes are caught in the crosswinds. Expanding affordable and accessible housing is urgent," Folwell said last month.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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