Title

Are Bonds Free?

The Hidden Cost of Bonds | photo of cash by Jerico via Wikimedia Commons
The Hidden Cost of Bonds | photo of cash by Jerico via Wikimedia Commons

Written for Fox & Hounds Daily

Voters in California have hundreds of local bonds to consider in this election but I suspect many voters don’t understand how the bonds are funded. They won’t find out by reading ballot summaries.

I can’t speak for all the bond summaries throughout the state, but I looked over the 24 bonds on Los Angeles County ballots on the County’s webpage and not once did I read that the bonds are paid for by an increase in property taxes. Do you think that simple statement might change the results of bond elections?

In the private sector, the Federal Trade Commission enforces truth in advertising laws. We could use some truth in ballot information in the public sector, too.

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Practically all the summaries dealing with the bonds funding homelessness issues or school repairs tell the voters that the millions of dollars in bonds would be acquired at the legal rates. The bond summaries say what the bonds will be used for. Sometimes a bond summary mentions a citizens oversight committee or periodical audits or that the money cannot be used for salaries or pensions.

The only thing the summaries do not mention is that property taxes will be raised to pay for the bonds. Kind of an important fact that’s left out for the voters who will be paying those increased taxes. Most voters don’t dive in the details of ballot measures but rely on the short summaries provided to decide how to vote.

In the speeches I’ve given this election cycle on the statewide ballot propositions, I’ve found myself explaining the difference between state general obligation bonds and how they are financed versus the revenue bond financing mechanism. This is all because of Proposition 53 on the ballot that would require a vote on revenue bonds exceeding $2 billion.

The response I get makes me feel that many voters do not have a grasp of how bonds are financed. Therefore, information about local general obligation bonds and their connection to property taxes is crucial.

The vote requirement for local bonds was placed in the 1879 rewritten state constitution. The idea of having a vote on local general obligation bonds, and a two-votes majority vote at that is because local general

obligation bonds require the citizens to put up their property as collateral against the payment of the bonds. Since bonds take 30 years or sometimes more to pay off, the vote is obligating future property owners to meet the bond payment obligation. A super majority vote under these circumstances is certainly justified.

But it would help to let the voters know what they are getting into. Some voters may feel the bond is paid off with general fund revenues and that all the voters are doing is approving a shift of general funds to cover the bonds. After all, that is the way state general obligation bonds are funded – once passed by voters and issued, the state general obligation bonds have first call on the state general fund.

However, local voters are often unawares they are authorizing a property tax increase when approving a local G.O. bond.

That should be corrected. Perhaps state legislation is necessary.

 

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