In the 2024 general election, Orange County voters will consider a referendum to fund school replacements, renovations, and repairs with general obligation (GO) bonds totaling $300 million.
In the fall of 2021, in response to a petition from Commissioner Jean Hamilton, the Orange County Board of County Commissioners (BOCC) created the Capital Needs Work Group. The Work Group recommended that the county engage an outside consultant specializing in school facilities issues. In 2023, Orange County engaged Woolpert Consulting to lead an assessment and master planning program for Chapel Hill-Carrboro City Schools (CHCCS) and Orange County Schools (OCS). Along with the facility condition assessment, they also conducted an educational adequacy assessment that reviewed each classroom for its ability to support modern educational practices and whether buildings have all key learning and support spaces as defined by North Carolina Department of Public Instruction (NCDPI) standards.
View the complete assessment and supporting documents: https://www.orangecountync.gov/3291/Orange-County-Schools-Assessment
The consultant recommended nearly $1 billion of improvements over the next fifteen years to bring facilities up to modern education standards. The Board of County Commissioners balanced the needs of the schools with the potential impact on taxpayers and agreed to place a 300-million-dollar bond referendum on the 2024 ballot as well as other funding strategies to maintain school facilities. Since the bond does not fund all the recommended improvements, the projects that this bond will fund reflect each district’s highest priority projects from the Woolpert report.
All facilities deteriorate with time and use. Older schools need repair, modernization, and, in some cases, replacement to create learning environments that meet current standards and support modern educational programs and services.
If the bond is not approved, the County could use its traditional borrowing mechanisms to fund school improvements. However, those traditional borrowing mechanisms, known as limited obligation bonds, have collateral requirements that will limit the amount that could be borrowed to about one-third of the proposed bond amount. As a result, repairs to existing facilities could continue to be made, but no improvement to learning environments could be achieved.
No. The Board of Commissioners restricted the bond to be used only for school facilities.
The average age of school facilities in Orange County is 42 years old. Those facilities receive intense use, and the building and its major operational components like heating and cooling systems, electrical systems, and roofing all have useful lives. Due to the age of the facilities, that useful life has been met or exceeded. In some cases, the cost of making all of the necessary repairs rises to a level that justifies replacing the facility with a new one.
Schools in Orange County were constructed in clusters to meet school enrollment trends. Ten schools in Orange County were constructed between 1952 and 1962. Five schools were built between 1968 and 1974, and an additional 10 schools were opened between 1991 and 2003. Given this clustered building pattern, many schools need repairs and improvements at roughly the same time.
Of the $300 million school facility bond, Chapel Hill-Carrboro City Schools (CHCCS) will receive approximately $175 million, and Orange County Schools (OCS) will receive approximately $125 million. The split in funding is based on the cost of major projects and high priority needs prioritized in the Woolpert study. The proportion of funding allocated to each district is also approximately equal to each district’s share of total student enrollment.
Based on the priorities identified in the Woolpert report, the School Districts have identified priority projects that could be funded with the bond proceeds.
Chapel Hill-Carrboro City Schools
Orange County Schools
Each school district has identified their highest priority projects, but these improvements will be made over several years. As a result, unforeseen circumstances may require the County to shift funding between projects or to other school projects.
The State of North Carolina provides some funding to assist counties with meeting public school facility needs through lottery funds. According to current Legislation, approximately $150 million of lottery revenue is appropriated to the 115 school districts in North Carolina. These funds are distributed to districts based on the number of students in each district, so larger districts benefit more than smaller ones. The County is expecting about $1.4 million per year in total lottery proceeds. Of that total, approximately $819,000 is expected to be allocated to Chapel Hill Carrboro City Schools and $582,000 is expected for Orange County schools. Those funds are currently applied to prior debt issued for school facilities.
Based on current projections, the bond is projected to cost a property taxpayer $34.10 for every $100,000 of assessed property value. For example, a taxpayer who owns property valued at $400,000 would see a county property tax increase of approximately $136.40 per year, while a taxpayer who owns property valued at $500,000 would see a county property tax increase of approximately $171 per year. The actual cost of the bonds is based on the scheduling of bond sales and the interest rate at the time of each sale. The increase could be implemented once at the beginning of the repayment period or could be phased in over time based on when funding is needed for particular projects.
Given the scale of recommended improvements, a tax increase will be necessary to pay the principal and interest on a general obligation bond. A new elementary school is currently estimated to cost over $48 million. If one elementary school is replaced in each school district, the total cost would be over $96 million. The annual debt service payment to repay the principal and interest on a loan of that size would be approximately $7.2 million. Total annual property tax revenue typically increases by about $3.9 million due to increases in assessed value due to new construction, so services would need to be dramatically reduced to avoid a tax rate increase.
An alternative would be to continue with smaller, necessary repairs in existing facilities, but that approach would not improve the learning environment for students.
Based on the current spending plan, debt service payments would peak in FY 2034, so the current estimate assumes that the higher tax rate would be in place at least through that year. However, a variety of factors in the intervening years may change that date. Since this increase would be part of the county’s general property tax, it does not have a sunset date, so future Boards of Commissioners are not restricted in their use of this tax authority once debt service requirements have been satisfied. A future Board of Commissioners could reduce the tax rate, approve additional capital projects, or allocate the available funds for operating expenses.
No. The bond funds would be exclusively used to improve school facilities.
State law requires County governments to fund public school facilities.
The County does fund the repair of school facilities in its annual capital budget. Over the next ten years, the County already has programmed approximately $164 million for routine school improvements. Those funds are used to repair and replace electrical systems, heating and cooling systems, fire and security systems, parking lots, roofing, and technology. The existing budgets would continue to fund those routine needs for schools that are not being replaced.
The County’s 10-year capital plan already includes $164 million for routine school facility improvements. The Board of Commissioners has also discussed increasing the amount of annual cash funding for facility improvements by $10 million per year to fund design fees and project management costs so that the funds raised by the bond may be applied to construction costs.
Cash funding is more flexible since it could be increased or decreased depending on fiscal conditions. Over the long run, cash funding is also less expensive since no borrowing is done which means there is no interest expense. Increasing cash funding by this magnitude would require a tax rate increase of approximately 2.68 cents based on current assumptions.
Each District has been allocated a not-to-exceed amount of bond funds. Of the $300 million bond, Chapel Hill Carrboro City Schools (CHCCS) will receive approximately $175 million, and Orange County Schools (OCS) will receive approximately $125 million. If project costs are higher than anticipated, the School District’s project plan will need to be adjusted to accommodate the unexpected costs, which would likely result in fewer projects being funded or the scope of those projects would be curtailed. If the costs are lower than the not-to-exceed amounts, the Woolpert study includes recommendations on how those funds could be used most efficiently. That study estimated total facility improvement need to be approximately $1 billion.
The first projects would be expected to be initiated in fiscal year 2025-26. That means that the County will authorize funding for projects that are ready to proceed to the design and construction process. Depending on the complexity of the project, the project may take several years to complete once funding is authorized.
In counties in North Carolina, a bond referendum is a vote in which all the people in the County are asked whether the County should borrow money to pay for something. In a bond referendum, the voters have the power to decide if a government should be authorized to raise funds through the issuance of general obligation (GO) bonds. In North Carolina, counties cannot issue general obligation bonds without voter approval. A general obligation bond is a form of borrowing in which a county pledges its full faith and credit (taxing power) to repay the debt with interest over a specified term. As a result, general obligation bonds have the lowest interest rates and are the least costly financing option for funding large-scale facility projects.
Bonds are a form of long-term borrowing used by most local governments to finance public facilities and infrastructure. This type of debt financing allows the cost of a facility to be repaid over the useful life of the facility or improvement.
Like a mortgage on a home, bonds facilitate a large, one-time investment that is paid back over time to a financing institution like a bank or credit union. Payments are scheduled, and the repayment amounts are established until the principal and interest are fully repaid. Bonds for facility improvements are typically repaid over 20 years due to the long useful life of the facility. Since the bond repayment occurs over time, both current and future users of the facilities pay for the improvements through property taxes.
Counties are limited to conducting bond referendums in even-numbered years, so the November 2024 election was the first opportunity to place the bond question on the ballot following the results of the Woolpert study. Since this is also a presidential election year, more voters are likely to be engaged so that more of the community is involved in deciding whether the bond moves forward.
Since 1988, Orange County voters have approved five General Obligation referenda with the last one being in 2016. The 2016 bond included $120 million for school improvements and $5 million for affordable housing. Those proceeds were used to:
The first projects would be expected to be initiated in fiscal year 2025-26. That means that the County will authorize funding for projects that are ready to proceed to the design and construction process. Depending on the complexity of the project, the project may take several years to complete once funding is authorized.
A bond rating is like a credit rating for organizations. It measures the likelihood the County will repay its loan to the institutions and investors from which the County borrowed money. Due to careful fiscal management, Orange County has historically received the highest bond rating available (AAA). A high credit rating lowers the risk to investors, so the interest rate associated with issuing credit is lower than for a County with a lower credit rating.
The bond will pass if a majority of voters vote yes on the bond question.
The principal and interest on the bond debt is repaid by the County in annual installments through funding called debt service. Since this is annual funding, it is paid from the County’s operating budget where all recurring County spending and revenue is recognized and authorized.
The work is scheduled to be completed over the next 10 years. However, having authorization in place for the full $300 million will provide some certainty with which the County can work with the School Districts on a multiyear implementation plan that makes the most efficient use of the funds and minimizes disruption.
The Board of County Commissioners will administer all bonds. Bond proceeds are “public monies” and must be administered in the same manner as other county funds. County Commissioners are required by NC General Statutes to adopt project budgets authorizing the expenditure of the bond proceeds. Funds cannot be spent on projects not approved by the County Commissioners.
Orange County will borrow the funds as project timelines dictate. The high-priority projects that are recommended in the Woolpert study are scheduled over 10 years. The first projects are scheduled to be initiated in fiscal year 2025-26. As projects proceed, staff will assess the frequency of issuances to best-fit cash flow requirements. Statutes require that all funds be issued within seven years of the referendum.