Wake voters weigh tax increase as vote on school bonds nears

khui@newsobserver.comOctober 5, 2013 

  • Bond vote approaches

    Wake County voters go to the polls Tuesday to vote on an $810 million bond issue that would allow the county to borrow money to build and renovate schools and to stock schools with modern technology.

    The plan was proposed by the county board of education and approved by the county commissioners. It would result in an increase in county property taxes; the owner of a home assessed for taxes at $263,500 would pay about an additional $146 a year.

    Today’s story focuses on the cost of the bond issue. It is part of a series that examined the result of the county’s method of school funding, proposed alternatives for paying for school construction, and organized efforts for and against the bond proposal.

  • By the numbers


    Students in Wake County schools



    students by 2018


    Where Wake’s property tax ranks among 100 N.C. counties


    Property tax increase for a $100,000 house


    Schools that would be built with bond money


    Schools that would get major renovations

Wake County enjoys relatively low taxes and a good credit rating. Interest rates are low. Supporters of the $810 million school construction bond issue on Tuesday’s ballot say that combination makes this the ideal time to start building for another influx of new students.

But opponents of the bond issue, who question the accuracy of the county’s enrollment projections, say residents will be burdened by the 10-percent property tax increase and the additional debt they’ll incur if the measure passes. The Wake County Taxpayers Association contends that a yes vote could put Wake on the path of debt-ridden Detroit, a claim county officials deride as far-fetched.

Financial analysts who gave Wake County its AAA top-level bond rating don’t appear to be worried about the additional debt. The high bond rating means that Wake County can borrow money at lower interest rates. And Friends of Wake County, the business-backed group promoting the school bonds, warns that a no vote could endanger the community’s future by limiting its ability to handle new swarms of children.

David McLennan, a political science professor at William Peace University, said pro-bonds supporters see the vote as a test of support for public education, while opponents view it as a test of whether or not people back financial conservatism.

“It’s a significant decision that voters are undertaking in the referendum,” he said. “The amount of money is going to make people think twice before voting yes or no.”

In its April report, the rating agency of Standard & Poor’s noted that plans were being developed for a school bond referendum later in the year. But the agency wasn’t too concerned.

“We do not expect debt levels to significantly increase, as management will continue to adhere to its conservative and well-embedded formal policies, ensuring manageable debt levels,” the report said.

The bond measure would pay for most of a $939.9 million construction program that includes 16 new schools, six major renovation projects, smaller repairs at 79 schools, new technology and other projects.

To make the bonds possible, Wake County leaders have proposed the first increase in the county property tax rate since 2008. Passage of the bonds would result in a tax increase of 5.53 cents per $100 of property value, or $145.72 more per year on a $263,500 home – the average assessed value of a home in Wake.

The Friends of Wake group points out that Wake’s current tax rate of 53.4 cents per $100 of property value is both the lowest among surrounding counties and the lowest among other North Carolina counties with large school systems. For instance, the tax rate in Durham County is 77.4 cents per $100; in Mecklenburg County, it’s 81.6 cents per $100.

“It still leaves us in one of the most positive tax-rate ranges in the Triangle,” said Billie Redmond, a real-estate executive and co-chairwoman of the Friends of Wake.

But bond opponents focus on the 10.4 percent increase in the tax rate that would result if the referendum is approved.

“If we spend our kids into debt and raise our taxes too much, we’re going to harm them in the long run,” said Duane Cutlip, vice president of the East Wake Republican Club.

What would new debt mean?

One of the most contentious points of disagreement between supporters and opponents of the bonds is the result of the extra county debt.

Supporters of the school bonds say this is the right time for the referendum because of the low interest rates. Wake is one of only 39 counties in the nation that holds a AAA credit rating.

Wake County Manager David Cooke said the county’s debt after the passage of the $810 million school bond issue would rise to $3.1 billion in the 2016-17 fiscal year, not the $4.6 billion cited by the taxpayers association. He added that the plan would be to pay off the new round of school borrowing in 19 years, with three-quarters of it paid off within 10.

About 20 percent of the overall county budget goes toward repaying debt, with the percentage not expected to change much – even if Tuesday’s bond issue is approved, according to Deputy County Manager Johnna Rogers.

“We’re not going to do anything to jeopardize that AAA rating,” said Cooke, who is retiring at the end of November.

Redmond said voters can trust the county’s record of financial stewardship with bond programs.

Adding up the debt

Opponents of the bonds see plenty to worry about on the debt, pointing to some of the statistics that the county has produced.

The additional borrowing would place Wake third-highest in projected overall debt per capita among a group of AAA-rated counties in North Carolina and Virginia that Wake measures itself against. In that group, it would also be second-highest in projected overall debt to assessed value.

Wake would have a projected debt of $3,214 per resident. Mecklenburg County currently ranks fourth on the list in per-capita debt at $2,810 per resident.

Cooke said he isn’t worried because Wake’s numbers are not much higher than the counties that are ranked immediately below it in both lists.

But Cutlip said it was “irresponsible” to increase Wake’s debt to more than $3 billion. He said a “bump in the road” economically could leave Wake in poor shape to repay the money.

“Probably we can afford it by squeezing taxpayers,” he said. “Just because we can afford it doesn’t mean it’s the right thing to do.”

The Detroit analogy

The Wake County Taxpayers Association has been even more aggressive in citing Wake’s higher debt as a reason to oppose the bond issue. The group repeatedly cites the situation of Detroit, which filed in July for federal Chapter 9 bankruptcy protection in a case involving an estimated $18 billion to $20 billion in debt.

On the taxpayers association Facebook page and campaign literature, the group says, “Remember Detroit” and “Detroit Again?”

Ed Jones, chairman of the taxpayers association, said it was a “long shot” that Wake would become like Detroit. But he said that if the economy collapses in the next 10 to 15 years, Wake could find itself unable to repay the debt.

“We could find ourselves in bad shape – maybe not as bad as Detroit, but still in big trouble,” he said.

Cooke says Wake has avoided doing what Detroit did – borrowing money to pay for continuing expenses. Also unlike Detroit, which is losing population and seeing a shrinking tax base, Wake is still growing, he said.

“Using Detroit is simply a scare tactic,” Cooke said. “There is simply no comparison between Detroit and Wake County.”

Evette Caze, an analyst with Fitch Ratings, said it doesn’t appear the additional $810 million in school bonds would significantly impact the county’s ability to repay its debt.

Back in April, Caze and analysts with the two other major rating agencies all gave Wake a AAA rating on the $176 million in Wake Tech and Wake school bonds it was planning to sell.

Voters to decide

Ultimately, the final decision will rest with voters, including parents in the 153,000-student school system.

Kristen Skordinski, a parent of two children at Green Elementary School in Raleigh, is urging her neighbors to vote yes “to invest in our schools.” Green, which was built in 1958 in the North Hills area, would get a $22.6-million makeover.

“This is our responsibility as a community to support strong schools,” she said. “The tax increase will be reasonable for our county.”

But Matt Reck, a parent of two children at Heritage Middle School in Wake Forest, said he doesn’t think the bonds are needed now. He says he resents messages from bonds supporters telling him he needs to vote yes “to show children and teachers in Wake County that they matter.”

“Yes, it’s only $12 a month, but why do I have to sacrifice more?” he said. “I don’t live in the biggest house. I don’t drive the newest car.”

Hui: 919-829-4534

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