When voters go to fill out their 2024 ballots, they will likely be asked to decide on bond measures for parks, schools, libraries and more.
To inform voters, Colorado Community Media spoke with Byron Isaac, a Lakewood-based bond broker and dealer with Isaac Bond Investments who has worked in the industry for more than 40 years, about how bonds work. I heard the story.
Bonds are a way for local governments and special districts, such as school districts and library districts, to take on debt to fund infrastructure and capital investments, such as buildings, sidewalks, roads, parks, water and sewerage.
A common type of bond used by municipalities and special districts is a general obligation bond, which Isaac says functions similar to a homeowner’s mortgage, allowing you to spread your payments over time with interest. .
“You can issue large amounts of bonds and create ladders, so some bonds have maturities ranging from one year to 30 years and the payment requirements are spread out,” Isaac said.
Local governments and special districts rely on property taxes to service general obligation bonds, which Colorado requires voters to approve.
In some cases, debt programs may require increased taxes to cover the debt, but this is not always the case. Isaac said the bonds can be tax neutral if the municipality receives enough revenue from existing taxes to cover the payments, allowing the municipality to pay off old bonds or take out debt. That could happen if they refinance or expand their tax base, he said.
“What I want to look at is what the expected annual debt service requirements are and what the expected income will be,” Isaac said. “If these numbers match, there will be no tax increase.”
After a general obligation bond is issued, if a municipality or special district does not receive the necessary revenue to repay it, it may raise taxes to make the payment. Isaac said this could happen if a municipality overestimates the growth in its tax base.
“It is required and required that taxes be levied on all taxable property (in the district) to service the debt,” Isaac said.
Another type of bond that voters may be interested in is a revenue bond, where a municipality or special district pays off debt with service fees instead of taxes. Isaac said this is a common bond for water and wastewater utilities.
Isaac said bonds are generally a very safe way for companies to take on debt to finance infrastructure.
“Municipal bonds as a whole have a history of very low default rates,” Isaac said.
