Charlotte-Mecklenburg schools get state OK for $2.5 billion of bonds

The North Carolina Local Government Commission on Tuesday approved the Mecklenburg County and Charlotte-Mecklenburg Schools request for a $2.5 billion bond package. It was the largest amount of tax-exempt financing ever OK’d by the commission.

Separately, State Treasurer Dale Folwell noted that the state is on the way to reaching its goal of paying down almost 60% of its outstanding general obligation bond debt, according to the recently released Debt Affordability Study.

In November, Charlotte-Mecklenburg School voters approved the sale of the sale of up to $2.5 billion of general obligation bonds. The first tranche of $300 million of GOs is expected to be sold in fiscal 2025, with three additional tranches to be issued over the next several years.

A one cent tax increase is expected in 2025, 2028 and 2029 for a total of three cents per $1,000 of assessed property valuation for the school bonds.

At the January Local Government Commission meeting, county and school system officials provided information on the GOs and gave the commission a detailed look at its plans for a multi-tranche multi-year GO deal.

The commission, which is chaired by Folwell, must sign off on most local bond sales in the state. The commission reviews if the amount that municipalities or authorities want to borrow is reasonable for the projects proposed and their ability to pay it back.

According to the school district, 30 projects to alleviate overcrowding will be funded with proceeds. The work will include constructing school buildings and renovating and providing upgrades to other school facilities. 

Folwell told The Bond Buyer ahead of the vote that while he would follow the staff recommendations and vote to approve the sales, he was wary about the size of the issue.

“I have some reservations about when a school district is borrowing more money that the state has in outstanding general obligation debt,” he said.  

The Charlotte-Mecklenburg school system runs 184 schools, with 86 of those at or exceeding 100% utilization and it is currently using 120 portable classrooms. Its enrollment is the second largest in the state at 140,863 making it the 17th largest school district in the nation. The county’s population sits at around 1.1 million people.

The district’s capital improvement plan for fiscal 2024 through 2028 totals $3.99 billion, comprised of $2.5 billion for 30 school projects and $1.49 billion for 59-non-school projects.

The school projects will be funded entirely with proceeds from the GO sale while the non-school projects will be 50% funded on a pay-go basis and 50% with non-voted debt.

The county’s bonds are rated triple-A by Moody’s Investors Service, S&P Global Ratings and Fitch Ratings.

Also on Tuesday, the LGC approved financing requests from municipalities totaling almost $300 million for various public works, recreation and housing projects. 

The town of Wilson got approval to issue $73 million of special obligation bonds for a multi-purpose baseball stadium and entertainment complex.

The baseball stadium would be used by the Carolina Mudcats, a Single-A minor league franchise of the Milwaukee Brewers that currently plays 25 miles west at Five County Stadium in Zebulon. Outdoor concerts, festivals and other events could be held at the venue.

The Cabarrus County Water and Sewer Authority got approval to sell $100 million of revenue bonds to expand the Rocky River Regional Wastewater Treatment Plant. The work would include purchasing and installing new equipment, additions, extensions and replacement of capital assets. 

The town of Davidson got the green light to issue $6.9 million of bonds for up to three years for various projects. The town has faced ongoing delays and procurement challenges for planned projects amid changes in market conditions. 

The commission approved the request by Inlivian, Charlotte’s housing authority, to issue $2 million in additional tax-exempt bonds to finance the Fairhaven Glen project. Financing was originally approved for $21 million, but it was found that more funding was needed to finish the project and to comply with requirements tied to low-income housing tax credits that are also financing the project. 

Cabarrus County got authorization for a $4.4 million financing agreement to let the county lease stretchers for its ambulances. Reidsville got approval for a nearly $4.9 million increase in a state revolving loan to replace waste pumps. The Yadkin Valley Sewer Authority got approval for a $1 million revolving loan to repair to manholes and pipes and Caswell County can enter into a lease agreement to replace Sheriff’s Department vehicles.

The Local Government Commission postponed a request by the North Carolina Medical Care Commission to issue $90 million of conduit revenue bonds to allow United Methodist Retirement Homes in Pitt County to build a 57-unit independent living apartment building at Cypress Glen. More information was requested amid questions about the financing.

Folwell noted that the state government’s 2024 debt affordability study was just released last week.

The study, adopted by the Debt Affordability Advisory Committee, is conducted annually to inform the governor and General Assembly on the estimated debt capacity of the general and transportation funds for the upcoming 10 fiscal years.

It also provides a comprehensive assessment of North Carolina’s ability to issue debt for capital needs.

Control of a state’s debt burden is one of the key factors used in rating agencies’ analyses in assessing credit quality, the treasurer’s office said.

“All the state’s debt ratios remain at or below the median levels for the state’s peer group comprised of all 15 states currently rated triple-A by all three rating agencies,” the study said. “North Carolina’s debt is considered manageable at current levels”

North Carolina’s GOs are rated triple-A by Moody’s, S&P and Fitch and were affirmed by all three agencies last year.

“In this study we outlined how the state debt is going to by falling by 60% over an eight year period,” Folwell said Tuesday at a briefing for members of the press.

“On top of that, we’re in the final inning of doing something that no state treasurer has ever done in the history of North Carolina and that is to actually buy some debt back at a deep discount,” he said.

Folwell noted North Carolina was recently able to find an opportunity that arose during the banking crisis of 2023.

In the wake of the failure of Silicon Valley Bank last year, he and members of the state and local government finance division discovered that SVB held $20 million of Connect NC bonds.

When SVB was forced to sell off its assets, the treasurer was able to purchase those bonds at a discount to par at 71.875%, a price of $14,375,000, plus closing costs. This repurchase will save taxpayers almost $11 million, Folwell said.

Funding had been made possible by the General Assembly, which allocated funds to pay off callable state bonds or buy and cancel state bonds in the secondary market that have debt service paid from the State Capital and Infrastructure Fund. This is authorized if the cost of redeeming or purchasing and canceling the bonds is determined to be an economically prudent use of SCIF funds.

“This was a great opportunity for the taxpayers of North Carolina to get some relief during a tough inflationary period,” Folwell said.

 ”We are in the sixth year of retiring over 60% of the state’s debt over an eight-year period. I don’t know of another state or country that can say that,” he said. “And that’s why ’NC’ stands for ‘Nothing Compares.’ “

Folwell noted that the news wasn’t all good.

“We still have approximately $43 billion in unfunded pension and health care liabilities. That bill will come due much sooner than people realize,” he said.

A modeling of general fund results says the fund has debt capacity of about $1.63 billion in each of the next 10 years, or up to around $8.5 billion in the first year after incorporating a Debt Affordability Advisory Committee-recommended policy.

That policy directs continuing annual appropriations of $100 million to the Unfunded Liability Solvency Reserve to begin to address the state’s unfunded pension and other post-employment benefit liabilities.

The debt affordability committee has recommended the state recognize the magnitude of these responsibilities, which cover retiree healthcare costs, and to continue to address them with continuing annual appropriations.

It also urged continuing the single-target calculation using the limitation that debt service and the continuing annual appropriation to the solvency fund not exceed 4% of revenues.

The General Assembly has allocated $40 million to the solvency fund for fiscal year 2022 and $10 million for fiscal year 2023. The actual ratio of debt service to revenues is projected to peak at 1.82% this fiscal year.

“I believe that these recommendations continue to address our unfunded liabilities and represent action to preserve and protect the state’s triple-A rating,” he said.