This content was originally published by Keygent Managing Member, Chet Wang.
California school and community college districts frequently issue general obligation bonds (“GO Bonds”) to finance their large capital projects such as construction, modernization, renovation or equipping of educational facilities. GO Bonds must be approved by voters within district boundaries. Voters approve the total amount of bonds that can be issued (the authorization amount) and what the funds can be spent on (the project list). Once approved, the bond authorization is usually accessed in installments (or series) to meet project cash flow needs.
General obligation bond example
As an example, if voters approved a $60 million bond and the project timeline calls for $10 million to be spent each year for 6 years, then bonds could be issued in two series of $30 million each. This approach allows the project cash flow needs to be met, while spending proceeds within the timeframe required by the IRS, and while not incurring interest on proceeds not yet required.
How are general obligation bonds repaid?
GO bonds are repaid from ad valorem property taxes levied against the assessed value of property within district boundaries. Ad valorem means “according to value” and is a percentage rate often quoted as a dollar amount per $100,000 of assessed value. As an example, 0.025% is referred to as $25 per $100,000 of assessed value.