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Bonds - Fundamentals 101
Why are bond projects important to the community?
The Raleigh that we enjoy today is because of the investments we made in the past. The city we will enjoy in the future will come from investments we make today.
With Raleigh’s continued growth, municipal bond projects are vital because they provide large-scale funding to build and repair essential public infrastructure – such as parks, roads, and safety facilities. Bonds are a fiscal tool to manage costs over many years and put less stress on the City’s annual budget. Costs are spread both to current and future residents or taxpayers who will benefit from this infrastructure over time. Bond-funded projects ensure infrastructure needs are met, sustaining our region's vitality and reputation as a great place to live, work and play.
Why does the City issue bonds?
Bond financing is a common funding structure that allows local governments, like the City of Raleigh, to borrow funds and pay for projects over time using financial strategies that help ensure the debt stays affordable. The City's needs for major infrastructure projects exceed what it can pay for in cash.
The bond financing process is similar to a person’s decision to take out a home mortgage or get a car loan so they can better balance their personal budget.
What is a bond referendum?
A bond referendum is a process that gives voters the power to decide if a government body can borrow money to pay for select major projects or programs. If approved, the government can issue bonds to raise the money and future taxes are pledged to repay this debt. (See General Obligation bond below.)
What is a General Obligation bond?
A general obligation bond (“GO” Bond) is a form of long-term borrowing in which the City pledges its full faith and credit (i.e., taxing power) to repay debt with interest over a specified term, typically 20 years. Bond documents specify project purposes or categories rather than specific individual projects to utilize this funding.
Currently, the City uses GO Bonds to support the Capital Improvement Programs (CIP) for Housing, Transportation, and Parks and Recreation purposes.
What is a Revenue bond?
A revenue bond is a form of long-term borrowing where the City pledges money from future water and sewer customer fee receipts to repay debt, typically payable over a 30-year span. Raleigh Water’s revenue bonds fund various water and sewer utility capital projects and improvements.
The City is in the process of creating a new credit entity for the Stormwater division to also pay for projects using future Revenue Bonds.
What is a Limited Obligation bond?
Limited obligation bonds (“LOBs”) are issued based on available debt capacity and generally are used for new governmental facility construction. Per North Carolina G.S. 160A-20, LOBs do not require voter approval since the debt is not back by the City’s taxing power. This type of debt is secured by a pledge of City assets used as collateral. The debt service requirements are appropriated by City Council during its annual budget process.
Currently, the City’s uses LOBs to support the Capital Improvement Programs (CIP) for General government needs like Fire Stations and for its Convention Center purposes.
Does the City utilize any other types of debt financing to pay for projects and capital assets?
The City has several financial instruments that allow it to support capital improvement programs, community needs, and Council priorities. Read more about our debt, credit entities, and fiscal stewardship on the Investor Relations page.
Bonds - Fiscal Stewardship
What is the Capital Improvement Program?
The Capital Improvement Program (CIP) is prepared by the City each year outlining major projects planned for the next five years and how they will be paid for. The first year of the CIP becomes part of the City’s Annual Budget appropriation and designates the official funding plan for those capital projects. City Council is able to make changes to the CIP and adopts it at the same time as the Annual Budget.
Projects included in the CIP are generally large investments that cost at least $50,000 and are expected to last at least 10 years. This includes things like new roads, land for parks, and water treatment facilities.
How does the City finance projects in the capital improvement program?
There are three main ways to finance the construction of major capital improvement projects:
- current revenues or City available funds,
- grant-awarded funding,
- the issuance of bonds (borrowing money to be paid back in the future).
How does the public know it’s a financially wise decision for the City to issue bonds and borrow money?
Per North Carolina G.S. 159-150, the legal debt limit for the City’s general governmental credit must not exceed 8% of the assessed value of property subject to taxation by the unit. The City maintains a debt position well below its legal debt limit and publishes this ratio in the Adopted Budget book and Annual Comprehensive Financial Report. The City must also complete an approved process set forth by the NC Local Government Commission (“LGC”) in accordance with NC General Statutes that evaluates our fiscal stability and ability to issue new debt.
What kind of governance structure does the City maintain for bonds?
The City adheres to several policies and best practices to ensure long-term financial sustainability and promote the appropriate use of funds to support our CIP.
The City uses a long-range model to track both current debt obligations and the remaining authority granted to issue future debt. This model allows staff to forecast future principal and interest payments (i.e. debt service requirements) and monies dedicated to help pay these costs to ensure debt remains affordable over time. On a regular basis, Treasury Services in the City's Finance Department consults our financial advisors, external partners, and peers to discuss reasonableness of assumptions used in the model.
Raleigh Water manages a separate Water and Sewer Utility financial model. This model captures long-term projections of customer user fees, project cashflows, and revenue bond debt inputs to ensure sufficient revenue levels are maintained to meet current and future obligations as they come due. Raleigh Water contracts with external consultants to periodically perform a rate study to evaluate adopted fee structures and assist with routine monitoring of inputs into the model.
Treasury Services conducts regular meetings with departments and management to discuss insights from these analyses, ensuring informed decision making for budget planning and debt management.
What kind of credit rating does the City of Raleigh have?
The City has maintained the highest AAA credit rating on its general obligation bond debt since 1973 and is currently rated Aaa by Moody’s, AAA by Standard and Poor’s, and AAA by Fitch.
The City’s Raleigh Water Utility revenue bond debt is also currently rated Aaa/AAA by these major rating agencies.
Maintaining the highest possible credit rating ensures the City borrows at the lowest interest rates, resulting in significant savings of taxpayer dollars over the payment period. These ratings also lead to better ability to access financial markets during economic downturns.
How is the bond debt repaid?
It depends!
General Obligation Bonds
Raleigh voters authorize General Obligation Bonds through a bond referendum ballot and may grant the City the ability to raise future taxes, if needed, to provide sufficient funding to pay the debt over the life of these bonds. The City’s General Obligation Bonds are direct obligations with interest payable semi-annually and principal paid over a 20-year period. A portion of the City’s property and sales tax revenues is directly budgeted in capital and debt funds, authorized by Council through the adopted budget process. These dedicated revenues allow the City to meet current and future debt service obligations.
Revenue Bonds
Revenue bonds have interest payable semi-annually and principal is paid over a 30-year period.
What is Steady State?
The City began strategically setting aside money for large capital projects in a dedicated Debt Fund starting with the FY26 budget. We call this Steady State. Each year, money from both sales and property taxes contribute to the fund, though the amount will fluctuate annually. The City's financial team estimates how much governmental debt it can afford utilizing the Debt Fund without increasing taxes. That amount is shared with Council for future debt and planning decisions.
The 2026 bond referendum is an example of steady state implementation, which could lead to no additional tax burden for citizens and additional future bond authority if approved.
Bonds - Project Focus
How are bond projects selected?
The Budget and Management Services Department (BMS) undergoes a comprehensive budget engagement process with citizens, departments, and City leadership. Bond projects are selected utilizing the following inputs to inform decision-making:
- City staff take into consideration the City Council Strategic Plan, Adopted Action Plans and Master Plans, Community Budget Priorities Survey, resident input, and staff analysis.
- City staff prioritize and recommend projects to Council for inclusion in the bond package. Their recommendations are based on community needs, feasibility, and cost effectiveness.
- City Council reviews the list, often providing feedback and making recommendations during public work sessions, and approves a final list of projects for inclusion into bond package(s) to be placed on the ballot.
Read more about the Budget Engagement Process on the City's website.
When a bond package is approved, when will construction of the bond project(s) begin?
Voter approval of the bond packages only authorizes funding for the project. There are several steps with project development that may take several years to complete:
- Planning and project design (which includes public input)
- Real estate acquisition
- Construction
- Other contractual agreements (bond funding may also support community-based or interlocal programs in addition to City-sponsored construction projects)
Initiated in FY 2026, the City’s general government Advanced Planning Program now funds the initial design phase of projects, thus creating a “pipeline” for projects slated for future bonds to get them as close to “shovel ready” as possible when bond funds become available.
Where can I learn more about City projects that may be funded with bonds?
View updates for ongoing construction efforts.
View the latest bond referendum.
A few department websites have additional links providing information and dashboards as it relates to prior bond referendums and funding that support their specific capital improvement programs.