About the SF League Bond Watch

Doesn’t it seem like there are new bonds on the ballot every election? Ever wonder what happens after the voters approve the bonds? I’m Kristin Chu, Treasurer of the LWVSF, and I’ll be providing quarterly updates on all aspects of the City’s general obligation bond program.

As a member of the Citizen’s General Obligation Bond Oversight Committee (CGOBOC) I spend lots of time studying both bond issuances and the major construction projects funded by the bonds. The CGOBOC is tasked with “informing the public concerning the expenditure of general obligation (G.O.) bond proceeds through active review and the publishing of regular reports.” We pour over multipage Gantt charts (need definition), discuss bond ratings, don hard hats to review worksites, worry over the price of steel and ask tough questions about complex projects. (We could have a very brief definition of Gantt chart for print version and use a link to Wikipedia or other source for the website)

Read Bond Watch News from Kristin:

May, 2009 Bond Watch>
October, 2009 Bond Watch>
January, 2010 Bond Watch>

WHAT ARE GENERAL OBLIGATION BONDS?

G.O. Bonds are long term debt issued by the City and County of San Francisco and paid for by increases in property taxes. They are different from Revenue Bonds which are paid for by an identified revenue source, for example additional fees charged to the airlines for the use of new facilities.

The money raised by G.O. Bonds is used to finance large capital improvement projects. Currently the most active Bond projects are: S.F. General Hospital ($887 million approved by voters in 2008), Branch libraries ($105 million in 2000), Neighborhood Parks ($185 million in 2008 and $110 million in 2000) and Laguna Honda Hospital ($299 million in 1999). (reformat this as bulleted list)

Bonds are issued in a series, usually in 3 or 4 issuances, when the money is needed for a project. Just like a home loan, the City’s cost to borrow money depends on the interest rate on the debt and number of years of the loan. Large debt can be issued anywhere from 10 to 35 years with interest rates that vary depending on the market and financial viability of the issuer. For example the city’s latest general obligation bond sale was on March 4th, 2009 - $131 million dollars worth of bonds were sold for the SF General Hospital project at an interest rate of 4.54%. This is the first issuance for SF General.

The City Charter limits the amount of Bond Debt the city can carry at any one time to manage the burden on the taxpayer. The limit is 3% of assessed value of the property in the city; this worked out to be $2.8 billion in 2002-2003.

CURRENT BOND PROJECTS

Although there are eleven open bond projects for the City and County of San Francisco, only a handful of projects are under construction.

• Under a $105 million bond program approved by voters in 2000, the city’s branch libraries are being renovated or replaced by new buildings. (IS THIS TRUE? ARE ANY BEING REPLACED BY BUILDINGS THAT ARE NOT NEW?)
• Two bonds, approved in 2000 and 2008 provide $295 million to upgrade our neighborhood parks.
• The Department of Public Health has two active projects, Laguna Honda Hospital ($299 million in 1999) and San Francisco General Hospital ($887 million in 2008).
• The New California Academy of Science was partially funded by $87 million in bond funds approved in 2000.

CAPITAL PLANNING COMMITTEE

A city hall committee, the Capital Planning Committee (CPC), is tasked with planning the city’s capital needs. It is chaired by the City Administrator and includes all capital-intensive departments along with the President of the Board of Supervisors, the Planning Director, the Controller and the Mayor’s Budget Director. Every year they create a 10 year capital plan that prioritizes the most pressing capital needs of the city and present them in a plan.

The Capital Plan details the scope of the capital needs and the best strategy for successful financing. General Obligation Bonds, because they are long term debt at low interest rates, are a relatively inexpensive type of financing but they need 2/3 voter approval to pass. When the CPC analyzed the success of bonds on the ballot they came up with some interesting conclusions:

• Since 1958, The City has proposed 83 G.O. bonds , 44 of which have passed (53%),
• The bonds have a higher pass rate (67%) in municipal elections (the big November election) than in other elections,
• Approval trends downward over the last 30 years,
• Infrastructure (71%) and public safely (62%) bonds are most likely to be approved; office, admin and support bonds (11%) are least likely to be approved.

Based on these findings, the CPC is recommending four bond issuances between the November 2009 and November 2015 elections: Emergency Response ($580M), Road Repair and Safety Improvements ($309M), Park Systems Renovation and Improvement ($150M) and a second Emergency Response Bond ($210M) in late 2015. (Make bulleted list?) There are projects that are arguably more critical, like the replacement of jails at the Hall of Justice or the Veterans Building seismic improvements, but the CPC concluded they would not be attractive to voters. These projects are to be funded through alternative financing sources like General Fund debt.

The most significant constraint on G.O. bond planning is managing the burden on the taxpayer. In FY 2007-2008 property taxes were assessed at just over 0.11% to pay for existing bond debt. The current capital plan calls for that rate to steadily rise to 0.15% in 2012 and then descend to 0.10% over the following eight years. This means the plan asks property owners to increase their costs in the near term with the promise of decreases in the future. The taxpayers will be asked to take on that burden in the next few elections as new bond measures reach the ballot.

WHAT YOU CAN EXPECT FROM THE LEAGUE’S BOND WATCH

Each quarter I will report back on the activities and findings of the CGOBOC. I’ll let you know what is working and where we have concerns. I’ll give you the numbers and a feel for how the projects are coming along. And, most importantly, I’ll give you ideas on how to get involved and become a Bond Watcher!

Come to the next CGOBOC meeting! We meet on the 4th Thursday of the first month of the quarter. The next meeting is April 23rd at 9:30am in Room 416 of City Hall. If you have any questions, you can contact me at lwvsf@lwvsf.org.

ADDITIONAL ONLINE RESOURCES

G.O. Bond Financing Basics Brochure by the Controller’s Office (PDF)
G.O. Bond project summary (PDF)
City and County of San Francisco 10-year Capital Plan
New York Times article on Municipal Bond Debt