Frequently Asked Questions

Q. Will these bonds raise our taxes?

A. NO. Within the context of the overall state budget, the annual payback is so small that no tax increase is necessary to make the payments.

Q. Will tuition and fees go up as a result of the bonds?

A. NO. Tuition and fees will not be used to repay the bonds.

Q. Is this referendum connected to other questions on this fall's ballot?

A. NO. Voters statewide will be asked to approve issuing $900 million in bonds for higher education. A separate question will ask approval of $119 million in bonds for parks and natural areas. In addition, voters in Northern Virginia and Hampton Roads will be asked whether they support raising their sales tax to finance transportation improvements. Voters may vote for or against each individual measure as they choose.

Q. Who decides what the money will be used for?

A. The 2002 General Assembly approved a list of specific projects for which this bond package will be used. Those projects are listed in state law. Every public college, university, and community college in every part of Virginia will benefit. By law, the money may not be used for anything else.

Q. How can we be sure that the money won't be used for something else?

A. By law, the money can only be used for projects listed in the 2002 bond legislation. In fact, projects must stay within budget or the institutions themselves will have to find the necessary additional funds.

Q. Will this bond issue hurt Virginia's triple-A bond rating?

A. NO. In fact, studies show that bonds can actually enhance our AAA rating. Virginia is one of only eight states in the nation with that rating.

Q. Will these projects have an impact on the current recession?

A. YES. These bonds will create thousands of jobs in the construction industry alone. The planning for many of these projects is already complete and construction will start immediately after the bonds are issued. This bond package will generate more than $1.5 billion in economic activity by 2008, and it will create nearly 14,000 new jobs.

Q. No one in my family is in college. How will this benefit me?

A. This will help strengthen Virginia's economy overall. The package will help Virginia maintain and grow the conditions that keep our economy strong. The fact is that companies want to locate or expand near colleges and universities so that they can take advantage of a well-trained workforce.

Q. Will this affect private colleges and universities in Virginia?

A. NO. This applies only to public colleges, universities, and community colleges.

Q. Why should we borrow money? Why don't we stick to Virginia's pay-as-you-go philosophy?

A. This plan allows us to make critical investments now. The economic conditions are right, and this proposal is conservative. Virginia has two assets that put us ahead of our competitors: one of the best credit ratings in the country, and ample debt capacity. Passage still will leave Virginia well below its capacity to repay debt. And with interest rates so low, it makes sense to capitalize on these assets. Consistent with Virginia's fiscally conservative philosophy, this bond issue is prudent, reasonable, and responsible.

Q. Has Virginia ever issued bonds like this before?

A. YES. This is only the fourth time in Virginia history that a general obligation bond has even been placed on the ballot. The last time was in 1992 - a decade ago. Since then our neighboring states of North Carolina and Maryland have both undertaken major bond issues to invest in their campus buildings. In today's increasingly competitive world, Virginia cannot afford to sit back and rest on its laurels - or rest on our prior investments - without losing ground.

Q. Just what is a general obligation bond, anyway?

A. A general obligation bond is a bond sold by the Commonwealth of Virginia to investors to raise money, in this case for capital construction projects. Requiring approval by referendum before they are issued, these general obligation bonds are backed by the "full faith and credit" of the Commonwealth. Debt service will be paid from the general revenues of the Commonwealth; in fact, a certain amount each year is already dedicated to repaying the debt on general obligation bonds the state has issued. Issuance of these bonds is not expected to increase the debt service above levels that are already regularly appropriated. The state's debt capacity is such that there is room to issue the additional bonds without affecting the state's bond rating and without requiring an increase in state taxes.

Q. How will the state be able to afford the debt service to pay off the bonds, given the current budget crisis?

A. When all of the bonds are sold, which is projected to be by 2009, the debt service is estimated to be $87 million per year, which is 0.8 percent of current general fund resources. For bonds that will be issued in the current biennium, there is $14.3 million in the budget to pay the debt service.
More importantly, the state can control the amount of new debt service that it incurs by controlling the rate of bonds issued. In other words, if the state determines that because of a downturn in the economy it cannot afford to incur additional debt service, it will not issue new bonds until such time as it can afford the debt service.

It is important to realize that while we are experiencing an economic downturn, this condition will not be with us forever. Last year’s growth of -3.8 percent was the weakest on record. And the projected growth rates for this fiscal year at 0.8 percent and the following year at 4.6 percent are not much better. However, if you look at Virginia’s average annual growth rates for the last three decades, you can conclude that better times are likely to return. During the 1990s, which included three years of flat or negative growth at the beginning of the decade, the average annual growth rate was 6.0 percent. The average annual growth rate for the 1980s was 10.0 percent, and the average annual growth rate for the 1970s was 11.8 percent.

Q. What about the costs of operating these buildings?

A. Expenses for electricity, air conditioning, heat, and general maintenance are normally associated with the cost to maintain buildings. Almost half the bond projects are for renovation of current buildings. Since these buildings are already in existence, they will not require any additional money to maintain them. In fact, there should be a cost savings because the newly renovated buildings will be more efficient to operate.

The estimated additional cost to maintain the new buildings after they are constructed is $20 million per year. The federal government will pay for some of this cost for those buildings in the bond package that are associated with research grants.

Once all the bonds are issued and once all the new buildings are constructed, the combined operating costs — debt service plus maintenance — associated with higher education buildings in the bond package could total $107 million per year. That is one percent of current general fund resources, well within the normal growth of general fund revenues for the budget.

Q. What about faculty?

A. There are buildings in the bond package that add classroom space. Adding new faculty to teach in new classrooms will increase the operating cost. However, the need for additional faculty is usually tied to an increase in the number of students. The state will be in full control of whether it is financially feasible to increase the number of students and the number of faculty. Also, tuition from the new students will help pay a portion of the cost for new faculty.