Bonds are used to finance capital improvement projects, such as upgrades to County facilities or park conservation. There are three types of bonds:
- General Obligation (GO) Bonds – Arlington sells mostly general obligation bonds to fund County projects. It borrows the funds (principal) at a cost (interest) and backs the loan with County credit rather than revenue from the project itself. The County must obtain voter approval on each bond, so it schedules referenda in November of even-numbered calendar years (which correspond to odd-number fiscal years).
- Revenue Bonds – Revenue bonds are typically secured solely by user fees or projected revenues and include no pledge from the County’s General Fund. Revenue bonds carry a higher interest rate than GO bonds and have debt service coverage and other financial restrictions. Arlington has issued low interest rate revenue bonds through the Virginia Water Revolving Loan Fund (VRLF) run by the Virginia Resources Authority for improvements to the Water Pollution Control Plant.
- Lease Revenue or Annual Appropriation Bonds – These types of bonds are secured by a “subject to appropriation” pledge by the County Board and do not require voter approval. They generally require the use of a third party to execute the lease transaction, such as the Industrial Development Authority (IDA), Virginia Resources Authority, or Virginia Municipal League / Virginia Association of Counties.
The “useful life of the improvement” is a key criteria in determining which projects will be funded through bonds. The project must be useful to the community for approximately the same period of time as the bonds repayment schedule. Historically, Arlington has issued 20-year bonds with an average life of 11 years and with equal principal payments each year. Longer term bonds are allowed, as are alternative amortization structures — such as level annual debt service payments to better match certain revenue streams.
Another capital funding source is inter-jurisdictional payments. Arlington provides services to other jurisdictions through contractual agreements, and these jurisdictions share the cost. For example, Arlington’s Water Pollution Control Plant provides wastewater treatment services for some areas of Alexandria, Falls Church, and Fairfax County.
Arlington’s Aaa Bond Rating
In 2019, for the nineteenth consecutive year, Standard & Poor’s, Fitch Ratings, and Moody’s Investor Services have all rated Arlington County’s General Obligation debt AAA/AAA/Aaa. Arlington is one of only 48 counties in the United States, and 9 in Virginia, to carry the coveted Aaa bond rating from all three agencies.