Politics as Usual

Bonds, city bonds

You’re being asked to vote for nearly $1.6 billion in bond financing. Just how do municipal bonds work, anyway?
In the March 3 election, voters will decide whether to raise money via a bond issuance to fund improvements on City College campuses. Photo: Syced2

When you open up your ballot for the March 3 election, two of the choices you’ll be asked to make involve issuing hundreds of millions of dollars in bonds to fund various projects. Regardless of whether you support or oppose those projects, you would not be alone if you wondered about some basics of the bond world.

Just what are they? Why do cities use them instead of just raising taxes? How do they get paid back? And how will this affect your taxes?

These municipal bonds are issued by cities, counties, districts, and states. The Golden Gate Bridge, for one example, was financed by municipal bonds. They’re an effective way to pay for projects that require significant investment, but it’s likely that most of the people who vote for or against them don’t understand what they’re voting for or against.


On March 3, San Francisco voters will have an interesting ballot to cast. Besides the headline selections of party presidential primaries and some other officeholders such as judges, there will be two local bond-related ballot measures.

Proposition A would authorize a bond issuance of $845 million, the funds from which would be used to renovate several City College campuses. It needs the support of at least 55 percent of the voters to pass.

Proposition B would authorize $628.5 million in bond debt to pay for infrastructure upgrades in fire and police stations, the emergency firefighting water system, the emergency call center, and additional projects related to disaster response. This ballot measure requires a two-thirds majority of voters to pass.

There is also a statewide bond measure on the ballot; Proposition 13, the School and College Facilities Bond, would result in $15 billion in bond debt for those educational institutions.

Confronted by all of these asks for money in the form of bond authorization, some voters naturally think, “That’s a lot of money. And didn’t we just authorize hundreds of millions of dollars in bonds in the last election? And the one before that?” In November 2019, for example, city voters approved a different Proposition A, which provided for the issuance of up to $600 million in bond debt to fund affordable housing.

When you read analyses of municipal bond proposals and wonder about the cost, you might be confused by — or perhaps pleased by — descriptions of how they won’t result in higher taxes. For example, in 2015, San Francisco voters approved another bond measure called — you guessed it — Proposition A to raise $310 million for affordable housing. As Affordable Housing Finance’s Donna Kimura wrote after the measure’s passage, “Prop A allows an increase in the property tax to pay for the bonds, if needed. . . . However, because of the retirement of existing debt and the growth of the property tax base, city leaders who support the plan said they do not expect the property tax rate to increase.”

The Office of the Controller for the City and County of San Francisco provides information on both policies and outstanding debt. If you want to go into the numbers and see how many municipal bonds the city is still paying for, and the status of each of them, the controller’s office has extensive and not-too-difficult to understand data at If you are interested enough to dig deep into the data, you can find out how much of a bond has been issued, and how much has been authorized but not yet issued.

As the controller’s annual report issued last year notes, the “City Charter limits issuance of general obligation bonds of the City to 3 percent of the assessed value of all taxable real and personal property, located within the City and County.” So as earlier bonds are paid off, or bond authority in them goes unused because a project comes in under budget or changes in some way so that the money is not needed, then the city has that amount of money under its bond cap available to issue bond debt on new projects. That’s why in the controller’s review, found in deep-dive descriptions of bond ballot measures, you will often see a statement that even though a new bond measure would result in the city issuing hundreds of millions of dollars in bond debt, it would not result in higher taxes.

The controller’s report on all outstanding general obligation bonds — separate from a couple other types of bond debt instruments we’ll ignore for today — showed that as of Dec. 31, 2019, San Francisco has $2,389,312,972 in outstanding principal remaining on all of its outstanding GO bonds.


Across the country, about $4 trillion is invested in municipal bonds.

So why do cities use bonds instead of just raising taxes for new spending? First of all, taxpayers really hate new spending. If municipalities keep issuing new bonds to replace the already-authorized spending authority as old bonds are paid off, taxpayers don’t get hit with new taxes.

So, you might think, if the city is basically using a line of credit from taxpayers to fund important projects, why doesn’t it just put that money into an account to fund these projects and not borrow the money from the investors? There would be no need to pay off investors with interest payments, and the unused money could in fact be invested in safe investments — such as, I don’t know, municipal bonds — and bring in its own income. Why not? Because that would take long-term thinking and it would still require raising that initial amount of funding from taxpayers via, yes, taxes.

For their part, investors like to buy municipal bonds because they can avoid federal taxes (and, depending on where they live, some local and state taxes) on the interest they receive from them, unlike if they invest in corporate bonds. Also, municipal bonds tend to be relatively safe. Their yield might be lower than on corporate bonds, but — Stockton and Detroit aside — municipalities rarely go bankrupt. Maurie Backman, writing on The Motley Fool website, noted that “based on historical data, municipal bonds are 50 to 100 times less likely to default than corporate bonds that carry the same credit ratings.” According to the most recent data from the credit agency Moody’s, San Francisco has a AAA credit rating — Moody’s highest rating— so our bonds are pretty darn safe for investors, and it allows the city to issue debt with lower interest rates payable to the investors.

So you could vote for a bond issuance and later invest in the bond, helping the city and helping your investments at the same time.

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