What Is a Bond Election?

by Tom Streissguth ; Updated July 27, 2017

When a public agency or state government needs to raise money, it has the option of issuing bonds. A bond is a debt obligation that investors can trade on a secondary market. The money bond issuers collect from investors can be used for capital spending projects, such as new schools, roads, or other infrastructure, or simply used for general fund expenses. Investors in the bonds often receive a stream of interest payments that may be tax-exempt. At the maturity date, bondholders receive the face value of the bond. In many states, certain bond issues are subject to approval by voters, a process known as a bond election.

State Laws Governing Bond Elections

Each state sets its own laws on bond elections. In Texas, for example, any general obligation debt must be approved by a two-thirds margin in the state legislature, and by a majority of voters in a bond election. If the result is an approval, bond payments must come out of the state's general fund. Non-general obligation debt pays from a stream of dedicated revenue sources, such as a sales tax. These bonds do not require approval by the voters or the legislature. The Lone Star state holds bond elections twice a year, in March and November. In contrast, in South Dakota all bonds, whether for general revenue or dedicated purposes, must be approved by 60 percent of the voters.

Bond Elections

Bond elections begin with an ordinance or resolution by a governing body, which deems it necessary to raise funds not available from ordinary revenue streams like sales, income and property tax revenues. The resolution states the purpose of the bonds and the maximum amount to be issued; it may also set the maximum interest to be paid and the maturity date. If the voters approve the bond, the public agency issues the bonds by hiring an underwriter, who is responsible for pricing and marketing the bonds. The issuer then offers the bonds to banks, securities dealers and investment firms for sale to individual investors.

Video of the Day

Brought to you by Sapling
Brought to you by Sapling

On the Ballot

In most bond elections, the initiative appears on ballots that also are used to elect individual representatives. Voters are not required to make a selection one way or the other, and in many cases bond initiatives see much lower participation than races for elected office. Many bond elections take the form of referenda, in which voters are asked to approve the payment of bonds through an increase in tax revenues or some dedicated source. In some states, such as California, bond initiatives appear as a proposition that appears alongside other initiatives in state law and policy. Proposition 1 appeared on California ballots in 2014, for example, and proposed $7.5 billion in bonds for water supply and infrastructure projects throughout the state. The measure was approved by voters, and money for repayment of the bonds will come out of the state's general fund.

About the Author

Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.

Cite this Article A tool to create a citation to reference this article Cite this Article