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Bonding CPA Projects

Horizons for Youth Property in SharonIn recent years, issuing bonds against future CPA revenue to fund large-scale projects has become an invaluable tool for municipalities seeking to make big investments in community preservation. While the majority of bonded CPA projects are in the open space category, many bonds have also been issued in all the main categories of CPA - for a full breakdown of how communities across the state have utilized their CPA programs for bonded projects, click here.

How Does Bonding with CPA Work?

The authorization to bond CPA funds is in Section 11 of the Community Preservation Act (MGL c.44B), which states that CPA communities may issue general obligation bonds in anticipation of revenues to be raised through the local CPA surcharge. Note that in calculating how much of a bond can be issued under CPA, a community can only bond against the local surcharge portion of their CPA revenue, not the trust fund matching portion.

When exploring options for bonding against future CPA revenue, many communities bring up one concern in particular: what happens if CPA were revoked at some point in the future? MGL c. 44B, Section 16, addresses this issue. If the community has no CPA debt, or has sufficient CPA reserves on hand to pay the remaining debt service, the surcharge would cease at the end of the fiscal year. If there are insufficient funds in the CPA accounts to pay the remaining debt service, the surcharge would continue to be assessed until such time as the remaining debt service amount has been raised. If the current surcharge would generate sufficiently more revenues than necessary, the community may request permission from DOR to lower the surcharge to a percentage that would provide the revenue needed to fund the obligations. In either framework, new CPA projects would not be funded after revocation of CPA.

The downside to bonding, as with most loans, is that it is ultimately more costly due to the interest that is charged. This calculator from the Massachusetts Department of Revenue will show the total payments a community would make over the term of the bond, including the interest. In addition, bonded projects may be more difficult to pass at Town Meeting or City Council. It takes a 2/3 vote of the legislative body to approve a bonded project, while almost all other CPA projects require only a majority vote. Nonetheless, bonding can be a powerful tool to successfully achieve community preservation projects that come with larger price tags.

For a more information on the rules, best practices, and additional resources regarding CPA bonded projects, the Coalition has a 30-minute training webinar on this topic, available to view on-demand in our Online Training Archive.

Town of Sharon Case Study

To illustrate how CPA projects can be accomplished through issuance of bonds, this article highlights an open space and recreation acquisition project in the Town of Sharon. The town used a combination of CPA funds and other town funds to purchase a 57-acre lake-front property that had been used as a summer camp throughout most of the 20th century. This was one of only three summer camps that remain in Sharon, which was once known as a summer retreat area, and the property is highly valued due to its size, location on Lake Massapoag, wildlife habitat, and opportunities for passive and active recreation. The property had been listed as a priority in the town’s Open Space Plan for decades. 

The town required $4.85 million to purchase the property. With Sharon’s local surcharge collections of approximately $330,000 annually, it would have been impossible to fund the project through current available CPA funds. In order to secure the land, the Town voted to raise $3.65 million from town funds and $1.2 million from CPA, both of which were largely raised through issuing bonds with a repayment term of 10 years (the CPA portion used $225,000 from existing CPA funds, and $975,000 was borrowed). Using an interest rate of 5%, the annual debt payment on the CPA portion of the bond starts at $144,000 in year one and drops to $100,000 by year ten.

Can CPA Affect a Municipality's Bond Rating?

In the case of Northampton, CPA actually contributed to a two-step upgrade in their city bond rating, from A+ to Aa2. The upgrade came just two weeks after Northampton voters rejected an attempt to revoke CPA with 70% of the electorate voting to keep the Act in place. This willingness to pay for municipal programs is one of the primary factors that Moody's Investors Services evaluates when considering a city or town's bond rating.

Ratings of "Aa", the second-highest Moody's rating, are judged to be of high quality and are subject to very low credit risk. David Narkewicz, the mayor of Northampton, credited voters' decision to keep the Community Preservation Act as a major factor in the upgrade, saying that "despite tough economic times, Northampton residents have shown significant community support.” For more information, check out the following resources:

Further Resources:

Mar. 2023