School District Bonds and Levies: Key Factors to Consider When Assessing Capital Funding Options

Washington school districts frequently impose levies or issue bonds to raise funds for needed capital projects. To determine which funding tool to use, districts should weigh several factors, including financial, strategic and practical considerations. This quick-reference guide compares key features of three commonly-used capital funding options—capital and technology levies (“capital levies”), unlimited tax general obligation (“UTGO”) bonds, and limited general obligation (“LGO”) bonds—to help districts evaluate which options are best suited to meet their funding needs. This discussion includes a summary of a 2026 change in State law to expand the purposes for which a school district may issue LGO bonds.

Overview of Bond and Levy Financing

UTGO and LGO Bonds. UTGO bonds and LGO bonds are forms of debt financing. A district receives proceeds from its sale of bonds at the time the bonds are issued, which are then immediately available to expend on capital projects (less the proceeds the district applies to pay costs of bond issuance, such as underwriting and legal fees).1 The district then repays the principal and interest owed on the bonds over a period of up to 40 years. The principal amount owed on a district’s outstanding bonds counts against the district’s debt capacity, which is 0.375 percent of the assessed value of all taxable property within the district for nonvoted debt, and five percent of such assessed value for combined voted and nonvoted debt.

Capital Levies. A capital levy is a tax the district collects in annual installments for up to six years. Levies do not constitute debt, so they do not impact a district’s debt capacity nor do they incur interest expense. However, unlike bonds, a capital levy does not provide the district with revenue in a single upfront, lump sum.

Allowable Uses of Bond and Levy Revenues

There is substantial overlap in the types of capital projects eligible to receive funding from UTGO bonds, LGO bonds and capital levies. However, districts should be aware of several key distinctions and limitations for certain of these funding options, as highlighted below.

UTGO Bonds. A district may use the proceeds of UTGO bonds for any “capital purpose,” including, but not limited to: purchasing sites for, constructing, and equipping district facilities; improving energy efficiency; and making structural changes and additions to district facilities. Notably, districts may not use UTGO bond proceeds to replace equipment, although purchasing new equipment is allowed.

Capital Levies. Districts may apply capital levy funds to the same capital purposes as bond proceeds generally. In addition, State law expressly provides that districts may use capital levy revenues for, among other purposes, major renovations and replacement of facilities, renovation and rehabilitation of playfields and athletic fields, purchase and installation of major items of equipment and furniture, costs associated with implementing technology systems, and major repairs and preventative maintenance (subject to conditions). Capital levy funds are not available for vehicle purchases or routine maintenance, however.

LGO Bonds. Prior to 2026, districts could use LGO bond proceeds only to purchase sites for district facilities, improve energy efficiency, make structural changes and additions to district facilities, and purchase real or personal property or property rights. In 2026, the State Legislature amended the law to allow districts also to apply LGO bond proceeds to constructing and equipping district facilities, but only if: (1) the district has received voter approval for a capital levy, the revenues of which the district must use to repay the indebtedness on the applicable LGO bonds; (2) the district has not been on binding conditions for the three years prior to the issuance; and (3) the district agrees to delay receipt of financial assistance under the School Construction Assistance Program for the related project(s) for two years.

Bond and Levy Voter Approval Requirements

UTGO Bonds and Capital Levies. UTGO bonds and capital levies both require voter approval; the requirements for UTGO bonds are more onerous, however. Prior to issuing UTGO bonds, a district must obtain voter approval at an election in which at least 40 percent of the number of those voting in the prior general election cast ballots, and at least 60 percent of those voters must vote in favor of the bond issuance and an excess tax levy to pay debt service on such bonds. Due in part to this supermajority requirement, voters approved less than 30 percent of UTGO bond issues proposed by districts from February 2022 through February 2026. Passing a capital levy, by contrast, requires only simple-majority approval by voters. Accordingly, districts have seen higher rates of success with levy proposals, with a greater than 80 percent passage rate over the same time period. Many school districts have therefore relied increasingly upon capital levies to fund their projects.

LGO Bonds. LGO bonds do not require voter approval. However, school districts must hold a public hearing for issues in excess of $250,000, and LGO bonds are subject to the more restrictive debt limit applicable to nonvoted debt (0.375 percent of assessed value). In addition, State law places greater constraints on the capital uses of LGO bond proceeds, as described above.

Further Information

This guide is intended for quick reference only, and is not a comprehensive discussion of the factors districts must weigh when choosing among capital funding options. If you have any questions relating to levies or bond issuances, including the procedural or legal requirements for employing these tools or the lawful uses of bond or levy funds, please contact either of our school district public finance attorneys listed below.

^{1. State law and federal tax and securities law impose various legal and procedural prerequisites for bond issuances that do not apply to levies, such as hearings, certifications, legal opinions, disclosure and tax documentation, and related diligence. In addition, federal tax and securities law impose ongoing compliance requirements for certain types of bonds that can apply for as long as the bonds (or bonds that refinance the bonds) remain outstanding.↩}

This publication is for informational purposes and does not provide legal advice. It is not intended to be used or relied upon as legal advice in connection with any particular situation or facts. The information herein is provided as of the date it is written and the provisions described herein may be modified by future changes in law including in the Code or guidance from the Internal Revenue Service.