HILLSBOROUGH — State Sen. Jeff Tarte, R-Mecklenburg, believes Special Assessment District revenue bonds may be the fairest method of taxation for economic development infrastructure projects even if the financing instrument attracted only one successful applicant in the five years the bonds have been an option for local governments.
“You have to have the majority [of property owners] agree to, in a sense, tax themselves, so if you’re going to do a tax district, at least from a conservative perspective, a pretty good way is to allow people to select whether to pay it,” Tarte said.
Tarte was one of the sponsors of Senate Bill 103, extending the statute from its July 1 sunset date to July 1, 2015.
“There were a couple of developments that had come to us and asked for it to be extended,” Tarte said. The legislation allows them “to keep some new options open [and] to try to stimulate economic development.”
“There have only been two applications received by the Local Government Commission for Special Assessment Financing, and one of those applications [Mooresville] was withdrawn by the applicant,” said Schorr Johnson, press secretary for the state treasury department, which oversees the Local Government Commission.
“Local governments and developers have a variety of ways to finance their public infrastructure needs including special assessment revenue bonds,” Johnson said.
“The decision on which type of financing to use depends on a variety of factors related to economics, public policy objectives, the specific details of the project, etc.,” he said. “Most likely a combination of these factors explains the limited use of special assessment revenue bonds in North Carolina.”
“I think, for one thing [a district is] hard to get in [place],” Tarte said, “because business owners or residents in a geographic area have to agree to tax themselves.”
Under the law, which took effect in August 2008, counties and municipalities may create Special Assessment Districts within which public improvement projects are expected to enhance the value of the property.
A majority of property owners within that geographic area must seek the town-approved revenue bonds, and those owners must control 66 percent of the assessed value of the district.
It is unclear just how many of these financing instruments exist.
The National Conference of State Legislatures and North Carolina League of Municipalities said they do not track the number of special assessment districts funded by revenue bonds, nor would either speculate why they have or have not been created.
Kara Millonzi, associate professor of public law and government at the UNC School of Government, said other forms of special assessment funding have been used more frequently in North Carolina than the revenue bonds and Special Assessment Districts.
“I can’t answer why local governments choose which avenues they use. There’s obviously an array” of funding options, Millonzi said. “I don’t know of anyone who’s out there studying … whether this is a good option for local governments or not.”
The School of Government has no official opinion on the merits of various funding streams, she said.
“It looks like Hillsborough is the first and only local government to use the provision for the special assessment district bonds,” said Hillsborough Town Manager Eric Peterson. Its application was approved by the Town Commission June 24 and by the Local Government Commission the following day.
“We like the special assessment district financing tool. In certain situations it just makes it easier to go forward with economic development,” Peterson said. “Hopefully, this will work and be a good example that might be able to be used in other parts of the state.”
Hillsborough is working with Dallas, Texas-based Stratford Development on a $5.1 million bond issue with a 10.5-year payback for infrastructure construction at its 330-acre, $300 million Waterstone multiuse project between Interstates 40 and 85. A bond sale is planned tentatively for early September.
The $5.1 million primarily would pay for the road construction to connect the development, which has gone stagnant in recent years, with a four-way intersection to the nearby Cornwallis Hills subdivision and Old N.C. Highway 86, Peterson said.
The bond would be used to complete an abandoned community park, complete minor infrastructure cleanup from prior phases, and pay for the first two years’ debt payments on the bonds and administration, cost of issuance, and interest, Peterson said.
Durham Technical Community College built a satellite campus in Waterstone. A $200 million UNC Health Systems hospital is under construction, while hotels, single-family houses, townhouses, apartments, and retail offices are included in the master plan.
Mooresville Town Manager Erskine Smith said his town might again pursue a Special Assessment District for the $2 billion Langtree at the Lake mixed-use community bracketed by Interstate 77 and Lake Norman.
The town previously withdrew its application for $66 million in revenue bonds due to the sour economy, incomplete information from the developers, and a change in ownership of the project, but those situations have been rectified.
The bonds were intended to pay for water and sewer lines, sidewalks, curbs, storm drainage, gutters, and other infrastructure in a first phase of construction of a convenience store/gas plaza, restaurants, and the first of five buildings housing 300 apartments.
“They’ll probably file another one in the next coming months” for Phase 2, Smith said of R.L. West Properties, the developers. It includes a 12-story DoubleTree hotel with condos, office, and retail space; a parking deck; and convention center.
The town board plans to hold a workshop in a few weeks with financial consultants First Southwest and an attorney who’s done similar projects in other states.
“I think there’s a kind of a split on our board. Some don’t think that’s the town’s role in financing projects even though the legislature put this in,” Smith said.
“And then there’s some who say because of the economic downturn, it’s just another way to secure another type of financing vehicle to put in infrastructure to help grow the tax base and spur development to keep the economy going, and increase our tax base and other amenities they may put in for the public’s use,” Smith said.
Tarte said he and Sen. Fletcher Hartsell, R-Cabarrus, a lead sponsor of the statute extension, believe the financing mechanism will become more active soon.
“There’s longer-term projects that are looking at the use of it,” including one to add a new interchange on I-77, Tarte said. And the Charlotte Area Transit System has looked into a Special Assessment District “as a way to fund buildout of the transit lines.”
Dan Way (@danway_carolina) is an associate editor of Carolina Journal.