State Government

With Self-Financing Bonds,
Those Who Benefit Pay the Taxes

Polls show that voters believe the economy is the state’s most important issue, and on Nov. 2 they will have the opportunity to approve a tool that has been used to revitalize communities across the country, significantly increase property values and put people back to work.

The tool is self-financing bonds and it will be on the ballot as Amendment One. The bonds pay for public improvements such as water and sewer, streets and sidewalks in partnership with a private investment in a development district. Taxes generated bythe enhanced property values within that district are used to pay off the bonds.

North Carolina is one of only two states that don’t have this type of financing. The other is Arizona.

The proposal has been defeated twice before at the polls. Proponents are more optimistic this time because the state is still recovering from the loss of 180,000 manufacturing jobs and the public recognizes the need for more jobs in North Carolina. There is also a strong campaign effort on the issue this year.

NCCBI and many of its members are actively involved in North Carolinians for Jobs and Progress – the referendum committee promoting the issue. NCCBI chair and IBM executive Barry Eveland is serving as co-chair of the campaign committee. Graham Denton, NCCBI second vice chair and North Carolina state president of Bank of America is finance chair. Leslie Bevacqua Coman, NCCBI vice president of governmental affairs, is chair of the steering committee. At the community level, many NCCBI members are leading local grassroots efforts across the state and raising campaign funds.

“This is a tool that will benefit all of North Carolina – including rural and urban communities,” said Bevacqua Coman. “It will be important for recruiting new business and will be a boost to the economy that will benefit existing companies. In some communities it will act as a catalyst for building more affordable housing for people with moderate incomes, including the elderly. Most of all it’s about jobs, jobs, jobs.”

That’s why nearly 200 organizations have endorsed passage of Amendment One. They include local chambers of commerce, the N.C. Association of Educators, N.C. Association of Realtors, the N.C. Rural Center, the N.C. League of Municipalities, N.C. Association of County Commissioners, the N.C. Economic Developers Association and the N.C. Smart Growth Alliance.

Both Gov. Mike Easley and GOP gubernatorial candidate Patrick Ballantine are supporting Amendment One. Former governors Holshouser, Hunt and Martin are honorary campaign co-chairs and have made numerous speeches throughout the state urging people to vote for the amendment.

“This is a fiscally conservative approach that requires those who benefit most directly from the use of the bonds to pay them off,” said Holshouser.

The fiscal track record of the bonds is excellent. According to a Bank of America survey, less than two percent of the bonds default, and that includes technical defaults for missing a payment.

North Carolina will have some of the toughest standards in America for making sure the bonds are put to good use. That starts with the involvement of the Local Government Commission in the State Treasurer’s Office. No local bond approved by the commission in the last 50 years has defaulted.

The only advantage of being among two states without this type of bonds is that North Carolina has learned from other states. In North Carolina, there will be limits on how much retail can be in projects that are outside the central business district. That is a specific anti-sprawl feature of the program. A community will be limited to designating no more than a total of five percent of its land for development districts. In some other states communities have put up to 30 percent of the land into development districts.

The Amendment One approach is far different than with general obligation bonds. First, general obligations bonds pledge the full taxing power of the community as security. That pledge is why there is a referendum on those bonds. Amendment One bonds do not make that pledge, which is why a referendum is not required. If a community decides to pledge its full taxing power as security for paying off the self-financing bonds, a referendum must be held.

In addition, general obligation bonds for public improvements often are spent in hopes that economic development will follow. Self-financing bonds can only be spent when there is a specific private investment planned. Everyone pays off general obligation bonds – whether or not they have any direct benefits. With Amendment One, those who benefit most pay off the bonds.

A typical project using this type of financing in other states is redevelopment of the West End of Greenville, S.C. An investment by the community of $4 million in self-financing bonds for public improvements helped attract 30 new businesses and $19 million in new investment in the area.

Since these bonds went into use more than 40 years ago, they have been a catalyst to increase property values by billions of dollars with projects that provided thousands of jobs.

“We can’t afford to turn our backs on this tool any longer,” said Bob Morgan of the Gaston Chamber of Commerce. “I’ve got 50 vacant textile plants in this county and we’re not the only county facing those kinds of challenges.”

He added, “We need everything we can get our hands on. This is a reasonable approach. There are no giveaways or tax abatements. There is no building something in hopes that someone will come. This fits perfectly with North Carolina’s traditional type of public-private partnership where everyone pays a fair share and everything’s upfront.”