By By MIKE VOSS
Contributing Editor
Washington has been awarded nearly $6 million in Economic Recovery Zone Bond capacity by the N.C. Department of Commerce.
It’s up to the City Council whether it will use all or part of that capacity. Earlier this year, the council designated Washington as a recovery-zone area.
Economic Recovery Zone Bonds are another tool that local governments may use to enhance their economic development efforts. Issuance of such bonds does not require a referendum. Economic Recovery Zone Bonds are a form of Build America Bonds.
(See accompanying information box for an explanation of Economic Recovery Zone Bonds).
“This would bring economic development to Beaufort County, particularly to Washington,” Matt Rauschenbach, the city’s chief financial officer and assistant city manager, told the council earlier this month.
“We can put local people to work,” Rauschenbach said in a brief interview Thursday.
Some council members have concerns with the bonds, including whether the city is in a financial position that would allow it to take on more debt, even if such bonds are more attractive than other bonds such as general-obligation bonds.
Councilman Doug Mercer has some concerns with Economic Recovery Zone Bonds and the process used in issuing them. He prefers that voters — by way of a referendum — have a voice in saying whether the city should issue bonds.
“When committing the city to that kind of financial burden, the citizens would have a say on it,” Mercer said. “If we had a vote to send it to a referendum, I’d vote for it tomorrow.”
Taxpayers should say whether the city should assume another $200,000 or so (plus interest) in debt payments each year for an extended period of time, Mercer said.
When it comes to deciding what to do concerning the bonds, Mercer said, he would like time to thoroughly study the issue.
The N.C. Tax Reform Allocation Committee approved the following bond capacities for the city:
• Police station relocation, $1 million.
• Replace roof on headquarters fire station, $42,000.
• Replace roof on Bobby Andrews Recreation Center, $15,984.
• City Hall renovations, $250,000.
• Former City Hall renovations, $50,000.
• Fiber network, $70,000.
• Stormwater drainage improvements, $4,475,000.
• Havens Gardens walkway, $75,000.
The total capacity comes to $5,977,984.
The city has until July 18 to use its capacity allocation, unless that deadline is extended.
“If the full amount of this allocation has not been used on or before July 18, 2010 (unless otherwise extended), then the portion of the allocation that has not been used shall be deemed not to have been allocated to you in the first instance, such that said unused (and therefore unallocated) bond capacity shall become immediately available to the TRAC for reallocation to any entity, in the TRAC’s sole discretion,” reads an April 23 letter from the Department of Commerce to the city.
The council is expected to further discuss the bonds during its meeting Monday. If the council decides to pursue issuance of such bonds, the city likely will request a 90-day extension to prepare plans and documents for certain projects that are not “shovel-ready,” said Rauschenbach.
The Local Government Commission, which oversees spending by local governments, must give its approval before the bonds can be issued.
“I see this as an excellent opportunity for the city to address some of its needs,” Rauschenbach said Thursday.
Bond details
Economic Recovery Zone Bonds are not tax-exempt bonds. The federal government will reimburse the bond issuer for 45 percent of the interest paid (Build American Bond issuers are reimbursed 35 percent of the interest).
Before an Economic Recovery Zone Bond can be issued, a “recovery zone” must be designated. These zones are defined as geographical regions with “significant poverty, unemployment, rate of home foreclosures, or general distress.” However, each entity receiving an allocation of bond authority has full discretion to designate one or more recovery zones.
Bonds can only be used to promote development or economic activity within a designated recovery zone. They can be used for capital expenditures for the acquisition or development of property within a zone (by public entity), expenditures for public infrastructure and construction of public facilities, which means any building owned by an entity of government and expenditures for job-training and education programs. They cannot be used for any activity that benefits a private business or individual.
The Recovery Zone Facility Bonds are specifically formulated to finance private-sector activities.
The American Recovery and Reinvestment Act requires that the bonds must be issued before Jan. 1, 2011.
Source: N.C. Association of County Commissioners Web site.