By Hugh Fisher
For the Salisbury Post
KANNAPOLIS ó A memo sent to members of the Cabarrus County Board of Commissioners on Wednesday strongly urges the county to choose tax-increment financing to help the city of Kannapolis fund infrastructure projects.
The letter from City Manager Mike Legg outlines the city’s reasons for choosing tax-increment financing and expresses concern about the recent decision to consider certificates of participation, a different form of financing that the city had not considered.
“While the City supports the County exploring all of its options, we are certainly concerned about the uncertainty injected into the process by this fundamental change coming so late in the game,” Legg wrote.
Bonds paid via tax-increment financing may be issued by a city for certain kinds of improvements. They are typically repaid using only the tax revenues generated by selected properties whose value will be affected by those improvements.
The proposal Kannapolis presented to the county last month asked commissioners to enter a partnership agreement with the city for a $168.4 million tax-increment bond issue.
Those funds would pay for a laundry list of improvements to roads, parks, infrastructure and other necessities occasioned by growth and the construction of the North Carolina Research Campus.
On May 21, the Board of Commissioners surprised many supporters of that method by voting to partner with Kannapolis, but to also consider certificates of participation, a form of debt financing which may be issued by the county but which, unlike tax-increment bonds, could affect taxpayers countywide.
In yesterday’s memo to commissioners, Legg expressed “surprise” over that decision.
He also expressed concern about what he called an about face on the part of commissioners from wanting to ensure that taxpayers in Cabarrus County at large were not at risk to considering financing that would require repayment from the county’s general fund in the event that Castle & Cooke Inc., owner of the Research Campus, failed to pay property taxes.
“This sort of abrupt shift in philosophy serves as a major red flag to the City,” Legg wrote.
Certificates of participation offer lower interest rates, potentially saving Cabarrus County as much as $52 million over the lifetime of the investment.
But according to Legg, the savings comes with some uncomfortable trade-offs. Under certificates of participation, the agreement with Castle & Cooke that would set a minimum amount of taxes to be repaid each year would not exist. That agreement covers the repayment of the bond debt from year to year, even though some campus buildings will immediately or eventually be used for non-profit purposes.
“This benefit cannot be provided for COPs issues,” Legg said of certificates of participation in his letter to commissioners. “Using the County’s COPs projections it is clear that there will be insufficient revenues from the NCRC project in the early years of the COPs issue under (the) proposed debt structure.”
Castle & Cooke has already agreed to pay a minimum value over the 25-year life of the tax-increment financing bonds to cover repayment expenses. According to Legg, without such an agreement, Cabarrus County taxpayers might end up footing the bill for a shortfall through tax increases.
Another key concern are legal limitations on the types of projects that can be funded with certificates of participation. “Because the proposed NCRC TIF (tax-increment financing) bonds will be issued by the City, there may be projects that the County could not fund with its own debt issues which could be funded through a TIF,” Legg said.
There is still some question about whether the city’s range of projects will be acceptable to the N.C. Local Government Commission, the body that oversees municipal borrowing.
There are strict limits on the types of projects that cities can fund through public borrowing. Even so, Kannapolis Mayor Bob Misenheimer said that although the North Carolina Local Government Commission had not approved the final project list, the city’s tax-increment financing proposal had received preliminary approval from the Local Government Commission.
“There’s just no precedent for this,” Misenheimer said.
If approved by the Local Government Commission, Kannapolis’ tax-increment financing bond issue would be the largest in the state since North Carolina voters approved that form of financing in 2004.
Legg’s letter reaches commissioners a week before they meet to debate the two forms of financing. The five-member board has been split on the issue.
Commissioner Jay White, who supports the Kannapolis proposal, said Wednesday afternoon that he had not seen the memo from Legg but that he had many of the same concerns regarding the certificates of participation proposal.
“My concerns about COPS financing is that it secures the entire county,” White said. “It allows for the county to assume quite a bit of risk.”
Lack of a minimum value agreement with certificates of participation, White said, could mean that any gains from a lower interest rate would be lost in the amount of money taxpayers would have to spend to repay the debt.
“In just 10 years we would lose $50 million in revenue,” White said.
Commissioners Chairman Bob Carruth had not seen the memo when contacted Wednesday afternoon, but echoed Legg’s concerns.
“Cheaper is not always better,” Carruth said. “We’ve got to take a look at the letter and listen to what our bond counsel and underwriter tell us. We need to look very, very carefully at COPS before we decide to dump the TIF proposal. I think there will be a lot more risk and a lot more hidden cost with the COPS arrangement, the way it’s put together.”
Contact Hugh Fisher at 704-796-4245 or hfisher@salisburypost.com.