During the series of NCRC doubts, I spent some time on why Kannapolis is going with a TIF. Later, I outlined why going with COPS instead of TIFs were a bad idea in this instance.
In his Spotlight report, Colletti leads with fear-mongering:
Just as lenders and borrowers underestimated some of the risks from subprime mortgages, there is great potential for negative surprises with TIFs.
And that descends into lies:
City and county taxpayers could also pay directly for the NCRC because Kannapolis is unlikely to default on the debt even if revenue falls short, and may ask Cabarrus County for assistance.
The nagging question is - what if the project fails? Here’s the answer:
If the project fails, the taxpayers are protected basically on two levels.
First, there’s the statutory protection given by the TIFs. I covered this back in April as part of an NCRC Doubts series; but mainly here’s the text from the NC Constitution explaining the minimum valuation agreement issue. Here’s the text:
the General Assembly may enact general laws authorizing any county, city, or town to define territorial areas in the county, city, or town and borrow money to be used to finance public improvements associated with private development projects within the territorial areas, as provided in this section. The General Assembly shall set forth by statute the method for determining the size of the territorial area and the issuing unit. This method is conclusive. When a territorial area is defined pursuant to this section, the county shall determine the current assessed value of taxable real and personal property in the territorial area. Thereafter, property in the territorial area continues to be subject to taxation to the same extent and in like manner as property not in the territorial area, but the net proceeds of taxes levied on the excess, if any, of the assessed value of taxable real and personal property in the territorial area at the time the taxes are levied over the assessed value of taxable real and personal property in the territorial area at the time the territorial area was defined may be set aside. The instruments of indebtedness authorized by this section shall be secured by these set?aside proceeds. The General Assembly may authorize a county, city, or town issuing these instruments of indebtedness to pledge, as additional security, revenues available to the issuing unit from sources other than the issuing unit’s exercise of its taxing power. As long as no revenues are pledged other than the set?aside proceeds authorized by this section and the revenues authorized in the preceding sentence, these instruments of indebtedness may be issued without approval by referendum. The county, city, or town may not pledge as security for these instruments of indebtedness any property tax revenues other than the set?aside proceeds authorized in this section, or in any other manner pledge its full faith and credit as security for these instruments of indebtedness unless a vote of the people is held as required by and in compliance with the requirements of Section 4 of this Article.
Notwithstanding the provisions of Section 2 of this Article, the General Assembly may enact general laws authorizing a county, city, or town that has defined a territorial area pursuant to this section to assess property within the territorial area at a minimum value if agreed to by the owner of the property, which agreed minimum value shall be binding on the current owner and any future owners as long as the defined territorial area is in effect.
Here’s the English version:
Municipalities (cities, towns, and counties) can
- define areas for TIF bonds.
- use any new tax money above and beyond what is currently being collected is available to pay back the bonds.
- back the bond with revenues sources from agreements with other entities.
- get this approved without a referendum.
- NOT pledge its the full faith and credit without voter approval
- work out with the owner a minimum valuation to be in force until the bond is paid off
If the NCRC fails, Kannapolis cannot redirect other tax dollars to bail out the TIF - the TIF defaults and the bond investors are left holding the bag: not the taxpayers. That’s why TIFs have the higher interest rates.
Second, there’s the value of the property.
What is the method by which the NCRC fails? The most likely scenario is that Castle & Cooke can’t pay the taxes. At that point, the property is repossessed and sold at fair market value, and the TIF is paid with those funds.
Also, if the project fails, it’s not likely to do it when it’s fully built-out and that means that the TIF wouldn’t have been totally spent.
The bottom line is that even though the failure of the NCRC is unlikely, the taxpayers are protected on several levels.
Subscribe to RSS Feed
Subscribe via E-mail
5 responses so far ↓
1 Thierry Wernaers // Dec 18, 2007 at 6:11 pm
All of which proves again that facts and good reasoning never stopped anyone at the John Locke Foundation from spewing a bunch of BS.
2 Joseph Coletti // Dec 21, 2007 at 9:17 am
Taxpayers already were on the hook through the state budget - the universities and community college have been tenants from the start. Any time a government takes on debt, the money used to pay that debt is diverted from the general fund, which means the government has less money to pay for other capital projects or services. If the infrastructure improvements to downtown Kannapolis are worthwhile (why the water lines have not been updated in 75 years is another question), then the city should look for the cheapest way to do that. Same with the road improvements and greenways.
If the city needed to provide an incentive to David Murdock to develop land his company already owned, it could have used the cash it saved from not using a TIF to pay him. Instead, the City Council chose to conflate them and falsely claim the debt is nearly free money.
3 Joseph Coletti // Dec 21, 2007 at 9:21 am
Even ignoring the costs inherent in TIFs, you also confuse statutory minimal requirements with practical reality.
Will Kannapolis protect the bondholders as much as it can? Yes.
If the city does not have enough money to do this, will the city council go to the county? Yes.
Is repossession quick and free? No.
Would the city be able to get a new buyer to take on the minimal valuation commitments and pay the full assessed value? Probably not.
4 Justin Thibault // Dec 23, 2007 at 9:11 am
Joseph -
That statement can take care of the first paragraph of your first comment. Kannapolis, until the mid-80s, was owned by Cannon Mills. The infrastructure was built for the mill and by the mill. Now the mill has been demolished and there’s suddenly a need for a different infrastructure for another large tenant.
You see how everything in the world doesn’t fit neatly into undergraduate Poly Sci?
As much as you’d like it to be - the TIF wasn’t an incentive. It’s a way to finance necessary infrastructure. Also, the amount of money saved by using a risker financing scheme wouldn’t come close to being a substantial incentive for a $50 million investment let alone a $1.5 billion one.
5 Justin Thibault // Dec 23, 2007 at 1:55 pm
Joseph -
And do you think the County will help them? To deal in your world of hypotheticals, my answer would be “probably not”
But, there are statutory limits to that. Kannapolis quite simply cannot pledge money from outside of the TIF bond district (until a sizeable percentage is paid).
Are you that unfamilar with the General Statues surrounding TIF in NC or are you clinging on to your argument in spite of the facts?
…at which point, they would have to default on the TIF.
The TIF is more risky for the investors and less risky for the tax payers. I don’t understand why people at the JLF are so bent on municipalities taking on extra risk.