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Q and A with Jeff Brown

by Mark Peres

October 3,2004

What is Amendment One and what are its primary benefits?

Amendment One will amend the State Constitution to give communities across the state the option to use an economic development tool called self-financing bonds (also known as tax increment financing). Self financing bonds are a way to pay for public improvements such as water and sewer lines, storm-waterfacilities, streets and parking facilities to encourage private sector investment in areas that need an economic boost. Under the North Carolina legislation, self-financing bonds can be used only if there’s an identified business or economic development project that would not happen without the public infrastructure support. By selling self-financing bonds communities raise money to make public improvements that would, in turn, attract private investment for economic development. The bonds are then repaid with the additional tax revenue resulting from the new development.

Why shouldn’t businesses bear their own risk?

Businesses will bear the project risk. The bonds are designed to finance the sort of public improvements (such as parking decks, utility line extensions and the like) that would typically be financed by public funds. By making a commitment of public funds for these projects, the localities will then attract a much larger pool of risk capital for investment in areas that are now by-passed by private investment. The burden for paying off the bonds is placed on those who benefit most from the use of the bonds, namely the property owners located within the designated development district. Taxes are not raised in the broader community and there are no tax abatements. Instead, the increase in the property values for the designated project area and the resulting increase in tax revenue generated by the new development pays off the bonds.

Why shouldn’t voters have a direct say on the issuance of TIF bonds on a case-by-case basis, just like traditional bonds?

General obligation bonds require voter approval because taxes can be raised on everyone in order to pay off general obligation bonds. Local governments already issue a number of bonds, such as revenue bonds and certificates of participation, without voter approval. Companies making job related investments often cannot afford to wait months and years for a ballot referendum. Having these bonds in place in relatively short order can make a huge difference in getting business prospects to consider breakthrough projects in areas badly needing economic development, but without requiring the local government’s full faith and credit to be pledged nor causing an increase in property taxes throughout the local community.

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