Wednesday, April 4, 2012

Red Line Chronicle - Chapter 6 – As We See Fit

Will citizens be allowed to vote on the Red Line now that the proposed plan requires significantly more local tax dollars than just what the 1/2 cent transit tax provides? The simple answer is “NO”, voters will not get a say in the decision to move forward with the Red Line Regional Rail project. 

Or maybe it is not that simple…

The less simple answer is that it’s a conscious choice by those who created the plan to use financing mechanisms and a project governance structure that do not require a vote of the people.

Some obvious questions about the project would seem to justify a vote. 

Is a proposed initial 30-year commitment to build, operate, and maintain the Red Line significant enough to warrant a referendum on the undertaking?  Do spending decisions that dedicate TIF and SAD tax dollars equal to significant percentages of the various towns' budgets justify a referendum?  What lessons, if any, have been learned from taking on significant long-term risk without a vote of the people?  The Mi-Connection decision by Davidson and Mooresville comes to mind.

These are all questions that would seem to lead in the direction of justifying another referendum.  Still, the voters won’t be granted that option.   I’ll explain why shortly, but first, a little background on Red Line project.
The Red Line project originally envisioned a commuter rail service between Mt Mourne and Charlotte, a service running several times daily providing an alternative mode of transportation to the existing bus service or driving I-77.   Residents of North Mecklenburg twice supported the idea when the ½ cent Transit Tax was initially implemented in 1998 and again nearly a decade later when repeal of that tax was defeated in 2007.  As part of these votes area residents also expected to not be on the hook for more money to construct and operate the line.  A year after the Transit Tax Repeal effort failed the economy soured.  Transit-tax dollars dwindled, and the project was put on life-support.  Then, in 2010 the project was revived partly by bringing Freight Oriented Development (FOD) into the equation.  This will supposedly bring additional jobs but also bring heavy rail freight to the line with expanded operations through the towns of North Mecklenburg.  The project would now be funded using Special Assessment Districts (SADs) and Tax Increment Financing (TIF) which both take more money out of the local business community and tax base and dedicate it the Red Line.  The final piece of the new plan creates a new government entity called a Joint Powers Authority (JPA) to manage the whole project.  This new government entity will manage hundreds of millions of dollars in infrastructure, but not be directly accountable to the voters like a Board of Education for example.

So, why isn’t a referendum going to be allowed on the project even though there have been significant changes from what the voters approved originally?   The answers are in State law and how the finance plan has been put together.  However, as usual the simple answer is not always what it appears.

To put it simply, the State of North Carolina controls when referendums can occur with an iron fist.  Per the Mecklenburg Board of Elections, even non-binding referendums require Legislative approval and currently, the financing mechanisms proposed for the Red Line do not require one. 

However, that does not mean one could not occur. 

All the supporters of the project would have to do is ask.  However, I have not seen anywhere that the supporters of the Red Line asked the Legislature for permission to hold a referendum.  If the request had been made, there is reason to think that permission might be granted.  Here are some examples why. 

  • Most notably, last year the Legislature actually began requiring referendums in situations where municipalities wanted to buy communications utilities like Mi-Connection using public debt.  It’s not too much of a stretch to see that they might grant permission for referendum on a project like the Red Line if they were asked. 
  • On a different but similar issue, Cornelius just recently went to the legislature to ask for special permission to have a one-time change in their term lengths to get their election schedule in sync with the Federal schedule.  This request will actually avoid the need for a referendum, but it does exemplify a local government asking for special permission to change an item where a referendum could be involved.  They expect to be granted that permission.
  • Finally, due to the recent delays caused by the Norfolk Southern letters, it is very possible that the State will have to be asked to extend the sunset provisions on the existing Special Assessment District.  Again, if the project is going to have to ask for special consideration anyway and expects to get it, then they could certainly ask for permission to have a referendum.  In fact, granting permission to have a referendum may provide some political cover to legislators who may not be inclined to extend that sunset provision on the SAD legislation.

However, this all assumes that they would actually want to let people vote again on a plan that is now significantly different.  Unfortunately, that’s not the case.  A deeper look at the financing plan documents shows a consistent theme – favoring funding mechanisms that do not require voter input.

On page 58 of the Value Capture Memo, which outlines the rationale for Tax Increment  Financing (TIF), avoiding voter approval is mentioned twice. 

“A significant advantage of TIF is that it allows a local government to issue bonds without first seeking voter approval through a ballot referendum … Part of the attraction is that TIF is such an easy tool to employ, since voter approval is not necessary. But like any business subsidy it is vulnerable to overuse and abuse.”  

On page 22 of that same memo, the political benefits of using TIF are also explained…

“Politically, TIF does not involve tax rate increases and as such carries a lower political visibility than some other funding sources. Moreover, the perception that TIF projects ―pay their own way by capturing only revenue generated directly by the projects themselves may mute local opposition and increase public acceptance.”
I would say that an unending commitment of hundreds of millions of dollars based on development assumptions that cannot be truly validated might qualify as abuse.  Also, when project supporters clearly state that some of the rationale for using TIF is “lower political visibility” and the “perception” that it pays for itself, that should make everyone very nervous.  Perception may be reality in politics.  But in the business world, reality is cold hard cash that has to be repaid.

Davidson and Mooresville have been down this road before when it comes to major fiscal commitments.  The decision to not put Mi-Connection to a vote was a strategic mistake - one that will cost these communities for years to come.  The current Boards of either town do not have any members left who made that decision in 2007 other than Mayor Woods.  That is how politically damaging cutting voters out of these decisions can be.  Maybe that alone might be incentive enough to take another look at putting this back on the ballot.

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