Thursday, June 9, 2016

Bond, Davidson Bond

The Town of Davidson has a lot on its financial decision making plate these days.

There’s the ongoing saga around the controversial Catalyst Project to develop the town owned downtown property.  The second batch of so called “roundtable” discussions are currently underway to gather input from the public and attempt to make the sale on what has become an increasingly publicly funded idea.

The town is set to pass its next budget which includes an over 6% spending increase in the town’s general fund.  While the town is proposing to keep the tax rate steady, it is spending every dime of extra revenue that has started to come in as the local economy improves.

The town also plans to start the long overdue second fire station to serve Davidson’s east side.  That project looks to take a big chunk out of the town fund balance (aka its savings account).

Then of course you have Mi-Connection – the town owned cable company.  While that situation continues to improve, the town is still looking at a $1 million subsidy payment this year with subsidies likely to continue for at least a couple more budget cycles.

Finally, you have the issues currently swirling around private sector development projects such as the large West Branch neighborhood on Davidson-Concord Road and the possibility of a new hotel at Exit 30.  These new projects bring with them new costs as well as new revenue streams with the realities of how much of either still quite murky.

On top of all these financial variables, the town has also been looking at the possibility of pursuing its first ever general obligation bond, or “GO” bond for short.  Earlier this year the topic was the subject of multiple meetings surrounding the town’s long term capital projects list.  Besides the fact that this debt requires voter approval, what makes GO bonds different from other forms of debt financing is that they are backed by the “full faith and credit” of the government entity issuing them.  Meaning the government commits raising taxes as necessary to pay off the debt.

In that sense, much like the authority conferred on the famed 007 in the James Bond movies.  GO bonds provide a “license to kill” when it comes to raising taxes.  In fact it “obligates” the town to raise taxes as needed to pay off bond debt.

With Davidson already having the highest municipal tax rate in North Mecklenburg, already having a number of significant projects on its plate, and already spending every dime of increasing revenues in its next proposed budget, the town should postpone any decision on a bond referendum for later this year.  Taking another year to see how the above issues shake out will likely provide a good deal more clarity to the town’s future financial situation and its true overall capital needs.

Besides, with many decisions yet to be made towards a well thought out bond proposal, it’s far from clear the town could pull together an appealing proposal in time for something this year.  The town’s own bond counsel from the Parker Poe law firm informed the town in April that the process really needed to get formally underway in June to prepare for a November referendum.

Commissioners need to be very cautious in how they proceed if they want a bond proposal to be successful - whether it’s now or in the future.  A bond proposal that does not serve the entire town may not pass.  A bond proposal favoring pet projects of Town Hall may not end favorably either.

Proceeding deliberately with a significant amount of public input on any proposed project list will be the best way to ensure success.  If the town wants that “license” from its citizens, it still has work to do on both counts.

This post originally appeared in the Herald Weekly at

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