Bonds for Billionaires?

Should Iredell County help float $46 million in bonds to benefit private developers, including billionaire hotelier John Q. Hammons?

That’s the fundamental policy question that county commissioners could answer as early as noon tomorrow (Monday), when they’ll be asked to give a preliminary nod of approval to issuing $46 million in bonds to enable developers of Langtree at the Lake – the $800 million mixed-use development in Mt. Mourne – to install public infrastructure in their development.

Langtree is asking the county to issue the bonds. The county, in turn, would designate the development a special tax district. Langtree would repay the county through property assessments, which would be over and beyond what the development pays in property tax.

Taxpayers will not be legally liable for the bonds if Langtree defaults on repayment, according to County Attorney William Pope. County Manager Joel Mashburn added that “no tax money can be pledged to pay for the bonds.”

In a meeting Monday at noon in Statesville's Iredell County Government Center, county commissioners will consider approving a “final assessment resolution,” which is a necessary step before Langtree can take its proposal to the Local Government Commission (LGC). The LGC would then determine “the feasibility of the sale of the bonds … and whether or not the project itself is feasible and will be able to generate the monies needed to pay the bond,” said David Parker, a Statesville attorney and partner of Langtree at the Lake, during the county commission’s Oct. 21 public hearing on the developers’ request.

“The decision to refer this to the Local Government Commission via the ‘Final Assessment Resolution’ is not a ‘major’ decision,” said Parker in an e-mail to the Report on Sunday. “The county has zero risk, is making no promises, and will incur no expense in asking the LGC’s opinion on these bonds.

“The role of the commissioners at this point is fairly simple – if they ‘lower the drawbridge,’ we will go to the LGC castle,” Parker said. It will be up to the LGC, he said, “to recommend to Iredell County whether or not they should actually issue the bonds.”

County commissioners don’t have to take the LGC’s advice, Parker said. But they “generally do since that is the LGC’s function,” he added.

State legislation that enables county governments to enter into such financial arrangements with private businesses was signed into law just three months ago – on Aug. 3. (http://www.ncga.state.nc.us/gascripts/BillLookUp/BillLookUp.pl?Session=2007&BillID=H1770&submitButton=Go). Langtree is the first private business in the state to take advantage of the new statute, which means that how the county proceeds will set precedent.

“The whole question that we are dealing with is new to North Carolina,” said County Commissioner Godfrey Williams. “The legislation was approved by the state in August. Other states have similar legislation and have been working with developers for years.

“Since Langtree is the first project in NC to make this request," added Williams, "the board of commissioners (and) Iredell County’s financial and legal staff will make sure that its questions are all addressed."

Pope, the county attorney, said in the Oct. 21 public hearing that he had unanswered questions and concerns, mainly because the concept is so new. But he said he felt the LGC would be able to satisfy his concerns in an Oct. 29 meeting with county staff.

It is unclear if Pope’s questions were answered in that meeting. County Commissioner Ken Robertson, responding to Report questions on Saturday, said: “It is my understanding that they (the LGC) believe that us passing a resolution at this time is premature and that it is the responsibility of the county commission to kind of vet this project out and determine whether or not this is an appropriate course of action prior to it going to the Local Government Commission.”

Commissioner Williams said on Saturday that “generally speaking, the LGC’s response was favorable.” However, he added, “we may still need more information from them in order to finalize our decision.”

Robertson, who will not be at Monday’s meeting due to a business trip to Canada, said he is concerned about issuing bonds for Langtree when the county hasn’t received any of the development’s detailed financial information. “As with any institution that loans money to businesses or individuals,” said Robertson, “the only responsible course of action must include a list of assets, liabilities, current and future expenses, and current and projected revenues in order to ensure or have a high degree of confidence that the borrower can pay back the loan.

“A failure on the part of the lending institution – whether it’s a bank, individual or a governmental body – to have that information would be totally irresponsible,” he said.

Williams agreed that the county “should be allowed a full disclosure of (Langtree’s) business plan.”

And though the LGC will scrutinize those records before it issues an opinion to the county on the bond request, Parker said that Langtree would “of course” be willing to submit its financial records to the county. However, he said, “the figures will not be final due to (a) not knowing what the interest rates will be when the bonds are actually issued, and (b) not knowing the costs of labor and materials at the time the bonds are issued and moneys made available through the Trustee appointed by the county to regulate the draws."

Parker continued: “One of the reasons that Langtree wants to go forward is because building in a recession generally means that the project comes in on time and under-budget.”

Also, he said, “The ability to create jobs in Iredell County in a time of layoffs is in the public interest, as is the creation of tax base income stream to the county (and to Mooresville upon annexation) via Langtree’s property taxes.”

Parker emphasized that “the taxpayers of Iredell County will bear no risk, responsibility or expense in the issuance of these bonds.”

Still, is it the proper role of government to facilitate what is essentially a $46 million loan for private developers?

“Facilitation is not the right word for what Langtree has asked the county to do,” said Parker. “Iredell County will have no liability whatsoever for these bonds – their role as issuer permits bond buyers to have favorable tax treatment which in this economic environment can mean the difference between an investor investing or staying on the sidelines.”

He said that “the Special Assessment Improvement bonds are secured solely by the assessed/‘benefitted’ properties only i.e. the developer’s land and improvements thereon.

“Iredell County’s tax base is not at risk," Parker said. "No other property owner other than Langtree and John Q. Hammons will have to pay a dime for these bonds.

"Our county government has previously engaged in stimulating the local economy in the best of times by utilizing tax forgiveness, free office space, training through the Community College, etc.," Parker said, adding that Langtree "has asked for no such perks, benefits, or stimuli."

The development is "merely requesting that the county authorize the issuance of bonds as a funding method in this tight credit economy," he said.

“The county is not guaranteeing these bonds, and there is no expenditure from the county,” Parker continued. “Langtree is even going to pay the county’s attorney’s fees for its outside bond counsel from the bond proceeds or out of its own pocket regardless of whether or not the bonds are issued.”

Hammons, a partner in the Langtree project, is a billionaire hotelier. Why doesn’t Langtree borrow the $46 million from him instead of the county? Some of the comments made during the Oct. 21 public hearing suggested that it makes good business sense to invest in Langtree. But if it’s such a good investment, why didn’t Hammons lend the money?

Responded Parker: “Mr. Hammons may well be one of the buyers for the bonds but, like all investors, would be interested in obtaining the favorable tax treatments available through these bonds.

“Billionaires do not build their wealth and success by simply giving away their assets,” he said. “In addition, Hammons' business plan does not include investing in infrastructure for properties surrounding his hotels. His planned expenditure in Iredell County will probably top $80 million.

“Also bear in mind,” said Parker, “that many, if not most, communities that have Hammons Hotels in them have given the land or infrastructure to Hammons in return for getting Hammons to build a 250-room full service hotel with 35,000 square feet of meeting space such as he proposes to build at Langtree.

"Neither Langtree nor Hammons has asked for any such assistance or benevolence for the Langtree project, notwithstanding that it will generate hundreds of jobs in the Mooresville area during construction and operation,” Parker said.

Robertson said he believes that “economic incentives for industry are not the proper role of government.” However, he said, “because it is the law of the land and its constitutionality has been held up in court, we have been forced to give economic incentives to industry to locate in Iredell County.

“It appears that legislation has been broadened from attracting manufacturing industries to now there’s a venue for us to assist or subsidize commercial ventures as well,” Robertson said. “While I believe that it is not the proper role of government to do either, I feel that Iredell County will have to do both.”

A 175-acre development, Langtree expects to add up to $1 billion to the county’s tax base and up to $4.5 million in county revenues every year once it has reached full build out, which is expected to be within the next decade.

Said Robertson: “The Langtree at the Lake project could be a real asset to the community – that point is not in contention.

“The issue at hand,” he said, “is whether Iredell County should lend its name to a $46 million bond without the borrower providing any information whatsoever as to their ability to repay the loan.

“If the Langtree developers were to provide the information that shows they have the ability to repay the bond,” Robertson said, “then I see no reason the keep this proposal from moving forward.”

In addition to Robertson not being at Monday's meeting, the county board is a month away from swearing in its newest member, Scott Keadle, who will replace Sara Haire Tice, who didn’t seek re-election this year.

Tice is a longtime friend of the family of Langtree’s managing partner, Rick Howard, and Tice's son works for Langtree.

Parker said Langtree’s attempts to quickly obtain the county’s approval to approach the LGC “is not an attempt to avoid the ‘new’ board.”

“The new board will have to decide on the ultimate question of issuance if, but only if, (the) LGC approves or recommends the issuance,” Parker said. “Langtree is confident that Iredell’s commissioners, regardless of their composition, will carefully weigh the advantages of a risk-free, cost-free stimulus to the economy and approve the final assessment resolution and the bonding resolutions after LGC approval.”

Commissioner Williams – who accepted a $250 campaign contribution from Rick Howard about three weeks before the Nov. 4 election – said he feels that the county will make a decision “when the commissioners have the necessary information that they are seeking.”

When asked what impact, if any, the campaign contribution would have on his vote on Monday, Williams responded: “I resent the assertion that any contribution received could impact my vote on any issue. I have served my county for 16 years in elected office – and you are the first person who has every questioned my integrity.

“Do you actually believe a person could buy my vote for a measly $250? I will vote on this issue on its merits alone.”

“I question your motives in bringing this up at this time,” Williams continued. “It appears to me that this is an attempt to try to influence my vote in the negative.”

In a second e-mail to the Report on Sunday morning, Williams wrote: “I will be sending Mr. Howard a personal check in the amount of $250 from my personal account tomorrow. I hope this will clear up this issue for good.

“By the way,” he added, “where is all the widespread concern about Mr. Keadle accepting an out of county contribution of $8,000 from the Richardson family? Are you aware that they have filed a lawsuit against the very board that (Keadle) now sits on?”

(The Report plans to have Keadle’s response to those concerns within the next few days. Meanwhile, follow this link to read what was reported on the issue by the Statesville Record & Landmark: http://www2.statesville.com/content/2008/nov/01/commission-candidates-raise-thousands/)

When asked if the county should wait until Robertson is back in town and Keadle is seated before making a decision on Langtree's request, Williams said: “The current board has had the advantage of hearing all the questions and answers.”

“The decision will be decided only when the commissioners are satisfied the county is free of any financial liability,” Williams said. “The question concerning this project was first placed in the agenda at the mid-September (Iredell County) commissioners meeting. Since that time we have discussed the issue one other time.”

Williams said he is “prepared to take as long as necessary to resolve in my mind if this will benefit our citizens.”

Robertson said it “wasn’t my decision” to schedule a potential vote on a day when he wouldn’t be in town. In fact, he said, “I would like to participate in this process.”

He said he alerted the county clerk that he would be out of the country on business this coming week. “It is possible that (County Commission Chairman) Marvin (Norman) did not know that,” Robertson said. “He said he did not know that when he set the meeting up, and I believe Marvin.”

Responding to Report questions today about whether he would prefer the county to wait until he is seated before voting on the Langtree request, Keadle said: “Notwithstanding my eagerness to serve on the board, the current board is still the current board, and my only preference, as a citizen, is that the board proceed in a timely fashion that is respectful of the needs of the county business calendar and not of any election-related calendar.

“I can only assume that this is what the board is doing, and be ready to make decisions next month about whatever issues are pending at the time,” Keadle added.

He said that he received his “first briefing about the Langtree deal on Friday, and as I was out of town, I didn’t get a look at it until (Sunday afternoon).

“My information is therefore very limited and confined to a copy of the ‘Final Assessment Resolution’ that was sent to me by County Attorney Bill Pope on Friday,” Keadle said. “After reading the proposed resolution, I was left with several questions, which would have to be answered before I could comment in favor of the resolution. I will not be attending the meeting, so it is unlikely that my questions will be answered.”

But generally speaking, said Keadle, “I believe that the government should reduce regulatory burden as much as is possible and cooperate with business entities in their free-market pursuit of commerce. I also believe that government should not invest taxpayers' money in private enterprise, or otherwise deviate from the Constitutional intent of government.”

Commissioner Tice did not respond to Report questions this weekend, nor did Commissioner Johnson, though he signed a “read receipt” indicating that he opened the e-mail of questions on Saturday. Commissioner Norman attempted to respond through a voicemail on Saturday, but he was unable to be reached on Sunday.

What would be the ramifications to Langtree if a vote was delayed for a month until Robertson is back in town and Keadle is sworn in? What’s the hurry to obtain a decision tomorrow?

“Langtree has encountered numerous bureaucratic delays stemming from similar questions,” said Parker. “Two years after receiving zoning approval seems to be enough time to wait.”

“There are over 3,600 of these districts nationwide, and they have worked well,” he added. “Although Langtree is ready, willing and able to continue to pay to carry the expenses of such a large venture pending vertical and horizontal (infrastructure) development, time is always money.”

He said the state legislation was signed into law in August “specifically to be a rapidly deployable economic stimulus tool available to counties and municipalities interested in improving the economic environment in their jurisdiction.”

Some counties, said Parker, “will decline or place the idea into bureaucratic limbo,” while other counties “will take advantage of this zero-cost stimulus opportunity.” The latter group, he said, “will do well by its citizens.”

“Langtree has patiently waited for state and local officials to learn about this bonding process even though it has been utilized in other states since as far back as the 1700’s,” Parker said. “Such similar states as South Carolina, Florida, Mississippi, Arkansas, and Alabama have been able to turn these bonds around in 60-90 days because they work.

“Langtree realizes that as the first project in NC, it will take a little longer,” he added. “There is also the question of economic stimulus to the economy. For the folks that are out of work but would be able to be employed by Langtree and its contractors during the infrastructure phases, a month’s delay can mean the difference between keeping and losing their homes.

“Inertia is always a challenge for any business dealing with governmental agencies,” Parker said. “Some agencies understand that ‘he who hesitates is lost’ – others do not.

“Langtree believes that the sheer common sense of this bonding opportunity, particularly given the potential for such a large employment center, will not be lost on this commission.”