By Chad Boles
On April 10, Gov. Nathan Deal signed HB 1136. The bill places the following referendum on our November 4th ballot granting the city of Brookhaven redevelopment powers.
Shall the Act be approved which authorizes the city of Brookhaven to exercise all redevelopment powers allowed under the ‘Redevelopment Powers Law,’ as it may be amended from time to time?
The city of Brookhaven is currently considering two types of debt, or loans. Tax Anticipation Notes (TANs) are a short-term source of funding, so I ignore them for this discussion.
The first is a General Obligation (GO) bond. The city of Brookhaven was given this authority in the city Charter. GO Bonds are traditional funding resources for parks, roads, bridges and traffic intersections. The second type are Revenue Bonds issued by a development authority which normally fund commercial, industrial and multifamily real estate
Let’s discuss the differences.
General Obligation Bond
The city of Brookhaven has the power to issue debt to finance city projects. We gave them the power to issue debt when we voted to create the new city. Current policy allows for loans not to exceed a 10 percent debt service of revenue. In other words, the city voted in a consent agenda item, without public debate, to allow for a $70 million-$90 million bond repaid for 20 or 30 years.
The more prudent metric would be to allow for a 30 percent debt-to-income ratio, resulting in a $50 million-$60 million bond limit paying principal and interest over the life of the loan. If the second metric sounds familiar, it’s because that’s a home mortgage underwriting
This recommendation was given to the city the day it passed in May and there’s still no change. In any event, General Obligation Bonds are issued in the public spotlight and initiated by a vote. The bond market attaches a lower interest rate vs. Development Authority Bonds because they are inherently less risky. The bond market assumes if the voters of a municipality vote by more than 50 percent to approve a bond, they will most likely pay it back. The Parks and Recreation Master Plan implies the city could borrow $277 million.
Revenue Bonds issued by a Development Authority
Redevelopment Powers allow a municipality to create Authorities…Housing Authorities, Development Authorities, Industrial Authorities, Transportation Authorities, etc. These authorities are vested with power to issue bonds to finance real estate endeavors. Projects normally include low income housing, multi-family complexes, industrial park bonds, etc.
Redevelopment Powers are forever. Once a city has them, it never relinquishes the power. Less than 25 percent of Georgia cities have this power. If you strip away the rural cities that use it solely for low income housing, the number drops to around 10 percent.
Development Authorities don’t publicly display their financial statements and neither will ours. It is municipal off-balance sheet financing. Comprehensive Economic Development Plans are at best a suggestion. Tax Allocation Districts (TAD) are identified, and vague plans without financing strategies are delivered as a wish list.
Future city leaders who are in high school now will obligate your tax dollars in real estate without a public vote. Redevelopment Powers are a petri dish for political corruption.
Real estate is booming in our fair city. Let’s leave the development to the developers. Our local city government need not pick commercial real estate winners and losers by exerting undue influence on the free markets. If you’ve ever called yourself a fiscal conservative, vote no to Redevelopment Powers on Nov. 4.
Chad Boles, a certified financial planner, is vice president of wealth management for UBS Financial Services Inc. and a resident of