This post is part of a series (Part I here and Part II here) on the Town of Hillsborough’s implementation of special assessment project financing. Part II mentioned the lengthy process to coordinate the thoughtful deliberation of the town’s policy. So far the series has differentiated the special assessment method from tax increment financing and provided insight into the caveats of the implementation process; yet brings to question: What were the deal points for the Town’s decisions? How did the Town mitigate their risk within this process? Part III, and the final blog post of this series, will address these questions with a review of the process to develop the town’s policy for levying the special assessments.
Town of Hillsborough’s Initial Concerns
Stratford Land, the project developers, requested to levy special assessments within the project area to provide financing for completion of the necessary infrastructure, and recover costs from past infrastructure investments. The Town’s leadership, in turn, questioned the motives of the developer, asking: Is this a mechanism to bail out big banks or wealthy developers? What is the role of the town in ensuring the project works, especially after the original financial plan was finalized? What is the risk?
Given these concerns, the initial response was to decline the proposal, especially given strong reservations from the Town Manager. A 2011 memorandum listed the concerns with creating a district to levy special assessments.
- Insufficient benefit to the town
- Unnecessary risk
- The assessments placed on the property will likely lower the sale price of the lots, thus decreasing future property tax revenue to the town
- It is not certain that Bank will foreclose on this loan and/or that Stratford cannot find additional resources to address the needs in which the SAD funds are being requested. Even if foreclosure eventually takes place, it is a major policy question as to whether the Town of Hillsborough should serve as a banker for the developer to address a loan that was categorized in the last meeting as being in “default”
What are the perceived risks from the Town’s perspective?
If the Town agreed to levy the special assessments, there was risk of non-payment of the tax lien due to Stratford Land’s inability to sale the parcels. The Town also took the risk of being the first local government in North Carolina to implement this financing tool; therefore there was uncertainty in the administrative capacity needed to implement the process, leaving the Town vulnerable in the long-term.
If the Town declined levying the special assessments, the Waterstone Development project would be delayed even further, although it was a high priority for the town’s economic development strategy. If Stratford Land had to leave the project, previous agreements and relationships may not continue with another developer.
Town of Hillsborough’s Policy Response
After lengthy discussions and compromises from both parties, the Town of Hillsborough moved forward with a policy that minimized their financial and administrative risk. Key components of their requirements for approval included:
- 3:1 value-to-lien ratio, (as described in Part II), rather than 2:1 value-to-lien ratio suggested by the Local Government Commission
- Declining to reimburse Stratford Land for previous work, which eliminated the concern of “bailing out” the developer
- 10-year amortization period, which was a drastically shorter time frame from the typical 20-30 amortization period. The Town sought to limit the administrative capacity needed over a long period of time.
These decisions allowed the Town of Hillsborough to create a policy that minimized their risk, with limited impact on a specific group of landowners. With a thorough and deliberative process from elected and administrative leadership, the years of time and resources to finalize the deal may serve as the catalyst for their economic development efforts.
Special thanks to the following individuals who contributed their time through interviews: Eric Peterson, Robert Hornik, Tom Stevens, Mike Gering, Brian Lowen, Mack Paul, and Kara Millonzi.
Maggie Parker is a candidate for the MPA and MCRP graduate degrees. She is also a Community Revitalization Fellow with the Development Finance Initiative.