In seeking voters’ approval for a $74 million bond referendum, is the city of Asheville acting more like a prudent family taking out a long-term mortgage on a home — or an out-of-control consumer racking up discretionary purchases on a high-limit credit card?
“Some people say that all debt is bad, and you should just pay for everything that you can out of that year’s budget,” said Mayor Esther Manheimer at a debate on the bond referendum sponsored by the Asheville High School Speech and Debate Club on Oct. 1. “I would tell you, though, to make major infrastructure improvements, it is necessary to borrow, and general obligation bonds are the cheapest way to do that.”
One of Manheimer’s opponents in the debate, former chair of the Buncombe County GOP Chad Nesbitt, said handing the city a bigger credit card would be a mistake. “They don’t know how to budget like you families do,” Nesbitt told the audience of students, parents and civic-minded community members. “So now they have spent all our property taxes, crazy taxes, fees, and want us to give them $74 million and interest? Absolutely not.”
Manheimer offered three reasons why she believes Asheville should use general obligation bonds to finance major infrastructure investments: It’s a policy question that voters will decide, the city’s finances are in good order, and there will never be a better time to invest.
It’s up to you
According to Chapter 159, Article 4 of the North Carolina General Statutes, debt secured by the “full faith and credit” of a municipality by way of its property tax revenues requires voters’ approval through a ballot measure. This type of debt, which cities and towns may use to fund a wide variety of long-term assets, is known as general obligation financing.
Limited or special obligation financing, which is often secured by the municipal borrower’s physical assets, does not require the direct consent of the voters, but has a higher interest rate. Repayment of those loans comes from nonproperty tax revenue streams, including sales tax. Enterprise, or “revenue” debt, the repayment of which comes from revenues produced by amenities such as water and utility systems or parking decks, is rated separately, according to the financial health of the underlying business enterprise.
At the debate, Manheimer sparred with Nesbitt over how to compare “apples to apples” when assessing the city’s debt, which she pegged at $49 million currently. “Yes, there is additional debt,” she said in response to Nesbitt’s claim that the actual figure is $83 million, “but it’s in the water system and the one parking deck which we’ve still financed, which is supported not by taxpayers, but by fees.”
The referendum asks voters to weigh in on three separate bond measures: $32 million for transportation projects, which includes road repaving, sidewalks, bus shelters, traffic calming measures and greenways; $25 million for affordable housing, which includes $15 million in funding to repurpose city-owned land for affordable housing and a $10 million cash infusion to the city’s affordable housing trust fund; and $17 million for parks and recreation projects.
But Nesbitt argued, “Asheville taxpayers already pay hundreds of millions of dollars in property taxes. … So when the City Council spends their money on things not in the budget [that] they are legally responsible for, they make a bond referendum and crazy things like a rain tax [referring to city stormwater fees].”
House in order?
Carl Mumpower, a former City Council member, joined Nesbitt in opposing the bond in the debate. Mumpower took issue with the mayor’s statement that the city’s finances are healthy. “When I left the Council in 2009 … we had double the reserve fund in percentages than we do now. I think y’all are down to the minimum in percentages because you spent every nickel you can get your hands on,” he charged.
Manheimer responded that, “Our rainy day fund exceeds 15 percent of our general fund. The state requirement is only 8 percent. We far exceed that. … It’s as healthy as it’s ever been currently.”
While Mumpower’s dates are slightly off, city Finance Director and CFO Barbara Whitehorn says it’s true the reserve fund used to be considerably larger as a percentage of the general fund. In 2007, she says, it was 27 percent of the general fund. Sometime after that, she explains, City Council made a management decision to draw down the general fund in order to put more of the city’s money to work for projects and other needs. By June 30, 2009, the reserve fund was 18.7 percent of the general fund, according to the city’s audited financial report for that year.
Former Vice Mayor Marc Hunt, the fourth debate participant, agreed that the city’s finances are in good shape: “Bond financing is a very normal and smart way for a healthy city, like Asheville is, to tend to its financial needs. Asheville’s plan is safe.”
“Asheville currently carries a debt load of $234 per person,” said Manheimer. According to a spreadsheet dated October 2016 provided by the N.C. Department of State Treasurer, Asheville had “no major deficiencies” and “no defaults noted.”
If the bonds are approved, the state treasurer’s spreadsheet indicates that per capita debt will rise from $234 to $1,063. The average per capita debt of the state’s 10 largest cities — “of which we are one,” Manheimer noted — is $1,078 per person, the mayor said.
However, neither the state’s nor the mayor’s figures are up-to-date, clarifies Whitehorn. Asheville’s per capita debt was $234 from June 30, 2015, (the end of the city’s fiscal year) until June 26, 2016. On that date, the city retired $1 million of its $25 million debt and added $25 million more, for a total indebtedness of $49 million. Much of that debt pays for vehicles and equipment, she pointed out. One firetruck costs about $1.5 million, so those costs mount quickly, Whitehorn says.
The bottom line is that the current city per capita debt is actually $550, according to Whitehorn. (See sidebar, “Asheville’s current per capita debt higher than recent city claims”)
If the bonds are approved by voters, and if the city issues the entire $74 million in one lump sum (“Which we wouldn’t do,” says Whitehorn, explaining that the debt would be issued in chunks spread out over seven years), the per capita figure would jump to $1,378. She also points out that all the figures cited for other municipalities’ per capita debt loads are based on figures from June 30, 2015, so those also are likely to be out of date.
Pressed by Nesbitt to explain his statement that the city needs to catch up on infrastructure projects that have long been deferred, Hunt said, “Our city has a legacy of the crash of the 1920s and the fiscal difficulties that reigned ever since then [see “Asheville’s bond fears: The legacy of a financial nightmare” in this issue of Xpress]. And a very weak economy, leading up to about 20 years ago when things started rebuilding. When I came into office five years ago, we were on a 70-year cycle of repaving our city streets.”
The recommended target for street repaving, Hunt said, is 20 years. Currently, Asheville’s schedule is “about 40 years.” If passed, Hunt continued, “I think this bond is going to help us take a leap toward 20. It probably won’t get us to 20.”
Mumpower shot back, “It would be my suggestion that when your road replacement schedule has been narrowed down to only being twice as long as it should be, your ship is not in order.” He also advised that city staff salaries are too high, “especially when you look at the community that we live in. We are not wealthy by the majority, especially the people who’ve lived here for some time.”
The time is now
“We have been extremely conservative, and some might argue, too conservative,” Manheimer said of the city’s financial status. “You do need to borrow to be able to make major infrastructure improvements and investments. And there is need. And that is why I believe the taxpayers so strongly support these bonds, as evidenced by the polling.”
While he declines to give an opinion on Asheville’s bond questions, Edward J. Lopez, a professor of economics at Western Carolina University, says that, as a general rule, “Using debt can be an important lever for the city.”
Mumpower, however, says he believes this is a risky and uncertain time to take on more debt. “On our horizon, there are some dark clouds. There are some concerns, serious concerns, all across the world, about where events are going to go — not unlike what happened to the city in the late ’20s and early ’30s. I don’t think the picture lends itself to high risk at this point.
“Are you aware of who’s running for president this year?” Mumpower continued. “Anybody who tracks the economies of the world and our spending — it’s a particularly dangerous time, and we have never talked about borrowing $76 [sic] million for the purposes for which this money is semi-dedicated.”
Though the state treasurer’s document indicates that the GO bond issue would be rated as AA+ by Standard & Poor’s and Aa1 by Moody’s, that Standard & Poor’s rating is incorrect, according to Whitehorn. She forwarded an Aug. 26, 2015, report from Standard & Poor’s showing that Asheville’s GO bond rating is AAA.
Nesbitt pointed out that the total bill for the bond would be far greater than $74 million. The interest the city pays on these bonds will be just under 3 percent, he said, “and the total amount of interest we pay will be around $36 million. The total debt will be around $110 million, not $74.”
Whitehorn agrees with Nesbitt’s interest figure, but clarifies that $36 million in interest payments represents what the city views as “the maximum amount we could spend.” According to Whitehorn, the Local Government Commission, which oversees debt issued by municipalities, reviewed Asheville’s financial projections when it considered the city’s application to place the bond questions on the ballot. The LGC, she says, signed off on $36 million as being the upper limit of future interest payments; the total could be lower in the end. But just as with a mortgage, she acknowledges, the total amount of interest over the lifetime of a long-term loan is significant.
A lot to consider
Hunt noted that the preference for “low taxes and low services” championed by Mumpower and Nesbitt is “a valid viewpoint” held by “many, many of our citizens” who oppose any increase in city taxes.
Hunt conceded that he wrestles with the gentrifying potential of large-scale investments that will improve the city’s infrastructure and amenities. “Asheville is so appealing fundamentally because of our natural surroundings and our architectural heritage. It represents a real challenge,” he said. He pointed to recent economic development success stories (including GE Aviation, Linamar, New Belgium Brewing and Avadim Technologies) as examples of the kinds of private-sector investment that smart public-sector funding can catalyze, saying, “If we put the brakes on improving and the employers faded away, that would be a shame.” All the same, he said, “It is going to be a constant challenge to address the unmet needs of underserved populations.” But, Hunt said, the current City Council is “very serious” about addressing those issues.
Asheville taxpayers will end up footing the bill for improvements that could benefit all of Western North Carolina, Hunt continued. “I regard the assets that are going to be invested in as community assets that extend well beyond the boundaries of downtown Asheville,” he explained.
Hunt also has concerns about some of the specific proposed projects. “Some of these projects were thrown together in a hurry,” he said. “Like spending $4 million at Memorial Stadium. I understand it’s decrepit, but it’s a single field with very little spectator interest, and I think it’s worth stepping back and re-examining all these projects to make sure the money is well-aimed and not spent if it doesn’t need to be.”
WCU economist Lopez agrees that it’s important to question whether the solutions proposed in the bond package are the best ways to accomplish the voters’ objectives, should the bonds be approved. He’s specifically concerned about the strategies to boost affordable housing. “The bond proposal includes spending an additional $10 million on direct subsidies to the marketplace. If voters do make it known in this election that affordable housing is a priority … the problem really needs to be solved by looking at the supply of housing, and doing what we can from a regulation standpoint to make that supply flexible to expand with new waves of population growth like we’ve been seeing. That will do more than anything to keep housing affordable.”
Matter of trust
Former Mayor and City Manager Ken Michalove approaches the bond question with deep skepticism. At a public presentation given by Manheimer on Oct. 10 at Ira B. Jones Elementary School, Michalove told Xpress he pointed out the composition of City Council is likely to change over the next seven years, the period in which the bond funds would be spent. Thus, Michalove said, Manheimer cannot guarantee how the money will be used.
Michalove also highlighted the city’s $110 million, five-year Capital Improvement Program budget, which will move forward regardless of whether the bond referendum passes. Michalove told Xpress that he does not trust current and possible future elected officials to use the CIP and bond referendum funds responsibly: “They can hide expenses, and there are not any watchdogs to bring it to the attention of the public.”
Distrust of city leadership was a note also sounded by Mumpower and Nesbitt in the debate. “The best predictor of future behavior is past behavior,” Mumpower argued. “Asheville has a long track record of ignoring potholes, failing to uphold its street-replacement schedules, failing to fulfill affordable housing fantasies, wasting millions on development schemes that don’t happen, and creating public spaces and amenities that in turn we don’t maintain because we cannot afford to. We cannot trust this kind of government to be careful with our money.”
Mumpower told the audience the current City Council is “unilateral” and is made up only of Democrats. For the record, Council member Cecil Bothwell recently resigned from the Democratic Party and changed his registration to independent.
Comparing City Council to a “crackhead family member” who keeps asking for money, Nesbitt said, “You have to be responsible and accountable for your actions, and we as taxpayers have to stop giving money to those who are not responsible for our money.”
Whether the bond passes or not, Nesbitt said, higher property taxes are on the horizon. “In regards to the $74 million bond, the property tax increases will continue to drive out businesses and working-class renters, leaving only wealthy people who can afford to live in the city.”
According to the city website that outlines the bond proposal, issuing $74 million in GO bonds could require a property tax increase of 4.15 cents per $100 of taxable real estate value. “The upcoming revaluation could affect these estimates slightly,” the website advises, “but based on current rates, if approved, the bonds could increase property taxes in the city by about $110 a year, or a little more than $9 per month for a home valued at $275,000.” Manheimer pointed out during the debate that $275,000 is the average home value in the city.
Because GO bonds are supported by taxpayers, Manheimer said, the projects and spending are geographically distributed throughout the city. Mumpower disputed that claim, countering, “Look where the money is going. They can put it wherever they want to, but most of it is going to downtown Asheville and North Asheville. East, West and South are getting much more bill than benefit.” The city’s website includes an interactive project map that details both the proposed bond projects and Capital Improvement Program projects.
The GO bond referendums will appear on the back of Asheville voters’ ballots when early voting gets under way on Oct. 20. Voters will be asked to indicate their position on each of the three bond measures separately.