In 2016, voters approved $74 million in bonds. Now, Asheville City Council is considering putting another slate of bonds on next year’s ballot.
What specific projects would be funded is still under discussion, but the Thomas Wolfe Auditorium probably won’t be on the list.
Tony McDowell, the city’s finance director, says a general obligation bond would be perfect to recast the venue.
“Ultimately, bonds allow you to pay for the bigger projects in your Capital Improvement Plan,” says McDowell, “We do not have enough cash in the bank to fund major projects like the Thomas Wolfe Auditorium renovation, which may cost upward to $100 million. It makes sense to issue bonds for those types of really big projects, as they are the ones that are going to benefit the community for many years to come.”
Mayor Esther Manheimer isn’t so sure. At an Aug. 21 town hall, she noted Greensboro’s efforts to fund a performing arts center as a cautionary tale. Twice, the City of Greensboro proposed referendums for major renovations to the Steven Tanger Center for the Performing Arts, once in 2006 and then again in 2008. Both referendums failed to get enough voter approval, ultimately leaving the project to be funded by private donations.
Instead, Manheimer suggested a multipartner approach to funding the renovations, similar to what was done with the McCormick Field improvement project.
It has been nearly seven years since Asheville voters passed three general obligation bond referendums totaling $74 million for infrastructure. The 2016 bonds were the first sanctioned by Asheville voters since 1986. An $18 million referendum in 1999 for parks and greenways failed to pass.
Asheville’s complicated financial history
Historically, the City of Asheville has been wary of municipal debt. As previously reported by Xpress, Asheville began borrowing money so heavily in the early 1900s that by the time the Great Depression hit, the city’s debt exceeded the combined total of debt held by Greensboro, Winston-Salem, Durham and Raleigh. By 1932, Buncombe County’s 98,000 residents were on the hook to repay $158.8 million — $2.8 billion in today’s dollars, or over $28,000 per person. Because the county and city debt were consolidated in a 1936 agreement, Asheville labored in the shadow of that entire amount. The last payment was made in 1976.
Ever since, the city has been reluctant to issue bonds. However, Manheimer says bonds are necessary to take on major infrastructure projects. “Some people say that all debt is bad, and you should just pay for everything that you can out of that year’s budget,” Manheimer says. “However, in order to make major infrastructure improvements, it is necessary to borrow, and general obligation bonds are the cheapest way to do that.”
McDowell says many cities seek bond referendums on a regular basis.
“It is really important for any city to have bond referendums on a cycle because that is the primary way that most local governments fund their capital needs,” notes McDowell. “GO bonds have the lowest interest rate when compared to other kinds of bonds, so I think that it is very advantageous for the city to get into the routine of issuing GO bonds on a four- to eight-year cycle.”
Both Moody’s Investors Services and Standard & Poor give Asheville their highest credit rating: AAA for its general obligation bonds because of its stable financial outlook, a growing, well-diversified economy, strong financial management and healthy reserves. This means that the city can borrow money at a lower interest rate.
What the 2016 bonds funded
Despite the city’s historic hesitancy to take on more debt, the success of the 2016 bonds has led officials to consider future bond use. Since its approval, the city has funded over 40 projects, many of which are still in progress.
“This slate of projects have absolutely been a huge success,” says Jade Dundas, the city’s capital project director. “While it is ultimately up to the Council and Asheville residents to determine if we will use more bond funding in the future, I think it would be beneficial as it would allow us to tackle more of the bigger infrastructure projects that will benefit the community.”
The package approved by voters in 2016 was divided into three separate bonds: one for transportation, one for affordable housing and one for parks. The transportation bond, approved by 76% of voters, raised $32 million; an affordable housing bond of $25 million passed by a 71% margin; and the $17 million parks bond notched 77% approval.
To repay the bonds, City Council boosted property taxes by 3.5 cents per $1,000 of a property’s assessed value in June 2017. The bonds were issued in three phases, the first in 2020, the second in June and the third slated to be approved by Council in September, according to McDowell. “It is pretty standard practice to issue bonds in phases,” McDowell says. “Because we issued some in 2020, those bonds will be paid off in 2040. The bonds that were issued this year will be paid back in 2043.”
The bond projects also enticed additional funding from grants, private donations, state funding and other sources, bringing in a total of $85.6 million. Of this, $61.5 million has been spent or spoken for, leaving $24.1 million, most of which is earmarked for transportation projects.
Dundas says transportation projects take the longest because of protracted negotiation over acquiring rights of way, particularly for sidewalks since they are built next to people’s yards.
With several projects still in the works, Dundas encourages residents to follow their status on the capital projects dashboard on the city’s website. Navigate there and slide over the “bond projects” toggle at the top of the page.
Dundas says that his team works to keep it up to date, with quarterly or monthly updates. It includes the name of the project, phase, budget, the amount under contract and the amount spent. “This is a more or less complete list,” Dundas says of the dashboard. “Now if we had any remaining funds, like if we had projects that were less than what we thought, we may build another playground or two, for example.”
Other types of bonds
McDowell notes that GO bonds are not the city’s only way to finance projects long term. There are two other kinds of bonds: revenue bonds and limited-obligation bonds.
“The big difference between the three is that the local government can issue limited-obligation bonds and revenue bonds without getting voter approval,” McDowell says. “The majority of our capital improvement plan is funded by limited-obligation bonds, and that is how we are funding the city’s part of the McCormick Field project that is coming up.”
Unlike GO bonds, which have a dedicated tax to repay the loan, limited obligation bonds cap how much the city can raise taxes to repay bondholders. As such, LOBs are considered to be higher risk.
Revenue bonds are repaid from revenues generated by the project they are funding. For example, water bills can repay revenue bonds to repair the city’s water and sewer system.
“If the city was going to issue any debt for any improvements to the water system, it would be in the form of revenue debts,” McDowell says.
McDowell says that it is healthy for a city to have several ways of funding large capital improvement projects. “GO bonds are just a part of the overall CIP program, and it’s just one way of funding your capital needs,” McDowell says. “You really want a healthy mix of different bonds, money from grants, partnerships with other municipalities and organizations as well money from your operating budget.”
“It is hard to say what a city’s capacity for debt is, particularly because of the vast number of factors that can affect both the government and taxpayers,” says Nirali Patel, a lead analyst at Moody’s. “However, when looking at the city’s current debt-to-taxpayer ratio and taking its AAA credit rating into account, I would say that [Asheville] does have the capacity to take on more bonds without significantly impacting tax rates.”
While no specific dates have been mentioned, it is anticipated that the proposed 2024 bonds will come before Council for approval sometime this fall.