Special Obligation Bonds for Downtown Development
Bob Jessup
To a public finance attorney, the phrase "special obligation bonds" conjures up certain types of projects, usually involving solid waste projects. To the friendly neighborhood bond and CED attorneys, however, the phrase conjures up additional uses in the statutes that may be plumbed by local governments to improve their downtown areas. This post walks through the several additional purposes for which a special obligation bond may be used to stimulate downtown development.
What are Special Obligation Bonds?
Special obligation bonds allow local governments to finance a wide range of public improvements and secure the repayment obligation by a pledge of all available revenues other than taxes imposed by the local government. Accordingly, municipalities may pledge their sales tax receipts (as sales taxes are not levied by municipalities), utility system revenues or special assessment revenues, to name a few. Municipalities often find they have a strong revenue backing to support special obligation bonds.
Special obligation bonds are an ideal vehicle for financing eligible improvements that may have low collateral value and that are not good candidates for general obligation bonds or more traditional revenue bond financing. Special obligation bonds do not require voter approval or a public hearing, although they are subject to LGC approval. The authorization for special obligation bonds is found in § 159I-30 of the General Statutes.
Use for Downtown Development
Special obligation bonds may be issued any service or facility for which a municipality is authorized to create a municipal service district under § 160A-536, but the existence of a municipal service district is not a requirement for the use of special obligation bonds. Most important for our purposes, Section 160A-536 allows special obligations bonds to be used to pay capital costs of what the statutes call “downtown revitalization projects.” Downtown revitalization projects include (but are not limited to) the following:
1. Improvements to water mains, sanitary sewer mains, storm sewer mains, electric power distribution lines, gas mains, street lighting, streets and sidewalks, including rights-of-way and easements.
2. Construction of pedestrian malls, bicycle paths, overhead pedestrian walkways, sidewalk canopies, and parking facilities both on-street and off-street.
3. Construction of public buildings, restrooms, docks, visitor centers, and tourism facilities.
4. Improvements to relieve traffic congestion in the central city and improve pedestrian and vehicular access to it, including off-street parking improvements and other transit projects.
5. Improvements to reduce the incidence of crime in the central city.
6. Providing city services or functions in addition to or to a greater extent than those provided or maintained for the entire city.
7. Sponsoring festivals and markets in the downtown area, promoting business investment in the downtown area, helping to coordinate public and private actions in the downtown area, and developing and issuing publications on the downtown area.
These enumerated purposes cover a wide variety of ways to improve a downtown district (defined in the statutes as the “central city or downtown area,” as determined by the municipality’s governing board).
If you have any questions please don’t hesitate to email or call about this or any other public finance or community and economic development questions you have. As always, please see our disclaimer, and here's an image credit link for that nice picture of Fayetteville Street in Raleigh.
