Triple bonded

by David Forbes August 9, 2016

This November city voters might have the choice over $74 million for affordable housing, transportation and parks and rec. Behind Asheville’s first bond referendum in nearly two decades

Above: City Hall under renovation. Photo by Bill Rhodes.

Seventy-four million dollars.

That is, by any standard, a lot of money. That’s the amount of a bond referendum city voters will (likely) get a chance to weigh in on this November. That amount is divided among three areas: $25 million for affordable housing, $32 million for transportation infrastructure and $17 million for parks and rec. Voters will, if the issue gets on the November ballot, get to vote on each of those separately.

As recently as two years ago, major city leaders were ruling a bond referendum out of the picture. But since that time ongoing problems have worsened even further. Asheville’s in a housing crisis so bad it’s making national lists, most of the roads are rated in “poor” or “very poor” condition while pedestrian infrastructure lags badly behind the needs of a growing city and parks and rec saw many projects delayed or put off during the recession and for years after.

Cities also have limited methods for raising that kind of revenue, and dealing with these issues in various forms has vexed successive Councils. While bond referendums aren’t an uncommon sight in many cities around North Carolina for everything from stadiums to sidewalks, it’s been almost two decades since Ashevillians have seen one on the ballot (and it didn’t pass).

Meanwhile, the city’s bond rating got an upgrade last year, meaning local government gets better terms for debt than before. With that bonus, multiple vexing problems, the discontent expressed the 2015 election and another one quickly approaching, the idea of a bond went from dismissed to political reality. While it’s steeped in the sometimes arcana jargon of municipal finance, bonds can mean new sidewalks, improved community centers, more housing — and higher property taxes.

A poll conducted at the city’s behest in just over a month ago found wide support, especially for the affordable housing and transportation pieces. At the same time bonds can involve tax increases to pay for them, and that — along with debates about where the funds will go — sometimes made them very controversial. Even before tonight’s public hearing, Council moving the bond forward has already attracted some criticism.

Treasure hunt

The bond is the latest attempt by city leaders to make headway on several problems Asheville’s faced, some of them going back decades.

Asheville languished for decades with a relatively weak economy, its downtown nearly abandoned. During that time, bonds occasionally came up as a way to finance various schemes to exit that situation, like the infamous 1981 push to finance tearing down a massive portion of downtown and replacing it with a mall. City voters halted that, and today the fact they did so is generally regarded as saving the core of the city. From the ’90s on population jumped, downtown saw growth in business and residents and tourism boomed.

The last bond passed by Asheville voters was in 1986 ($17 million for streets and sidewalks, $3 million for an educational center). The last one to come up for a referendum was in 1999 ($18 million for parks/rec and greenways). It failed.

Meanwhile, the relatively sudden increase in both visitors and new residents meant that there was more strain on city services and infrastructure. Simply put, that strain outpaced the ability of the city’s tax base to update roads and other infrastructure bit by bit. While decaying local infrastructure is a nationwide problem, it hits towns with Asheville’s circumstances particularly hard.

Also: tourism drove a large part of the reviving economy, and tourists don’t pay taxes directly into city coffers (the city does get a portion of sales tax collected by the county, and that does increase somewhat as tourism does, but it’s not a primary revenue stream). The local hotel tax goes to the Tourism Development Authority, largely to market the city and encourage more tourism. The state legislature’s approval would be required to change that situation or levy another tax (on prepared food and drink, for example), and in the current political climate that’s unlikely.

Wages also remained low while the cost of living skyrocketed, leading to a severe affordable housing crisis that some city leaders admitted last year was beyond the scope of their existing programs to halt. During the recession, Council focused on keeping services running and avoiding staff cuts. In the process, Asheville’s government put off many renovations or construction of facilities, parks or community centers.

While bonds were mentioned and discussed during the 2000s and early 2010s, none made serious headway. By 2014, as Council sought to use a combination of federal and grant funds along with local revenue to overhaul the River Arts District, Mayor Esther Manheimer dismissed a bond referendum as a practical way to deal with the city’s infrastructure issues.

But over the ensuing two years, the problems worsened and the city’s bond rating improved, increasing the pressure and lessening the obstacles, and bonds were back in the public arena. During last year’s elections, bonds were broached, as they were again during Council’s January retreat this year and during the March budget work session. In those cases it was framed as a matter for future years rather than this one.

However, several Council members believed that 2016 might be the right time to push forward. After discussion at Council’s Governance Committee in early June, the bonds preceded through a bevy of worksessions and formal votes. Staff sent those requests to the state’s Local Government Commission (which has to sign off before a city puts a bond on the ballot). Tonight the public will get a chance to tell Council whether they think the $74 million measure should proceed.

Debts of different kinds

What exactly does a bond referendum entail?

Like any organization (and many households) cities take out debt for projects that would be too large or expensive to do with the funds on hand. Most of the time this debt isn’t something they specifically have to get direct voter approval for, though it’s usually passed by Council during its annual budget or approved by them in a separate vote afterwards.

Usually the debt is for renovations to a specific building, with the building used as collateral or it’s tied to a specific fund (like parking or water fees) and has to be used for purposes related to that system. The city can also issue debt for special “innovation districts” but it has to be spent in certain areas like South Slope or Charlotte Street.

Then there’s “general obligation bonds,” the technical term for the type of debt approved in a referendum. Unlike the other two types, these bonds are repaid by, and tied to, the money the city brings in from property taxes, or the “full faith and credit of the city.”

“It’s the first thing that gets paid, and it will always get paid,” CFO Barbara Whitehorn, who’s headed up the bond efforts among city staff, tells the Blade. That also means that the city can spend the funds on general needs (like streets or sidewalks), though sometimes bond referendums are held for specific projects like a stadium.


Asheville CFO Barbara Whitehorn, who’s headed up the bond efforts in City Hall since Council’s decided to push forward with the $74 million proposal. File photo by Max Cooper.

“When you take something to the voters it’s usually something that affects the whole city, like roads, parks, sidewalks, affordable housing, things that everyone has a stake in,” Whitehorn says. “Those are what you want people to say ‘hey, we want to speed this up.'”

In North Carolina, there are a number of requirements about how bonds are put forward. Because they can involve property tax increases and are tied to the city as a whole, they have to be approved by the voters. The state’s Local Government Commission has to approve the amount and the criteria. Bond funds can’t go to operations (salaries or basic maintenance) and can’t be spent on planning (so the projects need to be prepared in advance).

Ironically enough, Whitehorn notes, that statewide process exists because of Asheville’s debt woes in the 1930s, when the city had among the highest per-capita debt in the country.

“They created the Local Government Commission to make sure cities would not overextend their debt,” Whitehorn said.

Bonds are particularly appealing for Asheville, Whitehorn asserts, because the city has a high bond rating and relatively low level of debt compared to similar-sized cities in the state. Here, city debts only tally about $234 per person, compared to $635 for High Point, $1,255 for Wilmington or $290 for Greenville.

Without something like a bond, Whitehorn notes, putting serious funds into affordable housing is currently out of reach, and roads and parks will only get repaired or upgraded over an incredibly long time.

“Without a GO debt and the citizens getting behind it and saying ‘this needs to be done faster,’ we can’t get to many of these streets,” she says.

As for the tax increase, that question’s got its own complication. Currently Buncombe County is reassessing property values. If those values have increased, then the city usually lowers the property tax rate (currently 47.5 cents per $100 of property value) to keep bringing in the same amount of money and leaving property owners paying roughly the same bill as before.

To pay for the bond, the city will either have to lower the property tax rate by less than it normally would or increase it, depending on how much property tax values have changed. City estimates put the maximum amount of tax increase necessary to deal with the $74 million at four cents for $100, or about $110 a year (or $9.16 a month) on a $275,000 home.

Rather than $74 million going into the bank right after the vote, a successful referendum would give the city the ability to borrow those amounts as needed over the next seven years for the respective areas

Meanwhile, she adds, the city’s AAA bond rating gives it the best terms for borrowing money it’s had in a long time, and bonds aren’t an uncommon way for cities with influxes of tourists and commuters to try to tackle infrastructure issues when they don’t have the ability to raise their own sales or other taxes.

“It’s a good time to issue debt, we’re in a good position, it’s more affordable now that it’s been in a very long time,” she said. “Council recognizes that we have a lot of projects that need to happen and limited financial resources.”

‘This is a big deal’

Starting with last year’s election bonds were back on the table, and the discussions in the first half of this year confirmed that.

On June 28, Council members met in a special worksession to hammer out the terms of the bond. They agreed not to put funds towards overhauling Asheville’s public safety buildings (like the downtown police station) and settled on the three main areas. They largely agreed on needs like resurfacing for 22 roads, better greenways, improved sidewalks around the city and better bus shelters. They also agreed on funds for parks and rec concerns like the next phase of the Grant Center, more outdoor playgrounds and improvements to Memorial Stadium.

The main area of disagreement was over the amount to spend on affordable housing. Manheimer and Vice Mayor Gwen Wisler pushed for a $5 million addition to the city’s affordable housing trust fund – used to make favorable loans to those building affordable units — but no more than that, while the rest of Council wanted funds to also help with home ownership, a land trust to buy property and keep it permanently for affordable housing. By the end of the meeting they’d agreed on a $25 million bond dedicated to housing.

Manheimer said over the past two years, she’s come to view bonds more favorably and that since the June 28 meeting she also favors increased funding for affordable housing. The mayor’s been presenting on the bond to community groups, and thinks Ashevillians are ready to move it forward.

“I was very skeptical Asheville would embrace bonds, I came onto Council when we were full into the recession and I’d heard about our checkered past with bond passage,” she tells the Blade. “We got a little more serious talking about it at the retreat.”

Over the ensuing months, she says, it became apparent that if the city was going to do it this year, it needed to “move fast” and staff “sprang into action” to put a plan before the voters.

“It was very helpful that Asheville has a really good planning process,” Manheimer added, as bonds must be spent on projects that are already planned. “There are a lot of projects that have already been thought out and planned for, they just need funding.”

Since she first took a seat on Council in 2009, Manheimer noted, the city has done more on infrastructure and development in places like the River Arts District, but “we still have all these plans and we still have a lot of needs identified. How do you take that next step and advance it further, knock out some of these big ticket items.”

Right now, she added, the city can borrow on a general obligation bond at under two percent interest, which she believes is as good a deal as it’s going to get.

“We haven’t borrowed a lot, we don’t have a lot of debt on this city, we have the capacity, we can do it,” Manheimer says.

Since her skepticism of the a bond referendum in 2014, Manheimer said her views changed because of “the economy” and Ashevillians’ concerns.

“Apparently people have reached the point where they either feel the need is so great or they feel a little more comfortable with being able to support the need,” she said. “I don’t get the sense people were feeling like that two years ago or four years ago. I could be wrong, they could have been ready then. But they’re definitely ready now.”

As for her priorities, “I want to see them all pass,” Manheimer asserts. “I was skeptical, and pleasantly surprised by the outcome of the polling” indicating strong support for the three bond measures. Her view on the affordable housing measure changed as well.

“As a politician you try to gauge where the community is at on certain issues and you can’t get it right 100 percent of the time,” and while the concern about affordable housing didn’t surprise her, “I wondered whether people think the solution to affordable housing is something the city can efficiently address, enough that they’re willing to see their taxes go up to support it.”

If this is successful, Manheimer said, Asheville might follow cities like Charlotte and Greensboro in proposing bonds to deal with major projects every few years.

The public push has just begun, Manheimer concludes, promising an extensive campaign to inform the public about what the bond will do, including online visualizations of how it relates to other programs.

One of the bond’s early and most ardent proponents was Council member Keith Young, elected last year. In early summer he informally discussed the idea of a bond with Council members and brought it forward at the June 13 Governance Committee meeting. At the  June 28 session he pushed for more funds into affordable housing, comparing the crisis to a cancer (“you can’t fight cancer with an aspirin,” he said of the need for a more aggressive approach).

He tells the Blade the bond’s a major change and, hopefully, the beginning of Asheville grappling with some long-running issues.

“Should it pass we will have accelerated years worth of work on infrastructure and taking some different pathways to affordable housing and completing projects that should have completed a long time ago, like the Grant Center,” Young says. “This is a big deal, if this passes people, once the dust settles, are going to be really proud of this city, they’re going to be ecstatic about some of the improvements.”

“Our roads are so bad now that people are probably used to it,” he continues. “Even the ones they feel are good are in bad shape. For people who live in the city of Asheville, the infrastructure piece is a no-brainer.”

As, he says, is the whole bond package, noting that if for some reason Ashevillians don’t like it, they can vote accordingly, but he wants the issue put to the public.

“Let the people decide, I know which way I’m going to vote. It’s not going to be something that we’re going to have to force on anyone.”

Taxation and representation

The poll conducted June 29 to July 1 by Columbia, S.C.-based Campaign Research and Strategy has bolstered Council’s cause on the bond issue. It showed support at or above 60 percent for all three measures, and at around 67 percent for the affordable housing and transportation bonds. Support for the affordable housing measure was particularly ardent.

“What we’re seeing here is the community basically speaking to us, saying that they feel like there’s a need,” Tige Watts, the firm’s president, told Council when he reported at the findings at their July 26 meeting. “These are the issues that do concern them.”

He added that Ashevillians’ support was among the highest he’d seen in any community since the 2008 recession. “I haven’t seen numbers this strong in about eight years.”

However, he cautioned them that the poll was just a snapshot. It also indicated that a slight majority felt their property taxes were too high. Indeed, at that meeting two speakers raised that concern, with Fred English, a longtime conservative critic of Council, saying that the changes necessary to pay the bond would put more seniors on fixed income in a tougher position.

Sidney Bach, meanwhile, criticized the proposed spending on housing, parks and infrastructure by comparing it to “Cadillacs and Rolls Royces” and asserted that the final tax increase would be much higher than Council predicts.

Tonight, Ashevillians will have their chance to weigh in (the meeting starts at 5 p.m. on the second floor of City Hall) as Council makes its final decision on whether or not to place the bond referendum on the ballot.

The bond proposal emerged both from a change in Council’s perspective and its own years-long initiatives (like pushing for a better bond rating). It also stemmed from the era of political conflict Ashevillians find themselves in, with pushes for change on multiple fronts as a number of issues increase in scope and intensity. If the bond — as seems likely — ends up on the ballot, Ashevillians will continue to debate whether it’s the right solution. If it passes, the debate will likely shift to who gets what, as our city in the mountains continues to grapple with drastically changing times.

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