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September 17,  2008

Bond-issue financing for
Renaissance Village approved

By a pair of 11-to-two votes County Council authorized issuance of up to $20 million of interest-free bonds to help the Commonwealth-Setting joint venture pay for infrastructure for Renaissance Village.

After several months of discussion about the appropriateness of using new-to-Delaware methods of financing, the only issue remaining as Council prepared for the vote on Sept. 16 was obtaining assurance that, if the project should go sour during the 30-year life of the bonds, county government and its taxpayers will not have any obligation to make good on the debt.

More immediately, the measures' sponsor, John Cartier, who represents eastern Brandywine Hundred, maintained they did not represent a bailout, but would set a precedent to spur redevelopment of blighted areas of the county. Elsewhere in the nation, he said, tax incremental financing and special development districts are "often used to stimulate, enhance and encourage redevelopment."

In an unrelated matter at a meeting of Council's finance committee earlier in the day, acting chief financial officer Edward Milowicki said the county's fiscal situation has continued to deteriorate and revealed that a consultant has been hired to come up with idea for tapping new sources of revenue.

Cartier appeared to have satisfied his colleagues that the financing methods are a fiscally safe way to go.

"[That] has been made clear [in] numerous ways," George Smiley, co-chairman of the finance committee, said at its meeting a few hours before Council voted at its plenary session. In authorizing the county to proceed, "the Delaware legislature has properly vetted the issue."

The enabling legislation restricts the financing to the area defined as the Claymont 'hometown' zoning overlay, which includes Renaissance Village. It has been pointed out, however, that the debt obligation applies just to property owners within Renaissance Village.

Smiley called upon Milowicki for a final bit of assurance. Milowicki replied unequivocally that the bonds will carry "no obligation to the taxpayers of New Castle County."

William Tansey, the finance committee's other co-chairman, however, voted against both the resolution establishing the special tax district and the ordinance authorizing the bond sale, "for philosophical reasons." He said he objected to financing "a private for-profit entity" when Council rejected an "opportunity to issue bonds for the Delaware Military Academy." That charter school, he said, "had to go out of state to [obtain] conduit financing."

Smiley vehemently denied that Council had turned down the school. "That issue didn't come before this Council," he said.

Tansey responded that the request "was stuck in somebody's drawer" and not allowed to reach Council.

Councilman Jea Street cast the other negative votes on the resolution and ordinance.

During the public comment portion of Council's plenary session, three members of the public spoke against the measures. One did so at the committee meeting.

Speaking on behalf of the Civic League for New Castle County, Charles Weymouth said that organization believes the financing method "will burden us with more bureaucracy and, in the future, additional financial liability and, in all probability, more county-sponsored residential projects."

The ordinance on which Council voted was a substitute for the original version of Cartier's ordinance. No copies of the substitute were readily available to the public at the session. Comparison of the original with a copy of the substitute which Cartier provided Delaforum appeared to reveal that the only substantive change was specifying that both storm and sanitary sewers are included as infrastructure and the addition of the phrase "and acquisition of land therefor" to that clause.

Tax increment financing requires county government, during the life of the bonds, to forego collecting ordinary property taxes on the amount by which the assessment increases as residences and commercial facilities are built on the now-vacant tract which formerly was the Brookview apartments complex. Brandywine School District will continue to receive proceeds from taxes on the full assessment.

Property owners in the special development district will be obligated to pay an annual surtax -- initially a little over $1,000 per residential unit and comparable amounts on other properties.

Proceeds from both sources will go into a county-administered fund to pay interest on, and eventually retire, the bonds.

Cartier repeated a previous observation that the amount of tax county government will forego will be more than offset by increased amounts of realty transfer tax received as the properties are bought and sold over the course of years. Moreover, he said, Brookview generated only $32,500 in annual revenue for the county, which was considerably less than the cost of providing police services in what became a troubled community.

Milowicki confirmed for Delaforum the accuracy of Cartier's statement as well as Commonwealth-Setting lawyer William Rhodunda's comment that the firm's current tax obligation on the cleared land is $5,000.

"There is no doubt in my mind that it is worth it," Cartier said.

The enacted ordinance empowers County Executive Christopher Coons to determine details of the bond issue in negotiating a private deal with Bank of America, which is specified in the legislation as the underwriter. County bond counsel Timothy Fry said providing for such deals is common practice with government bond issues.

Fry declined at the committee meeting to make an unqualified claim that this bond issue will be free of risk.

"There is no debt that doesn't carry some risk to it," he said. But, he added, these bonds will be sold to "sophisticated institutions familiar with real estate risk."

During his quarterly update on county government finances during the committee meeting, Milowicki said that, on the basis of two months experience during the current fiscal year, he has written down expected revenue from the realty transfer tax during the full year by $5.7 million. Projected revenue from that source is now $26.2 million, down from $32 million in fiscal 2008.

The county now expects to have to dip into reserves, other than the so-called 'rainy day' fund earmarked for emergencies, to make up what otherwise would be a $23.7 million shortfall. If so, the reserves will be down to $37.8 million on June 30, 2009.

The consultant, Philadelphia-based Public Financial Management, has agreed to provide "a broad revenue inventory that identifies ... potential revenue sources" by November. Included will be suggested steps county government can pursue to emulate what Wilmington city government did to get its financial house in order.

"I hope they figure out how we can do it before the state [legislature] hijacks it," Smiley quipped.

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