Campus Watch logo. Graphic by Andy Mooney, Salisbury Post.

By Joanie Morris

Kannapolis Citizen

Kannapolis City Council is working to build the N.C. Research Campus quickly, and one of the biggest decisions so far is determining how to pay for improving roads, extending water lines and providing other public services.

A big step came Monday night with a joint meeting of city officials and Cabarrus County commissioners. Now, local government officials are a little clearer on the sort of financing needed.

They also gained insight into the future of Kannapolis.

City Manager Mike Legg and other local leaders with David Murdock's biotechnology project presented the officials — including about 50 audience members — an update on the Research Campus, as well as budgets for infrastructure and buildings, and a timeline for completing those buildings.

The most important part of the discussion — which brought commissioners to the table — was financing of public services in the area directly around the campus.

Infrastructure improvements are expected to cost about $352 million, including road and intersection improvements, water and sewer extensions and even parking decks. The city and county portions of that bill are not known at this time, although estimates fall between $60 and $80 million or more, said Karen Whichard, marketing director for the city of Kannapolis, not the $160 million originally reported.

The city is moving forward with tax increment financing bonds — also called "self-financing" bonds — using a special tax district.

But the county has options. The county can participate in paying off the bonds — contributing as much as 50 percent of the cost from the revenues it get from the special tax district — or the county doesn't have to participate at all.

Either way, Legg said, the bonds would be paid through self-financing.

"Ultimately, there is no (additional) impact on the taxpayer — inside the district or outside the district," said Legg.

The self-financing bonds are easily explained. A tax increment financing district is set by the city and approved by the Local Government Commission. Once the district is approved, the city can start making money.

If the property value on a house is currently $100,000, and the owner is paying 49.7 cents per $100 in valuation, They will pay $497 in taxes for the 2006 year. That money goes to the general fund to run the city.

County taxes work the same way.

City officials point out that the value of property will increase as the Research Campus evolves — not because of taxes but the value itself.

When the value of property in the special district goes up and the house is then worth $150,000 — while the tax rate is the same — the owners would pay approximately $793 in taxes for the year. Of that total, $497 — the amount paid the city before the tax district was created — would still go into the general fund to run the city, but the additional $246 would go to pay off the bonds.

"It has no impact on the tax rates whatsoever," Legg said. "It's about new revenues coming in."

The terms between the city and county are still to be set. The city is in the process of having an outside firm determine the actual cost of improving roads and other public services — as well as how much the value of the property is likely to increase. Once the study is completed, the terms between the city and county will be determined.

Legg predicted the city and county will split the annual bond payments, as long as commissioners endorse the special tax district. At the end of the year, the reserve not used would go back to each entity, divided 50-50.

The duration of the agreement between the city and county would likely be the same terms set by the purchase of the bonds — no longer than 30 years, though Legg expects shorter financing of about 20 years.

While the self-financing bonds were the focus Monday, Legg said officials are exploring other possible financing, including grants and funding from the N.C. Department of Transportation and the U.S. Department of Housing and Urban Development.

"The success of this area is critical," Legg told the group. "Castle & Cooke made it clear early on that they wanted a financial partnership with the local government.

"Self-financing bonds are the least risky for a project like this."

"This has the potential to be a transforming event for this region like we've seen in other parts of the nation," said County Commission Chairman Bob Carruth. He pointed to Houston, home of NASA.

Other areas where self-financing bonds have been issued successfully include Texas Motor Speedway and Kentucky Motor Speedway. In South Carolina, the bonds have been successfully implemented in Rock Hill several times; in Beaufort for a regional campus of the University of South Carolina; and Columbia for redevelopment.

Getting approval for the tax district and purchasing the bonds begins immediately. The next step is a "pre-conference" with the Local Government Commission in the next several weeks.

After that, a notice will be sent to property owners within the special tax district and then formal approval of the district by the city. The feasibility study will be completed and documents will be reviewed.

After that, the Local Government Commission will review everything and if it approves, the bonds will be purchased.

The goal of the city is to have the district in place and bonds approved by Dec. 31 to reap the benefits of the added value of the structures already going up on the Research Campus, Legg said.

Revaluation of property in Cabarrus County will occur again in 2008, effective January 2009, but tax on steel structures and construction is better than no tax on empty buildings, Legg added.

"We've got a lot to do in the next few months," Legg said.

Contact Joanie Morris at 704-932-3336 or jmorris@kannapoliscitizen.com.

Easing growing pains

By Hugh Fisher

Kannapolis Citizen

What are self-financing bonds?

Put simply, they are a type of bond that is designed to be repaid out of revenue from property value increases in the area that is being improved, rather than by tax money from throughout an entire city or county.

Kannapolis leaders say that self-financing bonds — also known as tax increment financing — are the best way to raise money for water, sewer and other infrastructure changes made necessary by the North Carolina Research Campus.

Thousands of new residents and workers will bring a higher demand for utilities than ever before, and put more vehicles on city streets than ever before.

The city of Kannapolis must find a way to anticipate this demand before the new growth arrives. Doing that takes money.

But in an era when any new property tax increase gets residents up in arms, Kannapolis City Manager Mike Legg said that the new self-financing bonds are an obvious choice because they are less likely to affect the majority of residential taxpayers in the area.

"Standard bonds will definitely have an impact on taxes, because that's how you pay regular bonds back, through the tax authority of the government," Legg said.

"The only way that (self-financing) bonds can be paid back is through the increased value of the development projects in the district that's established."

Kannapolis is working to determine what areas of the city will be a part of the tax increment financing district. Only the property values of those selected areas of town will be a factor in paying back the bonds. Those areas are likely to include not just the N.C. Research Campus but other properties that will see a value increase from its construction.

Legg said that the bigger the area Kannapolis uses to fund the bonds, the better its interest rate is likely to be for repaying them, but the area cannot exceed 5 percent of the total land area of Kannapolis proper.

"The bond holders and underwriters like the largest district possible," Legg said.

In general, with bonds of this type comes a risk that property values might not increase enough for repayment. Legg said that that's very unlikely given the huge investments already being made in downtown.

He also said that projects unconnected with the N.C. Research Campus could lend their value to the bond district.

"You might have a project that's outside of the campus ... that has triple the value of what was there before," Legg said.

The added tax value will pay not only for the water and sewer lines to serve a vastly-larger downtown area, but will support the added demand on public safety and education systems.

Those improvements, funded by the self-financing bonds, will in turn provide an even higher property value, Legg said.

"The most dramatic way is that we're going to make incredibly large investments in infrastructure that help increase property value," Legg said.

"If you're a commercial property owner in this district, you're going to have new water and sewer lines and new streetscapes. You could be near a new greenway, a new park or you could have a bike lane installed along your business or property."

David Murdock's Castle & Cooke LLC, developer of the N.C. Research Campus, has indicated that local governments will need to provide some of the money for the infrastructure improvements outside of the research campus site.

Legg agrees with the need for the city and Cabarrus County to be involved in that process.

"Both the city council and board of commissioners agreed that they would support this project financially," Legg said.

"The nice thing is that this infrastructure will be put in and it won't cost the average person in Kannapolis a single penny," said Kannapolis Mayor Bob Misenheimer.

"The money will come from the improvements that are made and the taxes on those improvements," Misenheimer said.

Last week, the city released a tentative map of a tax increment financing district. That plan was discussed at Monday's Kannapolis City Council meeting. City leaders hope the tax increment financing district will be set by the end of this year.

The question which remains is just how much expansion is needed to accommodate the N.C. Research Campus, along with the significant residential and commercial growth that it will bring to the downtown area.

When Kannapolis releases the results of a study on infrastructure needs sometime next month, it will become clearer just how much of an impact growth will have on the city.

But in the meantime, city leaders say that the self-financing bond plan is the best way to find funds for such a large and involved series of projects.

"It looks to me like this is a win-win situation for everybody," Misenheimer said.

Contact Hugh Fisher at 704-933-3445 or hfisher@kannapoliscitizen.com.