Footage of the Nags Head beach renourishment project near Mile Post 18 on Aug. 6, 2019. Authority for a special type of bond financing used for such projects and other types of municipal improvements was repealed by a bill approved last year. Video: Nags Head
Coastal officials said a legislative error last year eliminated a key funding mechanism for beach renourishment and other public projects, which if not fixed could have a big impact on future plans.
Last June, in a unanimous vote in both chambers, the North Carolina General Assembly passed Senate Bill 381, Reconstitute and Clarify Boards and Commissions, a rewrite of laws for a handful of state boards and commissions affected by a successful executive branch legal challenge to having boards with a majority of legislative appointments.
Tucked into the 14-page bill was a one-sentence repeal of Chapter 159I of the state’s general statutes. The repeal eliminated as intended an obsolete board that was in part of the chapter law, but it also deleted authorization for municipalities to use special obligation bonds to finance projects in several categories, including beach renourishment, landfills, transportation, water and wastewater projects, and downtown improvements.
Recent plans by Wilmington officials to use $36 million in special obligation bonds to finance a downtown parking deck had to be rewritten after the city was told the authorization to issue the bonds had been removed from state law.
Farther north in Dare County, where special obligation bonds have been used to finance beach renourishment projects, word of the repeal began to spread late last month.
Nags Head Town Manager Cliff Ogburn said he first heard about the repeal two weeks ago.
“From what we understand this was an error, that it wasn’t the intent and it’ll be fixed,” Ogburn said. “It’s just a matter of when it will be fixed.”
Ogburn said it appeared that the repeal doesn’t affect current bonds, so Nags Head is fine for now. The town has two special obligation bonds totaling $27,613,837 for its current beach project, which started last year. Other nearby towns that have yet to put their projects out to bid may not be so lucky, he said.
Duck Town Manager Chris Layton said he’s also heard that legislature plans to fix the repeal error, so he’s hopeful it shouldn’t affect the financing for a beach project planned for 2022.
“If for some reason it doesn’t go back into place, we’re confident that we can still manage to finance the project with other sources,” he said. “It’s just that special obligation bonds are well-suited for this type of project,” he said.
The bonds are an easier process than other public financing, he said, and don’t require a special referendum. The town used a roughly $3 million special obligation bond to finance its last beach project.
Dare County Manager Bobby Outten said the special obligation bonds are a key part of how the county and towns work together on local beach projects.
“For our beach nourishment projects, the way we leverage our money is we use the special obligation bonds to do really short-term borrowing, four or five years for the life of a project, so that we don’t have to have all the money saved up in one go. We can stretch it out over about five years, the usual life of a project,” he said. “So, it allows us to leverage our beach nourishment fund and get more sand on our beaches.”
If there’s a $20 million project, he said, it gets paid off over five years at $4 million a year rather than having to write a $20 million check upfront. “That way if we had $20 million in cash, we could do five projects at the same time.”
Another lending source wouldn’t allow that kind of leveraging, Outten said, and some would require collateral that most small towns don’t have.
Outten said he also expected the legislature to reinstate the bond authority. He hopes that happens soon.
The projects in Duck and elsewhere will need to go out to bid. “You have to have your funding source in place in order to bid the projects,” Outten said. “That’s coming, and whether we bid them in the fall or the spring depends on how quickly the legislature acts.”
At least one sponsor of last year’s bill said he will work on a fix when the legislature returns at the end of the month for its short session.
“The repeal of special obligation bonds was not my intent in sponsoring S381 last year,” Mike Woodard, D-Durham, wrote in an email to Coastal Review Online. “I will work with our local governments to fix this situation when the short session begins.”
A legislative staff reply to Rep. Chuck McGrady, R-Henderson, who asked about the change, also said the change appeared to have been “inadvertent and unintended,” according to an email from McGrady.
Scott Mooneyham, director of political communications and coordination for the North Carolina League of Municipalities, said a fix should happen soon.
“Given that the repeal appears inadvertent, we would hope that the General Assembly restores the authority as soon as possible,” he said. “This financing is critical when it comes to large capital projects like beach renourishment and solid waste facilities.”