Charlotte airport deal could affect borrowing costs for other cities, counties
Posted March 25, 2013
Raleigh, N.C. — A legislative proposal to give control of the Charlotte-Douglas International Airport to a yet-to-be-created regional authority could increase borrowing costs for cities, counties and other local governments throughout North Carolina, the Office of the State Treasurer warned lawmakers Monday.
Currently, the city of Charlotte owns and runs the airport.
The bill is backed by some Charlotte business leaders and Senate Republicans, who say a regional authority would better prepare for the airport's future.
But a letter from Steven Turner, a lawyer specializing in bond litigation, details a number of potential problems with the deal. Turner wrote his opinion in response to a request from the Office of State Treasurer.
Currently, the city owes $860 million in bonds that are funded by revenue from the airport. That money has gone for upgrades at the airport.
Turner writes that arguments could be made that transferring responsibility for the bonds from the city to a new authority could violate the Contract Clause of the U.S. Constitution or constitute a default under the legal orders that issued the bonds. The state, he said, does not have a long legal history dealing with such occasions, so the outcome of the state's action is unclear.
In a letter relaying Turner's opinion to lawmakers, Deputy State Treasurer Vance Holloman warns the airport bill could result in "prolonged litigation" surrounding the Charlotte deal. He adds that it could create problems for other local governments throughout the state.
"Furthermore, we believe such legislation could have an impact on the North Carolina municipal bond market," Holloman writes. "The fact that a North Carolina local government issuer of bonds has lost ownership and control of the asset as a result of General Assembly action would have to be disclosed in the official statement of any future revenue bond offerings. This disclosure could affect the cost of borrowing and desirability of North Carolina revenue bonds."
Local governments in North Carolina typically issue one of two types of bonds when they need to borrow. General Obligation bonds are supported by sales and property tax revenue. Revenue bonds, the kind Holloman is talking about, are repaid using income from a particular source. Cities, for example, often use revenue bonds to build water and sewer lines and repay them with the fees charged to rate payers.
The Charlotte airport is essentially a revenue bond. Holloman is saying that, if Charlotte loses control of the airport, other cities would have to warn they might lose control of assets they've pledged to repay their own revenue bonds. That lack of certainty could drive up borrowing costs.
Municipal bond holders "are looking for a low level of risk and some return on their investment," said Ellis Hankins, executive director of the North Carolina League of Municipalities, a statewide association of city and town governments. "They are looking for stability, bottom line."
The airport bill is one of several actions by the General Assembly that could bring that stability into doubt, he said. For example, lawmakers are contemplating moving a water system built by Asheville to a regional authority. These kinds of bills, he said, are raising concerns that borrowing costs could increase for everyone as a result.
Many local governments throughout North Carolina have AAA bond ratings from Wall Street ratings agencies. Those ratings reflect a high level of confidence bonds will be repaid and keep borrowing costs low.
"It is fair to say that some municipal elected officials in different cities around the state are beginning to wonder whether there's reason for concern about proposed actions of the General Assembly having an impact on North Carolina's reputation for strong public finance," Hankins said.