Industry Location Incentives

Incentive Programs

Self-Financing Bond Program
 
What is a self-financing bond?
A self-financing bond is a method for financing public infrastructure that leverages private investments. Increased tax revenue generated by the project pays for the bond. Thus, the term self-financing bond. They are often also referred to as Tax Increment Financing Bonds (TIFs) or Project Development Bonds.
 
What kind of development do they support?
Development that can be supported by self-financing bonds include new manufacturing plants, re-use of abandoned or vacant facilities, affordable housing, commercial development in inner city areas, redevelopment of areas damaged by environmental pollution or natural disasters.
 
Who creates the development district?
Local governments, following discussions with landowners, designate the boundaries of the development districts. The districts don't go into effect until the State Local Government Commission has approved the project development plan.
 
Who approves issuance of the bonds?
The Local Government Commission in the State Treasurer's Office has final approval authority. The Commission is an independent non-partisan organization. North Carolina is one of only a few states in the country that gives such authority to an arms length state commission and the only one that gives the state final authority on approval to issue bonds. Over many decades, the Commission has done an extraordinary job of protecting the financial strength of local communities. North Carolina has 25 percent of the AAA financial rated communities in the country. This is far more than any other state.
 
What happens if the project fails?
More than ninety-five percent of bonds issued in the country have succeeded. In NC, the final approval for all bonds must come from the NC Local Government Commission (LGC). In their more than 50 year history of approving bonds, no local government bond issue approved by the LGC has ever defaulted. However, in the unlikely event of a default, there are several measures available to secure repayment of the debt. Local governments can place liens on the private development and can foreclose in order to collect taxes owed. Local governments can require other safeguards from the private sector as part of the agreement to issue the bonds. For example, the developer may be required to post security in the form of a bank letter of credit that would pay the debt service on the bonds if the project is not developed. The local government could also use other available revenue sources to repay the debt. However, the local government would only be obligated to use the other sources to the extent it had pledged the sources as part of the bond issuance. For example, the local government could pledge a portion of its sales tax as a back-up repayment source to be used if the incremental property tax revenues are insufficient to repay debt service. Even so, with a bank letter of credit in place, such back-up revenue sources would almost certainly never be used. They would only serve to lower the cost of borrowing.
 
Does approval of the bonds require a vote?
No. Local governments have the authority to issue self-financing bonds if they so choose. Individual local projects involving self-financing bonds do not require local referendums - possibly shortening the time involved for getting projects underway. This is one of the advantages this tool provides for fostering local economic development. Current law requires a vote only if the taxing authority of the government unit is pledged as security for the debt. Self-financing bonds do not make that pledge.
 
How have the bonds worked in other states?
There are a variety of economic studies about the benefit of self-financing bonds. There is little, if any dispute, among those studies that there are significant increases in jobs, private investment, property values and tax revenues within the development districts. For example, in Iowa, the value of land within development districts grew from $650 million to $4 billion - a growth rate 10 times faster than overall municipal property valuation. Property tax revenues collected from development districts there grew from $22 million in 1989 to $118 million in 1999.