Wake County

Raleigh may fund $52 million Dix park purchase without residents’ vote

Kenneth Johnson, a state employee assigned to Dorothea Dix maintenance, mows a large meadow on Tuesday at the Dorothea Dix Hospital Campus in Raleigh shortly after the State of North Carolina agreed to sell the property to the City of Raleigh for $52 million.
Kenneth Johnson, a state employee assigned to Dorothea Dix maintenance, mows a large meadow on Tuesday at the Dorothea Dix Hospital Campus in Raleigh shortly after the State of North Carolina agreed to sell the property to the City of Raleigh for $52 million. rwillett@newsobserver.com

The city of Raleigh may purchase the Dorothea Dix campus without a vote by city residents.

City officials will decide Tuesday which method of funding they will pursue for the $52 million purchase. Raleigh’s leaders have been talking for years about buying the 308-acre property from the state and building a park, and Mayor Nancy McFarlane and Gov. Pat McCrory signed the sales contract earlier this month.

Local governments often ask residents to approve decisions to take on large amounts of debt by voting on a bond referendum. Raleigh voters last year approved $92 million in general-obligation bonds for new parks, for example.

In this case, though, city staff suggest that the government skip the vote for a potentially faster and cheaper option. Chief Financial Officer Perry James will publicly recommend Tuesday that Raleigh take a direct “private placement” loan from a bank.

The city could secure such a loan and complete the land purchase by July. A referendum vote, by comparison, wouldn’t happen until October, and the purchase wouldn’t be completed until early next year, according to city administrators.

The loan would “provide the lowest overall cost for the financing to the City,” compared with bonds, according to a staff report.

The reason is that the repayment period of the loan would be 10 years, compared with the 20-year period “typically” used for bonds, adding up to lower overall interest payments for the loan, according to the report.

However, this is not an apples-to-apples comparison. Cities are free to sell bonds with a range of repayment periods.

The city could set the voter-approved debt to a 10-year period instead of the 20-year “typical” period, reducing its costs. And there does not appear to be a significant difference between the interest rates of the two types of debt, according to James.

Asked in an interview whether 10-year voter-approved bonds could actually be had for costs similar to the 10-year direct loan, Perry said that another factor had to be considered: timing.

Bond interest rates are near their lowest point in decades, according to WM Financial Strategies, meaning that local governments’ borrowing costs are unusually low.

That could change if the Federal Reserve takes actions that cause interest rates to increase this year, as many expect it will.

“One of the issues that any financing needs to take in mind these days is that the longer you wait to take on debt, the greater the chance the interest rates will rise, because the Fed is anticipated to take action this calendar year,” Perry said. “… It’s a known market now. Let’s avoid any interest-rate risk we can take.”

Several banks have already expressed interest in making the loan to the city, according to staff. The city last used a direct loan to fund about $23 million of a public-safety center project last year.

Joey Stansbury, an advocate for political conservatism in Wake County, said the city should put the matter in residents’ hands. “Regardless of however you proceed, we hope you will agree that any financing option should first have voter approval,” he wrote in an email.

The City Council will discuss the matter at its 2 p.m. meeting on Tuesday. They’ll indicate which method of funding they prefer, but they won’t make a final decision.

Instead, council members may schedule a public hearing for June 2, allowing residents to express their opinions before the council takes another vote.

Any type of debt would require the review and approval of the Local Government Commission. And the financial impact of the new debt likely wouldn’t appear until next year.

The city could wait until next spring, when it builds the 2016-17 budget, to discuss potential property tax increases and other methods of paying the debt.

Kenney: 919-829-4870;

Twitter: @KenneyNC

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