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GREENSBORO — City and county leaders have had many questions in recent weeks concerning a key federal effort to inject money into local communities.

To those whose responsibility is sorting all that out, that comes as little surprise.

“These bonds are a whole new critter,” said Guilford County Attorney Mark Payne. “It’s easy to be confused about them, even if you know about other types of bonds.”

Payne is talking about the American Recovery and Reinvestment Act enacted last year by the Obama administration. The act allows communities to designate certain projects that could be eligible for preferential financing.

The financing is designed to stimulate construction, jobs and growth in communities.

Greensboro was given $19 million to “allocate,” while Guilford County’s “allocation” was $9.8 million.

The City Council and Board of Commissioners have allocated the bulk of their shares to a proposed downtown luxury hotel at South Davie and February One Place, across from the International Civil Rights Center & Museum.

The largest concern: What happens if bond-backed projects — especially the hotel — should fall on hard times and fail?

Not to worry, Payne says.

“There is just no way — no circumstance — where the local governments, cities or counties that use the recovery zone bonds will be liable,” Payne said. “We couldn’t even design them that way. The federal statute that created the bonds doesn’t allow for it.”

The bonds aren’t government money — or even government-backed loans.

Instead, they’re basically IOUs issued by local government bond authorities. Institutional investors — usually banks or mutual funds — buy them because the interest they yield is tax exempt.

Once the bonds are sold, the developer must provide a letter of credit from a bank that would back the bonds should the project fail, Payne said.

Raleigh attorney Mary Nash Rusher, who will act as counsel to Guilford’s bond authority on the projects, said this financing will work like industrial development bonds.

But where industrial development bonds are more restrictive, Rusher says this new financing can be used  for nearly any business making capital improvements in a designated “recovery zone” like Guilford County.

The projects need only be approved by local governments and then deemed “financially viable” by the Local Government Commission.

That designation, Rusher said, will require a letter of credit from a bank taking responsibility for the debt.

So what happens if the Local Government Commission decides a project is too risky financially?

For the project’s investors, it’s back to the drawing board to seek more conventional financing. But the local governments — Greensboro and Guilford County, in this case — lose their “allocation.” It reverts back to the state.

That’s why backing the right project is so important, Rusher said.
 

Contact Joe Killian at 373-7023 or joe.killian@news-record.com