I give George Hartzman over at Triad Watch all due credit for staying on top of the debt bomb getting ready to explode here in Guilford County and most everywhere else. Take a look at the county’s debt service report, where “as the County’s guideline charts indicate, however, additional debt capacity may not be available for several years.” It’s definitely getting worse before it gets better.
Hartzman also remains highly skeptical of the proposed downtown Greensboro luxury hotel, which will be financed with federal recovery zone facility bonds. Indeed many questions remain, most notably the involvement of the Old Asheboro Neighborhood.
As I studied the federal recovery zone bond program, I see one problem with the project’s financing. The gov’t is already tinkering with the interest subsidy on Build America bonds, which are more similar to the recovery zone economic development bonds, another tool local governments are using issue to fund capital projects. As the Business Week article states, reducing BAB subsidies “would force municipalities to come up with the cash to repay debt service at the same time they are trying to fill holes in their budgets.” With that in mind, it’s not so hard to imagine the gov’t might mess with interest subsidies on RZEDBs.
OK, I realize the RZEDBs’ sister, recovery zone facility bonds (RZFBs), are simply tax-exempt private activity bonds. But if a near bankrupt federal government is reneging on subsidies for the other bonds, is it a stretch to think they could decide to tax recovery zone bonds? And in turn, would that not make them less attractive to buyers?
And why would government do this? Because it can. And it’s desperate.
