Tuesday, January 12, 2010

A.G. approves I-485 plan but Treasurer disagrees

The state Attorney General's office gave formal approval today to the plan for designing, building and financing completion of I-485 around Charlotte. Gov. Bev Perdue announced plans Nov. 9 for completing the road with a novel way to pay for it that included construction companies, in effect, financing part of the work by allowing the state to pay for it over a period of years. State Treasurer Janet Cowell's office raised questions about the process, including whether it amounted to taking on more state debt -- and at the end of the day Tuesday restated her concerns about debt.

Here’s a link to the attorney general's opinion.

In a letter to N.C. Secretary of Transportation Gene Conti dated Jan. 12, Chief Deputy Attorney General Grayson G. Kelley issued an advisory opinion in which he noted that the General Assembly had contemplated the use of design-build-finance projects when it approved legislation enabling the process "to, in effect, borrow money from local governments and non-profit corporations on the condition that all funds advanced be reimbursed with seven years." The legislature later approved contracting with private entities, local governments or the NC Turnpike Authority to finance roads, streets and bridges, Kelley noted.

"In our view, the plain language (of the law) vests NCDOT with the authority to contract with private entitites for the construction of the I-485 projects under contract terms which may involved financing. As such, assuming the extended payment schedule described in the draft Request for Proposals constitutes 'financing,' we believe the General Assembly has authorized NCDOT to expedite cosntruction in this manner," Kelley wrote.

"Furthermore, we have been unable to identify any provision of North Carollina law that would prohibit the contracting proposal described by NCDOT. Nor are we aware of any case law restricting delayed payments by a state entity to a contractor."

The advisory opinion represents a clear statement that many felt was needed to lend legitimacy to the plan, given the treasurer's office's reservations about the process. Cowell's office has strangely played this close to the vest. The Observer weeks ago invited Cowell to write an op ed piece explaining her view of the financing process but so far she has not taken advantage of that opportunity.

At the end of the workday Tuesday, her spokesperson Melissa Waller said:

"We appreciate the effort of the Attorney General's office in consulting with the Department of Transportation and our office to produce the advisory opinion, completing the next step of this important process. However, we respectfully disagree with the Attorney General’s opinion. While we continue to support the completion of the I-485 project through other optimal financing methods, we also believe that the larger issue of debt management should be referred to the Debt Affordability Advisory Commission and the General Assembly."


JAT said...

I disagree, Jack and here's why.

The opinion starts off:

"The Request for Proposals for the I-485 Loop and Interchange projects will inform prospective contractors of the maximum amount of funds available on a periodic basis throughout the ten-year contract term. Prospective contractors will be required to demonstrate their financial capability to meet the contract terms and conditions, including the delayed payment schedules, either through existing internal resources, joint-venture arrangements, or third-party financial support. NCDOT will neither provide financing nor guarantee debt. Although some contractors may include the cost of borrowing money in their bids (as is the case in most traditional construction contracts awarded by NCDOT), there will not be a line item interest component in the Request for Proposals and NCDOT will not make any direct interest payments."

So this is saying that given what is out there in the first draft of proposals, there is no problem with NC DOT issuing or guaranteeing debt. That is that, then.

Not so fast. The opinion concludes:

"We are aware, however, that interested contractors, bonding companies and financial institutions have suggested to NCDOT that the Request for Proposals can be modified in ways which they contend will result in additional cost savings. Some of these recommendations involve authorization to assign payments and financing guarantees by NCDOT. We understand that the first draft Request for Proposals will allow prospective contractors to submit these types of suggestions and that NCDOT will consider whether the second draft Request for Proposals should be modified. Our opinion that NCDOT has legal authority to move forward as proposed with the expedited completion of I-485 is based solely on the draft Request for Proposals provided to us prior to the issuance of this opinion. Should future drafts, or the final contract, include new substantive provisions, reconsideration of this opinion may be required."

In other words, the banks and the contractors want PRECISELY the guarantees that the AG has not signed off on!

Absolutely nothing is settled in this matter then until the contractors come up with financing plans WITHOUT state guarantees. If there are guarantees proposed, then it is back to the AG's office to find out if that can possibly be squared with state law.

Stay tuned.

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