Desperate times, desperate acts. OK, it may be exaggeration to call the city of Charleston’s plan to complete the Septima Clark project as desperate. But the plan is not without risks.
Arguably, the road and drainage project is the most important and urgent of city projects. Its completion is necessary to stop the flooding during heavy rains and high tides in a large section of the city. The cost is an estimated $154 million, an amount some would dispute as highly inflated. In addition, most of the funding is not in place.
During the Charleston City Council’s Aug. 16 meeting, the body agreed to a plan that would allow completion of the project.
Among other things, the city made a “bet” that it would have access to funds from the State Infrastructure Bank amounting to $88 million. Considering the present budget problems in Washington and the SIB's high dependence on the U.S. Department of Transportation for funding, that doesn’t seem like a safe bet.
The $88 million would be drawn down between 2016 and 2019. On the assumption that these funds are available, the city plans to raise a total of $38 million in Bond Anticipation Notes in 2014 and 2015.
These financial instruments are short term and by state law have a currency of one year or less. The city plans to use the funds it expects to get from the SIB to repay the notes in 2016 and 2017.
The first question is what happens if the State Infrastructure Bank funding is not forthcoming? There has been an expression of intent but no commitment.
The second question relates to interest rates. The city assumes that rates will remain low for the next three years or so and projects a 2 percent annual rate for 2014 and 2015. This estimate may well prove correct but historically the assumed rate is very low.
The answers to both of the above questions are uncertain and will depend on the economy, state and federal finances, and other things. But one of the possible answers will be a heavier burden on the city’s funds and an increase in tax rates.
Mayor Joe Riley certainly is aware of the risks that the city is taking and last night expressed confidence that the funding from the State Infrastructure Bank would be available.
Riley reminded the council that only $20 million of the total $154 million estimated funding cost of the project had been committed. Of the commitment, $10 million was a Federal TIGER grant and the balance from the city. A total of $134 million had to be raised for completion.
As part of the overall funding plan, council also approved the extension of the SCE&G franchise fee increase that was introduced in 2009.
The fee was originally 3 percent and later raised to 5 percent. It was to drop back to 3 percent this year but council last night agreed to extend it to 2020.
The extra funds would go to the General Fund and part ($5.4 million) would be used to pay the interest on the Bond Anticipation Notes ($1.4 million) and the balance applied to the cost of the project
The council also agreed to apply to S.C. DOT for a $12.5 million grant under a 2012 federal match program which the state administers.
The mayor said that the city’s $12.5 million match would come from the King Street Gateway TIF funds. The term of the latter was extended last year with the approval of the county and the county school board to enable the part financing of the Gaillard project.
Viewers can see the projection made by the city in relation to spending on the project and funding here.