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Corporations can (literally) vote to issue debt backed by Stamford taxpayers


My apologies for the sensationalist headline. I actually haven't decided if the state law (Special Act No. 18-9) creating the special Transportation Center Improvement District (TCID) in Stamford's South End is an outrageous delegation of our democracy to corporate interests, or a perfectly sensible mechanism to allow a large investor in our community to improve public works for the benefit of its residents. At this point, I think I'm leaning toward the latter.

(To the extent it means anything, this bill passed with unanimous support in the State House, and 30-6 in the State Senate).

Here's how the Act works: it establishes a "district," the TCID, more or less co-extensive with BLT-owned property by Harbor Point, as the Advocate points out, where the "voters," thereof, consisting of (A) electors, (B) citizens paying property taxes, and (C) "holder[s] of record of an interest in real property," can vote on what the TCID does. This includes public works investments such as planting trees, building parking facilities, upgrading sewer facilities, and the like. To effectuate these investments, the voters of the district elect corporate officers, and four of five members of the TCID Board of Directors, the latter having staggered terms of four years each (the Mayor chooses the fifth).

This Board has significant authority, including the ability to levy benefit assessments against property owners in the TCID, issue debt secured by taxes and/or benefit assessments, and spend the proceeds thereof on public works as the Board sees fit.

Specifically, the Board can, among other things, (1) issue up to $250 million in bonds to improve the TCID for the purposes described above, backed by the taxing and/or benefit assessment authority of the TCID, (2) assess, levy, and collect taxes and benefit assessments upon the land and buildings in the TCID that are, in the TCID's judgment, benefited by the improvements, and (3) terminate the TCID's existence (so long as it has no outstanding debt or the Stamford Board of Representatives agrees to assume such debt).

[One note for now: it appears that before any bonds can be issued, an interlocal agreement must be reached with Stamford and "ratifi[ed] by the board of representatives," although such ratification may only be required before the first bond issuance and not any subsequent issuances (the Act later indicates "[b]onds may be issued . . . without obtaining the consent of . . . the city of Stamford . . ."; I assume this means after the interlocal agreement is reached).

Hold on, though. Check the definition of "voter" above. Does "holder[s] of record of an interest in real property" include corporations, such as BLT?

Yes. The Act specifically provides that "no holder of record of an interest in real property shall be precluded from participating in any district meeting or referendum because of the form of entity that holds such interest, whether such holder of record is (A) a corporation . . ." (emphasis added).

So, the TCID--which is "an exact outline of BLT’s newfound footprint"--can effectively be controlled by one corporation, which, as readers surely know, has a mixed reputation among the Stamford community.

[Please note all of this analysis is mooted if BLT is only allowed one vote; I assume that isn't how this works, but the Act does provide that "[n]o owner shall have more than one vote." Further, while the Advocate article indicates the district is more or less BLT's, until we have a full voter roll, we won't know what percent of the total votes for the TCID BLT controls.]

* * *

Should we be concerned about letting BLT decide what level of public works to fund in its neighborhood, and what level of taxation the taxpayers of that neighborhood can afford to bear?

In principle, I am uncomfortable with delegating taxing and spending authority to a corporate entity, ostensibly to be exercised for the benefit of the community.

Here, however, I think the TCID makes sense. Accepting for the sake of argument that the TCID needs improvement, the question arises as to who should pay for it?

Traditionally, public work projects are paid for by the city and taxes are assessed on all residents accordingly. But here, the public works mostly benefit a particular neighborhood in Stamford: the South End. It would be unfair to the residents of Belltown or Glenbrook or any other neighborhood in Stamford to require them to pay for these improvements.

The TCID allows the costs of the improvements to fall on those benefiting. Other than debt issued city-wide, the only other way for BLT to make these improvements itself would be to pay for them itself. It could then raise the rents on its properties accordingly (which would have the same effect as raising property taxes, as those taxes are ultimately passed on to the renters). However, this has at least two disadvantages when compared to the TCID. First, the city would (rightfully) never let BLT build some public works, such as the sewer and utility system. And second, interest paid on municipal debt is tax-free, so this makes the cost of financing improvements in the South End less expensive (because the debt can be issued at a lower interest rate).

In sum, the TCID allows BLT and the residents of its properties to invest in public works in a cost-effective manner which is fair to all Stamford taxpayers.

This doesn't mean I like everything about the TCID. In particular, I am uncomfortable with the discretion the TCID is provided determining benefit assessments. It appears not all assessments need be laid equally among property-owners in the district. Of course, if BLT owns all the land in the district, it won't matter which property nominally funds the district, but to the extent non-BLT owners are intermixed in the TCID, I am concerned they could be unfairly made to shoulder the tax burden for the South End's improvements.

In general, however, the incentives of BLT and the residents of the South End are aligned: to provide services the people want at a price they can afford. After all, if the taxes and benefit assessments are too high, or the neighborhood improvements are not actually demanded by residents, it is BLT's property values that will suffer. They have every reason to invest prudently.

* * *

All that said, I still have one more concern: that if the TCID runs into problems repaying its debt, the Stamford taxpayers will called on to bail out the investors.

The Act makes clear this need not be the case: "Bonds issued under this section shall not be considered to constitute a debt of the state of Connecticut or the city of Stamford, or a pledge of the full faith and credit of the state of Connecticut or the city of Stamford . . ." (emphasis added).

However, the city could always decide to bail out the TCID. We have seen this movie once before. The Mill River Park, another special taxing district like the TCID, was sure to come up short on its bond payments, so the Board of Finance agreed to refinance the special district bonds with General Obligation bonds. These are bonds that all taxpayers must pay for.

If the TCID ever faces financial distress, we should resist any attempts to socialize the losses on the innocent taxpayers of Stamford. If the investors of TCID debt get the reward of tax-free municipal bonds, they must likewise be made to bear the risks.

#BLT #TransportationCenterImprovementDistrict #MillRiverPark

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