Bond to fund facilities statewide
A hearing coming up Nov. 21 to discuss the issuing of a $41-million bond by the Health, Education and Housing Facilities Board of Sevier County does not involve a commitment of funds by the county or any local government, according to all sources contacted by The Mountain Press.
The Health, Education and Housing Facilities Board of Sevier County has been meeting annually since around 1980, said attorney Ron Sharp, who represents the board.
State law allows for creation of the boards, which are meant as a conduit for funding health care facilities, schools and housing for low-income families, the elderly and disabled.
It stipulates that the loan will be secured by the borrower, and later specifies that the local government cannot be held responsible for payment:
“The municipality shall not in any event be liable for the payment of the principal or interest on any bonds of the corporation, or the performance of any pledge, mortgage, obligation or agreement of any kind whatsoever, which may be undertaken by the corporation, and none of the bonds of the corporations or any of its agreements or obligations shall be construed to constitute an indebtedness of the municipality within the meaning of any constitutional or statutory provision whatsoever.”
It also makes the bonds tax exempt.
Generally speaking, the board acts as a conduit, Sharp explained, issuing the tax-exempt bonds and collecting a small fee while aiding projects deemed to be for the public good.
Sevier County’s board was created around 1977; it has the same membership as the county’s Public Building Authority and Industrial Development Board.
The group continued to hold annual meetings, but has not issued any new bonds or taken part in any new projects since the early 1990s, Sharp said.
The bonds in this case will be used to pay for renovations to 26 facilities spread across the state, all run by a set of corporations solely owned by Atlanta businessman Martin H. Petersen. Under the law, the bonds will be secured solely by his corporations. The funds will be kept by a trustee, who will pay out the money as the work is done.
The facilities aren’t in Sevier County. The closest is Suncrest, in Cocke County, a set of apartments with 32 units.
Bond attorney Lewis Diaz, an associate with the Ohio firm of Peck Shaffer, said he approached the local board about the bond issue. The money is needed to pay for renovations to the facilities, some of which are more than 30-years-old, he said. “They’re all existing facilities. A good number, not all, are elderly facilities, and have assistance through direct loans or rental assistance through the USDA,” he said.
The bonds also provide the potential for additional tax credits and exemptions, he said, especially in cases like this where an owner is trying to rehabilitate existing facilities.
In some states, Petersen can go to agencies like the Tennessee Housing Development Agency, he said, but in Tennessee the state asks the borrower to go to entities like the Health, Education and Housing Facilities Board for those bonds.
THDA also provides aid through programs like its Low Income Housing Tax Credit program, but those programs are competitive and are only awarded to a small number of applicants each year.
Petersen didn’t want to wait to begin the improvements or to do them piecemeal at this point, Diaz said, and the bonds give the company an affordable way to complete the work.
“You just can’t do this many projects and make a meaningful impact at trying to improve things for tenants doing it one at a time,” he said.
They selected Sevier County because the group still met regularly, unlike some similar boards that have become inactive, and because the members could understand the financing, Diaz said. “You have a professional board, and you have people who know what they’re doing,” he said.
Sharp said the board got a $2,500 application fee when Diaz approached them, and will collect an additional fee upon closing if the deal is approved. Those funds help the board operate without taking money from the county, he explained.
The public hearing on the bond will be held at 10 a.m. Nov. 21 at Mill Corner Place on Bruce Street. Each individual project must be approved by the local governing body as well.