NORTH TOPSAIL BEACH – The North Topsail Beach Municipal Council approved two resolutions Wednesday to help relieve some of the city’s debt and allow it to move forward with beach feeding projects.
The Board approved Special Obligation Bonds (SOBs) in the amount of $9 million and $9.2 million. SOBs are licensed by the state as an alternative revenue stream for cities to fund projects. This will cover the initial costs of FEMA’s reimbursable work, as well as repaying existing debts from feeding work completed nearly seven years ago.
According to city financial advisor Doug Carter, SOBs are the preferred way to fund beach feeding for many coastal cities in North Carolina. Since SOBs are not legally treated as debt, and do not require city revenue as collateral, it makes them more attractive.
“I want people to understand that this is very important financially for the city of North Topsail Beach,” Mayor Joanne McDermon said at the meeting. “[W]For SOBs, we were unable to fund the Beach Feeding Project in Phase 5 because we had no cash. “
The approval comes after the city chose to withdraw from the US Army Corps of Engineers Coastal Storm Risk Management Project, a 50-year beach-feeding project that would have covered its maximum 4 miles of shoreline. North Topsail Beach chose not to sign a formal agreement with neighboring Surf City in July 2021 once it learned it would owe about $16 million up front for its stake.
Read more: Surf City left hanging near North Topsail, regrouping in beach renovation efforts
Last month, Mayor Joan McDermon told the Port City Daily that the LGC would never approve additional spending or funding for this project until the existing $17 million USDA loan is repaid. The town got the loan in 2015 to lay 600,000 cubic yards of sand on the same 4-mile south shore (known as Phase 5) that the federal project would have covered.
Carter explained that approving the SOBs would also ease the minds of the LGC and allow the city to borrow from other projects, such as the much-needed fire station.
“That, to me, is a no-brainer in terms of doing it,” Rick Grant, an alderman, said at the meeting.
Last month, Grant advocated not saving the town for the federal project.
“No one thought about 2015 when we implemented the project [at phase 5] The Army Corps project would be approved.”
North Topsail maintains a beach fund for its food businesses and deposits annual revenue from paid parking, occupational taxes, and a portion of property taxes. The city estimates its annual revenue at $10 million, about half of which goes to the Beach Fund.
Using SOBs will allow the city to leave this fund as is, so that money can accumulate for future feeding cycles.
North Topsail has been approved for more than $17 million in nutrition business by FEMA to cover damage from Hurricanes Florence and Dorian. The city must pay the contractor for this work before FEMA can reimburse it.
This work is scheduled to begin in February and continue through April. It will stop before the turtle migration season (mid-May through August), and any remaining work will start again in November, with a view to completing December 2022.
The first approved SOB of $9 million will cover all of the contractor’s costs to add 630,000 cubic yards of sand to the beach. The remaining $8 million of the $17 million of FEMA reimbursable work (different from the town’s $17 million USDA loan) will be voted on by the council in the fall, and likely to be funded with another SOB.
Once North Topsail receives its FEMA funds, it will pay the SOB, at an interest rate of approximately 1.6%.
A second approved bond of $9.2 million would help pay off the remaining $14.5 million of a $17 million USDA loan obtained in 2015 to convert Phase Five into an agency-designed beach Federal Emergency (FEMA). The FEMA designation makes it easier to receive federal assistance after storm damage.
The loan interest rate is 3.5% and the repayment period is 30 years; However, the city struck a deal with the LGC to repay it in a shorter period of time—by fiscal year 2027. The agreement also included North Topsail’s construction of a $5 million reserve, which the city has been saving and accumulating over the past six years.
Carter said the plan is to put the reserve money toward the loan to reduce capital and borrow the rest at a lower interest rate, 2.5%. According to Carter, the city will save more than $1.1 million.
“This is called cleaning up your balance sheet,” Grant told the Port City Daily. “We’re basically refinancing the USDA loan at a lower interest rate, and for a shorter period of time.”
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