NORTH TOPSAIL BEACH — The Town of North Topsail Beach Board of Aldermen approved two resolutions Wednesday to help alleviate some of the town’s debt and allow it to move forward with its beach nourishment projects.
The board approved two Special Obligation Bonds (SOBs) for $9 million and $9.2 million. SOBs are authorized by the state as an alternative revenue for towns to finance projects. This will cover the upfront costs of reimbursable Federal Emergency Management Agency (FEMA) work, as well as pay off existing debt from nourishment work done nearly seven years ago.
According to the town’s financial advisor Doug Carter, SOBs are the preferred method of beach nourishment financing for many coastal North Carolina towns. Since SOBs are not treated legally as debt, and do not require town revenue as collateral, it makes them more appealing.
“I want folks to understand this is very important financially for the Town of North Topsail Beach,” Mayor Joann McDermon said at the meeting. “[W]thout SOBs, we couldn’t fund the beach nourishment project in phase 5 because we have no cash.”
The approval comes after the town chose to withdraw from the federal U.S. Army Corps of Engineers Coastal Storm Risk Management Project, a 50-year beach nourishment project, which would have covered its southernmost 4 miles of beach. North Topsail Beach chose not to sign the formal agreement with neighboring town Surf City in July 2021 once it learned it would owe nearly $16 million up front for its portion.
READ MORE: Left hanging by North Topsail, Surf City regroups on beach renourishment efforts
Last month, Mayor Joann McDermon told Port City Daily the Local Government Commission (LGC) would never approve additional spending or financing for that project until its current $17 million USDA loan is paid off. The town obtained the loan in 2015 to place 600,000 cubic yards of sand on the same southernmost 4 miles of beach (known as phase 5) that the federal project would have covered.
Carter explained approval of the SOBs would also ease the minds of the LGC and allow the town to borrow toward other projects, such as a much-needed fire station.
“This to me, is a no-brainer in terms of doing this,” alderman Rick Grant said at the meeting.
Last month, Grant defended the town not saving for the federal project.
“No way anyone thought in 2015 when we did the project down [at phase 5] that the Army Corps project would be approved,” he said.
The cash flow
North Topsail maintains a beach fund for its nourishment projects and deposits into it annually revenues from paid parking, occupational taxes and a portion of property taxes. The town estimates its annual revenues are $10 million, with nearly half of that going into the beach fund.
Utilizing SOBs will allow the town to leave this fund intact, so money can accumulate for future nourishment cycles.
North Topsail was approved for more than $17 million of nourishment work by FEMA to cover damage caused by hurricanes Florence and Dorian. The town must pay a contractor for this work prior to being reimbursed by FEMA.
This work is slated to begin in February and last through April. It will stop ahead of turtle migration season (mid-May through August), and any remaining work will begin again in November, with the goal of a December 2022 completion.
The first approved $9 million SOB would cover all contractor 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 board of aldermen in the fall, likely financed with another SOB.
Once North Topsail receives its FEMA money, it will pay off the SOB, at an interest rate of roughly 1.6%.
The second $9.2 million approved bond would help repay the remaining $14.5 million of the town’s $17 million USDA loan obtained in 2015 to turn phase 5 into a FEMA-engineered beach. The FEMA designation makes it easier to receive federal assistance following storm damage.
The loan has a 3.5% interest rate and payback period of 30 years; however, the town made a deal with LGC to pay it off in a shorter timespan — by fiscal year 2027. The agreement also included North Topsail building up a $5 million reserve, which the town has been saving and accumulating over the last six years.
Carter said the plan is to put the reserve money toward the loan to lower the principal and borrow the remainder under a lower interest rate, 2.5%. The town will save over $1.1 million, according to Carter.
“It’s called cleaning up your balance sheet,” Grant told Port City Daily. “We’re basically refinancing the USDA loan at a lower interest rate, for a shorter time period.”
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