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Published June 13 2012

Special assessments to help fund F-M diversion

Fargo - Diversion Authority officials could be using a phrase more often that property owners who would benefit from a proposed Fargo-Moorhead diversion will likely dread: “special assessments.”

Residents ought not to panic, officials said, since they’re still months – more likely years – away from determining who would cough up how much dough.

Local government leaders coordinating the Red River diversion project have made no secret that special assessments might be needed to help pay for the $2 billion metro-area flood-control channel. However, most previous public discussions often downplayed that possibility in favor of more popular revenue sources, such as city or county sales taxes.

But as the Diversion Authority’s finance team looks into long-term financing options for the project, they said this week special assessments will have to be a part of the puzzle.

Those discussions are in their infancy, so to what extent specials might be required – and how much cost individual property owners might have to bear – isn’t yet known.

For now, it’s about “putting the wheels in motion” and weighing alternative financing scenarios, Diversion Authority Chairman Darrell Vanyo said Monday during a meeting of the authority’s Finance Committee.

“There’s going to be plenty of education as time goes by,” Vanyo said, adding: “People shouldn’t be alarmed by a special assessment district immediately. This isn’t going to be money out of their pockets right away.”

Special assessments are project-specific fees levied on properties that benefit from the project, often used to pay for infrastructure construction – streets and water mains, for instance.

The need to discuss special assessments arose this month after the authority’s finance team learned Fargo’s and Cass County’s sales tax revenue would not be enough to guarantee the investment of a several hundred-million dollar bond, which officials hope can finance the project over a couple generations.

In essence, proceeds from the city and county sales taxes might be enough to pay for the bond, but that revenue won’t be enough to secure issuance of the bond.

Most municipal projects funded with bonds require a mixture of funding sources – such as sales tax and special assessments – to secure the investment.

The diversion project is no different, said Brian Neugebauer, an attorney on the authority’s legal team.

In discussing financing options this week, diversion officials broached the possibility of asking property owners – under the funding scenario involving the most specials – to approve an assessment district that could give backing for a bond as large as $350 million.

Officials could then set up an assessment plan upfront with the most flexibility, while securing a bond with a low-interest rate.

But when it came time to ask for actual dollars out of homeowners’ pockets, the Diversion Authority would most likely ask for only a fraction of the approved assessment, depending on the success of other revenue sources, officials said.

“We want to maximize the sales tax … We’re not to the point where we’ve refined any of this,” Fargo Administrator Pat Zavoral said. “Just conceptually: Is it a good idea to put this thing in place?”

Officials said this winter would be the soonest they might begin the process of establishing a special assessment district through Cass County’s Joint Water Resource Board, but even that’s not for certain.

Both Fargo and Cass County voters have approved half-cent sales taxes specifically to pay for the Red River diversion project.

Fargo’s tax generates at least $11 million a year, while the county’s produces slightly more annual revenue.

Local leaders plan to use those sales tax dollars to cover the nearly $500 million local share of the project.

However, with Minnesota’s true share still unknown and federal funding not guaranteed, diversion officials say they want the most leeway possible to fund the Fargo-Moorhead project.

“We’ve been very upfront that sales tax is not the only option,” said Fargo Commissioner Brad Wimmer, a member of the finance committee. “The more we allude to it and make people aware of it, the less surprise there will be. It’s always been on the table.”

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Readers can reach Forum reporter Kristen Daum at (701) 241-5541