CONSULTANT OUTLINES PROPOSED BALSAMS FINANCING PLAN, RISKS TO COUNTY
February 20, 2023
By Robert Blechl
Appearing in the Caledonian Record
Lancaster, NH
“During a joint meeting of the Coos County Commission and Delegation in Lancaster on Friday, the municipal consultant for the county outlined the proposed financing plan to redevelop The Balsams and what he said are the risks to the county.
At the core of the proposal is the issuance of $35 million in bonds and the creation of an assessment district, which would have to be approved by both the county commission and delegation.
UniBank Fiscal Advisory Services was enlisted to evaluate the project and assess the risks, including what happens to the county if the bonds are issued and the redevelopment does not succeed.
Essentially, the repayment of the bonds would be through assessments on the property within the assessment district, said Ben Oglesby, a vice president and senior fiscal advisor with UniBank.
Only the developer’s property would be assessed and those assessments would be used to pay the principal and interest of the bond, he said.
While the planned phase of the project involving the bonds would be north of $80 million and involve other types of financing, the assessment revenue bonds themselves would be $35 million, he said.
‘In order to do this, the county has to create a district we are calling the Balsams Resort Redevelopment District,’ said Oglesby. ‘What this district would do is issue the bonds and it will oversee the repayment of the bonds and it will oversee the proceeds of the bonds. The bonds have to be used to complete the project. The county will have a significant role, at least on an administrative basis as long as the bonds are outstanding.’
While the bonds are expected to be for 20 years, the developer is asking for legal authority to issue up to 30 years, he said.
Because the county would use resources to administer the district, the development team, led by Les Otten, is proposing an upfront fee of $350,000 to the county as well as $175,000 annually to compensate the county for time and resources used.
The creation of the district was authorized through legislation several years ago for unincorporated places, which includes Dixville, where The Balsams Grand Resort is located.
‘We passed this three years ago to specifically to create this,’ said state Rep. Troy Merner, R-Lancaster, a member of the county delegation. ‘It’s unseen in the state to have an unincorporated place with a major project like this.’
The bonds are structured so the county is not responsible for debt service and principal and interest, said Oglesby.
‘In the event the assessments collected in the district are insufficient, that’s it,’ he said. ‘There’s no other recourse for the investors. It’s not a general obligation of the county as you would see with municipal bonds … If the project for some reason doesn’t work out and there’s a default situation, the county is not on the hook to pay the debt service of the bonds.’
While the proposed financing structure would not have the county financially liable in any way for the repayment of the bonds, the most significant risks are the possible inability of the developer to repay the bonds from the available assessment revenue, resulting in default, and the associated reputational impact on the county if that happens, said Oglesby.
The interest rate is assumed to be 9 percent (a risk to the developer, including if rates decline and cannot be refinanced, he said) and the bonds are taxable to allow greater flexibility to use the bond proceeds, said Oglesby.
The bond underwriter is expected to be Goldman Sachs. It is presently undetermined who might buy the bonds.
The underwriter would resell the bonds to private purchasers, whom the county would update as part of an ongoing disclosure process during the life of the bonds, which Oglesby said are anticipated to be sold in early 2023, based on the creation of the assessment district.
A reserve fund of about $3.5 million would be set up and is designed to mitigate the default risk.
Citing RSA 33 :20, the New Hampshire statute on redevelopment districts in unincorporated places, Greg Im, a bond attorney for school and municipal clients, said the statute is clear and states that “‘under no circumstances shall the county or the unincorporated place, as issuer of a bond … have any obligation of any kind to repay any of the principal or interest of the bond’”
‘That’s pretty strong language that protects the county,’ said Im.
It assumes that the district would serve no purpose after the bonds are paid off.
The primary benefit of the project is the county will see much money invested in it by the developer and the redevelopment would create jobs and a destination, said Oglesby.
‘Obviously, there will be significant economic benefits to the county and region if this were to happen,’ he said.
‘The statute requires that the commissioners make a finding that creating this district and adopting the financing plan will likely create employment opportunities or increase the social or economic prosperity of the county, any of which would be in the public interest,’ said Im. ‘That’s the benefit that’s baked into the statute that the commissioners must find before the financing is green-lighted.’
Otten said the RSA is essentially an invitation for economic expansion that allows a developer to come into a community and receive an incentive through which the tax generated for a period of time will be used to pay back some debt and the county receives incremental increases in tax revenue.
Further development, as planned, would accelerate the repayment of the taxes and increase the county’s overall tax base, and, after a time, all the taxes generated go directly to the county, he said.
‘The better we do, the more income goes back into the tax revenue,’ said Otten.
The first phase is expected to employ 600 to 800 construction workers and 400 to 500 full-time, year-round employees, he said. After full build-out, Otten projects some 1,500 full-time Balsams employees.
Otten said the project is limited risk for the county and carries a long-term benefit, including other non-direct jobs created in Coos County, such as construction jobs for Balsams worker housing.
‘There’s no guarantees, but this might be the stimulus for other things to happen in the county,’ said Otten, who noted about 3,000 jobs lost in the northern part of a county that has seen an overall population decline.
As for the bond and assessment district, Otten said it is a critical piece of the financing, without which the project will not happen.
It is one of nine major pieces developers must accomplish, and all the pieces of the financing have to be present simultaneously for the project to move forward, he said.
Also in the redevelopment plan is a larger piece of financing involving another partner, Provident Resources Group, which would build and own under a 501(c)(3) nonprofit a new major hotel (a $100 million bond would be involved in the hotel effort), with Goldman Sachs also issuing the financing for the building, and with that piece of the project contingent on a favorable bond market, said Otten.
To date, Coos County planners have approved two hotels and have before them a site plan approval request for an expanded ski area.
State Rep. Eamon Kelley, D-Berlin, asked how much of the project relies on the ski area being a success, saying that the question has to do with climate change and warming winters that could impact snowfall in the region.
Building a ski resort in an area that has no snow becomes a risk, and is there a higher risk now than there was five years ago, asked Kelley.
‘There is a higher risk now than there was five years ago,’ said Otten.
But temperatures at the Balsams often run six or seven degrees cooler than other ski areas, such as Sunday River, Loon or Attitash, and The Balsams is investing in a pipe of about 10 miles that will draw water from the Androscoggin River to make snow, he said.
‘So we have a more than adequate water supply,’ said Otten, who then cited a climate study developers commissioned a few years ago. ‘With the colder temperatures that are normal to that area, it’s expected that the Balsams area would be one of the places that would still be viable for a 100-plus days ski season in 2079 … But you’re right. It’s a risk for everybody.’
About 25 percent of Balsams’ revenue is expected to be generated from skiing operations, he said.
Next Steps
Under RSA 33:20, county commissioners have the authority (which cannot be exercised without the approval of the delegation) to do three things, said Im.
The first is to establish the assessment district, the second to adopt the financing plan, and the third to issue the $35 million in bonds in the name of the county.
The statute requires a public hearing, which Im said would come after the commission and delegation feel comfortable with the final plan, which is not yet fully complete and will include an indenture that governs the terms of the plan as well as the final boundaries of the assessment district.
While there is no looming time pressure, Otten said there is a drop-dead time that could compromise the project if the commission and delegation don’t act, and that a no vote would kill the project.”