NC DOT Proceeds With I-485 Project Despite Lawyer's Warning...They Can't Borrow

NC DOT Proceeds Despite Charlotte Lawyer's Warning: DOT can't borrow to finish I-485


A Charlotte-based lawyer hired by State Treasurer Janet Cowell's office concluded that the state Department of Transportation doesn't have authority to go into debt on its plan to complete I-485 around Charlotte.

Transportation officials, however, are moving ahead with their new financing plan. They held an information session at UNC Charlotte on Thursday for contractors, engineers and lenders to outline the funding and construction plans to finish the loop.

Cowell's staff previously referred to the opinion by Steve Cordell, a lawyer in McGuire Woods' Charlotte office who specializes in public financing. Cowell's office released the full opinion Thursday as part of a public records request by The Charlotte Observer and The (Raleigh) News & Observer.

The opinion is part of a disagreement between Cowell's office, which authorizes the state's debt, and the Transportation Department under Gov. Bev Perdue, which is trying to build the final segment of the long-unfinished I-485.

Perdue, who pledged in February to start construction on the loop's final segment by year's end, announced plans last month to finish the road using a new financing mechanism. The plan includes a private contractor financing $50 million of the $340 million project and the state paying that back over 10 years. The state would guarantee the debt when the contractor initially borrows the $50 million somewhere else.

Cowell's office raised questions about the plan before Perdue's announcement and the state agencies have been talking back and forth since. Cowell is in charge of issuing the state's debt through bonds and oversees the debt load.

The I-485 plan could set the precedent of letting a single state agency add to the state's debt load without requiring the treasurer's authorization.

Rep. Nelson Cole, a Rockingham County Democrat, sponsored a 2008 bill that he said gives the Transportation Department the authority to form partnerships with private companies to finance and build projects.

"This (I-485) project is a superb example of the innovation I had hoped for in sponsoring this legislation," Cole wrote in a letter to the Observer.

Cordell, though, wrote that, while state law authorizes the Transportation Department to enter into partnerships with private companies, it does not grant the agency or the partnership an independent authority to borrow money.





Charlotte Lawyer's views on I-485 Loop Financing Plan


State Treasurer Janet Cowell's office relied in part on an opinion by Charlotte bond attorney Steve Cordell of the firm McGuire Woods that a statute allowing for design-build-finance projects such as Gov. Bev Perdue wants to use to complete the Outer Loop can't be done the way her administration plans. The state would have to contract for the program, which involves having contractors front $50 million of the $340 million cost of the project, though a public private partnership, Cordell said.

In a document released by the treasurer's office this afternoon, Cordell wrote Nov. 24 that:

"... we think that (39) authorizes the NC Department of Transportation (“DOT”) to enter into partnership agreements with the NC Turnpike Authority, private entities and authorized political subdivisions, pursuant to which the partners agree as to how they will collectively undertake to finance the various costs delineated in (39). The statutory language only expressly authorizes DOT to enter into and act through a partnership agreement with one or more of the referenced partners with regard to the financing of the referenced costs. We note that the statutory language of the related provision (12a) only expressly authorizes DOT’s Board to approve such partnership agreements. Accordingly, we do not think the statute authorizes DOT to unilaterally finance the referenced costs."

The Nov. 24 memo is dated weeks after Cordell briefed treasury department officials about problems he saw with the proposal, unveiled by Perdue in Charlotte on Nov. 9. The treasurer's office tried to reach DOT officials for about a week before her announcement, but did not e-mail DOT with its specific concerns, perhaps because the treasurer's office did not know until the morning of Nov. 9 that Perdue would announce her proposal that day.

Cordell also said in his memo that he did not believe the statute granted DOT the power to borrow money. DOT has said the program should not be interpreted as increasing the state's debt because there are no bonds involved and the arrangement does not pledge the state to repay the money. But the deal does contemplate that the state would repay the $50 million over 10 years.

Cordell wrote, "...if the repayment arrangement between DOT and a contractor entered into pursuant to DOT’s “Design/Build/Finance” program was ultimately determined to constitute a borrowing of money by DOT, we do not think that (39) can be relied on as the source of that borrowing authority. "

If the courts found an unauthorized exercise of borrowing power, he noted, they likely would find the arrangement void.

Perdue said earlier this week she wanted to move ahead on the design-build-finance plan and was confident that DOT has authority to proceed under the statutes. In proposing the financing plan, her administration told the treasurer's office it didn't have to have the treasurer's approval but would prefer to have it. But unless the governor and the treasurer and attorney general put their heads together to figure a way out of this disagreement, it appears the state would be proceeding without the support of an important constitutional officer.



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Sources: McClatchy Newspapers, Charlotte Observer, News & Observer, Indy Week, Google Maps