July 11th, 2014 New Fargo Diversion Finance Proposal Is Bad Policy All Around In yesterday’s Fargo Forum a story ran about a new proposal to finance

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July 11th, 2014


New Fargo Diversion Finance Proposal Is Bad Policy All Around


In yesterday’s Fargo Forum a story ran about a new proposal to finance the Fargo flood diversion project.

Up until now, the North Dakota Watchdog Network has stayed out of the Fargo Diversion discussion intentionally because there are enough moving pieces and interest groups locally dealing with the issue that another voice on the project itself has not been needed.

However, with the news of this new financing concept, it is necessary for an outside perspective to point out just how bad of a public policy proposal this latest discussion represents.

According to the story would attach a special assessment to property in Cass County as a means of financing a bond issue to help pay for the project, but local officials insist that property owners would never actually have to pay for this special assessment.

From the Forum:

“Under the proposal, homeowners in northern West Fargo would be assessed the most. A $200,000 home there would be assessed a one-time payment of $14,114 or an annual payment of $720 for 30 years at 3 percent interest.
South Fargo would have the next highest assessments. An owner of a $200,000 home there would be on the hook for a one-time payment of $10,586 or $540 annual payments for 30 years.”

The strange part of the story is the “creative financing” that is involved in this concept.

“Diversion officials maintain that these assessments would never be collected. The assessment district is being set up as a kind of collateral to secure better financing on a loan, which would be paid off through sales taxes.

And raising the loan from $450 million to $900 million – which represents the total local share between Fargo and the state of North Dakota – will net even better financing options, officials said.

“We expect the sales tax to pay for debt or loan payments and we don’t expect to ever issue these assessments, but issuing the assessment district will get us better financing terms,” said Eric Dodds, a diversion consultant.

“People will never have to make these payments,” Dodds added.

So under this proposal, 40,000 pieces of property will have sizable special assessment attached to the property, but the owners won’t actually be expected to pay for it.

Why would any bonding agency want to work with a local government that is trying to come up with a convoluted finance plan like that?

Furthermore, if you are a property owner, and you are stuck with a special assessment attached to the property, your property is now worth less as much less as the special assessment. This will cause property values to go down, something that has not happened in the Fargo/Cass County area in a long time.

The affect this will have is that it will be harder for current property owners to sell their property at a price they want. Some may end up being stuck in their property because of the perceived burden of the special assessment.

There is a term for a situation when a property owner cannot sell their property and is stuck owning it – and that term is SERFDOM.

Furthermore, because property values have continued to go up over the years, there may be situations where this special assessment could force property values below what the property owner owes the bank for mortgages and other loans.

Ironically, this is commonly called “being underwater” on a loan – and this is a big reason the sub-prime mortgage crisis has wreaked havoc on the national economy for the last seven years.

Do the proponents of this flood protection financing plan really want to create a property value and mortgage crisis in a market where one has not existed?

Something obviously needs to be down for flood protection, but residents of Cass County and their leaders might want to re-think this particular finance idea.


-Dustin Gawrylow, Managing Director

North Dakota Watchdog Network

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