Serving Boone, Blowing Rock, Banner Elk, and other towns of the North Carolina High Country | Founded 05-05-05

Tweetsie Land Interest Rate: 5.942 Percent

Story by Kathleen McFadden

If the Local Government Commission approves the financing proposal, Watauga County will pay an interest rate of 5.942 percent on a land purchase at Tweetsie Railroad.

In May, the Watauga County Board of Commissioners approved an economic development incentive package for the theme park that includes the county’s purchase of a land interest in two tracts at the park and an agreement to lease the property back to Tweetsie for $1 per year for six years. After six years, Tweetsie will either begin paying market rates for the lease or will purchase the property from the county.

The county is financing $2.6 million of the $3.15 million land acquisition cost. County Finance Director Doris Isaacs submitted requests for proposals to six financial institutions. Only one, Wachovia, submitted a proposal.

Wachovia proposed two interest rates. At the lower rate of 5.773 percent, the county would pay a penalty if the loan were paid off before the expiration of the 10-year term. The higher rate of 5.942 percent does not carry a prepayment penalty. At the commissioners’ meeting on Tuesday, Isaacs recommended the prepayment option, and the board unanimously approved it.

Some government financing deals can provide significant tax advantages to lending institutions. Banks that finance tax-exempt issues do not pay income tax on the interest the local government pays on the loan. The new Watauga County High School qualifies as a tax-exempt issue because education is an essential function of government. The county’s interest rate on the high school project is 4.17 percent.

However, the Tweetsie deal is a taxable issue, meaning that the lending institution will pay tax on the interest. The Tweetsie loan is considered a taxable issue for two reasons: the land purchase is not considered an essential function of government and local governments are limited to $10 million in tax-exempt debt issuance per calendar year. With the high school financing, the county has exceeded that ceiling.

The average difference in interest rates between tax-exempt and taxable issues is 1.25 to 1.5 percent.

Isaacs said the five banks that did not bid on the financing proposal offered a variety of reasons for declining: the current volatility of the market, the taxable status of the financing, the lease terms in the agreement with Tweetsie and the fact that the land purchase is not an essential government function.

Over the 10-year loan term, the county’s debt service on the Tweetsie purchase would be $3,386,193. Other costs associated with the loan are a one-time fee to Wachovia of $5,000 and a $6,000 fee to the county’s bond counsel who prepared the RFPs, reviewed the rates and will prepare the loan documents.

Isaacs said she is documenting all costs associated with the deal so the county can be reimbursed in full when Tweetsie purchases the land from the county.

Isaacs said the Local Government Commission will review the proposal on August 5. Closing on the land purchase is tentatively scheduled for August 16 or 17.